<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
REGISTRATION NO. 333-57003
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PARADIGM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3674 77-0140882-5
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
PARADIGM TECHNOLOGY, INC.
694 TASMAN DRIVE
MILPITAS, CA 95035
TELEPHONE: (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
694 TASMAN DRIVE
MILPITAS, CA 95035
TELEPHONE: (408) 954-0500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
JORGE DEL CALVO, ESQ. ALAN C. MENDELSON, ESQ.
ALLISON LEOPOLD TILLEY, ESQ. JAMES R. JONES, ESQ.
DAWN C. STEELE, ESQ. COOLEY GODWARD LLP
PILLSBURY MADISON & SUTRO LLP FIVE PALO ALTO SQUARE
2550 HANOVER STREET 3000 EL CAMINO REAL
PALO ALTO, CA 94304 PALO ALTO, CA 94306
(650) 233-4500 (650) 843-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this
Registration Statement and the satisfaction or waiver of all conditions to
closing under the Agreement and Plan of Merger and Reorganization (described
in the Joint Proxy Statement/Prospectus included herein).
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 38,041,470 $1.61 $61,246,766 $18,067.80
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Represents the maximum number of shares of Common Stock, par value $.01
per share, of Paradigm Technology, Inc. ("Paradigm"), issuable in respect
of (i) the Common Stock, par value $.001 per share ("IXYS Common Stock"),
and the Preferred Stock of IXYS, par value $.001 per share ("IXYS
Preferred Stock"), of IXYS Corporation, in connection with the merger of
Paradigm Enterprises, Inc., a wholly-owned subsidiary of Paradigm, with
and into IXYS (the "Merger"), and (ii) the options and warrants to
purchase IXYS Common Stock to be assumed by Paradigm in connection with
the Merger, assuming an exchange ratio of 0.179847.
(2) Calculated in accordance with Rule 457(f)(2). The Proposed Maximum
Offering Price Per Share is based on the book value of IXYS Common Stock
and IXYS Preferred Stock as of March 31, 1998.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
LOGO PARADIGM TECHNOLOGY, INC.
694 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Paradigm Annual Meeting") of Paradigm Technology, Inc. ("Paradigm") which
will be held at 694 Tasman Drive, Milpitas, California 95035, on Monday,
August 3, 1998 at 9:00 a.m., local time.
At the Paradigm Annual Meeting, you will be asked to consider and vote upon
the issuance of shares of Paradigm common stock, par value $.01 per share
("Paradigm Common Stock"), in order to effect the proposed merger of Paradigm
Enterprises, Inc., a wholly-owned subsidiary of Paradigm ("Merger
Subsidiary"), with and into IXYS Corporation ("IXYS") pursuant to an Agreement
and Plan of Merger and Reorganization, dated as of March 6, 1998, as amended
(the "Merger Agreement"), among Paradigm, Merger Subsidiary and IXYS. In
addition, you will be asked to consider and vote upon an amendment to the
Restated Certificate of Incorporation to (i) effectuate a six-for-one reverse
stock split, such that every six shares of Paradigm Common Stock shall be
combined into one share (it should be noted that Paradigm stockholders, at a
Special Meeting of Stockholders held on May 1, 1998, approved a ten-for-one
reverse stock split such that every ten shares of Paradigm Common Stock were
combined into one share), (ii) increase the number of authorized shares of
Paradigm Common Stock to 40,000,000 and (iii) change the name of Paradigm to
IXYS Corporation. At the Paradigm Annual Meeting, you will also be asked to
(i) elect three directors to the Board of Directors of Paradigm (the "Paradigm
Board") to hold office until the next annual meeting of stockholders or until
their respective successors have been duly elected and qualified, (ii) to
approve the amendment to Paradigm's 1994 Stock Option Plan (the "1994 Plan")
to increase the aggregate number of shares of Paradigm Common Stock authorized
for issuance under such plan by 285,000 post-split shares and to increase the
number of shares of Paradigm Common Stock that can be made subject to options
in any fiscal year to 200,000 post-split shares, and (iii) to ratify the
appointment of Price Waterhouse LLP as independent accountants of Paradigm for
the fiscal year ending December 31, 1998. The foregoing proposals are
described more fully in the accompanying Joint Proxy Statement/Prospectus, and
a copy of the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus.
Pursuant to the Merger Agreement, Merger Subsidiary will be merged with and
into IXYS (the "Merger"), and the separate existence of Merger Subsidiary
shall cease. IXYS will continue as the surviving corporation in the Merger. At
that time, each outstanding share of common stock of IXYS, par value $.001 per
share ("IXYS Common Stock"), Series A Preferred Stock of IXYS, par value $.001
per share ("IXYS Series A Preferred Stock"), and Series B Preferred Stock of
IXYS, par value $.001 per share ("IXYS Series B Preferred Stock," and with the
IXYS Series A Preferred Stock, the "IXYS Preferred Stock") (the IXYS Common
Stock and the IXYS Preferred Stock, collectively, the "IXYS Capital Stock"),
will be converted into the right to receive a fraction of a share of Paradigm
Common Stock equal to the greater of two ratios (the "Exchange Ratio"). The
first ratio provides that, upon the Merger, the holders of IXYS Capital Stock
and options and warrants to purchase IXYS Common Stock will hold 95% of the
fully diluted capitalization of Paradigm and that the holders of capital
stock, options and warrants of Paradigm will hold 5% of the fully diluted
capitalization of Paradigm. (As used herein, fully diluted capitalization
means the sum of the number of shares of common stock, preferred stock,
warrants, options and other rights outstanding). The second ratio provides
that the value associated with the fully diluted capitalization of IXYS at the
time of the consummation of the Merger be at least $150 million, based upon
the average of the closing prices of Paradigm Common Stock for the ten trading
days ending (and including) the trading day two business days prior to the
date of the Paradigm Annual Meeting.
Each outstanding option and warrant to purchase IXYS Common Stock will be
converted into a right to purchase that number of shares of Paradigm Common
Stock determined by multiplying the number of shares of IXYS Common Stock
subject thereto by the Exchange Ratio, at an exercise price equal to the
exercise price thereof divided by the Exchange Ratio.
<PAGE>
Consummation of the proposed Merger is subject to, among other things,
approval by the holders of Paradigm Common Stock, IXYS Capital Stock and IXYS
Preferred Stock and upon satisfaction or waiver of the other conditions under
the Merger Agreement. The Merger will be consummated shortly after such
stockholder approvals are obtained and the other conditions to the Merger are
satisfied or waived. If the requisite approvals of the stockholders of
Paradigm and IXYS are received and the other conditions are satisfied or
waived, the Merger is expected to be consummated in August 1998.
Approval of the reverse stock split, the increase in the number of shares of
Paradigm Common Stock authorized for issuance and the name change each
requires the affirmative vote of holders of a majority of the outstanding
shares of Paradigm Common Stock entitled to vote. Approval of the issuance of
Paradigm Common Stock in connection with the Merger, approval of the amendment
to the 1994 Plan and ratification of Paradigm's independent accountants each
requires the affirmative vote of holders of a majority of the outstanding
shares of Paradigm Common Stock present in person or by proxy at the Paradigm
Annual Meeting that vote on any such proposal. Director nominees receiving the
highest number of affirmative votes up to the number of directors to be
elected will be elected.
Stockholders are urged to review carefully the information contained in the
Joint Proxy Statement/Prospectus prior to deciding how to vote their shares at
the Paradigm Annual Meeting.
THE PARADIGM BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS
OF, PARADIGM STOCKHOLDERS. ACCORDINGLY, THE PARADIGM BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE FOR
APPROVAL OF THE ISSUANCE OF SHARES OF PARADIGM COMMON STOCK PURSUANT TO THE
MERGER AGREEMENT BY THE STOCKHOLDERS OF PARADIGM. THE PARADIGM BOARD ALSO
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF EACH OF THE OTHER PROPOSALS
DESCRIBED HEREIN AND FOR EACH OF THE NOMINEES FOR DIRECTOR.
Whether or not you expect to attend the Paradigm Annual Meeting in person,
please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. You
may revoke your proxy at any time before it has been voted, and if you attend
the Paradigm Annual Meeting you may vote in person, even if you previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ RICHARD MORLEY
Richard Morley
Acting President and Chief Executive
Officer
July 2, 1998
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, AUGUST 3, 1998
TO THE STOCKHOLDERS OF PARADIGM TECHNOLOGY, INC:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Paradigm Annual Meeting") of Paradigm Technology, Inc., a Delaware
corporation ("Paradigm"), will be held on Monday, August 3, 1998 at 9:00 a.m.
local time, at 694 Tasman Drive, Milpitas, California 95035, for the purpose
of considering and voting upon the following proposals:
1. To approve the issuance of shares of Paradigm common stock, par value
$.01 per share ("Paradigm Common Stock"), pursuant to the Agreement and
Plan of Merger and Reorganization, dated as of March 6, 1998, as amended
(the "Merger Agreement"), by and among Paradigm, Paradigm Enterprises,
Inc., a Delaware corporation and a wholly-owned subsidiary of Paradigm
("Merger Subsidiary") and IXYS Corporation, a Delaware corporation
("IXYS"). Pursuant to the Merger Agreement, Merger Subsidiary will be
merged with and into IXYS upon the terms and subject to the conditions
of the Merger Agreement (the "Merger"). Upon completion of the Merger,
the separate existence of Merger Subsidiary shall cease. IXYS will
continue as the surviving corporation in the Merger and will become a
wholly-owned subsidiary of Paradigm.
2. To approve an amendment to Paradigm's Restated Certificate of
Incorporation to effectuate a reverse stock split of Paradigm's Common
Stock in a ratio of six-for-one (such that every six shares shall be
combined into one share), par value $.01 per share.
3. To approve an amendment to Paradigm's Restated Certificate of
Incorporation to increase the number of authorized shares of Common
Stock of Paradigm to 40,000,000, par value $.01 per share.
4. To approve an amendment to Paradigm's Restated Certificate of
Incorporation to change the name of Paradigm to IXYS Corporation.
5. To elect to the Board of Directors three (3) directors to hold office
until the next annual meeting of stockholders or until their respective
successors have been elected and qualified.
6. To approve the amendment to Paradigm's 1994 Stock Option Plan to
increase the aggregate number of shares of Paradigm Common Stock
authorized for issuance under such plan by 285,000 post-split shares and
to increase the number of shares of Paradigm Common Stock that can be
made subject to options in any fiscal year to 200,000 post-split shares.
7. To ratify the appointment of Price Waterhouse LLP as independent
accountants of Paradigm for the fiscal year ending December 31, 1998.
8. To transact such other business as may properly come before the Paradigm
Annual Meeting or any adjournments or postponements thereof.
These items are discussed in the following pages which are made part of this
Notice. Detailed information concerning the Merger Agreement and the Merger is
contained in the attached Joint Proxy Statement/Prospectus and the Annexes
thereto; please read it carefully.
Only stockholders of record as of the close of business on June 19, 1998
will be entitled to receive notice of and to vote at the Paradigm Annual
Meeting and at any adjournments or postponements thereof. A list of
stockholders entitled to vote will be available at 694 Tasman Drive, Milpitas,
California 95035 for ten (10) days prior to the Paradigm Annual Meeting.
Paradigm's 1997 Annual Report to Stockholders accompanies this Notice of
Annual Meeting and Joint Proxy Statement/Prospectus.
<PAGE>
Whether or not you expect to attend the Paradigm Annual Meeting, WE URGE YOU
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY in the
enclosed postage-prepaid envelope. You may revoke your proxy at any time
before it is voted by giving written notice of revocation to Paradigm, by
subsequently filing another proxy or by attending the Paradigm Annual Meeting
and voting in person.
By Order of the Board of Directors,
/s/ RICHARD MORLEY
Richard Morley
Acting President and Chief Executive
Officer
July 2, 1998
Milpitas, California
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
IXYS CORPORATION
3540 BASSETT STREET
[LOGO OF IXYS] SANTA CLARA,
CALIFORNIA 95054
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders (the
"IXYS Special Meeting") of IXYS Corporation ("IXYS") which will be held at
3540 Bassett Street, Santa Clara, California 95054, Monday, August 3, 1998, at
9:00 a.m., local time.
At the IXYS Special Meeting, you will be asked to consider and vote upon the
approval and adoption of the Agreement and Plan of Merger and Reorganization,
dated as of March 6, 1998, as amended (the "Merger Agreement"), among Paradigm
Technology, Inc. ("Paradigm"), Paradigm Enterprises, Inc., a wholly-owned
subsidiary of Paradigm ("Merger Subsidiary"), and IXYS. The foregoing proposal
is described more fully in the accompanying Joint Proxy Statement/Prospectus,
and a copy of the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus.
Pursuant to the Merger Agreement, Merger Subsidiary will be merged with and
into IXYS (the "Merger"), and the separate existence of Merger Subsidiary
shall cease. IXYS will continue as the surviving corporation in the Merger. At
that time, each outstanding share of common stock of IXYS, par value $.001 per
share ("IXYS Common Stock"), Series A Preferred Stock of IXYS, par value $.001
per share ("IXYS Series A Preferred Stock"), and Series B Preferred Stock of
IXYS, par value $.001 per share ("IXYS Series B Preferred Stock," and with the
IXYS Series A Preferred Stock, the "IXYS Preferred Stock") (the IXYS Common
Stock and the IXYS Preferred Stock, collectively, the "IXYS Capital Stock"),
will be converted into the right to receive a fraction of a share of common
stock of Paradigm, par value $.01 per share ("Paradigm Common Stock"), equal
to the greater of two ratios (the "Exchange Ratio"). The first ratio provides
that upon the Merger, the holders of IXYS Capital Stock and options and
warrants to purchase IXYS Common Stock will hold 95% of the fully diluted
capitalization of Paradigm and that the holders of capital stock, options and
warrants of Paradigm will hold 5% of the fully diluted capitalization of
Paradigm. (As used herein, fully diluted capitalization means the sum of the
number of shares of common stock, preferred stock, warrants, options and other
rights outstanding). The second ratio provides that the value associated with
the fully diluted capitalization of IXYS at the time of the consummation of
the Merger be at least $150 million, based upon the average of the closing
prices of Paradigm Common Stock for the ten trading days ending (and
including) the trading day two business days prior to the date of Paradigm's
meeting of stockholders.
Each outstanding option and warrant to purchase IXYS Common Stock will be
converted into a right to purchase that number of shares of Paradigm Common
Stock determined by multiplying the number of shares of IXYS Common Stock
subject thereto by the Exchange Ratio, at an exercise price equal to the
exercise price thereof divided by the Exchange Ratio.
Consummation of the proposed Merger is subject to, among other things,
approval by the holders of IXYS Capital Stock, IXYS Preferred Stock and
Paradigm Common Stock and upon satisfaction or waiver of the other conditions
under the Merger Agreement. The Merger will be consummated shortly after such
stockholder approvals are obtained and the other conditions to the Merger are
satisfied or waived. If the requisite approvals of the stockholders of
Paradigm and IXYS are received and the other conditions are satisfied or
waived, the Merger is expected to be consummated in August 1998.
You will also be asked at the IXYS Special Meeting to consider and approve
the adoption of an amendment to the IXYS Certificate of Incorporation to
provide that the Merger does not constitute a liquidation under the IXYS
Certificate of Incorporation.
<PAGE>
The approval and adoption of the Merger Agreement and approval of the Merger
and the approval of the amendment to the IXYS Certificate of Incorporation
each requires the affirmative vote of holders of a majority of the outstanding
shares of IXYS Capital Stock entitled to vote, voting together as a single
class, and the affirmative vote of holders of a majority of the outstanding
shares of IXYS Preferred Stock.
Stockholders are urged to review carefully the information contained in the
Joint Proxy Statement/Prospectus prior to deciding how to vote their shares at
the IXYS Special Meeting.
THE IXYS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE
BEST INTERESTS OF, IXYS STOCKHOLDERS. ACCORDINGLY, THE IXYS BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND APPROVED THE MERGER, AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF IXYS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. THE IXYS BOARD
ALSO UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE IXYS
CERTIFICATE OF INCORPORATION.
Whether or not you expect to attend the IXYS Special Meeting in person,
please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. You
may revoke your proxy at any time before it has been voted, and if you attend
the IXYS Special Meeting you may vote in person, even if you previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ NATHAN ZOMMER
Nathan Zommer
President and Chief Executive
Officer
July 2, 1998
<PAGE>
IXYS CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, AUGUST 3, 1998
TO THE STOCKHOLDERS OF IXYS CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "IXYS
Special Meeting") of IXYS Corporation, a Delaware corporation ("IXYS"), will
be held on Monday, August 3, 1998 at 3540 Bassett Street, Santa Clara,
California 95054, at 9:00 a.m., local time, for the purpose of considering and
voting upon the following proposals:
1. To (i) approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of March 6, 1998, as amended (the "Merger
Agreement"), by and among Paradigm Technology, Inc., a Delaware
corporation ("Paradigm"), Paradigm Enterprises, Inc., a Delaware
corporation and a wholly-owned subsidiary of Paradigm ("Merger
Subsidiary") and IXYS, and (ii) approve the merger of Merger Subsidiary
with and into IXYS upon the terms and subject to the conditions of the
Merger Agreement (the "Merger"). Upon completion of the Merger, the
separate existence of Merger Subsidiary shall cease. IXYS would continue
as the surviving corporation after the Merger and would become a wholly-
owned subsidiary of Paradigm.
2. To approve an amendment to IXYS' Certificate of Incorporation to provide
that the Merger does not constitute a liquidation under the IXYS
Certificate of Incorporation.
3. To transact such other business as may properly come before the IXYS
Special Meeting or any adjournments or postponements thereof.
Detailed information concerning the Merger Agreement and the Merger is
contained in the attached Joint Proxy Statement/Prospectus and the Annexes
thereto; please read it carefully.
Only stockholders of record of Common Stock, Series A Preferred Stock and
Series B Preferred Stock of IXYS as of the close of business on June 16, 1998
will be entitled to receive notice of and to vote at the IXYS Special Meeting
and at any adjournments or postponements thereof. A list of stockholders
entitled to vote will be available at 3540 Bassett Street, Santa Clara,
California 95054 for ten (10) days prior to the IXYS Special Meeting.
Whether or not you expect to attend the IXYS Special Meeting, WE URGE YOU TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY in the
enclosed postage-prepaid envelope. You may revoke your proxy at any time
before it is voted by giving written notice of revocation to IXYS, by
subsequently filing another proxy or by attending the IXYS Special Meeting and
voting in person.
By Order of the Board of Directors,
LOGO
/s/ Arnold P. Agbayani
Arnold P. Agbayani
Secretary of the Company
July 2, 1998
Santa Clara, California
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD. STOCKHOLDERS
SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
<PAGE>
[PARADIGM LOGO] [IXYS LOGO]
JOINT PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OF PARADIGM TECHNOLOGY, INC.
SPECIAL MEETING OF STOCKHOLDERS
OF IXYS CORPORATION
PROSPECTUS
PARADIGM TECHNOLOGY, INC.
38,041,470 SHARES
COMMON STOCK, PAR VALUE $.01 PER SHARE
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to the stockholders of Paradigm
Technology, Inc., a Delaware corporation ("Paradigm"), in connection with the
solicitation of proxies by the Board of Directors of Paradigm (the "Paradigm
Board") for use at Paradigm's Annual Meeting of Stockholders or any
adjournments or postponements thereof (the "Paradigm Annual Meeting"). The
Paradigm Annual Meeting is being called to consider and vote upon a proposal to
approve the issuance of shares of common stock of Paradigm, par value $.01 per
share ("Paradigm Common Stock"), by Paradigm in connection with the Merger (as
defined below). The stockholders of Paradigm will also consider and vote upon
other proposals at the Paradigm Annual Meeting which are discussed in detail in
this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of IXYS Corporation, a Delaware corporation ("IXYS"), in
connection with the solicitation of proxies by the Board of Directors of IXYS
(the "IXYS Board") for use at IXYS' Special Meeting of Stockholders or any
adjournments or postponements thereof (the "IXYS Special Meeting"). The IXYS
Special Meeting is being called to consider and vote upon (i) a proposal to
adopt and approve the Agreement and Plan of Merger and Reorganization, dated as
of March 6, 1998, as amended, among Paradigm, Paradigm Enterprises, Inc., a
Delaware corporation and wholly-owned subsidiary of Paradigm ("Merger
Subsidiary"), and IXYS (the "Merger Agreement"), and to approve the merger of
Merger Subsidiary with and into IXYS (the "Merger"); and (ii) a proposal to
amend the IXYS Certificate of Incorporation to provide that the Merger does not
constitute a liquidation under the IXYS Certificate of Incorporation.
Upon consummation of the Merger, IXYS will become a wholly-owned subsidiary
of Paradigm and each outstanding share of common stock of IXYS, par value $.001
per share ("IXYS Common Stock"), Series A Preferred Stock of IXYS, par value
$.001 per share ("IXYS Series A Preferred Stock"), and Series B Preferred Stock
of IXYS, par value $.001 per share ("IXYS Series B Preferred Stock," and
together with the IXYS Series A Preferred Stock, the "IXYS Preferred Stock,"
and together with the IXYS Common Stock, the "IXYS Capital Stock") (except for
any such shares held by IXYS or any subsidiary of IXYS (or held by IXYS as
treasury stock) and any such shares held by Paradigm or any subsidiary of
Paradigm), will be converted into the right to receive a fraction of a share of
Paradigm Common Stock equal to the greater of two ratios (the "Exchange Ratio"
as further defined herein). The first ratio provides that upon the Merger, the
holders of IXYS Capital Stock and options and warrants to purchase IXYS Common
Stock will hold 95% of the fully diluted capitalization of the Combined Company
(as hereinafter defined), and the holders of capital stock, options and
warrants of Paradigm will hold 5% of the fully diluted capitalization of the
(continued on next page)
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF PARADIGM AND IXYS ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/ PROSPECTUS IN ITS
ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING ON
PAGE 18.
THE SHARES OF PARADIGM COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is July 2, 1998.
<PAGE>
Combined Company. (As used herein, fully diluted capitalization means the sum
of the number of shares of common stock, preferred stock, warrants, options
and other rights outstanding). The second ratio provides that the value
associated with the fully diluted capitalization of IXYS at the time of the
consummation of the Merger be at least $150 million, based upon the average of
the closing prices of Paradigm Common Stock for the ten trading days ending
(and including) the trading day two business days prior to the date of the
Paradigm Annual Meeting. Holders of IXYS Capital Stock will receive cash in
lieu of any fractional shares of Paradigm Common Stock to which such
stockholders would otherwise have been entitled. Paradigm may be referred to
as the "Combined Company" when the entity being described is Paradigm as it
shall exist following the Merger. As of June 16, 1998, the latest practicable
date prior to the distribution of this Joint Proxy Statement/Prospectus, the
exchange ratio used for purposes of this Joint Proxy Statement/Prospectus is
the second exchange ratio involving the valuation of IXYS' fully diluted
capitalization. At the Assumed Exchange Ratio, as hereinafter defined, the
exchange ratio would be 0.097189. Because the exchange ratio applied at the
Closing of the Merger depends on fluctuating market conditions, the
stockholders of IXYS and Paradigm will not know which exchange ratio will be
used until immediately prior to the time when the Certificate of Merger is
filed with the Delaware Secretary of State (the "Effective Time").
Consequently, the stockholders of IXYS and Paradigm will not know the exchange
ratio at the time of the respective stockholder meetings. However, following
the close of market on the day two business days before the date of the
stockholder meetings, the stockholders of IXYS may obtain information
regarding the exchange ratio, the minimum number of shares of Paradigm Common
Stock they will receive upon conversion of their IXYS Capital Stock and
procedures to amend their proxies by calling the following toll free phone
number (800) 931-3323.
Upon the effectiveness of the Merger, each outstanding option to purchase
IXYS Common Stock (an "IXYS Option") will be converted into an option to
purchase that number of shares of Paradigm Common Stock determined by
multiplying the number of shares of IXYS Common Stock subject to such IXYS
Option immediately prior to the effective time of the Merger by the Exchange
Ratio, rounded down to the nearest whole share, at an exercise price equal to
the exercise price of such option at the time of the Merger divided by the
Exchange Ratio, rounded up to the nearest hundredth of a cent.
In addition, after the effectiveness of the Merger, each outstanding warrant
to purchase IXYS Common Stock (an "IXYS Warrant") will be converted into a
warrant to purchase that number of shares of Paradigm Common Stock determined
by multiplying the number of shares of IXYS Common Stock subject to such IXYS
Warrant immediately prior to the effective time of the Merger by the Exchange
Ratio, rounded down to the nearest whole share, at an exercise price equal to
the exercise price of such warrant at the time of the Merger divided by the
Exchange Ratio, rounded up to the nearest hundredth of a cent. As a
consequence of the Merger, the current holders of IXYS Capital Stock, IXYS
Options and IXYS Warrants will hold approximately 95% of the fully diluted
capitalization of the Combined Company after the Merger, and the former
holders of Paradigm Common Stock, options and warrants will hold the remaining
5% of the common stock of the Combined Company.
The respective obligations of Paradigm, IXYS and Merger Subsidiary to
consummate the Merger and otherwise consummate the transactions contemplated
by the Merger Agreement are subject to the satisfaction or waiver (where
permissible) of certain conditions set forth in the Merger Agreement. These
conditions include, but are not limited to, the approval by Paradigm
stockholders of the issuance of Paradigm Common Stock in connection with the
Merger, a reverse stock split of Paradigm Common Stock, the increase of the
number of authorized shares of Paradigm Common Stock, the name change of
Paradigm, the approval and adoption by IXYS stockholders of the Merger
Agreement and approval of the Merger, and conversion of the outstanding 5%
Series A Convertible Redeemable Preferred Stock (the "Paradigm Series A
Preferred Stock"), 5% Series B Convertible Redeemable Preferred Stock (the
"Paradigm Series B Preferred Stock"), and 5% Series C Convertible Preferred
Stock (the "Paradigm Series C Preferred Stock") (collectively, the "Paradigm
Preferred Stock") into shares of Paradigm Common Stock. The Merger will be
consummated shortly after such stockholder approvals are obtained and the
other conditions to the consummation of the Merger are satisfied or waived. It
is currently anticipated that the Merger will be consummated in July 1998.
Under Delaware law, holders of IXYS Capital Stock who are entitled to vote at
the IXYS Special Meeting and who, prior to the IXYS Special Meeting, properly
demand appraisal rights and vote against or abstain from voting with respect
to the adoption and approval of the Merger Agreement and the approval of the
Merger, have the right to require the surviving corporation to purchase their
shares for "fair value," if the Merger is consummated. Stockholders of
Paradigm are not entitled to appraisal rights under Delaware law in connection
with the Merger.
All expenses related to Paradigm's solicitation of proxies, including the
cost of mailing this Joint Proxy Statement/Prospectus to the Paradigm
stockholders, will be borne by Paradigm. All expenses related to IXYS'
solicitation of proxies, including the cost of mailing this Joint Proxy
Statement/Prospectus to the IXYS stockholders, will be borne by IXYS.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Paradigm with respect to the issuance of Paradigm Common Stock in connection
with the Merger.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Paradigm and IXYS on or about July
2, 1998.
All information contained herein concerning Paradigm has been furnished by
Paradigm, and all information contained herein concerning IXYS has been
furnished by IXYS.
<PAGE>
AVAILABLE INFORMATION
Paradigm 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 statements and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information filed by Paradigm with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the following regional offices of the Commission: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials may also be
obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission and the address of such site is
http://www.sec.gov. Paradigm Common Stock is listed on the Nasdaq SmallCap
Market and reports and other information concerning Paradigm may be inspected
at the offices of the National Association of Securities Dealers, Inc., 1735
K. Street, N.W., Washington, D.C. 20006.
Paradigm has filed with the Commission a Registration Statement on Form S-4
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Joint Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission and to which
portions reference is hereby made. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated by reference in this
Joint Proxy Statement/Prospectus, as to the contents of any contract or other
document referred to herein or therein, are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference. For further
information with respect to Paradigm, IXYS and the Paradigm Common Stock
offered hereby and related matters, reference is made to the Registration
Statement. The Registration Statement and the exhibits thereto may be
inspected, without charge, at the offices of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained from the
Commission at prescribed rates.
IXYS is not subject to the informational requirements of the Exchange Act
and does not file reports and other information with the Commission.
This Joint Proxy Statement/Prospectus is being furnished to Paradigm's
stockholders in connection with the solicitation of proxies by the Paradigm
Board for use at the Paradigm Annual Meeting and to IXYS' stockholders in
connection with the solicitation of proxies by the IXYS Board for use at the
IXYS Special Meeting. Each copy of this Joint Proxy Statement/Prospectus
mailed to the Paradigm stockholders is accompanied by a form of proxy for use
at the Paradigm Annual Meeting (the "Paradigm Proxy") and each copy of this
Joint Proxy Statement/Prospectus mailed to the IXYS stockholders is
accompanied by a form of proxy for use at the IXYS Special Meeting (the "IXYS
Proxy"). This Joint Proxy Statement/Prospectus is also being furnished by
Paradigm to holders of IXYS Capital Stock as a prospectus in connection with
the shares of Paradigm Common Stock to be issued upon consummation of the
Merger.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATION MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY PARADIGM, MERGER SUBSIDIARY OR IXYS.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF
A PROXY, IN ANY JURISDICTION
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IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF EITHER PARADIGM OR IXYS
SINCE THE DATE HEREOF.
This Joint Proxy Statement/Prospectus contains trademarks of Paradigm and
IXYS as well as trademarks of other companies.
FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE
CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE RESULTS OF
OPERATIONS AND BUSINESSES OF THE COMBINED COMPANY. THESE FORWARD-LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED OR PROJECTED,
FORECAST, ESTIMATED OR BUDGETED IN SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
AMONG OTHER THINGS, THE FOLLOWING POSSIBILITIES: (i) THE INTEGRATION OF
PARADIGM AND IXYS; (ii) THE BUSINESS OF THE COMBINED COMPANY, INCLUDING RISKS
RELATING TO 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 SUPPLIERS, INDUSTRY WIDE
SHIFTS IN SUPPLY AND DEMAND FOR SEMICONDUCTOR PRODUCTS, FOREIGN CURRENCY
FLUCTUATIONS, GOVERNMENT ACTIONS AND THE OVERALL CONDITION OF THE
SEMICONDUCTOR INDUSTRY; (iii) THE RISK THAT THE POTENTIAL BENEFITS OF THE
MERGER MIGHT NOT BE REALIZED AND THE POSSIBILITY THAT THE MERGER MIGHT
ADVERSELY AFFECT THE RELATIONSHIP OF THE COMBINED COMPANY WITH CERTAIN OF ITS
CUSTOMERS; AND (iv) THE FACTORS DISCUSSED UNDER THE HEADING "RISK FACTORS" AND
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER PARADIGM NOR IXYS
UNDERTAKES ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
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TABLE OF CONTENTS
<TABLE>
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SUMMARY.................................................................... 1
The Companies............................................................. 1
Paradigm Technology, Inc................................................. 1
IXYS Corporation......................................................... 1
Paradigm Enterprises, Inc................................................ 1
The Stockholder Meetings.................................................. 1
Paradigm Annual Meeting.................................................. 1
IXYS Special Meeting..................................................... 2
The Merger................................................................ 3
General.................................................................. 3
Effective Time of the Merger; Closing Date............................... 6
Stock Ownership Following the Merger..................................... 6
Paradigm's Reasons for the Merger........................................ 6
Recommendation of the Paradigm Board..................................... 7
Opinion of Financial Advisor to Paradigm................................. 7
IXYS' Reasons for the Merger............................................. 7
Recommendation of the IXYS Board......................................... 8
Exchange of IXYS Stock Certificates...................................... 8
Non-Solicitation......................................................... 8
Management After the Merger.............................................. 8
Conditions to the Merger................................................. 8
Termination.............................................................. 9
Expenses and Termination Fees............................................ 9
Interests of Certain Persons in the Merger............................... 10
Regulatory Matters....................................................... 11
Material Federal Income Tax Consequences................................. 11
Anticipated Accounting Treatment......................................... 12
Appraisal Rights......................................................... 12
Risk Factors.............................................................. 13
Markets and Market Prices................................................. 13
Dividend Policy........................................................... 13
Selected Historical Financial Information of Paradigm..................... 14
Selected Historical Financial Information of IXYS......................... 15
Selected Unaudited Pro Forma Condensed Combined Financial Data............ 16
Comparative Per Share Data............................................... 17
RISK FACTORS............................................................... 18
Risks Relating to the Merger.............................................. 18
Risks Relating to the Business of Paradigm................................ 19
Risks Relating to the Business of IXYS.................................... 28
THE PARADIGM ANNUAL MEETING................................................ 35
Purpose of the Paradigm Annual Meeting.................................... 35
Date, Time and Place of Meeting........................................... 35
Record Date and Outstanding Shares........................................ 35
Quorum and Abstentions.................................................... 35
Vote Required............................................................. 35
Voting Rights; Proxies.................................................... 36
Solicitation.............................................................. 36
</TABLE>
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<TABLE>
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THE IXYS SPECIAL MEETING................................................... 37
Purpose of the IXYS Special Meeting....................................... 37
Date, Time and Place of Meeting........................................... 37
Record Date and Outstanding Shares........................................ 37
Quorum and Abstentions.................................................... 37
Vote Required............................................................. 37
Voting Rights; Proxies.................................................... 38
Solicitation.............................................................. 38
THE MERGER PROPOSAL AND THE ISSUANCE PROPOSAL.............................. 39
Background................................................................ 39
Paradigm's Reasons for the Merger......................................... 41
Recommendation of the Paradigm Board...................................... 42
Paradigm Vote Necessary to Approve the Proposal........................... 42
IXYS' Reasons for the Merger.............................................. 43
Recommendation of the IXYS Board.......................................... 44
IXYS Vote Necessary to Approve the Proposal............................... 44
Opinion of Financial Advisor to Paradigm.................................. 45
Interests of Certain Persons in the Merger................................ 47
Voting Agreement.......................................................... 49
Affiliate Agreements...................................................... 49
Material Federal Income Tax Consequences.................................. 50
Anticipated Accounting Treatment.......................................... 52
Regulatory Matters........................................................ 52
Rights of Appraisal....................................................... 52
No Paradigm Appraisal Rights.............................................. 54
Resale of Paradigm Common Stock........................................... 54
Management After the Merger............................................... 54
THE MERGER AGREEMENT....................................................... 55
General................................................................... 55
Merger Consideration...................................................... 55
Stock Options; Warrants................................................... 57
Stock Ownership Following the Merger...................................... 58
Conversion of Shares; Procedures for Exchange of Certificates............. 58
Effect on Certificates.................................................... 58
Corporate Matters......................................................... 59
Representations and Warranties............................................ 59
Covenants................................................................. 60
Non-Solicitation.......................................................... 61
Indemnification and Insurance............................................. 62
Conditions to the Merger.................................................. 63
Termination............................................................... 65
Expenses and Termination Fees............................................. 65
Amendment of the Merger Agreement......................................... 66
THE REVERSE STOCK SPLIT PROPOSAL........................................... 67
Introduction.............................................................. 67
Purpose of Reverse Stock Split............................................ 67
Principal Effects of the Reverse Stock Split.............................. 67
Effect of the Reverse Stock Split......................................... 68
</TABLE>
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Exchange of Shares; No Fractional Shares................................ 68
Change of Conversion Ratio for Convertible Preferred Stock and Notice to
Holders of Such Stock.................................................. 69
Material Federal Income Tax Consequences................................ 69
Vote Necessary to Approve the Proposal.................................. 70
Recommendation of the Board............................................. 71
APPROVAL TO AMEND PARADIGM'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK............................. 72
Introduction............................................................ 72
Proposed Amendment to the Paradigm Certificate of Incorporation......... 72
Purpose and Effect of the Proposed Amendment............................ 72
Vote Necessary to Approve the Proposal.................................. 73
Recommendation of the Board............................................. 73
THE NAME CHANGE PROPOSAL................................................. 74
Introduction............................................................ 74
Purpose of the Proposed Name Change..................................... 74
Principal Effects of the Proposed Name Change........................... 74
Vote Necessary to Approve the Proposal.................................. 74
Recommendation of the Paradigm Board.................................... 74
ELECTION OF DIRECTORS.................................................... 75
OTHER INFORMATION REGARDING PARADIGM..................................... 76
Stock Performance Graph................................................. 76
Paradigm Board Meetings and Committees.................................. 76
Compensation of Directors............................................... 77
Executive Compensation.................................................. 77
Stock Options........................................................... 78
Employment Agreements................................................... 81
Termination Agreements.................................................. 81
Option Repricing........................................................ 81
Compensation Committee Interlocks And Insider Participation............. 82
Certain Relationships and Related Transactions.......................... 82
Compliance with Section 16(a) of the Exchange Act....................... 83
Board Report On Compensation............................................ 83
Proposals Intended to be Presented at the Next Paradigm Annual Meeting.. 84
Other Matters........................................................... 84
Annual Report........................................................... 84
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
PARADIGM................................................................ 85
THE STOCK PLAN PROPOSAL.................................................. 87
Introduction............................................................ 87
Purpose of the Proposed Amendments to the 1994 Plan..................... 87
Shares Subject to the 1994 Plan......................................... 87
Participants............................................................ 87
Federal Tax Information................................................. 88
Vote Necessary to Approve the Proposal.................................. 88
Recommendation of the Paradigm Board.................................... 89
</TABLE>
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RATIFICATION OF INDEPENDENT ACCOUNTANTS................................... 90
THE IXYS CERTIFICATE PROPOSAL............................................. 91
Vote Necessary to Approve the Proposal................................... 91
Recommendation of the IXYS Board......................................... 91
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.............. 92
PARADIGM BUSINESS......................................................... 95
General.................................................................. 95
Recent Developments...................................................... 95
Industry Background...................................................... 96
Paradigm's Products...................................................... 97
Customers and Applications............................................... 98
Sales and Marketing...................................................... 98
Backlog.................................................................. 98
Manufacturing............................................................ 98
Strategic Relationships.................................................. 99
Competition.............................................................. 99
Patents and Licensed Technology.......................................... 100
Environmental Matters.................................................... 101
Employees................................................................ 101
Properties............................................................... 101
Factors That May Affect Future Results................................... 101
PARADIGM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 102
Overview................................................................. 102
Chapter 11 Reorganization................................................ 103
Sale of Wafer Fabrication Facility....................................... 104
Comparison of Results of Operations for the Year Ended December 31, 1997
to the Year Ended December 31, 1996..................................... 104
Comparison of Results of Operations for the Year Ended December 31, 1996
to the Year Ended December 31, 1995..................................... 105
Liquidity and Capital Resources.......................................... 106
Results of Operations--Three Months Ended March 29, 1998 Compared to
March 31, 1997.......................................................... 108
Liquidity and Capital Resources--March 29, 1998.......................... 109
Litigation--See "Risk Factors"........................................... 110
Factors Affecting Future Results......................................... 110
Recent Accounting Pronouncements......................................... 111
Year 2000--See "Risk Factors"............................................ 111
IXYS BUSINESS............................................................. 112
General.................................................................. 112
Background............................................................... 112
Role of Power Semiconductors............................................. 113
Power Semiconductor Applications......................................... 113
Power Semiconductor Market............................................... 113
IXYS Approach............................................................ 114
IXYS Strategy............................................................ 114
Products and Applications................................................ 115
Sales and Marketing...................................................... 118
</TABLE>
vi
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Research and Development................................................ 119
Patents and Licenses.................................................... 119
Manufacturing........................................................... 120
Competition............................................................. 121
Backlog................................................................. 122
Employees............................................................... 122
Facilities.............................................................. 123
Environmental Matters................................................... 123
Glossary................................................................ 123
IXYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 125
Overview................................................................ 125
Results of Operations--Years Ended March 31, 1998 and March 31, 1997.... 125
Fiscal Years Ended March 31, 1997 and 1996.............................. 126
Liquidity and Capital Resources......................................... 127
Recent Accounting Pronouncements........................................ 127
Year 2000 Conversion--See "Risk Factors"................................ 128
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF IXYS... 129
COMPARISON OF STOCKHOLDERS' RIGHTS....................................... 131
Voting.................................................................. 131
Directors............................................................... 131
Liability of Officers and Directors; Indemnification.................... 132
Special Meetings; Written Consents...................................... 132
Preferred Stock......................................................... 132
Voting by Ballot........................................................ 133
Amendment of Certificate of Incorporation and Bylaws.................... 133
Dividends; Liquidation Rights........................................... 133
Special Rights of Preferred Stock....................................... 134
OTHER INFORMATION REGARDING IXYS......................................... 135
Directors and Executive Officers........................................ 135
Director and Executive Compensation..................................... 135
Stock Options........................................................... 136
Employment Contracts.................................................... 137
Certain Transactions.................................................... 137
EXPERTS.................................................................. 138
LEGAL OPINIONS........................................................... 138
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>
Annex A--Agreement and Plan of Merger and Reorganization, dated March 6, 1998,
as amended April 10, 1998 and May 29, 1998
Annex B--Opinion of Alliant Partners, dated March 5, 1998
Annex C--Section 262 of the Delaware General Corporation Law
Annex D--Description of the Paradigm 1994 Stock Option Plan
Annex E--Form of Request for Conversion By Paradigm Preferred Stockholder
vii
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus, or incorporated by reference herein. This
summary is not intended to be complete and is qualified in its entirety by
reference to the more detailed information, appearing elsewhere herein or
incorporated by reference herein. Stockholders of each of Paradigm and IXYS are
urged to review in their entirety this Joint Proxy Statement/Prospectus and the
Annexes hereto.
THE COMPANIES
PARADIGM TECHNOLOGY, INC.
Paradigm 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. Paradigm focuses
on high performance, 10 nanosecond and faster SRAMs. Using a combination of
innovative process architecture and design know-how, Paradigm was one of the
first companies to introduce high speed CMOS SRAMs for three successive
generations of product densities: 256 kilobit, one megabit ("M"), and 4M.
Paradigm was initially incorporated in California in January 1987 and
reincorporated in Delaware in June 1995. Paradigm's principal executive offices
are located at 694 Tasman Drive, Milpitas, California 95305. Its telephone
number is (408) 954-0500.
IXYS CORPORATION
IXYS designs, develops and markets a broad spectrum of power semiconductors
used primarily in controlling energy in motor drives, power conversion
(including uninterruptible power supplies and switch mode power supplies) and
medical devices. IXYS' power semiconductors convert electricity at relatively
high voltage and current levels to create efficient power as required by a
specific application. IXYS' target market includes segments of the power
semiconductor market that require medium to high power semiconductors, with a
particular emphasis on "higher power" semiconductors, which are semiconductors
capable of processing greater than 500 watts of power.
IXYS was initially incorporated in California in April 1983 and
reincorporated in Delaware in December 1995. IXYS' principal executive offices
are located at 3540 Bassett Street, Santa Clara, California 95054. Its
telephone number is (408) 982-0700.
PARADIGM ENTERPRISES, INC.
Merger Subsidiary is a corporation recently organized as a wholly-owned
subsidiary of Paradigm for the purpose of effecting the Merger. Merger
Subsidiary has no material assets and has not engaged in any activities except
in connection with the Merger. Merger Subsidiary is a Delaware corporation, and
its principal executive offices are located at 694 Tasman Drive, Milpitas,
California 95035. Its telephone number is (408) 954-0500.
THE STOCKHOLDER MEETINGS
PARADIGM ANNUAL MEETING
The Paradigm Annual Meeting will be held at the principal executive offices
of Paradigm located at 694 Tasman Drive, Milpitas, California 95035, on August
3, 1998 at 9:00 a.m. local time. The purpose of the Paradigm Annual Meeting is
to vote upon proposals to: (i) approve the issuance of Paradigm Common Stock in
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<PAGE>
connection with the Merger pursuant to the Merger Agreement (the "Issuance
Proposal"); (ii) to approve an amendment to Paradigm's Restated Certificate of
Incorporation (the "Paradigm Certificate of Incorporation") to effectuate a
six-for-one reverse stock split, such that every six shares shall be combined
into one share (the "Reverse Stock Split Proposal"); (iii) to approve an
amendment to the Paradigm Certificate of Incorporation to increase the number
of authorized shares of Paradigm Common Stock to 40,000,000 (the "Increased
Authorization Proposal"); (iv) to approve an amendment to the Paradigm
Certificate of Incorporation to change the name of Paradigm to IXYS Corporation
(the "Name Change Proposal"); (v) to elect three directors to the Paradigm
Board to hold office until the next annual meeting of stockholders or until
their respective successors have been duly elected and qualified (the
"Directors Proposal"); (vi) to approve the amendment to Paradigm's 1994 Stock
Option Plan (the "1994 Plan") to increase the aggregate number of shares of
Paradigm Common Stock authorized for issuance under such plan by 285,000 post-
split shares and to increase the number of shares of Paradigm Common Stock that
can be made subject to options in any fiscal year to 200,000 post-split shares
(the "Stock Plan Proposal"); and (vii) to ratify the appointment of Price
Waterhouse LLP ("Price Waterhouse") as independent accountants of Paradigm for
the fiscal year ending December 31, 1998 (the "Ratification Proposal").
Only Paradigm stockholders of record at the close of business on June 19,
1998 (the "Paradigm Record Date") will be entitled to receive notice of and to
vote at the Paradigm Annual Meeting or any adjournment or postponement thereof.
As of the Paradigm Record Date, there were 262 stockholders of record holding
an aggregate of approximately 1,779,401 shares of Paradigm Common Stock. Each
share of Paradigm Common Stock entitles the holder thereof to one vote on any
matter that may properly come before the Paradigm Annual Meeting. The presence
in person or by properly executed proxy of holders of a majority of the issued
and outstanding shares of Paradigm Common Stock is necessary to constitute a
quorum at the Paradigm Annual Meeting. Approval of the Issuance Proposal and
the Stock Plan Proposal and the ratification of Paradigm's independent
accountants requires approval by the affirmative vote of a majority of the
shares present or represented by proxy and voting on the proposal. Approval of
the Reverse Stock Split Proposal, the Increased Authorization Proposal and the
Name Change Proposal requires the affirmative vote of the holders of a majority
of the outstanding shares of Paradigm Common Stock entitled to vote. Director
nominees receiving the highest number of affirmative votes up to the number of
directors to be elected will be elected.
This Joint Proxy Statement/Prospectus and accompanying Notice of Annual
Meeting of Stockholders were mailed to all Paradigm's stockholders of record as
of the Paradigm Record Date and constitute notice of the Paradigm Annual
Meeting in conformity with the requirements of the Delaware General Corporation
Law (the "DGCL").
IXYS SPECIAL MEETING
The IXYS Special Meeting will be held at the principal executive offices of
IXYS located at 3540 Bassett Street, Santa Clara, California 95054, on August
3, 1998, at 9:00 a.m., local time. The purpose of the IXYS Special Meeting is
to vote upon (i) a proposal to adopt and to approve the Merger Agreement and to
approve the Merger (the "Merger Proposal") and (ii) a proposal to amend the
IXYS Certificate of Incorporation to provide that the Merger does not
constitute a liquidation under the IXYS Certificate of Incorporation (the "IXYS
Certificate Proposal").
Only IXYS stockholders of record at the close of business on June 16, 1998
(the "IXYS Record Date") will be entitled to receive notice of and to vote at
the IXYS Special Meeting or any adjournment or postponement thereof. As of the
IXYS Record Date, there were 94 stockholders of record holding an aggregate of
approximately 72,211,873 shares of IXYS Common Stock, and 234 stockholders of
record holding an aggregate of approximately 111,409,363 shares of IXYS
Preferred Stock. Each share of IXYS Capital Stock entitles the holder thereof
to one vote on any matter that may properly come before the IXYS Special
Meeting. The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of IXYS
2
<PAGE>
Capital Stock is necessary to constitute a quorum at the IXYS Special Meeting.
The approval of the Merger Proposal and the IXYS Certificate Proposal each
requires the affirmative vote of a majority of the outstanding shares of IXYS
Capital Stock, entitled to vote, voting together as a single class, and the
affirmative vote of a majority of the outstanding shares of IXYS Preferred
Stock entitled to vote.
Pursuant to that certain Voting Agreement (the "Voting Agreement"), dated as
of March 6, 1998, by and between Paradigm and Dr. Nathan Zommer, Chief
Executive Officer and Chairman of the Board of IXYS, Dr. Zommer has agreed
that, prior to the earlier of (i) the date upon which the Merger Agreement is
validly terminated or (ii) the date upon which the Merger becomes effective
(the "Expiration Date"), he will vote all of his IXYS Capital Stock,
representing approximately 30.90% of the shares of IXYS Capital Stock issued
and outstanding as of the IXYS Record Date, in favor of approval of the Merger
Proposal. In addition, Dr. Zommer has delivered to Paradigm an irrevocable
proxy with respect to such vote. See "The Merger Proposal and the Issuance
Proposal--Voting Agreement."
As of the IXYS Record Date, the directors, executive officers and affiliates
of IXYS owned or had voting control over an aggregate of 155,853,329 shares of
IXYS Capital Stock, representing approximately 84.88% of the votes entitled to
be cast at the IXYS Special Meeting. Each of the directors, executive officers
and affiliates of IXYS has advised IXYS that he intends to vote or direct the
vote of all outstanding shares of IXYS Capital Stock over which he has voting
control in favor of the approval of the Merger Proposal.
This Joint Proxy Statement/Prospectus and accompanying Notice of Special
Meeting of Stockholders were mailed to all IXYS stockholders of record as of
the IXYS Record Date and constitute notice of the IXYS Special Meeting in
conformity with the requirements of the DGCL.
THE MERGER
GENERAL
At the Effective Time, Merger Subsidiary will merge with and into IXYS, the
separate existence of Merger Subsidiary will cease and IXYS will continue as
the surviving corporation in the Merger (the "Surviving Corporation") and will
be a wholly-owned subsidiary of Paradigm. Paradigm's name shall be changed to
IXYS Corporation following the Merger. It is presently contemplated that the
Effective Time will occur as soon as practicable after the requisite approvals
of the stockholders of Paradigm and IXYS are obtained and other conditions to
the Merger set forth in the Merger Agreement are satisfied. It is currently
anticipated, assuming all requisite consents and approvals are received and all
conditions are satisfied or waived, that the Effective Time will occur in
August 1998. In addition, the Merger Agreement provides that, subject to the
terms and conditions thereof, at the Effective Time, the following will occur:
Conversion of IXYS Capital Stock. Subject to the provisions contained in the
Merger Agreement relating to payment of cash in lieu of fractional shares, each
share of IXYS Capital Stock then outstanding will be converted into the right
to receive shares of Paradigm Common Stock based on the Exchange Ratio (as
defined below) (subject to adjustment as appropriate to reflect any stock
split, stock dividend, reverse stock split, reclassification, recapitalization
or other similar transaction involving the Paradigm Common Stock or the IXYS
Capital Stock between the date of the Merger Agreement and the effective time
of the Merger).
The ratio for the exchange of each share of IXYS Capital Stock for Paradigm
Common Stock in the Merger (the "Exchange Ratio") shall be the greater of two
ratios. The two ratios will be evaluated, and the greater of the two ratios
will be determined and fixed, immediately prior to the Effective Time. The
first ratio (the "Percentage Formula Ratio") will be determined according to
the following formula:
A = 19 X B
------
C
3
<PAGE>
where "A" is the Percentage Formula Ratio, "B" is the fully diluted
capitalization of Paradigm, immediately prior to the Effective Time and having
given effect to the reverse stock split contemplated by the Reverse Stock Split
Proposal (the "Reverse Stock Split"), expressed as the sum of (x) the number of
shares of Paradigm Common Stock outstanding, (y) the number of shares of
Paradigm Common Stock into which the outstanding Paradigm Preferred Stock
converts and (z) the aggregate number of shares of Paradigm Common Stock for
which outstanding warrants, options or other rights to acquire Paradigm Common
Stock are exercisable (the "Paradigm Fully Diluted Capitalization") and "C" is
the fully diluted capitalization of IXYS immediately prior to the Effective
Time, expressed as the sum of (A) the number of shares of IXYS Common Stock
outstanding, (B) the number of shares of IXYS Common Stock issuable upon
conversion of the outstanding shares of IXYS Preferred Stock and (C) the
aggregate number of shares of IXYS Common Stock for which outstanding warrants,
options or other rights to acquire IXYS Common Stock are exercisable (the "IXYS
Fully Diluted Capitalization").
Assuming that the Paradigm Fully Diluted Capitalization is 557,818 and the
IXYS Fully Diluted Capitalization is 208,350,429, the Exchange Ratio as
calculated under the Percentage Formula Ratio is approximately 0.050869, which
is the result of 557,818 ("B" under the Percentage Formula Ratio) multiplied by
19 and divided by 208,350,429 ("C" under the Percentage Formula Ratio). If this
ratio is less than the ratio under the Valuation Formula, the Valuation Formula
Ratio would be used.
The second ratio (the "Valuation Formula Ratio") will be determined according
to the following formula:
D = $150,000,000
------------
(E x C)
where "D" is the Valuation Formula Ratio, "E" is the average of the closing
sale prices of Paradigm Common Stock for the ten trading days ending (and
including) the trading day two business days prior to the date of the Paradigm
Annual Meeting (appropriately adjusted to reflect the Reverse Stock Split) and
"C" is the IXYS Fully Diluted Capitalization.
For illustrative purposes only, the table below sets forth examples
estimating the Exchange Ratio for several alternative values of Paradigm Common
Stock:
<TABLE>
<CAPTION>
AFTER
PROPOSED
6-FOR-1
INITIAL REVERSE SPLIT EXCHANGE
STOCK PRICE (1) STOCK PRICE RATIO (2)
--------------- ------------- ---------
<S> <C> <C>
$5.00 $30.00 0.034023
$4.75 $28.50 0.034252
$4.50 $27.00 0.034506
$4.25 $25.50 0.034790
$4.00 $24.00 0.035109
$3.75 $22.50 0.035471
$3.50 $21.00 0.035885
$3.311107 $19.866642 0.036239
$3.25 $19.50 0.036920
$3.00 $18.00 0.039997
$2.75 $16.50 0.043633
$2.50 $15.00 0.047996
$2.25 $13.50 0.053329
$2.00 $12.00 0.059995
$1.75 $10.50 0.068566
$1.50 $ 9.00 0.079993
$1.25 $ 7.50 0.095992
$1.00 $ 6.00 0.119990
$0.75 $ 4.50 0.159987
$0.50 $ 3.00 0.239980
$0.25 $ 1.50 0.479961
</TABLE>
4
<PAGE>
- --------
(1) Stock price based on fluctuating stock prices for illustrative
purposes.
(2) Based on the proposed 6-for-1 reverse stock split. Please note that
where the initial stock price of Paradigm Common Stock was less than
$3.311107 per share, the Valuation Formula Ratio was used because the
value of the total number of shares the IXYS stockholders would receive
under the Percentage Formula Ratio (in using that price) would have
been less than $150 million. Conversely, if the initial stock price of
Paradigm was more than $3.311107 per share, then the Percentage Formula
Ratio was used. Therefore, all exchange ratio calculations made based
on initial stock prices of Paradigm that were above $3.311107 were
calculated using the Percentage Formula Ratio and all exchange ratio
calculations made based on initial stock prices of Paradigm that were
below $3.311107 were calculated using the Valuation Formula Ratio.
Therefore, the "benchmark" stock price is $3.311107.
For each value of Paradigm Common Stock set forth in the foregoing table, the
table assumes that the outstanding shares of Paradigm Preferred Stock are
converted into Paradigm Common Stock in accordance with the terms of the
Paradigm Certificate of Incorporation based upon a five (5) day closing bid
price average equivalent to the value set forth for Paradigm Common Stock in
the table. The number of shares of Paradigm Common Stock issuable upon
conversion of the Paradigm 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
Paradigm, including, among other things, the future market price of Paradigm
Common Stock. Additionally, for each value of Paradigm Common Stock set forth
in the foregoing table, the table assumes that the ten (10) day average of
closing sale prices for Paradigm Common Stock to be used in the Valuation
Formula Ratio is equivalent to the value set forth in the table. Additionally,
the table assumes (i) a variable number of shares representing a Paradigm Fully
Diluted Capitalization which, as of June 16, 1998, was 557,818 shares and (ii)
an IXYS Fully Diluted Capitalization of 208,350,429 shares, based on securities
outstanding on June 16, 1998 (collectively, the "Exchange Ratio Assumptions").
Finally, the table assumes the Reverse Stock Split has taken place.
Consequently, at any given value for Paradigm Common Stock in the table, the
actual Exchange Ratio will vary from the number set forth in the table if the
averages of the closing sale prices of Paradigm Common Stock differ from one
another or the price of Paradigm Common Stock at the Effective Time or if the
fully diluted capitalization of either company at the Effective Time varies
from the amount assumed herein. See "The Merger Agreement--Merger
Consideration." Therefore, the actual value of the consideration and the number
of shares to be issued by Paradigm may differ from the value of the
consideration and the number of shares to be issued in accordance with the
Assumed Exchange Ratio. The number of shares to be issued in connection with
the Valuation Formula Ratio (if such exchange ratio is used) will not be
determined until immediately preceding the Annual Stockholder Meeting of
Paradigm and the number of shares to be issued in connection with the
Percentage Formula Ratio (if such exchange ratio is used) will not be
determined until immediately prior to the Effective Time. In both instances,
fluctuating market conditions relating to Paradigm's trading price are a factor
and may cause the final exchange ratio to be different from the Assumed
Exchange Ratio.
Fluctuations in Paradigm's Stock Price. The trading price of Paradigm's
Common Stock is subject to fluctuations. The trading price over the preceding
ninety (90) day period prior to May 1, 1998 ranged from a high of $0.781 to a
low of $0.25. During the period from May 4, 1998, the date Paradigm's ten-for-
one reverse stock split was effectuated, and June 16, 1998, Paradigm's Common
Stock traded from a high of $2.150 to a low of $0.875. Paradigm's stock price
is subject to continued fluctuations and may fluctuate drastically during the
period between stockholder approval and the Effective Time. There is always the
risk that Paradigm's stock price may drop significantly during this period,
which will have an impact on the Exchange Ratio. The Exchange Ratio will
increase for the benefit of the IXYS stockholders with any decline in
Paradigm's stock price.
IXYS Stock Options; IXYS Warrants. At the Effective Time, each then
outstanding IXYS Option will be converted into an option to purchase Paradigm
Common Stock based on the Exchange Ratio. All rights with
5
<PAGE>
respect to then outstanding IXYS Warrants shall be converted into and become
rights with respect to Paradigm Common Stock based on the Exchange Ratio. The
terms of the conversion of shares of IXYS Capital Stock into Paradigm Common
Stock and the conversion of IXYS Options and IXYS Warrants into options to
purchase shares of Paradigm are described in detail in "The Merger Agreement--
Stock Options; Warrants."
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be specified in the Merger Agreement (the "Effective Time"). The
consummation of the transactions contemplated by the Merger Agreement will take
place on a date to be agreed upon by Paradigm and IXYS (the "Closing Date"),
which will be no later than the fifth business day after the satisfaction or
waiver of all of the conditions to closing set forth in the Merger Agreement.
Assuming that all of the conditions to the Merger are satisfied or waived, it
is anticipated that the Merger will be consummated in August 1998.
STOCK OWNERSHIP FOLLOWING THE MERGER
Assuming the Exchange Ratio Assumptions, the occurrence of the Reverse Stock
Split and a price per share of Paradigm Common Stock of $7.4076 (after the
occurrence of the Reverse Stock Split), an exchange ratio of 0.097189 (the
"Assumed Exchange Ratio") would result. At the Assumed Exchange Ratio and based
upon the foregoing assumptions, an aggregate of approximately 17,845,964 shares
of Common Stock of the Combined Company will be issued to holders of IXYS
Capital Stock and an additional approximately 2,403,406 shares of Common Stock
of the Combined Company will be issuable to holders of options and warrants
exercisable for IXYS Capital Stock. Based upon the number of shares of Paradigm
Common Stock issued and outstanding as of the Paradigm Record Date, and after
giving effect to the additional shares of Paradigm Common Stock that are
proposed to be issued in the Merger and assuming the Valuation Formula Ratio is
applicable, the former holders of IXYS Capital Stock would hold approximately
97.1% of the Combined Company's total issued and outstanding shares and the
former stockholders of Paradigm will hold the balance of the Combined Company's
total issued and outstanding shares, estimated to be approximately 2.9%. A
continued decline in the price of Paradigm's Common Stock will cause the
percentage of shares of the Combined Company to be held by former Paradigm
stockholders to decline. See "The Merger Agreement--Merger Consideration."
PARADIGM'S REASONS FOR THE MERGER
The Paradigm Board considered a wide variety of information and a number of
factors in connection with its evaluation of the proposed Merger and the Merger
Agreement, and determined that the Merger provides an opportunity that serves
the best interests of Paradigm and its stockholders. The Paradigm Board
believes that the Merger may result in a number of benefits to Paradigm and its
stockholders, including, among other benefits, the following:
. By combining IXYS' capability in power semiconductors and Paradigm's
capability in high performance integrated circuits, Paradigm and IXYS
together will have the potential to develop new products with higher
value that each company would not separately be able to produce.
. The proposed Merger will help insulate Paradigm from adverse market
conditions based on current market conditions for SRAMs, the intense
competition, and lower than desired selling prices, by improving
Paradigm's cost structure through consolidation and Paradigm's sales
channels by adding IXYS' distribution channels in countries where
Paradigm does not have a strong market presence.
. Paradigm will be in a better position to sell SRAM products to current
IXYS customers who are not current Paradigm customers. This will
therefore, provide Paradigm an opportunity to increase revenue.
. Paradigm's recent operating results, revenue level and current financial
condition necessitates additional funding. The proposed Merger will
provide such funding, which the Paradigm Board believes is a better
alternative than additional equity financings.
6
<PAGE>
See "The Merger Proposal and the Issuance Proposal--Paradigm's Reasons for
the Merger."
RECOMMENDATION OF THE PARADIGM BOARD
THE PARADIGM BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER, AND RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE PROPOSAL BY THE
STOCKHOLDERS OF PARADIGM. THE PARADIGM BOARD ALSO UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE REVERSE STOCK SPLIT PROPOSAL, FOR APPROVAL OF THE INCREASED
AUTHORIZATION PROPOSAL, FOR APPROVAL OF THE NAME CHANGE PROPOSAL, FOR EACH
NOMINEE FOR DIRECTOR, FOR APPROVAL OF THE STOCK PLAN PROPOSAL, AND FOR
RATIFICATION OF THE INDEPENDENT ACCOUNTANTS.
OPINION OF FINANCIAL ADVISOR TO PARADIGM
Alliant Partners LLP ("Alliant Partners ") delivered its opinion dated March
5, 1998 (the "Alliant Partners Opinion") to the Paradigm Board that, as of the
date of such opinion, the consideration to be paid to IXYS stockholders by
Paradigm was fair from a financial point of view to the Paradigm stockholders.
The full text of the Alliant Partners Opinion, which sets forth, among other
things, assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken in connection with the
Alliant Partners Opinion, is attached hereto as Annex B and is incorporated
herein by reference. The Alliant Partners Opinion does not constitute a
recommendation as to how any holder of Paradigm Common Stock should vote at the
Paradigm Annual Meeting. Paradigm stockholders are urged to, and should, read
the Alliant Partners Opinion in its entirety. See "The Merger Proposal and the
Issuance Proposal--Opinion of Financial Advisor to Paradigm."
IXYS' REASONS FOR THE MERGER
The IXYS Board considered a wide variety of information and a number of
factors in connection with its evaluation of the proposed Merger and the Merger
Agreement, and determined that the Merger provides an opportunity that serves
the best interests of IXYS and its stockholders. The IXYS Board believes that
the Merger may result in a number of benefits to IXYS and its stockholders,
including, among other benefits, the following:
. The combination of the technologies and product development resources of
IXYS and Paradigm should enable IXYS to respond more effectively to the
rapid technological change in, and continuing emergence of, power
management control products; the technical know-how and design
capabilities of the designers who design for Paradigm will allow IXYS to
develop a new line of power management control products.
. In the Merger, IXYS stockholders will receive securities traded in an
active trading market, the Nasdaq SmallCap Market, thereby permitting
the stockholders to obtain liquidity for their investments, in contrast
to the illiquid nature of their present holdings of IXYS Capital Stock.
. IXYS currently manufactures and designs various die sizes under 3 to 4
micron design rules. Paradigm designs and markets die sizes at submicron
design rules. IXYS believes that the Combined Company's ability to
operate under a wide spectrum of process technologies, including
submicron design rules not currently addressed by IXYS, is expected to
enhance IXYS' ability to service its existing customer base as well as
to expand into different customer bases.
. The Merger is expected to provide IXYS with an expanded customer base,
and product development resources to support its current marketing,
sales and distribution efforts; Paradigm's products are marketed,
distributed and sold in applications and market segments not currently
served by IXYS.
. The Merger will result in the Combined Company having an expanded base
of intellectual property.
See "The Merger Proposal and the Issuance Proposal--IXYS' Reasons for the
Merger."
7
<PAGE>
RECOMMENDATION OF THE IXYS BOARD
THE IXYS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER,
AND RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE MERGER PROPOSAL BY THE
STOCKHOLDERS OF IXYS. THE IXYS BOARD ALSO UNANIMOUSLY RECOMMENDS A VOTE FOR THE
IXYS CERTIFICATE PROPOSAL.
EXCHANGE OF IXYS STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, ChaseMellon
Shareholder Services, L.L.C. (the "Exchange Agent") will mail to the holders of
IXYS Capital Stock (i) a letter of transmittal (the "Letter of Transmittal")
with respect to the surrender of valid certificates representing shares of IXYS
Capital Stock (the "IXYS Stock Certificates") in exchange for certificates
representing Paradigm Common Stock and (ii) instructions for use of the Letter
of Transmittal. IXYS STOCKHOLDERS SHOULD NOT SURRENDER THEIR STOCK CERTIFICATES
FOR EXCHANGE UNTIL SUCH INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED.
Although holders of IXYS Capital Stock are encouraged to surrender their stock
certificates for exchange promptly after the consummation of the Merger, there
is no deadline for holders of IXYS Capital Stock to surrender their stock
certificates in exchange for certificates representing the common stock of the
Combined Company. See "The Merger Agreement--Conversion of Shares; Procedures
for Exchange of Certificates."
NON-SOLICITATION
Pursuant to the Merger Agreement, IXYS and Paradigm each have agreed not to
directly or indirectly take certain actions that may encourage an Acquisition
Proposal (as defined under "The Merger Agreement--Covenants"). However, IXYS
and Paradigm may each furnish information and enter into discussions or
negotiations in response to a bona fide, unsolicited Acquisition Proposal if
and only to the extent that the board of directors of the company receiving the
proposal determines in good faith that the Acquisition Proposal is financially
superior to the terms of the Merger, that financing for such Acquisition
Proposal is reasonably likely to be obtained, and that failure to take such
action would create a substantial risk of liability for breach of its fiduciary
obligations to IXYS' or Paradigm's respective stockholders under applicable
law. See "The Merger Agreement--Non-Solicitation."
MANAGEMENT AFTER THE MERGER
At the Effective Time, all directors and executive officers of Paradigm shall
resign from their respective positions as director or executive officer (but
not as employee), except for Mr. Kochman who shall remain as a director of the
Combined Company. At the Effective Time, Dr. Zommer, Mr. Agbayani and Dr. Karg
will be appointed to the board of directors of the Combined Company. It is
currently expected that the executive officers of IXYS will serve after the
Effective Time as the executive officers of the Combined Company. See "The
Merger Agreement--Corporate Matters."
CONDITIONS TO THE MERGER
The respective obligations of Paradigm, IXYS and Merger Subsidiary to
consummate the Merger are subject to the satisfaction or waiver of certain
conditions set forth in the Merger Agreement. These conditions include, among
others: (i) the approval by Paradigm's stockholders of the Issuance Proposal,
the six-for-one reverse stock split, the Increased Authorization Proposal and
the Name Change Proposal, (ii) the conversion of all outstanding shares of
Paradigm Preferred Stock into Paradigm Common Stock (the "Paradigm Preferred
Stock Conversion") (See the "Form of Request for Conversion by Paradigm
Preferred Stockholder" attached hereto as Annex E), (iii) the approval by
holders of IXYS Capital Stock of the Merger Proposal, (iv) the expiration or
termination of
8
<PAGE>
the waiting period applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") (the parties
have already received notice of early termination of such waiting period from
the Federal Trade Commission (the "FTC")), and (v) the approval for quotation
on the Nasdaq SmallCap Market of the shares of Paradigm Common Stock to be
issued in the Merger. See "The Merger Agreement--Conditions to the Merger."
In addition to the obligations set forth above, the obligations of Paradigm
and Merger Subsidiary to effect the Merger are subject to the satisfaction, at
or prior to the Closing, of the following conditions, among others: (i) the
representations and warranties of IXYS, when made and as of the Closing Date,
shall be accurate in all material respects; (ii) compliance with or performance
of all of the covenants or obligations required by the Merger Agreement to be
complied with and performed by IXYS at or prior to the Closing, in each case in
all material respects; (iii) receipt of a legal opinion of Cooley Godward LLP,
legal counsel to IXYS ("Cooley Godward"), (iv) receipt of all material consents
required to be obtained by IXYS; and (v) the absence of a material adverse
change with respect to IXYS. See "The Merger Agreement--Conditions to the
Merger."
In addition to the obligations set forth above, the obligations of IXYS to
effect the Merger are subject to the satisfaction, at or prior to the Closing,
of the following conditions, among others: (i) the representations and
warranties of Paradigm and Merger Subsidiary, when made and as of the Closing
Date, shall be accurate in all material respects; (ii) compliance with or
performance of all of the covenants or obligations required by the Merger
Agreement to be complied with and performed by Paradigm at or prior to the
Closing, in each case in all material respects; (iii) receipt of legal
opinions; (iv) the absence of a material adverse change with respect to
Paradigm; (v) the trading of Paradigm Common Stock on the Nasdaq SmallCap
Market; (vi) limitations on appraisal rights available under Section 262 of the
DGCL to the IXYS stockholders; (vii) the absence of certain pending or
threatened legal proceedings; and (viii) receipt of all material consents
required to be obtained by Paradigm. See "The Merger Agreement--Conditions to
the Merger."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time (i) by the mutual written consent of Paradigm and IXYS; (ii) by either
Paradigm or IXYS if the Merger shall not have been consummated by August 14,
1998; (iii) by either Paradigm or IXYS if a court or other governmental body
shall have issued a final and nonappealable order prohibiting the Merger; (iv)
by either Paradigm or IXYS if either such company's stockholders shall not have
approved the transactions contemplated by the Merger at the applicable
stockholders' meeting; (v) by IXYS if one or more of certain triggering events
relating to the implementation of the Merger by Paradigm or its acquisition by
a person other than IXYS occurs; (vi) by either Paradigm or IXYS if the other's
representations and warranties set forth in the Merger Agreement shall be or
shall have become materially inaccurate or if the other shall have breached any
covenant set forth in the Merger Agreement and if such inaccuracy or breach is
not curable. See "The Merger Agreement--Expenses and Termination Fees."
EXPENSES AND TERMINATION FEES
Subject to certain conditions, if the Merger Agreement is terminated because
of the failure to obtain the necessary approvals of the stockholders of
Paradigm or the occurrence of a triggering event relating to the implementation
of the Merger by Paradigm or its acquisition by a person other than IXYS, and
Paradigm enters into another merger or similar transaction within six months
from the date of such termination, then upon consummation of such transaction,
Paradigm will be required to pay IXYS $500,000. If the Merger Agreement is
terminated because of the failure to obtain the necessary approvals of the
stockholders of IXYS, then IXYS will be required to pay Paradigm $500,000. See
"The Merger Agreement--Expenses and Termination Fees."
In a separate agreement, Asea Brown Boveri, Inc. ("ABB Inc.") and Asea Brown
Boveri AG ("ABB AG" and together with ABB Inc., "ABB") agreed that if IXYS were
required to pay the termination fee described
9
<PAGE>
above, ABB would reimburse IXYS in an amount not to exceed $500,000 so long as
(i) IXYS did not, on or prior to the date on which ABB was required to vote its
shares on the Merger Proposal, waive any rights IXYS may have not to consummate
the Merger because of Paradigm's failure to meet the condition relating to the
absence of any material adverse change with respect to Paradigm and (ii) Dr.
Zommer had voted all of the shares of IXYS Capital Stock owned by him in favor
of the Merger Proposal.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Officers and Directors of Paradigm. Certain members of Paradigm's management
and the Paradigm Board may be deemed to have certain interests in the Merger
that are in addition to their interests as stockholders of Paradigm generally.
The interest of Paradigm's management and the Paradigm Board are as described
in"--Employment/Severance Arrangement" and "Other Information Regarding
Paradigm--Certain Relationships and Related Transactions." Other than as set
forth in "--Employment/Severance Arrangement," "Other Information Regarding
Paradigm--Certain Relationships and Related Transactions" and "Security
Ownership of Certain Beneficial Owners and Management of Paradigm" no other
benefits will be received by the Paradigm executive officers and directors. The
Paradigm Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. See "The Merger Proposal and the Issuance Proposal--Interests of
Certain Persons in the Merger."
Indemnification and Insurance. The Merger Agreement provides that all rights
to indemnification existing in favor of the persons serving as directors and
officers of Paradigm as of the date of the Merger Agreement for acts or
omissions occurring prior to the Effective Time, as provided in Paradigm's
Certificate of Incorporation and Bylaws and in certain indemnification
agreements between Paradigm and such directors and officers, will survive the
Merger, and that Paradigm will cause the Surviving Corporation to perform its
obligations arising thereunder for at least six years from the Effective Time.
Subject to certain limitations, Paradigm has also agreed to cause the Combined
Company to maintain in effect for three years after the Effective Time the
policy of directors' and officers' liability insurance in existence at the date
of the Merger Agreement for the benefit of persons serving as directors and
officers of Paradigm as of such date. Such limitations include the fact that
the Combined Company shall not be required to maintain the directors' and
officers' liability insurance in existence as of the date of the Merger
Agreement if equivalent coverage is provided to such directors and officers
under another policy of directors' and officers' liability insurance. Further,
if coverage is provided to such persons under another policy of officers' and
directors' liability insurances, the Combined Company shall not be required to
expend in any one year an amount in excess of 150% of the annual premium
currently paid by Paradigm for such insurance, and if the annual premiums of
such insurance coverage exceed 150% of the annual premium currently paid by
Paradigm for such insurance, the Combined Company shall be obligated to obtain
a policy with the greatest coverage available for a cost not exceeding such
amount. See "The Merger Agreement--Indemnification and Insurance."
Employment/Severance Arrangement. Each of Messrs. David Campbell and Richard
Morley (collectively the "Executives" and each an "Executive") have entered
into Executive Compensation Agreements with Paradigm, dated March 6, 1998 (the
"Executive Compensation Agreement"), which provide that if the Executive's
employment with the Combined Company is terminated without "cause" within six
months following the Effective Date, such Executive would be paid, in a single
lump sum payment, two months of salary at the rate in effect on the date of the
Executive Compensation Agreement. Messrs. Campbell and Morley are entitled to
two months of annual base salary for an aggregate of $10,834 and $25,000,
respectively, if they are terminated without "cause" within six months of the
Effective Date. See "The Merger Proposal and the Issuance Proposal--Interests
of Certain Persons in the Merger."
Election as Director. Pursuant to the Merger Agreement, Mr. Kochman, who is
currently a director of Paradigm, will be nominated as a management nominee for
election to the Paradigm Board and shall remain as a director of the Combined
Company after the Merger. Mr. Kochman is also a managing partner and director
of
10
<PAGE>
Alliant Partners, financial advisor to Paradigm. However, Mr. Kochman will not
derive any economic benefit from Alliant Partners' representation of Paradigm
in connection with the Merger. See "The Merger Proposal and the Issuance
Proposal--Interests of Certain Persons in the Merger."
Officers and Directors of IXYS. Certain members of IXYS' management and Board
of Directors may be deemed to have certain interests in the Merger that are in
addition to their interests as stockholders of IXYS generally. The IXYS Board
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. At
the Effective Time, Dr. Zommer, Mr. Agbayani and Dr. Karg will be appointed to
the board of directors of the Combined Company. It is currently expected that
the executive officers of IXYS will serve after the Effective Time as the
executive officers of the Combined Company. In addition to the benefits
described below, the officers and directors of IXYS will benefit on the same
basis with respect to their stock and option holdings of IXYS as other holders
of IXYS Capital Stock and options exercisable for IXYS Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management of IXYS."
Indemnification and Insurance. The Merger Agreement provides that Paradigm
will cause the Surviving Corporation to perform its obligations under the IXYS
Certificate of Incorporation and Bylaws for at least six years from the
Effective Time. Subject to certain limitations, Paradigm has also agreed to
cause the Combined Company to maintain in effect for three years after the
Effective Time the policy of directors' and officers' liability insurance in
existence at the date of the Merger Agreement. Such limitations include the
fact that the Combined Company shall not be required to maintain the liability
insurance in existence as of the date of the Merger Agreement if equivalent
coverage is provided to such directors and officers under another policy of
officers' and directors' liability insurance. Further, the Combined Company
shall not be required to expend in any one year an amount in excess of 150% of
the annual premium currently paid by Paradigm for such insurance, and if the
annual premiums of such insurance coverage exceed 150% of the annual premium
currently paid by Paradigm for such insurance, the Combined Company shall be
obligated to obtain a policy with the greatest coverage available for a cost
not exceeding such amount. See "The Merger Agreement--Indemnification and
Insurance."
Registration Rights Agreement. In addition, as a condition to the
consummation of the Merger, two of IXYS' principal stockholders, Asea Brown
Boveri Inc. ("ABB Inc.") and Asea Brown Boveri AG ("ABB AG"), shall enter into
a Registration and Stockholder Rights Agreement (the "Registration Rights
Agreement") with Paradigm on or prior to the Effective Time. Dr. Rolf Karg is
an officer of ABB AG and a director of IXYS. Pursuant to the Registration
Rights Agreement, ABB AG and ABB, Inc. will be entitled to certain rights with
respect to registration of the Paradigm Common Stock they receive pursuant to
the Merger under the Securities Act. See "The Merger Proposal and the Issuance
Proposal--Interests of Certain Persons in the Merger."
REGULATORY MATTERS
Paradigm and IXYS are not aware of any governmental or regulatory
requirements relating to the consummation of the Merger, other than compliance
with applicable federal and state securities laws and the HSR Act. On May 13,
1998, Paradigm and ABB filed a notification with the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division") pursuant to
the HSR Act. They have subsequently received a notice of early termination of
such waiting period from the FTC. See "The Merger Proposal and the Issuance
Proposal--Regulatory Matters."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization for federal income tax
purposes under Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), so that no gain or loss will be recognized by the IXYS
stockholders on the exchange of IXYS Capital Stock for common stock of the
Combined Company,
11
<PAGE>
except to the extent that IXYS stockholders receive cash in lieu of fractional
shares or in payment for shares as to which appraisal rights have been
perfected. Neither IXYS nor Paradigm will obtain a ruling from the Internal
Revenue Service as to the tax consequences of the Merger. As a condition to
IXYS' obligation to consummate the Merger, IXYS must receive an opinion at the
Effective Time from its legal counsel (or alternatively from Paradigm's legal
counsel) to the effect that the Merger will be treated as a tax-free
reorganization for federal income tax purposes. See "The Merger Proposal and
the Issuance Proposal--Material Federal Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a "purchase" of Paradigm by
IXYS for financial reporting purposes in accordance with generally accepted
accounting principles ("GAAP"). Following the Merger, the Combined Company will
report on the basis of IXYS' historical financial statements and the fiscal
year end will be March 31. See "The Merger Proposal and the Issuance Proposal--
Anticipated Accounting Treatment."
APPRAISAL RIGHTS
Under Delaware law, holders of IXYS Capital Stock who, prior to the IXYS
Special Meeting, properly demand appraisal and vote against or abstain from
voting with respect to the Merger Proposal, if entitled to vote at the IXYS
Special Meeting, have the right to require the Surviving Corporation to
purchase their shares for their "fair value," if the Merger is consummated. To
exercise such appraisal rights, such stockholders must comply with all
applicable procedural requirements. Stockholders of Paradigm are not entitled
to appraisal rights under Delaware law in connection with the Merger. See "The
Merger Proposal and the Issuance Proposal--Appraisal Rights" and Annex C to
this Joint Proxy Statement/Prospectus.
12
<PAGE>
RISK FACTORS
The Merger and an investment in securities of Paradigm involve certain risks
and uncertainties, including risks relating to the integration of Paradigm and
IXYS, risks relating to the respective businesses of Paradigm and IXYS and
other risks and uncertainties discussed under "Risk Factors" and elsewhere in
this Joint Proxy Statement/Prospectus. See "Risk Factors."
MARKETS AND MARKET PRICES
The following table sets forth the closing price per share of Paradigm Common
Stock as reported on the Nasdaq SmallCap Market under the symbol "PRDM" on (i)
March 6, 1998, the last trading day preceding public announcement of the
Merger, and (ii) June 26, 1998, the last trading day prior to the date of
printing of this Joint Proxy Statement/Prospectus. The equivalent IXYS per
share price at each specified date represents the closing price of a share of
Paradigm Common Stock on such date multiplied by an assumed exchange ratio
based on the Exchange Ratio Assumptions. See "The Merger Agreement--Merger
Consideration" and "--Stock Options; Warrants."
Closing Price at:
<TABLE>
<CAPTION>
PARADIGM
COMMON STOCK (AFTER
PARADIGM GIVING EFFECT TO THE EQUIVALENT IXYS
COMMON STOCK REVERSE STOCK SPLIT) PER SHARE PRICE
------------ -------------------- ---------------
<S> <C> <C> <C>
March 6, 1998.............. $0.375 $22.50 $1.67
June 26, 1998.............. $0.625 $3.75 $0.36
</TABLE>
Because the market price of Paradigm Common Stock is subject to fluctuation
and the Exchange Ratio is not fixed, the market value of the shares of Paradigm
Common Stock that holders of IXYS Capital Stock will receive in the Merger may
increase or decrease prior to the Effective Time. Stockholders of Paradigm and
IXYS are urged to obtain current market quotations for Paradigm Common Stock.
There has been no public market for the IXYS Capital Stock.
DIVIDEND POLICY
Neither Paradigm nor IXYS has declared or paid any cash dividends on any
series of its capital stock during any period for which information is provided
in this Joint Proxy Statement/Prospectus. Following the Merger, the Combined
Company does not intend to declare or pay any cash dividends in the foreseeable
future.
13
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF PARADIGM
The following selected financial data should be read in conjunction with
Paradigm's financial statements and related notes thereto and "Paradigm
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Joint Proxy Statement/Prospectus.
PARADIGM SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-REORGANIZATION(1) POST-REORGANIZATION(1)
------------------------------ ------------------------------------------------------
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, APRIL 1 TO JUNE 21 TO YEAR ENDED DECEMBER 31, MARCH 31,
------------------ JUNE 20, DEC. 31, --------------------------- --------------
1993 1994 1994 1994(2) 1995 1996(6) 1997 1997 1998
-------- -------- ---------- ---------- ------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales, net.............. $ 24,827 $ 31,844 $ 6,033 $19,690 $51,923 $ 23,202 $ 12,449 $3,572 $1,914
Cost of goods sold...... 28,465 26,283 5,895 12,881 31,033 36,364 11,946 3,314 1,770
-------- -------- ------- ------- ------- -------- -------- ------ ------
Gross profit (loss)..... (3,638) 5,561 138 6,809 20,890 (13,162) 503 258 144
-------- -------- ------- ------- ------- -------- -------- ------ ------
Operating expenses:
Research and develop-
ment(3)............... 1,980 1,148 1,192 1,920 4,621 6,243 3,406 1,183 304
Selling, general and
administrative........ 6,007 5,555 1,191 3,004 8,107 9,497 4,920 1,625 744
Write-off of in-process
technology ac-
quired(6)............. -- -- -- -- -- 3,841 -- -- --
Loss on sale of wafer
fab(6)................ -- -- -- -- -- 4,632 -- -- --
-------- -------- ------- ------- ------- -------- -------- ------ ------
Total operating ex-
penses................ 7,987 6,703 2,383 4,924 12,728 24,213 8,326 2,808 1,048
-------- -------- ------- ------- ------- -------- -------- ------ ------
Operating income
(loss)................ (11,625) (1,142) (2,245) 1,885 8,162 (37,375) (7,823) (2,550) (904)
Interest expense........ 3,824 3,286 518 721 1,369 1,121 370 42 71
Other (income) expense,
net(4)................. 2,417 (218) (17) (44) (615) (946) 718 30 (38)
-------- -------- ------- ------- ------- -------- -------- ------ ------
Income (loss) before
extra-ordinary gain and
provision (benefit) for
income taxes........... (17,866) (4,210) (2,746) 1,208 7,408 (37,550) (8,911) (2,622) (937)
Extraordinary gain(5)... -- -- 12,990 -- -- -- -- -- --
Provision (benefit) for
income taxes........... -- -- -- -- 2,145 (1,125) -- -- --
-------- -------- ------- ------- ------- -------- -------- ------ ------
Net income (loss)....... $(17,866) $ (4,210) $10,244 $ 1,208 $ 5,263 $(36,425) (8,911) (2,622) (937)
======== ======== ======= ======= ======= ========
Accretion related to
Preferred Stock........ (1,307) (388) (30)
-------- ------ ------
Net loss attributable to
common shareholders.... $(10,218) $3,010 $ (967)
======== ====== ======
Basic income (loss) per
share(7)............... $ 11.73 $ 13.92 $ (51.59) $ (11.87) $(4.16) $(0.68)
Diluted income (loss)
per share(7)........... $ 2.25 $ 9.14 $ (51.59) $ (11.87) $(4.16) $(0.68)
Weighted average
shares--basic(7)....... 103 378 706 861 724 1,420
Weighted average
shares--diluted(7)..... 536 576 706 861 724 1,420
</TABLE>
<TABLE>
<CAPTION>
PRE-REORGANIZATION(1) POST-REORGANIZATION(1)
---------------------- -----------------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
---------------------- ----------------------------------- ----------------
1993 1994 1994 1995 1996 1997 1997 1998
---------- ---------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term invest-
ments.................. $ 311 $ 52 $ 135 $21,213 $ 587 $ 461 $ 1,355 $ 218
Working capital (defi-
cit)................... (28,226) (26,324) (2,243) 26,624 (392) 415 (608) (306)
Total assets............ 24,238 18,591 19,421 56,732 17,742 9,290 15,721 7,464
Total debt and obliga-
tions under capital
leases................. 26,471 25,847 12,620 7,636 374 534 339 526
Retained earnings (accu-
mulated deficit)....... (50,654) (54,864) 1,208 6,471 (29,954) (40,172) (32,964) (41,139)
Total stockholders' eq-
uity (deficit)......... (45,292) (49,488) 2,345 39,349 6,344 3,009 3,391 2,076
Mandatorily redeemable
preferred stock........ 32,821 33,753 -- -- -- -- -- --
</TABLE>
- -------
(1) On June 21, 1994, Paradigm consummated a plan of reorganization (the
"Paradigm Reorganization") which established a new accounting basis. See
"Paradigm Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the lack of comparability of
periods before and after the Paradigm Reorganization. Net income/loss per
share for the periods prior to the Paradigm Reorganization has not been
presented as they are not considered to be meaningful.
(2) The period ended December 31, 1994 had ten more days than the normal six
month period.
(3) Net of co-development funding from a stockholder of $5,177 and $4,283 for
the years ended March 31, 1993 and 1994, respectively.
(4) The year ended March 31, 1993 includes a penalty payment of $2,000 related
to a lease consolidation agreement.
(5) The period ended June 20, 1994 includes a $12,990 extraordinary gain
resulting from the cancellation of liabilities in the Paradigm
Reorganization.
(6) The year ended December 31, 1996 includes charges of $4,632 resulting from
the sale of Paradigm's wafer fabrication facility and $3,841 related to
Paradigm's acquisition of NewLogic. See Note 11 and Note 6, respectively,
of Notes to Financial Statements.
(7) As restated for the 10-for-1 reverse stock split effective May 1, 1998.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF IXYS
The selected consolidated financial data as of March 31, 1997 and 1998 and
for each of the three years in the period ended March 31, 1998 have been
derived from, and should be read in conjunction with, the audited consolidated
financial statements of IXYS and related notes and "IXYS Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this Joint Proxy Statement/Prospectus. These consolidated financial
statements have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report thereon is also included elsewhere in this Joint
Proxy Statement/Prospectus. The selected consolidated financial data as of
March 31, 1994, 1995 and 1996 and for each of the two years in the period ended
March 31, 1995 are derived from audited consolidated financial statements of
IXYS.
IXYS SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Net revenues................ $ 34,365 $ 42,489 $ 57,436 $ 55,322 $ 56,856
Cost of goods sold.......... 24,310 28,488 35,629 34,158 38,048
-------- -------- -------- -------- --------
Gross profit................ 10,055 14,001 21,807 21,164 18,808
-------- -------- -------- -------- --------
Operating expenses:
Research, development and
engineering............... 2,325 2,848 3,423 3,015 3,329
Selling, general and admin-
istrative................. 7,103 7,118 9,430 8,950 8,384
Restructuring charge....... 1,779
-------- -------- -------- -------- --------
Total operating expenses... 11,207 9,966 12,853 11,965 11,713
-------- -------- -------- -------- --------
Operating income (loss)..... (1,152) 4,035 8,954 9,199 7,095
Interest expense............ (735) (715) (78) (116) (431)
Gain (loss) on foreign cur-
rency transactions......... 65 (2,246) (32) (246) 183
Other income (expense),
net........................ (104) (79) (1,578) (484) 3,466
-------- -------- -------- -------- --------
Income (loss) before (provi-
sion) benefit for income
taxes...................... (1,926) 995 7,266 8,353 10,313
(Provision) benefit for in-
come taxes................. 6,267 4,327 (3,946) (4,229)
-------- -------- -------- -------- --------
Net income (loss)........... $ (1,926) $ 7,262 $ 11,593 $ 4,407 $ 6,084
======== ======== ======== ======== ========
Net income (loss) per
share--basic............... $ (0.79) $ 2.99 $ 0.45 $ 0.08 $ 0.09
======== ======== ======== ======== ========
Shares used in per share
calculation--basic......... 2,449 2,426 25,709 53,478 65,501
======== ======== ======== ======== ========
Net income (loss) per
share--diluted............. $ (0.79) $ 0.11 $ 0.09 $ 0.02 $ 0.03
======== ======== ======== ======== ========
Shares used in per share
calculation--diluted....... 2,449 67,139 124,093 208,280 201,866
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents... $ 262 $ 2,154 $ 4,968 $ 6,640 $ 9,644
Working capital (deficit)
(2)........................ (2,702) 3,256 12,025 19,660 13,834
Total assets................ 14,047 26,943 39,626 39,410 54,340
Total debt, capital lease
and pension obligations.... 13,879 16,438 6,767 8,931 17,147
Mandatorily redeemable con-
vertible preferred stock
(1)........................ 27,107 27,107 37,556 37,556 37,556
Accumulated deficit......... (40,705) (33,443) (21,850) (17,443) (11,359)
Total stockholders' deficit
........................... (39,151) (32,823) (21,022) (17,129) (11,956)
</TABLE>
- --------
(1) Upon the Merger, the amount related to the mandatorily redeemable preferred
stock will be included in the stockholders' equity of the Combined Company.
(2) Working capital at March 31, 1998 has been reduced to reflect the
reclassification of $9,300,000 of mandatorily redeemable convertible
preferred stock as a current liability.
15
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table sets forth unaudited pro forma combined consolidated
financial data for Paradigm and IXYS which gives effect to the Merger,
accounted for as a purchase of Paradigm by IXYS for accounting and financial
reporting purposes, as if it had been consummated as of January 1, 1997 for the
year ended December 31, 1997 income statement data for the three months ended
March 31, 1998 income statement data. The balance sheet data assumes the merger
was consummated on March 31, 1998. See "The Merger Proposal and the Issuance
Proposal--Anticipated Accounting Treatment." The pro forma data is not
necessarily indicative of the results that would have been achieved had such
transaction been consummated on such dates and should not be construed as
representative of future operations. This presentation is subject to the
assumptions set forth in the notes to the Unaudited Pro Forma Condensed
Combined Financial Information appearing elsewhere in this Joint Proxy
Statement/Prospectus. The information presented should be read in conjunction
with such pro forma financial information and the notes thereto, and the
historical financial statements including the notes thereto, of Paradigm and
IXYS, respectively, appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Unaudited Pro Forma Condensed Combined Financial
Information," "Paradigm Financial Statements" and "IXYS Financial Statements."
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXPECT PER SHARE DATA)
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
Sales.................................. $66,437 $17,326
Operating (loss) income (1)............ $ 200 $ (692)
(Loss) income before taxes............. $(1,500) $ 3,360
Net (loss) income (2).................. $(5,152) $ 1,764
(Loss) income per share basic.......... $ (0.29) $ 0.10
Shares used in per share calculation--
basic (3)............................. 17,989 18,083
(Loss) income per share--diluted....... $ (0.29) $ 0.10
Shares used in per share calculation--
diluted............................... 17,989 18,247
</TABLE>
PRO FORMA COMBINED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
Current assets............................................. $44,006
Total assets(4)............................................ $62,197
Working capital............................................ $22,828
Current liabilities........................................ $21,178
Long term liabilities...................................... $12,950
Stockholders' equity (5)................................... $28,069
</TABLE>
See accompanying notes to unaudited selected pro forma combined financial data.
NOTES TO UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA:
(1) Operating income for the year ended December 31, 1997 includes $196 of
expense related to the amortization of intangible assets recorded in the
allocation of the purchase price. The operating loss for the three months
ended March 31, 1998 includes $49 of expense related to the amortization of
the intangible assets recorded in the allocation of the purchase price.
Intangible assets are being amortized over 24 months.
(2) Net (loss) income does not include in-process research and development
costs in the amount of $1,108 which will be written off immediately after
the transaction is completed.
(3) Shares used in per share calculation reflect 17.8 million shares issued to
IXYS stockholders as if they were outstanding from the beginning of the
period and Paradigm shares following the Reverse Stock Split.
(4) Total assets include intangible assets of $393 recorded as a result of the
allocation of the purchase price.
(5) Stockholders' equity reflects the conversion of IXYS mandatorily redeemable
convertible preferred stock into common stock.
16
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents selected comparative unaudited per share data
for Paradigm Common Stock on an historical and pro forma combined basis and for
IXYS Capital Stock on an historical and pro forma equivalent basis giving
effect to the Merger on a purchase accounting basis. For a description of the
purchase accounting treatment of the Merger and the related effects on the
historical financial statements of IXYS, see "The Merger Proposal and the
Issuance Proposal--Anticipated Accounting Treatment." The information presented
below should be read in conjunction with the historical financial statements
and notes thereto of Paradigm and IXYS and the Unaudited Pro Forma Combined
Condensed Financial Statements and related notes thereto, in this Joint Proxy
Statement/Prospectus. See "IXYS Corporation Financial Statements" and
"Unaudited Pro Forma Condensed Combined Financial Statements."
This information is not necessarily indicative of the results of future
operations of the Combined Company or the actual results that would have
occurred had the Merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED AT OR FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------------ --------------------------------
<S> <C> <C>
Per Share of Paradigm
Common Stock:
Book Value:
Historical(1)....... $ 2.59 $ 1.17
Pro forma(2)........ $ 1.51 $ 1.55
Net income (loss):
Historical.......... $(11.87) $(0.68)
Pro forma(2)........ $ (0.29) $ 0.10
Per Share of IXYS Capi-
tal Stock:
Book Value(3):
Historical.......... $ 0.13 $ 0.14
Pro forma equiva-
lent(4)............ $ 0.15 $ 0.15
Net income (loss):
Historical.......... $ 0.02 $ 0.01
Pro forma equiva-
lent(4)............ $ (0.03) $ 0.01
</TABLE>
- --------
(1) The Paradigm historical book value is computed by dividing stockholders
equity by the number of shares of Paradigm Common Stock outstanding at the
end of the period (1,160,100 at December 31, 1997 and 1,779,401 at March
31, 1998, respectively).
(2) Based upon the Assumed Exchange Ratio of 0.097189 of Paradigm Common Stock
for each share of IXYS Capital Stock after giving effect to the Reverse
Stock Split.
(3) The IXYS historical book value is computed by dividing stockholders' equity
by the number of shares of IXYS Common Stock outstanding at the end of the
period. For IXYS, all shares of IXYS Preferred Stock are assumed to convert
into IXYS Common Stock on a one-for-one basis.
(4) The IXYS pro forma equivalent per share amounts are calculated by
multiplying the Paradigm combined pro forma per share amounts by the
Assumed Exchange Ratio of 0.097189.
Note: Comparative per share amounts could vary significantly as a result of
changes in the Exchange Ratio (see pages 3 through 5 for additional
discussion on the alternative ratios).
17
<PAGE>
RISK FACTORS
This Joint Proxy Statement/Prospectus contains forward-looking statements
(including those set forth or referenced in "The Merger Proposal and the
Issuance Proposal--Background of the Merger," "--IXYS' Reasons for the
Merger," and "--Paradigm's Reasons for the Merger") that involve risks and
uncertainties. Paradigm's and IXYS' actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
risks and uncertainties, including risks relating to: (a) the integration of
Paradigm and IXYS; (b) the business of the Combined Company, including risks
relating to 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 suppliers, industry wide
shifts in supply and demand for semiconductor products, or foreign currency
fluctuations, government actions and the overall condition of the
semiconductor industry; (c) the risk that the potential benefits of the Merger
might not be realized and the possibility that the Merger might adversely
affect the Combined Company's relationship with certain its respective
customers; and (d) other matters set forth in this section and elsewhere in
this Joint Proxy Statement/Prospectus. In addition to the other information in
this Joint Proxy Statement/Prospectus, the following factors should be
considered carefully (i) by IXYS stockholders in evaluating an investment in
the shares of Paradigm Common Stock offered by this Joint Proxy
Statement/Prospectus and (ii) by Paradigm stockholders in considering the
Issuance Proposal.
RISKS RELATING TO THE MERGER
Dependence Upon IXYS Business, Operations and Management. This transaction
is a "reverse merger acquisition" in which the former stockholders, warrant
holders and optionees of IXYS will acquire a majority interest in the Combined
Company and will own, or have the right to acquire, approximately 95% of the
Combined Company. After the Merger, Paradigm stockholders, warrant holders and
optionees will own, or have the right to acquire, approximately 5% of the
Combined Company. In addition, following the Merger, the Combined Company's
business, operations and management will consist largely of the business,
operations and management of IXYS as existing prior to the Merger. Paradigm
stockholders should be aware that the Merger represents the investment of
substantially all of Paradigm's existing resources into a new and different
line of business, and that the Combined Company's future performance will be
largely dependent upon (and subject to the risks relating to) IXYS' business,
strategy, operations, management and personnel. Although Paradigm and IXYS
believe that the Combined Company will be able to realize value from
Paradigm's tangible and intangible assets after the Merger, there can be no
assurance that the Combined Company will be able to do so. In addition, there
can be no assurance that stockholders of Paradigm and IXYS would have achieved
greater returns on their investment if Paradigm and IXYS were to remain
independent companies.
Shares Eligible for Future Sale. In excess of 80% of Paradigm's currently
outstanding shares (as of June 16, 1998) are freely tradable (subject to
volume limitations applicable to affiliates). If the Merger is consummated at
an Assumed Exchange Ratio of 0.097189, after giving effect to the Reverse
Stock Split, Paradigm will issue to securityholders of IXYS approximately
17,845,965 shares of Paradigm Common Stock. Substantial sales of shares of
Paradigm Common Stock could occur after the Merger. Immediately upon
consummation of the Merger, all of the shares issuable in the Merger will be
freely-tradable (subject to volume limitations and other restrictions of Rules
144 and 145 under the Securities Act for persons who are affiliates of the
Combined Company following the Merger or who were affiliates of IXYS prior to
the Merger). Based on an Assumed Exchange Ratio of 0.097189, the number of
shares subject to IXYS Options and IXYS Warrants outstanding as of June 16,
1998 and Paradigm's intent to file a registration statement with respect to
the shares of Paradigm Common Stock underlying IXYS Options prior to the
Merger, approximately 2,403,406 additional shares could be sold upon the
exercise of IXYS Options and IXYS Warrants. See "The Merger Proposal and the
Issuance Proposal--Interests of Certain Persons" and "--Comparison of
Stockholders' Rights." In addition, prior to the consummation of the Merger,
Paradigm intends to provide for the acceleration of the vesting schedule for
all existing holders of Paradigm stock options. The number of freely tradeable
shares of Paradigm Common Stock will therefore increase based on the number of
option holders who choose to exercise their options. Future
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sales of a substantial number of shares of Paradigm Common Stock could
adversely affect or cause substantial fluctuations in the market price of
Paradigm Common Stock.
Uncertainty Relating to Integration. The Merger involves the integration of
two companies that have previously operated independently. Such integration
will require significant effort from each company, including the coordination
of their research and development and sales and marketing efforts. There can
be no assurance that the Combined Company will integrate the respective
operations of Paradigm and IXYS without encountering difficulties or
experiencing the loss of IXYS or Paradigm personnel or that the benefits
expected from such integration will be realized. The diversion of the
attention of management and any difficulties encountered in the transition
process (including the interruption of, or a loss of momentum in, IXYS'
activities, problems associated with integration of management information and
reporting systems, and delays in implementation of consolidation plans) could
have an adverse impact on the Combined Company's ability to realize
anticipated synergies from the Merger.
Incurrence of Significant Transaction Charges. Paradigm expects to incur
charges to operations currently estimated to be approximately $625,000. IXYS
expects to incur costs of approximately $800,000. These costs are to reflect
direct transaction costs, primarily for investment banking, legal and
accounting fees. This amount is a preliminary estimate and is therefore
subject to change. Additional unanticipated expenses may be incurred relating
to the integration of the businesses of Paradigm and IXYS. Currently, there
are no anticipated material costs in integrating IXYS and Paradigm. Although
it is expected that the elimination of duplicative expenses as well as other
efficiencies related to the integration of the business of the two companies
may offset additional expenses over time, there can be no assurance that such
net benefit will be achieved in the near term, or at all. There can be no
assurance that combining the business of Paradigm with the businesses of IXYS,
even if achieved in an efficient and effective manner, will result in combined
results of operations and financial condition superior to what would have been
achieved by each company independently.
Rights of Holders of IXYS Capital Stock Following the Merger. Following the
Merger, holders of IXYS Capital Stock outstanding as of the Effective Time
will become holders of Paradigm Common Stock. Certain differences exist
between the rights of stockholders of IXYS under IXYS' Amended and Restated
Certificate of Incorporation and IXYS' Bylaws and the rights of stockholders
of Paradigm under Paradigm's Restated Certificate of Incorporation and
Paradigm's Bylaws. See "Comparison of Stockholders' Rights."
RISKS RELATING TO THE BUSINESS OF PARADIGM
Uncertainty of Future Profitability; Need for Additional Funds. Paradigm's
recent operations have consumed substantial amounts of cash and have generated
net losses. Paradigm believes that it will require additional cash infusions
from private placements or other equity financings to meet Paradigm's
projected working capital and other cash requirements in 1998. The sale or
issuance of additional equity or convertible debt securities could result in
additional dilution to Paradigm'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 Paradigm.
Continuing Losses and Doubtful Ability to Continue as a Going Concern. As a
result of Paradigm's net losses, and Paradigm's dependence on additional
financing, Paradigm's independent accountants' report on Paradigm's December
31, 1997 financial statements includes an explanatory paragraph indicating
that these matters raise a substantial doubt about Paradigm's ability to
continue as a going concern. Paradigm is seeking to raise additional equity.
However, there can be no assurance that Paradigm's efforts will be successful.
Dilution of Common Stock. The issuance of additional shares of Common Stock
upon conversion of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock will have a dilutive effect on the Common Stock
outstanding prior to such issuances.
Fluctuations in Quarterly Results. Paradigm has experienced significant
quarterly fluctuations in operating results and anticipates that these
fluctuations will continue. These fluctuations have been caused by a number of
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factors, including changes in manufacturing yields by contracted
manufacturers, changes in the mix of products sold, the timing of new product
introductions by Paradigm or its competitors, cancellation or delays of
purchases of Paradigm's products, the gain or loss of significant customers,
the cyclical nature of the semiconductor industry and the consequent
fluctuations in customer demand for Paradigm's devices and the products into
which they are incorporated, and competitive pressures on prices. A decline in
demand in the markets served by Paradigm, 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
Paradigm. Moreover, because Paradigm 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
Paradigm's plan could have a material adverse effect on Paradigm.
Declining SRAM Prices. Beginning in late 1995 and continuing into 1996, 1997
and 1998, 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 Paradigm's products could continue to experience a
downward trend in pricing which could adversely affect Paradigm's operating
results. Paradigm'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 Paradigm's gross margins
unless Paradigm is able to reduce its costs per unit to offset such declines.
There can be no assurance that Paradigm will be able to increase unit sales
volumes, introduce and sell new products or reduce its costs per unit.
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 throughout 1997, the market for certain SRAM
devices experienced an excess supply relative to demand which resulted in a
significant downward trend in prices. Paradigm expects to continue to
experience a downward trend in pricing which could adversely affect Paradigm's
operating margins. The selling prices that Paradigm is able to command for its
products are highly dependent on industry-wide production capacity and demand,
and as a consequence Paradigm could experience rapid erosion in product
pricing which is not within the control of Paradigm and which could adversely
effect Paradigm's operating results. Paradigm expects that additional SRAM
production capacity will become increasingly available in the foreseeable
future, and such additional capacity may adversely affect Paradigm's margins
and competitive position. In addition, Paradigm may experience period-to-
period fluctuations in operating results because of general semiconductor
industry conditions, overall economic conditions, or other factors. Paradigm'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.
Risks Relating to Low-Priced Stocks. Prior to August 22, 1997, Paradigm's
Common Stock was listed on the Nasdaq National Market (the "NNM"). In order
for continued listing on the NNM, however, Paradigm 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 $2,000,000 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, Paradigm was not in
compliance with items (1) and (4) above.
On July 15, 1997, the Nasdaq Stock Market ("Nasdaq") staff notified Paradigm
of a bid price deficiency and provided a 90-day grace period within which to
regain compliance with this requirement. On August 8, 1997, Nasdaq, based on a
review of Paradigm's trading history from July 8 to August 8, 1997, indicated
that Paradigm had regained compliance with the minimum closing bid price
requirement of $1.00. On August 20, 1997, Nasdaq informed Paradigm that due to
its failure to comply with the terms of the maintenance qualifications
exception granted to Paradigm, Paradigm's Common Stock would be removed from
the NNM and listed on the SmallCap Market ("SCM") effective August 22, 1997,
pursuant to a waiver to the initial inclusion bid price requirement.
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On August 22, 1997, Paradigm announced that effective on such date
Paradigm's Common Stock, formerly listed on the NNM, would be listed on the
SCM, pursuant to a waiver to the initial inclusion bid price requirement.
Paradigm's continued listing on the SCM is contingent upon Paradigm meeting
the maintenance requirements.
Substantial changes in Nasdaq initial listing and maintenance requirements
became effective on February 23, 1998. These changes materially enhance the
quantitative threshold criteria necessary to qualify for initial entry and
continued listing on Nasdaq. In addition, corporate governance requirements,
formerly applicable to the NNM for the first time, have been extended to the
SCM. These changes require that companies listed on the SCM maintain (i)
$2,000,000 in net tangible assets (total assets less total liabilities and
goodwill), a market capitalization of $35,000,000, or $500,000 in net income
for two of the last three years, (ii) a $1,000,000 market value for the public
float, (iii) two market-makers, and (iv) a minimum bid price of $1.00 per
share.
After the new maintenance requirements became effective, Paradigm was
notified that it was not in compliance with the new minimum bid price
requirement and that Paradigm would have 90-calendar days, which expired May
28, 1998, in order to regain compliance. Paradigm may regain compliance if its
securities trade at or above the minimum bid price requirement for at least
ten consecutive trade days. If after 90 days Paradigm has not regained
compliance, Nasdaq will issue a delisting letter and Paradigm may request a
hearing at that time, which will generally stay delisting until the hearing
has been completed. Paradigm stockholders, at a Special Meeting of
Stockholders held on May 1, 1998, approved a ten-for-one reverse stock split
of Paradigm's Common Stock such that every ten shares were combined into one
share of Common Stock, par value $.01 per share. The stock split increased the
price per share of Paradigm's Common Stock sufficiently to bring such price
over $1.00 per share for a period of more than ten trading days. No assurances
can be made that such stock will continue to trade above $1.00 per share or
that Paradigm will be in compliance with the Nasdaq listing requirements.
If Paradigm's securities are delisted from Nasdaq, trading, if any, of
Paradigm's securities would thereafter have to be conducted in the non-Nasdaq
over-the-counter market. In such event, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market
value of, Paradigm'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 Paradigm's Common Stock
would also be subject to the requirements of certain rules promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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.) The additional burdens imposed upon broker-dealers by
such requirements could discourage broker-dealers from effecting transactions
in the Common Stock, which could severely limit the market liquidity of the
Common Stock and the ability of investors to trade Paradigm's Common Stock.
See "--Risks Relating to Low-Priced Stock; Possible Effect of "Penny Stock'
Rules on Liquidity for Paradigm's Securities." Paradigm's Common Stock
continues to be below the $1.00 minimum bid price requirement. If Paradigm's
securities remain below the minimum bid price requirement, it could result in
Paradigm's securities being delisted from Nasdaq. There can be no assurances
that Paradigm's securities will meet the minimum bid price requirements or any
of the other continued listing requirements in the future.
Risks Relating to Low-Priced Stock; Possible Effect of "Penny Stock" Rules
on Liquidity for Paradigm's Securities. If Paradigm'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 spouse). 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
Paradigm's securities and may affect the ability of purchasers to sell any of
Paradigm's securities in the secondary market.
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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 Paradigm's
securities if Paradigm meets certain minimum net tangible assets or average
revenue criteria. If applicable, there can be no assurance that Paradigm's
securities will qualify for exemption from the penny stock restrictions. In
any event, even if Paradigm's securities were exempt from such restrictions,
Paradigm 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 Paradigm's securities were subject to the rules on penny stocks, the
market liquidity for Paradigm's securities could be materially adversely
affected.
Dependence on New Products and Technologies. The market for Paradigm's
products is characterized by rapidly changing technology, short product life
cycles, cyclical oversupply and rapid price erosion. Average selling prices
for many of Paradigm's products have generally decreased over the products'
life cycles in the past and are expected to decrease in the future.
Accordingly, Paradigm'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 Paradigm's ability to develop
and implement new product designs, achievement of acceptable production yields
and market acceptance of customers' end products. In the past, Paradigm 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 Paradigm is unable to
design, develop and introduce competitive products or to develop new or
modified designs on a timely basis, Paradigm's operating results will be
materially adversely affected.
Dependence on Foundries and Other Third Parties. Paradigm is 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 Paradigm 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 Paradigm'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 Paradigm, or
should Paradigm's supply from a foundry be interrupted or terminated for any
other reason, Paradigm may not have a sufficient amount of time to replace the
supply of products manufactured by the foundry. Should Paradigm 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 Paradigm will
obtain sufficient foundry capacity to meet customer demand in the future,
particularly if that demand should increase. Paradigm 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 Paradigm's requirements on a timely basis or at acceptable
quality or per unit prices.
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Constraints or delays in the supply of Paradigm'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 Paradigm's operating results, including
effects that may result should Paradigm be forced to purchase products from
higher cost foundries or pay expediting charges to obtain additional supply.
Litigation. On August 12, 1996, a securities class action lawsuit was filed
in Santa Clara County Superior Court against Paradigm and Michael Gulett,
Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm
Defendants") and PaineWebber, Inc. The class alleged by plaintiffs consisted
of purchasers of Paradigm Common Stock from November 20, 1995 to March 22,
1996, inclusive (the "Class Period"). 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 unspecified amount of compensatory and punitive
damages. Plaintiffs allege, among other things, that the Paradigm Defendants
wrongfully represented that Paradigm would have protection against adverse
market conditions in the semiconductor market based on Paradigm's focus on
high speed, high performance semiconductor products. Plaintiffs allege that
the Paradigm Defendants made these alleged misrepresentations to enable: (i)
insiders to sell their shares at a profit, (ii) Paradigm's stock price to be
positioned for a secondary offering of 243,250 shares of stock (which was
later withdrawn) and (iii) Paradigm to acquire NewLogic (which acquisition was
later accomplished in exchange for 31,439 shares of Paradigm's Common Stock
and cash). Plaintiffs allege defendants McClelland, McDonald and Veldhouse
respectively acquired 55, 54 and 63 shares of the Company's stock on January
2, 1996 at a price of $114.80 per share and sold all of the stock on the same
day at a price of $135.00 per share. Plaintiffs further allege (i) defendant
McClelland sold 700 shares of Paradigm's stock on or about February 22, 1996
at a price of $145.00 per share, (ii) defendant Lam sold 313 shares of
Paradigm's stock on or about February 23, 1996 at a price of $150.00 per
share, which Shares were acquired by exercise of options on January 2, 1996 at
a price of $5.00 per share and (iii) defendant McClelland sold 100 shares of
the Company's stock on February 26, 1996 at a price of $165.00. 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 against Michael Gulett and as
to all causes of actions, except for violation of certain provisions of the
California Corporate Securities Law, against the remaining Paradigm
Defendants. 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. 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.
On January 15, 1997, plaintiffs filed a motion to certify the matter as a
class action. Plaintiffs sought by their motion to certify a nationwide class
of those who purchased Paradigm's stock during the Class Period. After several
hearings and continuances, on February 9, 1998 the Court certified a class
consisting only of California purchasers of Paradigm's stock during the Class
Period. On April 9, 1998, the Court granted Plaintiffs' motion to amend their
complaint to incorporate factual allegations derived from the May 19, 1997
action described below. The Paradigm Defendants' have filed a demurrer in
response to the amended complaint, which is set for hearing on August 6, 1998.
There can be no assurance that Paradigm will be successful in the defense of
this action. If unsuccessful in the defense of any such claim, Paradigm'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 Paradigm and Michael Gulett,
Robert McClelland, Richard A. Veldhouse, Chiang Lam, PaineWebber, Inc. and
Smith Barney (the "Paradigm Defendants"), with causes of action and factual
allegations essentially identical to those of the August 12, 1996 class action
lawsuit. Prior to the hearing on the Paradigm
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Defendants' demurrer to the initial complaint, plaintiff amended his complaint
to incorporate factual allegations derived from the May 19, 1997 lawsuit
described below. The Paradigm Defendants filed a demurrer to the amended
complaint, which was heard on September 9, 1997. On September 10, 1997, the
Court issued an order sustaining the Paradigm Defendants' demurrer as to all
causes of action without leave to amend. A judgment in favor of the Paradigm
Defendants dismissing the entire complaint was entered by the Court on
September 23, 1997. Plaintiff has appealed the decision and filed a brief in
support of his appeal. The Paradigm Defendants' responsive brief was filed
March 30, 1998. There can be no assurances that Paradigm will be successful in
defeating the appeal. If unsuccessful in defeating the appeal, Paradigm's
business, operating results and cash flows could be materially adversely
affected.
On May 19, 1997, three former employees of Paradigm, Thomas Campbell, James
Zulliger and Mark Wagenhals, filed an action in Santa Clara County Superior
Court. The complaint names as defendants Paradigm, 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 described above. 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 Paradigm's stock at allegedly inflated prices and were damaged
thereby. The plaintiffs sought an unspecified amount of compensatory,
rescissory and/or punitive damages. Defendants responded to the complaint on
September 12, 1997 by filing a demurrer as to all causes of action. Prior to
the hearing on the demurrer, Plaintiffs amended their complaint to identify
two allegedly fraudulent sale transactions. In particular, Plaintiffs allege
that Paradigm reported a sale of $1,650,000 worth of products to NexGen, Inc.,
one of Paradigm's customers, that was not a legitimate sale. Plaintiffs allege
that the order was sent to the shipping floor during the evening shift on
December 31, 1995, to be out before midnight, was included in year-end sales
and was returned, apparently untouched, in April 1996. In addition, plaintiffs
allege that on March 31, 1996, Paradigm shipped $1,440,080 worth of products
to Arco, one of Paradigm's distributors, that was not a legitimate order.
Plaintiffs allege this shipment was later returned untouched for full credit.
Defendants filed a demurrer as to all causes of action in the amended
complaint, which was heard on April 2, 1998. That same day, the Court issued
its order sustaining the demurrer on multiple grounds, but granted Plaintiffs
leave to amend the complaint by May 15, 1998. Defendants' filed a demurrer in
response to the second amended complaint, which is set for hearing on
September 3, 1998. Plaintiffs have served Paradigm and two of the individual
defendants with requests for production of documents, to which Paradigm and
the individual defendants have responded. Plaintiffs also took the deposition
of a third party on April 23, 1998. Paradigm has served plaintiff with form
interrogatories, to which they have responded. Paradigm also took the
Plaintiffs' depositions on April 20-22, 1998. The deposition of one of the
plaintiffs is continuing. There can be no assurance that Paradigm will be
successful in defense of this action. If unsuccessful in the defense of any
such claim, Paradigm's business, operating results and cash flows could be
materially adversely affected.
On May 19, 1998, an additional securities class action lawsuit was filed in
the United States District Court for the Northern District of California
against Paradigm and Michael Gulett, Robert McClelland, Richard A. Veldhouse
and Chiang Lam. The complaint alleges violations of section 10(b) of the
Exchange Act, Securities and Exchange Commission Rule 10b-5 and section 20(a)
of the Exchange Act. Plaintiff alleges the same class and the same substantive
factual allegations that are contained in the August 12, 1996 action as
amended. Plaintiffs seek an unspecified amount of compensatory and punitive
damages. The Paradigm Defendants intend to vigorously defend the action.
Defendants' response to the complaint is due to be filed on July 27, 1998.
There can be no assurances that Paradigm will be successful in the defense of
this action. If unsuccessful in the defense of any such claim, Paradigm's
business, operating results and cash flows could be materially adversely
affected.
Paradigm 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 Paradigm.
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Product and Customer Concentration; Dependence on Telecommunications and
Computer Industries. Currently, substantially all of Paradigm's sales are
derived from the sale of SRAM products. Substantially all of Paradigm'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 Paradigm.
However, 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. Paradigm'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. Paradigm competes with large
domestic and international semiconductor companies, most of which have
substantially greater financial, technical, marketing, distribution and other
resources than Paradigm. Paradigm'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 Paradigm to compete successfully depends on many elements
outside its control, including the rate at which customers incorporate
Paradigm's products into their systems, the success of such customers in
selling those systems, Paradigm'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, Paradigm'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 Paradigm will be able to compete
successfully in the future.
Strategic Relationships; Potential Competition. Paradigm, pursuant to
certain licenses of its technology, has entered into strategic relationships
with NKK. Paradigm has had a long-standing business relationship with NKK
which began in October 1992. Paradigm, NKK and affiliates of NKK entered into
several equity and debt transactions which provided start-up and development
funding to Paradigm. Given the long-standing relationship, Paradigm and NKK
entered into three technology license and development agreements which provide
for NKK to supply Paradigm a specified number of 1M SRAMs for three years.
These agreements provided funding to Paradigm.
Paradigm's business relationship with Atmel began in April 1995 when
pursuant to certain agreements, Atmel purchased a substantial number of shares
of Paradigm's capital stock from Paradigm, certain stockholders of Paradigm
who had been unsecured creditors of Paradigm as of the reorganization and from
Paradigm's equipment lessors. Atmel also acquired certain warrants to purchase
shares of Paradigm's Common Stock. In 1995, Paradigm 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. Paradigm entered into such agreement with Atmel because Atmel
provided Paradigm with significant wafer manufacturing capacity when such
capacity was in short supply.
Paradigm 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. Paradigm has not licensed
any of its current products to NKK. In the future, Paradigm 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
Paradigm's design and process technologies, and therefore may become a more
significant competitor of Paradigm. Any such competition with NKK could
adversely affect Paradigm. Paradigm has also licensed to Atmel the right to
produce
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certain of its SRAM products which provided significant wafer manufacturing
capacity. As a result, Paradigm is likely to compete with Atmel with respect
to such products. Because Atmel has greater resources than Paradigm and has
foundry capacity, any such competition could adversely affect Paradigm. To the
extent that Paradigm enters into similar arrangements with other companies, it
may compete with such companies as well.
Dependence on Patents, Licenses and Intellectual Property; Potential
Litigation. Paradigm intends to continue to pursue patent, trade secret, and
mask work protection for its semiconductor process technologies and designs.
To that end, Paradigm 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 Paradigm. In particular, there can be no assurance
that any patents held by Paradigm will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantage to Paradigm. Paradigm 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 Paradigm will have adequate remedies for any
breach, or that Paradigm's trade secrets will not otherwise become known to or
independently developed by others. In addition, the laws of certain
territories in which Paradigm's products are or may be developed, manufactured
or sold may not protect Paradigm'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 Paradigm, to protect
trade secrets or know-how owned by Paradigm, or to defend Paradigm against
claimed infringement of the rights of others and to determine the scope and
validity of the proprietary rights of others. Paradigm 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
Paradigm, which could have a material adverse effect on Paradigm. Further,
adverse determinations in such litigation could result in Paradigm's loss of
proprietary rights, subject Paradigm to significant liabilities to third
parties, require Paradigm to seek licenses from third parties or prevent
Paradigm from manufacturing or selling its products, any of which could have a
material adverse effect on Paradigm.
International Operations; Currency Fluctuations. A significant portion of
Paradigm's sales are attributable to sales outside the United States,
primarily in Asia and Europe. In fiscal 1997, Asia and Europe accounted for
approximately 7% and 5%, respectively, of Paradigm's revenues. Paradigm
expects that international sales will continue to represent a significant
portion of its sales. Paradigm currently conducts business in Singapore,
Japan, Taiwan, Hong Kong, United Kingdom, Belgium, Sweden, France, Germany and
Israel. In addition, Paradigm expects that a significant portion of its
products will be manufactured by independent third parties in Asia. Therefore,
Paradigm is subject to the risks of conducting business internationally, and
both manufacturing and sales of Paradigm'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 Paradigm's ability to have products manufactured or
sell products in foreign markets. Paradigm 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 Paradigm'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 Paradigm will not be
adversely affected by currency fluctuations in the future. The prices for
Paradigm's products are denominated in U.S. dollars and all of Paradigm's
business transactions are in U.S. dollars. Accordingly, any increase in the
value of the dollar as compared to currencies in Paradigm's principal overseas
markets would increase the foreign currency-denominated sales prices of
Paradigm's products, which may negatively affect Paradigm's sales in those
markets. Paradigm has not entered into any agreements or instruments to hedge
the risk of foreign
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currency fluctuations. Currency fluctuations in the future may also increase
the manufacturing costs of Paradigm's products. Although Paradigm 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 Paradigm's general business, financial condition and results
of operations.
Employees. Paradigm's future success will be heavily dependent upon its
ability to attract and retain qualified technical, managerial, marketing and
financial personnel. Paradigm 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.
Recently, Paradigm has had to significantly reduce its work staff. There can
be no assurance that Paradigm will be able to attract and retain the necessary
personnel, and any failure to do so could have a material adverse effect on
Paradigm.
Potential Volatility of Stock Price. The trading price of Paradigm's Common
Stock is subject to wide fluctuations in response to variations in operating
results of Paradigm and other semiconductor companies, actual or anticipated
announcements of technical innovations or new products by Paradigm or its
competitors, general conditions in the semiconductor industry and the
worldwide economy, and other events or factors. Paradigm's stock traded from a
high of $372.50 in August 1995 to a low of $0.563 in June 1998 (after giving
effect to the ten-for-one reverse stock split). 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 Paradigm Common Stock.
Antitakeover Effect of Certain Charter Provisions. Certain provisions of
Paradigm'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 Paradigm. 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 take-over 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 Paradigm. 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.
Year 2000. The Year 2000 issue arises because most computer hardware and
software was developed without considering the impact of the upcoming change
in the century. The hardware and software were originally designed to accept
two-digit entries rather than four-digit entries in the date code field. As a
result, certain computer systems and software packages will not be able to
correctly interpret dates beyond December 31, 1999 and thus, will interpret
dates beginning January 1, 2000 to represent January 1, 1900. This could
potentially result in computer failure or miscalculations, causing operating
disruptions, including among other things, a temporary inability to process
transactions, send invoices or engage in other ordinary activities.
Paradigm has evaluated all of its computer software and database software to
identify modifications, if any, that may be required to address Year 2000
issues. Paradigm does not believe there is significant risk associated with
the Year 2000 problem. Paradigm primarily uses third-party software programs
written and updated by outside firms. Paradigm intends to test all of its
software programs during 1998 to ensure that each will work in conjunction
with the other after December 31, 1999. If unforeseeable problems arise during
the testing phase, Paradigm intends to have them corrected prior to the end of
the 1998 calendar year. Paradigm does not expect the financial cost associated
with any required modifications to have a material adverse impact on
Paradigm's results, operations or financial condition. Paradigm also relies on
third parties to ship its products. Paradigm is currently investigating
whether such third parties are Year 2000 compliant. Paradigm does not expect
that failure on the part of any third party to be Year 2000 compliant will
have a material adverse impact on its business, results of operations or
financial condition.
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RISKS RELATING TO THE BUSINESS OF IXYS
Please see page 123 for a glossary that defines certain technical terms used
throughout the descriptions of IXYS' risk factors and business.
Factors Affecting Operating Results. IXYS' quarterly and annual operating
results are affected by a wide variety of factors that could materially
adversely affect revenues and profitability, including IXYS' ability to
introduce new products and technologies on a timely basis; the level of orders
received which can be shipped in a quarter; availability of foundry capacity
and raw materials; the timing of investments in research and development,
including tooling expenses associated with product development and pre-
production; competitive pressures on selling prices; the timing and
cancellation of customer orders; the timing and provision of pricing
projections and returns from certain distributors; fluctuations in yields;
changes in product mix; introduction of products and technologies by IXYS'
competitors; foreign currency fluctuations; cyclicality of the semiconductor
industry; seasonality; and whether IXYS' customers buy from a distributor or
directly from IXYS. IXYS markets its products to various industries including
the computers and peripherals, industrial machinery and equipment,
telecommunications, transportation, medical and other industries. A downturn
in any of IXYS' markets could materially adversely affect IXYS' business,
financial condition and results of operations. Sudden shortages of raw
materials or production capacity constraints can lead producers to allocate
available supplies or capacity to customers with resources greater than those
of IXYS, which could interrupt IXYS' ability to meet its production
obligations. Historically, average selling prices in the integrated circuits
("IC") and power semiconductor industries have decreased over the life of a
product, and as a result, the average selling prices of IXYS' products may be
subject to significant pricing pressures in the future.
Customer orders typically can be canceled or rescheduled without significant
penalty to the customer. As a result, backlog may not be indicative of sales
for any future period. IXYS typically plans its production and inventory
levels based on forecasts of customer demand, which are highly unpredictable
and can fluctuate substantially. Because IXYS is continuing to increase its
operating expenses for personnel and new product development and for inventory
in anticipation of increasing sales levels, operating results would be
adversely affected if increased sales are not achieved. In addition, a large
part of IXYS' expenses are fixed and difficult to reduce in response to any
revenue shortfalls. From time to time, in response to anticipated long lead
times to obtain inventory and materials from its foundries, IXYS may order in
advance of anticipated customer demand, which might result in excess inventory
levels if expected orders fail to materialize or other factors render the
customer's product less marketable.
As a result of the foregoing or other factors, IXYS may experience material
fluctuations in future operating results on a quarterly or annual basis which
could materially and adversely affect its business, financial condition and
results of operations. Due to the foregoing factors, it is likely that in some
period, IXYS' revenues or operating results will be below the expectations of
public market analysts and investors. In such event, the price of the IXYS
Common Stock would likely be materially adversely affected.
Manufacturing. IXYS manufactures its products in manufacturing facilities
which are owned and operated by IXYS and by utilizing outside wafer foundries
and independent subcontract assembly facilities. The fabrication of discrete
and integrated circuits is a highly complex and precise process. Minute levels
of contaminants in the manufacturing environment, difficulties in the
fabrication process, defects in the masks used to print circuits on a wafer,
manufacturing equipment failure, wafer breakage or other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
to be nonfunctional. In the event that IXYS increases its manufacturing
output, there can be no assurance that IXYS will not experience a decrease in
manufacturing yields. Moreover, there can be no assurance that IXYS in general
will be able to maintain acceptable manufacturing yields in the future. To the
extent IXYS does not achieve acceptable manufacturing yields or experiences
product shipment delays, its business, financial condition and results of
operations would be materially and adversely affected. To achieve adequate
production yields, IXYS may need to expand its existing facilities. There can
be no assurance that IXYS will be able to cost-effectively expand its existing
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facilities in a timely manner, if at all, or achieve adequate production
yields from such expanded facilities. If IXYS fails to cost-effectively expand
its existing facility in a timely manner, its business, financial condition
and results of operations may be adversely affected. See "IXYS Business--
Manufacturing."
Dependence on Third Parties for Wafer Fabrication and Assembly. Forty-four
percent (44%) of the revenue in fiscal year 1998 came from wafers acquired
from outside foundries. Dependency on outside foundries is expected to grow.
IXYS has arrangements with five wafer foundries, of which two foundries
provide 99% of the wafers provided to IXYS by outside foundries. IXYS has a
supply agreement with one of these foundries, Samsung Electronics Co.
("Samsung"). There can be no assurance that this agreement will be extended
beyond its current terms. IXYS expects that it will continue to rely
significantly on outside foundries in the future. There are significant risks
associated with IXYS' reliance on outside foundries, including the lack of
assured supply of an adequate quantity of semiconductor devices, control over
delivery schedules and limited control over quality assurance, manufacturing
yields and production costs. IXYS' foundries may from time to time experience
lower than anticipated manufacturing yields, particularly in connection with
the introduction of new products and the installation and start-up of new
process technologies. There can be no assurance that IXYS' foundries will not
experience lower than expected manufacturing yields in the future which could
materially and adversely affect IXYS' business, financial condition and
results of operations.
The ability of each foundry to provide semiconductor devices to IXYS is
limited by the foundry's available capacity. Therefore, IXYS' foundry
suppliers could choose to prioritize capacity for other customers or uses or
reduce or eliminate deliveries to IXYS on short notice. Accordingly, there is
no assurance that IXYS' foundries will allocate sufficient capacity to satisfy
IXYS' requirements. In addition, IXYS has been, and expects in the future to
be, particularly dependent upon a limited number of foundries for its power
MOSFET requirements. To address foundry capacity constraints, other
semiconductor suppliers that rely on third-party foundries have utilized
various arrangements, including equity investments in or loans to independent
wafer manufacturers in exchange for guaranteed production capacity, joint
ventures to own and operate foundries or take or pay contracts that commit a
company to purchase specified quantities of wafers over extended periods.
While IXYS is not currently a party to any such arrangements, it may be
required to enter into such arrangements in the future, and there can be no
assurance that it will be successful in this regard. Any such arrangements
could require IXYS to commit substantial capital and grant licenses to its
technology. The need to commit substantial capital may require IXYS to obtain
additional debt or equity financing, which could result in dilution to IXYS'
stockholders. There can be no assurance that such additional financing, if
required, will be available when needed or, if available, will be obtained on
terms acceptable to IXYS.
There can be no assurance that material disruptions in supply will not occur
in the future. In such event, IXYS may have to identify and secure additional
foundry capacity and may be unable to identify or secure additional foundry
capacity from another manufacturer, particularly at the levels that IXYS
currently anticipates such foundries to provide. Even if such capacity is
available from another manufacturer, the qualification process could take six
months or longer. If IXYS were unable to qualify alternative manufacturing
sources for existing or new products in a timely manner or if such sources
were unable to produce semiconductor devices with acceptable manufacturing
yields and at acceptable prices, IXYS' business, financial condition and
results of operations would be materially and adversely affected.
IXYS relies on independent subcontract assembly facilities for its discrete
and IC product requirements. IXYS' reliance on independent assemblers may
subject IXYS to supply constraints and longer manufacturing cycle times, which
could delay deliveries of IXYS' products to its customers. IXYS has from time
to time experienced competition from other manufacturers seeking assembly of
circuits by independent contractors, which could further constrain supply.
Such constraints or delays might result in the loss of customers, limitations
or reductions in IXYS' revenues or other material adverse effects on IXYS'
business, financial condition or results of operations. Although IXYS
currently believes that alternative assembly sources could be obtained, there
can be no assurance that such alternative sources could be quickly obtained or
obtained at acceptable prices. Failure to obtain such alternative assembly
sources in a timely manner, or at all, would have a material adverse effect on
IXYS' business, financial condition and results of operations. IXYS' reliance
on independent
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assemblers involves a number of other risks, including reduced control over
quality assurance and costs. The inability of such third parties to deliver
products of acceptable quality and at an acceptable cost could have a material
adverse effect on IXYS' business, financial condition and results of
operations. See "IXYS Business--Manufacturing."
Dependence on Suppliers. IXYS purchases silicon wafers from Sumitomo Sitix
Silicon, Inc., Epitech and Wacker AG, with whom IXYS does not have long term
supply agreements. Any of these suppliers could eliminate or terminate IXYS'
supply of wafers at any time. IXYS' reliance on a limited number of suppliers
involves several risks, including potential inability to obtain an adequate
supply of silicon wafers and reduced control over the price, timely delivery,
reliability and quality of the silicon wafers. There can be no assurance that
problems will not occur in the future with suppliers.
The silicon wafers used as starting material for power semiconductors are
different from the type of silicon wafers used for ICs. Power semiconductors
require silicon wafers with thicker layers for higher voltage blocking
capability. In addition, the IC industry has been moving toward the use of 8"
and larger diameter wafers, which require large capital equipment expenditures
from silicon wafer suppliers and IC manufacturers. Currently, the power
semiconductor industry generally uses 4" and 5" wafers, although IXYS
anticipates that the power semiconductor industry will move toward 6" wafers
for at least some applications. To the extent the power semiconductor industry
moves toward the use of larger wafer sizes, IXYS or its suppliers will be
required to invest in the processing equipment necessary for these larger
diameter wafers. Power semiconductor manufacturers currently rely on the
availability of smaller diameter silicon wafers for their needs, and there is
a risk that silicon wafer suppliers will move to larger diameter wafers to
cater to the IC industry, thus limiting the supply of the more economical 4"
and 5" wafers and forcing IXYS to make the large capital expenditures
necessary for processing the larger diameter wafers. The unavailability of 4"
and 5" silicon wafers in sufficient quantities to meet IXYS' manufacturing
needs, or an increase in the price of such wafers as a result of shortages in
their supply, would have a material adverse effect on IXYS' business,
financial condition and results of operations.
Because of IXYS' limited inventory of raw materials and tight manufacturing
cycles, unanticipated interruptions of supply, which have occurred
periodically in the past, could have a material adverse effect on IXYS'
business, financial condition and results of operations.
Competition. The power semiconductor industry is intensely competitive and
is characterized by price competition, technological change, limited
fabrication capacity, international competition and manufacturing yield
problems. The ability of IXYS to compete successfully in this evolving
industry depends on factors both within and outside its control, including
success in designing and subcontracting the manufacture of new products that
implement new technologies, protection of Company products by effective
utilization of intellectual property laws, product quality, reliability,
price, efficiency of production, the pace at which customers incorporate IXYS'
power semiconductors into their products, success of competitors' products and
general economic conditions.
IXYS encounters differing degrees of competition for its various products,
depending upon the type of product and the particular market served. Many of
IXYS' competitors are larger companies with greater financial, technical and
marketing resources than IXYS. The competitive factors in the market for IXYS'
products include overall functional performance of the products, quality,
price, reliability, breadth and availability of products, delivery time to the
customer and service. IXYS' primary competitors include Advanced Power
Technology, Fuji, International Rectifier, Harris Corporation, Motorola, Inc.,
Powerex, Inc., SGS-Thomson Microelectronics, Siemens AG and Toshiba
Corporation. Certain of these competitors may benefit from established
customer relationships that provide them with a competitive advantage. New
entrants could also attempt to obtain a share of the market for IXYS' current
and future products. There can be no assurance that IXYS will continue to be
able to compete successfully against current or new competitors or new
technologies in the future. See "IXYS Business--Competition."
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Management of International Operations; Fluctuation in Exchange Ratios. IXYS
operates a manufacturing facility in Lampertheim, Germany, relies on foundry
and assembly facilities in Asia and Europe and conducts a substantial portion
of its operations outside the United States. In fiscal 1996, 1997 and 1998,
foreign sales accounted for approximately 66%, 62% and 63%, respectively, of
IXYS' total revenues. IXYS anticipates that foreign sales will continue to
account for a significant percentage of its revenues. A significant portion of
IXYS' total revenues will therefore be subject to risks associated with
foreign operations, including unexpected changes in, and the burden of
complying with, a wide variety of legal and regulatory requirements and policy
changes, changes in tariffs, exchange rates and other barriers, political and
economic instability, difficulties in accounts receivable collection,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign operations, difficulties in protecting IXYS'
intellectual property overseas, seasonality of sales and potentially adverse
tax consequences. IXYS is also subject to risks associated with regulations
relating to the import and export of high technology products. IXYS cannot
predict whether quotas, duties, taxes or other charges or restrictions upon
the importation or exportation of IXYS' products in the future will be
implemented by the United States or any other country. IXYS' sales of products
manufactured in, and salaries of its personnel at, its Lampertheim facility
are denominated in German marks. Fluctuations in the German mark against the
United States dollar have had, and could in the future have, a significant
impact on the Company's balance sheet and results of operations. The Company's
net income has in the past and could in the future vary significantly
depending on fluctuations in the German mark against the United States dollar.
IXYS currently does not enter into foreign currency hedging transactions.
Fluctuations in currency exchange rates has caused, and could in the future
cause, IXYS' products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. To the extent that IXYS expands its international operations or
changes its pricing practices to denominate prices in other foreign
currencies, IXYS will be exposed to even greater risks of currency
fluctuations. There can be no assurance that any of these factors will not
have a material adverse effect on IXYS' business, financial condition and
results of operations. See "IXYS Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "IXYS Business--
Environmental Matters."
Management of Growth. To effectively manage its future growth, if any, IXYS
will need to implement a variety of new or expanded business and financial
systems, procedures and controls, including the improvement of its accounting,
manufacturing and other internal management systems. Currently, IXYS is in the
process of implementing a new comprehensive management information system
addressing all operational functions, including, sales, inventory, and
engineering functions. There can be no assurance that the implementation of
such systems, procedures and controls can be completed successfully, or
without disruption of IXYS' operations. Expansion of IXYS could significantly
strain IXYS' management, financial and other resources. In particular, if IXYS
seeks to increase its manufacturing capacity, it may be necessary for IXYS to
efficiently allocate any increased capacity among its products and to react to
changing market conditions, and the failure to do so would have a material
adverse effect on IXYS' business, financial condition and results of
operations. See "IXYS Business--Manufacturing."
In addition, IXYS has hired and will be required to hire in the future
substantial numbers of new employees, particularly additional management
personnel. The market for such personnel has become increasingly competitive,
and the inability of IXYS to recruit, train and retain adequate numbers of
qualified personnel would adversely affect IXYS' ability to manufacture and
sell its products.
As IXYS may be required to design and manufacture its products in larger
volumes, it may become more difficult for IXYS to maintain its standards of
quality and reliability, and delivery times for its products may grow longer.
Further, if IXYS is unable to expand its manufacturing capacity to meet
demand, the placement of a large order requiring the delivery of products
during a particular period might deter other customers from placing orders
with IXYS that would require development and delivery of products during the
same period.
There can be no assurance that IXYS' systems, procedures, controls and
personnel will be adequate to support IXYS' operations. Failure to manage
IXYS' growth effectively could have a material adverse effect on IXYS'
business, financial condition and results of operations. See "IXYS Business--
Employees" and "--Management."
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Dependence on Patents and Proprietary Technology. IXYS relies on a
combination of patent rights, copyrights and trade secrets to protect the
proprietary elements of its products. However, there can be no assurance that
such measures will provide adequate protection for IXYS' trade secrets or
other proprietary information, that disputes with respect to the ownership of
its intellectual property rights will not arise, that IXYS' trade secrets or
proprietary technology will not otherwise become known or be independently
developed by competitors or that IXYS can otherwise meaningfully protect its
intellectual property rights. IXYS' policy is to file patent applications to
protect technology, inventions and improvements that are important to its
business. There can be no assurance that patents will issue from any of IXYS'
pending applications or that any claims allowed from existing or pending
patents will be sufficiently broad to protect IXYS' technology. While IXYS
intends to protect its intellectual property rights vigorously, there can be
no assurance that any patents held by IXYS will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide
competitive advantages to IXYS. Furthermore, there can be no assurance that
others will not develop similar products, duplicate IXYS' products or design
around the patents owned by IXYS.
IXYS also seeks to protect its trade secrets and proprietary technology, in
part, through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that IXYS will have adequate remedies for any breach, or that IXYS' trade
secrets will not otherwise become known to or independently developed by
others. In addition, there can be no assurance that foreign intellectual
property laws will adequately protect IXYS' proprietary rights abroad.
The assertion of claims for infringement of intellectual property rights is
common in the semiconductor industry. There can be no assurance that any
infringement claims (or claims for indemnification resulting from infringement
claims against third parties, such as customers) or claims that IXYS' patents
are invalid will not be asserted against IXYS. If infringement claims are
asserted against IXYS, IXYS may seek to obtain a license of such third party's
intellectual property rights, which may not be available under reasonable
terms or at all. If an IXYS product is found to infringe a patent, a court may
grant an injunction to prevent making, selling or using the product in the
applicable country. Litigation may be necessary to defend against claims made
by third parties, enforce patents issued to IXYS, protect trade secrets or
know-how owned by IXYS. Any such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on IXYS'
business, financial condition and results of operations. See "IXYS Business--
Patents and Licenses."
Effect of Government Regulations. Power semiconductors with operating
voltages above 40 volts are subject, in some applications, to industry
regulations intended to address the safety, reliability and quality of the
products and to address environmental considerations. These regulations relate
to processes, design, materials and assembly. For example, in the United
States some high voltage products are required to pass Underwriters Laboratory
("UL") recognition for voltage isolation and fire hazard tests. Sales of power
semiconductors outside of the United States are subject to international
regulatory requirements that vary from country to country. Products used in
Europe may be required to be qualified under the Verband Deutscher
Elektrotechniker ("VDE") regulations. The process of obtaining and maintaining
required regulatory clearances can be lengthy, expensive and uncertain. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for U.S. approval, and the requirements may differ.
In addition, 5% of IXYS' revenues in fiscal 1998 were derived from the sale of
products included in medical devices that are subject to extensive regulation
by numerous governmental authorities in the United States and internationally,
including the U.S. Food and Drug Administration (the "FDA"). The FDA and
certain foreign regulatory authorities impose numerous requirements with which
medical device manufacturers must comply, including adherence to Good
Manufacturing Practices ("GMP") regulations and similar regulations in other
countries, which include testing, control and documentation requirements.
Ongoing compliance with GMP and other applicable regulatory requirements is
monitored through periodic inspections by federal and state agencies,
including the FDA, and by comparable agencies in other countries. Failure to
comply with applicable regulatory requirements could result in, among other
things, the inability to include IXYS' products in approved medical devices.
Delays in receipt of or failure to receive required approvals or clearances,
the loss of previously obtained approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on IXYS' business, financial condition and results of operations.
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Technological Change. The power semiconductor industry is subject to
technological change and evolving industry standards. To remain competitive,
IXYS must continue to devote significant resources to the development of new
products and new process technologies. In addition, new product announcements,
introductions or enhancements by IXYS' competitors could cause a decline in
sales or loss of market acceptance of IXYS' existing products. Because new
product development commitments must be made well in advance of sales, new
product decisions must anticipate advances in power semiconductor
manufacturing. There can be no assurance that IXYS will be able to identify
new product opportunities successfully and develop and bring to market such
new products, that IXYS will be able to respond effectively to new
technological changes or new product announcements by others or that IXYS' new
products will be accepted by the market.
The markets for products incorporating power semiconductors are subject to
technological change, and there can be no assurance that as such markets
change IXYS' product offerings will remain current and suitable for them.
Certain of IXYS' new products are incorporated into a customer's products or
systems in the design stage. The value of any design win largely depends upon
the commercial success of the customer's product and on the extent to which
the design of the customer's electronic system accommodates incorporation of
components manufactured by IXYS' competitors. In addition, products or systems
may be subsequently redesigned so that they no longer require IXYS' products.
No assurance can be given that IXYS will achieve design wins or that any
design win will result in future revenues. The failure of IXYS to achieve
design wins could materially and adversely affect IXYS' business, financial
condition and results of operations. In addition, there can be no assurance
that IXYS' competitors will not develop new technologies that are
substantially equivalent or superior to IXYS' technologies or that IXYS will
be successful in enhancing existing processes or developing new technologies.
See "IXYS Business--Research and Development" and "--Competition."
Dependence on Key Personnel. IXYS is dependent upon a limited number of key
management, sales and technical personnel. IXYS' future success will depend in
part upon its ability to attract and retain highly qualified personnel. IXYS
faces competition for such personnel from other companies and other
organizations. As a result, there can be no assurance that IXYS will be
successful in hiring or retaining qualified personnel. Subject to the terms of
certain employment agreements, officers and other key personnel could leave
the employ of IXYS with little or no prior notice. Loss of key personnel, such
as Dr. Zommer, Chief Executive Officer, and Mr. Agbayani, Vice President of
Finance and Administration, especially if such loss is without advance notice,
or the inability to hire or retain qualified personnel could have a material
adverse effect on IXYS' business, financial condition and results of
operations. See "IXYS Business--Employees," "--Management" and "Other
Information Regarding IXYS--Employment Contracts" for a description of
employment contracts with certain key employees.
Environmental Regulations. IXYS is subject to a variety of federal, state
and local laws, rules and regulations, and IXYS GmbH is subject to laws, rules
and regulations in Germany, related to the use, storage, handling, discharge
and disposal of certain chemicals and gases used in IXYS' manufacturing
process. Any of those regulations could require IXYS to acquire equipment or
to incur substantial other expenses to comply with environmental regulations.
If substantial additional expenses were incurred by IXYS, product costs could
significantly increase, thus materially adversely affecting IXYS' business,
financial condition and results of operations. IXYS believes that its
activities conform to present environmental regulations. Increasing public
attention has, however, been focused on the environmental impact of
semiconductor operations. While IXYS has not experienced any materially
adverse effects on its operations from environmental regulations, there can be
no assurance that changes in such regulations will not impose the need for
additional capital equipment or other requirements or restrict IXYS' ability
to expand its operations. Although IXYS believes it is currently in compliance
with applicable environmental laws, any failure by IXYS to comply with present
or future environmental laws rules and regulations could result in fines being
imposed on IXYS, suspension of production or cessation of operations, any of
which could have a material adverse effect on IXYS' business, financial
condition and results of operations. IXYS' business, financial condition and
results of operations would be subject to similar effects as a result of
comparable laws and regulations in Germany. See "IXYS Business-- Environmental
Matters."
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IXYS' Lampertheim facility is located in an industrial area in which there
is known environmental contamination. Although IXYS is not aware of any soil
or groundwater contamination at its facility, there can be no assurance that
IXYS' business, financial condition and results of operations will not be
materially adversely affected by this situation.
Potential Volatility of Stock Price. There has been no public market for the
IXYS Common Stock. Although the Combined Company intends to apply to have the
Combined Company's common stock approved for quotation on the Nasdaq SmallCap
Market, there can be no assurance that such approval will be received or that
an active trading market will develop for the Combined Company's common stock
or, if one does develop, that it will be maintained. Factors such as
fluctuation in the Combined Company's operating results, announcements of
technological innovations or new products by the Combined Company or its
competitors and general market conditions may have a significant effect on the
market price of the Combined Company's common stock. In addition, in recent
years the stock market in general, and the market for shares of small
capitalization and high technology stocks in particular, have experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies.
Financial Exposure to Product Liability Claims. IXYS faces the risk of
financial exposure to product liability claims alleging that the use of
devices which incorporate IXYS' products resulted in adverse effects.
Approximately 5% of IXYS' net revenues in fiscal 1998 were derived from sales
of products used in medical devices. Product liability risks may exist with
respect to these medical devices even with respect to those medical devices
that have received, or in the future may receive, regulatory approval for
commercial sale. See "Effect of Regulations." IXYS does not currently carry
product liability insurance, and there can be no assurance that IXYS will
avoid significant product liability claims. A successful claim brought against
IXYS could have a material adverse effect on IXYS' business, financial
condition and results of operations.
Impact of Year 2000. The Year 2000 will impact computer programs written
using two digits rather than four digits to define the applicable year. Any
programs with time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operation, including a temporary
inability to process transactions, send invoices or engage in other ordinary
activities. This problem largely affects software programs written years ago,
before the issue came to prominence.
IXYS is completing the process of identifying the programs and
infrastructure that could be affected by the Year 2000 issue and has developed
an implementation plan to resolve the issue. The plan includes (i)
implementation of a new management information system intended to address
IXYS' operational functions, including sales, inventory, and engineering
functions, and (ii) the replacement of certain equipment and software with new
equipment and software designed to recognize the turn of the century and
intended to be Year 2000 compliant. The plan is currently expected to result
in non-recurring expenses over the next 1 1/2 years of approximately $750,000
in aggregate. IXYS currently anticipates the implementation plan to be
completed by the end of calendar year 1998.
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THE PARADIGM ANNUAL MEETING
PURPOSE OF THE PARADIGM ANNUAL MEETING
The purpose of the Paradigm Annual Meeting is to consider and vote upon (i)
the Issuance Proposal, (ii) the Reverse Stock Split Proposal, (iii) the
Increased Authorization Proposal, (iv) the Name Change Proposal, (v) the
election of the nominees for director set forth herein, (vi) the Stock Plan
Proposal, (vii) ratification of the independent accountants of Paradigm and
(viii) such other matters as may properly come before the Paradigm Annual
Meeting or any adjournment or postponements thereof. The Merger will occur
only if the Issuance Proposal, the Reverse Stock Split Proposal, the Increased
Authorization Proposal and the Name Change Proposal are approved.
THE PARADIGM BOARD UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER,
AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE ISSUANCE PROPOSAL, FOR APPROVAL
OF THE REVERSE STOCK SPLIT PROPOSAL, FOR APPROVAL OF THE INCREASED
AUTHORIZATION PROPOSAL, FOR APPROVAL OF THE NAME CHANGE PROPOSAL, FOR EACH
NOMINEE FOR DIRECTOR, FOR APPROVAL OF THE STOCK PLAN PROPOSAL AND FOR
RATIFICATION OF THE INDEPENDENT ACCOUNTANTS.
DATE, TIME AND PLACE OF MEETING
The Paradigm Annual Meeting will be held on Monday, August 3, 1998, at 9:00
a.m., local time, at Paradigm's executive offices located at 694 Tasman Drive,
Milpitas, California 95035. The Paradigm Proxy accompanying this Joint Proxy
Statement/Prospectus is being solicited on behalf of the Paradigm Board for
use at the Paradigm Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of Paradigm Common Stock at the close of business on June
19, 1998 (the "Paradigm Record Date") are entitled to notice of, and to vote
at, the Paradigm Annual Meeting. As of the Paradigm Record Date, there were
1,779,401 shares of Paradigm Common Stock outstanding held by approximately
262 stockholders of record.
QUORUM AND ABSTENTIONS
A majority of the outstanding shares of Paradigm Common Stock entitled to
vote must be represented in person or by proxy to constitute a quorum at the
Paradigm Annual Meeting. Except for the stockholders identified herein under
"Security Ownership of Certain Beneficial Owners and Management of Paradigm,"
as of the Paradigm Record Date, to the knowledge of Paradigm, no other person
beneficially owns more than 5% of the outstanding Paradigm Common Stock. Votes
cast in person or by proxy at the Paradigm Annual Meeting will be tabulated by
the inspector of elections appointed for the meeting and will determine
whether or not a quorum is present. The inspector of elections will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and as voted against the approval of the
matters being voted upon. If a broker indicates that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will be considered as shares that are present and entitled to
vote for purposes of determining the presence of a quorum, but not be
considered as present and entitled to vote with respect to that matter.
VOTE REQUIRED
The affirmative vote of a majority of the shares present in person or
represented by proxy and voting on the proposal at the Paradigm Annual Meeting
is the minimal approval necessary to approve the Issuance Proposal and the
Stock Plan Proposal and for ratification of Paradigm's independent accounts.
Approval of (i) the Reverse Stock Split Proposal, (ii) the Increased
Authorization Proposal, and (iii) the Name Change Proposal requires
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approval of a majority of the outstanding shares of Paradigm Common Stock
entitled to vote as of the Paradigm Record Date. Director nominees receiving
the highest number of affirmative votes up to the number of directors to be
elected will be elected. Cumulative voting is not available in the election of
directors at the Paradigm Annual Meeting.
VOTING RIGHTS; PROXIES
Each holder of Paradigm Common Stock is entitled to one vote for each share
held as of the Paradigm Record Date. The holders of the Paradigm Series A
Preferred Stock, Paradigm Series B Preferred Stock and Paradigm Series C
Preferred Stock shall be entitled to one vote for each share of Paradigm
Common Stock issued upon conversion of the Paradigm Series A Preferred Stock,
Paradigm Series B Preferred Stock and Paradigm Series C Preferred Stock,
respectively, as of the Paradigm Record Date. Holders of Paradigm Preferred
Stock are not entitled to vote unless their shares are converted into Paradigm
Common Stock. For action to be taken at the Paradigm Annual Meeting, a
majority of the shares of Paradigm Common Stock entitled to vote must be
represented at the meeting in person or by proxy.
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the Paradigm Annual Meeting in accordance with the
instructions of the stockholder. If no specific instructions are given, the
shares will be voted FOR approval of the Issuance Proposal, FOR approval of
the Reverse Stock Split Proposal, FOR approval of the Increased Authorization
Proposal, FOR approval of the Name Change Proposal, FOR the election of the
nominees for director set forth herein, FOR approval of the Stock Plan
Proposal, and FOR ratification of the independent accountants of Paradigm.
Any person giving a proxy in the form accompanying this Joint Proxy
Statement/Prospectus has the power to revoke it at any time before its
exercise by (i) filing with the Secretary of Paradigm a signed written
statement revoking his or her proxy or (ii) submitting an executed proxy
bearing a date later than that of the proxy being revoked. A proxy may also be
revoked by attendance at the Paradigm Annual Meeting and by making the
election to vote in person. Attendance at the Paradigm Annual Meeting will not
by itself constitute the revocation of a proxy.
SOLICITATION
All expenses related to Paradigm's solicitation of proxies, including the
cost of preparing and mailing this Joint Proxy Statement/Prospectus to the
Paradigm stockholders, will be borne by Paradigm. In addition to solicitation
of proxies by mail, certain officers, directors and employees of Paradigm, who
will receive no additional compensation for their services, may solicit
proxies by telephone, telegram or personal interview. Paradigm may retain a
proxy solicitation firm and, if it does so, would pay approximately $10,000 in
fees plus a reasonable amount to cover expenses. Paradigm is required to
request brokers and nominees who hold stock in their name to furnish this
proxy material to beneficial owners of the Paradigm Common Stock and will
reimburse such brokers and nominees for their reasonable out-of-pocket
expenses in so doing.
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THE IXYS SPECIAL MEETING
PURPOSE OF THE IXYS SPECIAL MEETING
The purpose of the IXYS Special Meeting is to consider and vote upon (i) the
Merger Proposal, (ii) the IXYS Certificate Proposal and (iii) such other
matters as may properly come before the IXYS Special Meeting or any
adjournments or postponements thereof.
THE IXYS BOARD UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER, AND
UNANIMOUSLY RECOMMENDS THAT IXYS STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
PROPOSAL AND FOR APPROVAL OF THE IXYS CERTIFICATE PROPOSAL.
DATE, TIME AND PLACE OF MEETING
The IXYS Special Meeting will be held on Monday, August 3, 1998, at 9:00
a.m., local time, at IXYS' executive offices located at 3540 Bassett Street,
Santa Clara, California 95054. The IXYS Proxy accompanying this Joint Proxy
Statement/Prospectus is being solicited on behalf of the IXYS Board for use at
the IXYS Special Meeting.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of IXYS Capital Stock at the close of business on June 16,
1998 (the "IXYS Record Date") are entitled to notice of, and to vote at, the
IXYS Special Meeting. As of the IXYS Record Date, there were 94 stockholders
of record holding an aggregate of approximately 72,211,873 shares of IXYS
Common Stock and 234 stockholders of record holding an aggregate of
approximately 111,409,363 shares of IXYS Preferred Stock. See "IXYS Principal
Stockholders." Except for the stockholders identified herein under "IXYS
Principal Stockholders," as of the IXYS Record Date, to the knowledge of IXYS,
no other person beneficially owns more than 5% of the outstanding IXYS Capital
Stock.
QUORUM AND ABSTENTIONS
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of IXYS Capital Stock is
necessary to constitute a quorum at the IXYS Special Meeting. Votes cast by
proxy or in person at the IXYS Special Meeting will be tabulated by the
inspector of election appointed for the meeting and will determine whether or
not a quorum is present. The inspector of election will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum and as voted against the approval of the matters being
voted upon. If a broker indicates that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will be considered as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but not be considered as
present and entitled to vote with respect to that matter.
VOTE REQUIRED
The approval of the Merger Proposal and the IXYS Certificate Proposal each
requires the affirmative vote of a majority of the outstanding shares of IXYS
Capital Stock entitled to vote, voting together as a single class, and the
affirmative vote of a majority of the outstanding shares of IXYS Preferred
Stock entitled to vote. The holders of shares of IXYS Capital Stock on the
IXYS Record Date are entitled to one vote per share of IXYS Capital Stock on
each matter submitted to a vote at the IXYS Special Meeting.
Pursuant to the Voting Agreement, Dr. Zommer has agreed to vote all of his
IXYS Capital Stock, representing approximately 30.90% of the shares of IXYS
Capital Stock issued and outstanding as of the IXYS Record Date, in favor of
approval of the Merger Proposal. In addition, Dr. Zommer has delivered to
Paradigm an irrevocable proxy with respect to such vote.
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As of the IXYS Record Date, the directors, executive officers and affiliates
of IXYS owned or had voting control over an aggregate of 155,853,329 shares of
IXYS Capital Stock, representing approximately 84.88% of the votes entitled to
be cast at the IXYS Special Meeting. Each of the directors, executive officers
and affiliates of IXYS has advised IXYS that he intends to vote, or direct the
vote of all outstanding shares of IXYS Capital Stock over which he has voting
control, in favor of the approval of the Merger Proposal.
VOTING RIGHTS; PROXIES
As of the IXYS Record Date, there were 183,621,236 shares of IXYS Capital
Stock issued and outstanding, each of which entitles the holder thereof to one
vote. All shares of IXYS Capital Stock represented by properly executed
proxies received at or prior to the IXYS Special Meeting that have not been
revoked will be voted at the IXYS Special Meeting in accordance with the
instructions contained therein. If no instructions are indicated, such shares
of IXYS Capital Stock will be voted in favor of the Merger Proposal. IXYS does
not know of any matters other than as described in the accompanying Notice of
IXYS Special Meeting that are to come before the IXYS Special Meeting. If any
other matter or matters are properly presented for action at the IXYS Special
Meeting, including, among other things, consideration of a motion to adjourn
the IXYS Special Meeting to another time and/or place (including without
limitation for the purpose of soliciting additional proxies), the persons
named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment,
unless such authorization is withheld. A stockholder receiving a proxy
pursuant to this proxy solicitation may revoke a proxy (i) by submitting at
any time prior to the vote on the approval of the Merger Proposal a later
dated proxy with respect to the same shares, (ii) by delivering written notice
of revocation to the Secretary of IXYS at any time prior to such vote or (iii)
by attending the IXYS Special Meeting and voting in person. Mere attendance at
the IXYS Special Meeting will not in and of itself revoke a proxy. If an IXYS
stockholder is not the registered direct holder of his or her shares, such
stockholder must obtain appropriate documentation from the registered holder
in order to be able to vote the shares in person.
SOLICITATION
All expenses related to IXYS' solicitation of proxies, including the cost of
preparing and mailing this Joint Proxy Statement/Prospectus to the IXYS
stockholders, will be borne by IXYS. In addition to solicitation by mail,
directors, officers and employees of IXYS may solicit proxies by telephone,
telegram or otherwise. Such directors, officers and employees of IXYS will not
be additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of IXYS Capital Stock held of record by them will
be reimbursed for their reasonable expenses incurred in forwarding such
material. IXYS does not intend to hire a professional proxy solicitation firm.
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THE MERGER PROPOSAL AND THE ISSUANCE PROPOSAL
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Merger. The description does not purport to be complete and is
qualified by reference to the Merger Agreement, which is attached as Annex 1
hereto and is incorporated by reference herein.
BACKGROUND
During the summer of 1996, in response to the dramatic changes occurring in
the SRAM industry, the Paradigm Board started to consider and evaluate various
strategic alliances, including possible mergers with companies that could
compliment Paradigm's capabilities. In July 1996, Paradigm retained Alliant
Partners (formerly Bentley Hall Von Gehr International), an investment banking
firm, to explore possible strategic alternatives for Paradigm, including
strategic alliances, mergers and asset sales. From July 1996 to August 1996,
Alliant Partners contacted many semiconductor companies to ascertain their
interest in an acquisition, merger or other strategic relationship with
Paradigm. During that period, Paradigm engaged in discussions with three
companies. None of these discussions resulted in a definitive agreement for a
strategic alliance, a merger with or acquisition of Paradigm.
Due to a variety of business reasons, in the fall of 1996, Paradigm
management decided to sell its wafer fabrication facility and dramatically
reduce fixed costs by transitioning the company into a fabless semiconductor
company. The wafer fabrication facility was sold in November 1996 to Orbit
Semiconductor, Inc.
Through the first part of 1997, Alliant Partners continued to seek strategic
alternatives for Paradigm. In June 1997, Paradigm entered into discussions
with a foreign investment group that expressed an interest in investing in
Paradigm and providing access to strategic alliances with related
semiconductor companies. This interest was discussed at a Paradigm Board
meeting on July 29, 1997. Management was directed to continue negotiations
with this foreign investment group, and detailed due diligence ensued. After a
number of discussions, the foreign investment group decided not to pursue
further negotiations with Paradigm, and in August 1997 discussions between
Paradigm and the foreign investment group ceased.
In September 1997, James Kochman, managing partner and director of Alliant
Partners, introduced Paradigm to IXYS, which had expressed an interest in a
business combination with Paradigm. Alliant Partners had held prior meetings
with IXYS' management and was aware of their interest in a strategic merger
with a small, public semiconductor company. On September 26, 1997, at the
instigation of Mr. Kochman, David Campbell, Chief Financial Officer of
Paradigm, Dr. Nathan Zommer, Chief Executive Officer and President of IXYS,
Arnold Agbayani, Chief Financial Officer and Vice President of IXYS, and
Michael Gulett, Chief Executive Officer and President of Paradigm, met to
discuss the possibility of a business combination of IXYS and Paradigm. On
October 3, 1997, Dr. Zommer, Mr. Agbayani, Howard Slayen of Coopers & Lybrand
L.L.P. ("Coopers"), Charles Cozean, an associate at Alliant Partners, Mr.
Gulett, and Mr. Kochman, convened to discuss further the terms for a possible
business combination, including, among other things, the exchange ratio and
the structure of the transaction.
On October 6, 1997, IXYS management presented to the IXYS Board the
possibility of a business combination with Paradigm. The IXYS Board authorized
IXYS officers and management to continue negotiations and discussions with
Paradigm. The Paradigm management similarly presented its discussions with
IXYS to the Paradigm Board on October 15, 1997. The Paradigm Board authorized
management to continue to negotiate a business combination with IXYS.
On October 7, 1997, Dr. Zommer, Mr. Gulett, and Mr. Agbayani met to discuss
additional details for a possible merger of the two companies, including
financial and personnel issues. During October 1997, management from IXYS and
management from Paradigm visited each other's business sites to conduct due
diligence. During this period, the stock price of Paradigm fluctuated around
$1.25 (prior to the ten-for-one reverse stock split effectuated on May 1,
1998), and the parties discussed the issuance of approximately 120 million
shares by Paradigm to the IXYS stockholders.
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During the period from September to October 1997, Paradigm management also
had various discussions with two semiconductor memory companies about the
possibility of a merger transaction. Paradigm's discussions with one of the
companies never resulted in any material negotiations regarding transaction
terms. For reasons not known to Paradigm, such company decided not to pursue a
merger transaction with Paradigm after initial discussions between the
parties. Paradigm engaged in negotiations over basic transaction terms with
the other company, and the parties conducted preliminary due diligence on each
other. However, after such preliminary discussions, the other company chose,
as a strategic matter, to complete an initial public offering rather than to
acquire Paradigm.
On October 15, 1997, a draft merger agreement from IXYS was presented to
Paradigm and its advisors. Between October 1 and October 15, 1997, the stock
price of Paradigm was trading between the range of $1.18 to $1.313 (prior to
the ten-for-one reverse stock split effectuated on May 1, 1998), and the
proposed issuance of 120 million shares by Paradigm to the IXYS stockholders
became unacceptable to IXYS. In October 1997, Paradigm proposed a revised
exchange ratio that would provide the IXYS stockholders with a 92% interest in
the Combined Company, with Paradigm stockholders owning the remaining 8% of
the Combined Company. The IXYS management rejected this proposal, and, in
November 1997, after numerous discussions, Paradigm and IXYS elected to cease
negotiations due to a failure to agree on a price.
In early December 1997, Paradigm management entered into discussions with a
foreign semiconductor company about the possibility of an equity investment in
Paradigm combined with a strategic alliance on product development, product
licensing and marketing and sales. Detailed due diligence was conducted by
both parties. A potential agreement to develop a close strategic alliance with
such foreign semiconductor company was presented at a Paradigm Board meeting
on December 12, 1997 and discussed in detail at various Paradigm Board
meetings. In mid-January 1998, such foreign semiconductor company decided to
cease discussions with Paradigm because of the changes in their business due
to the currency crisis in Asia.
On February 2, 1998, Thomas Bentley, a partner at Alliant Partners,
contacted Mr. Agbayani to renew discussions with IXYS regarding a possible
merger transaction and discussed, among other things, the nature of the
consideration that might be paid to the IXYS stockholders. In addition, Mr.
Bentley presented a new potential exchange ratio. Based on the presentation by
Mr. Bentley, Mr. Agbayani agreed to engage in further discussions with
Paradigm.
On February 5, 1998, Mr. Agbayani and Mr. Bentley discussed terms of a
potential business combination. From February 2, 1998 through March 1998,
representatives of IXYS and Paradigm conducted due diligence review of each
other's business, financial, market, technical and other information, material
contracts and other due diligence materials. The senior management of each
company made numerous visits to the other company's facilities. During this
period, the senior management of IXYS and Paradigm had further discussions
regarding the exchange ratio to be applied in the Merger. Because Paradigm's
stock price was trading at approximately $0.50 during this period (prior to
the ten-for-one reverse stock split effectuated on May 1, 1998), Paradigm
proposed a new exchange ratio that would provide the IXYS stockholders a 95%
interest in the Combined Company. Further, Paradigm suggested that an
alternative exchange ratio be used if the shares to be received by the IXYS
stockholders under the first exchange ratio would be valued at less than $150
million. This alternative exchange ratio would guarantee a valuation of the
IXYS Fully Diluted Capitalization at $150 million. IXYS management considered,
but did not agree upon, Paradigm's new proposal at that time.
The Paradigm Board met on February 6, 1998 to review the status of the
proposed Merger with IXYS.
On February 10, 17, 26, and 27, 1998, representatives of IXYS, including
IXYS' legal counsel, met with representatives of Paradigm, including
Paradigm's legal counsel and financial advisor, to discuss the results of the
parties' due diligence investigations, the principal terms of the proposed
Merger and the terms of a draft Merger Agreement, and the severance
arrangements of certain executives of Paradigm.
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On February 19, 1998, the IXYS Board held a special meeting to consider the
terms, including Paradigm's new proposed exchange ratios, of the proposed
Merger and reviewed with its legal counsel a draft Merger Agreement. Legal
counsel and management also updated the IXYS Board concerning the due
diligence conducted to date. The IXYS Board recommended at that time that
further due diligence be conducted.
On March 5, 1998, the IXYS Board held a special telephonic meeting to
consider the proposed Merger with Paradigm. Members of IXYS' senior management
and IXYS' legal counsel discussed various aspects of the proposed Merger.
Following such discussions, the IXYS Board voted unanimously (i) to approve
the Merger and the Merger Agreement and the related documents for the
transaction as presented to them, and (ii) to recommend that the IXYS
stockholders vote to approve and adopt the Merger Agreement and to approve the
Merger. See "--IXYS' Reasons for the Merger."
On March 5, 1998, the Paradigm Board held a special meeting. At that
meeting, Paradigm's counsel reviewed for the Paradigm Board the proposed
Merger Agreement. Alliant Partners made a financial presentation regarding the
financial terms of the proposed Merger. Alliant Partners' discussion included
a discussion of certain analyses described under "--Opinion of Paradigm's
Financial Advisor." The terms of the Merger Agreement and the Merger were then
discussed among the directors. After these discussions, Alliant Partners
rendered its oral opinion, subsequently confirmed in writing, that the
consideration to be paid in the Merger was fair from a financial point of view
to Paradigm and its stockholders. The Paradigm Board then unanimously voted
(i) to approve the Merger Agreement and the Merger pending resolution of
certain issues and to direct the officers of Paradigm to negotiate the issues
and to finalize the terms of the Merger Agreement and the Merger and (ii) to
recommend that the Paradigm stockholders vote to approve the Issuance
Proposal. See "--Paradigm's Reasons for the Merger."
On March 6, 1998, legal counsel for IXYS and Paradigm and financial advisor
for Paradigm, together with members of management of IXYS and Paradigm,
negotiated and finalized the terms of the Merger Agreement. The Merger
Agreement was executed by all relevant parties after the close of market on
March 6, 1998, and a joint public announcement of the proposed transaction was
made prior to the opening of market on March 9, 1998.
PARADIGM'S REASONS FOR THE MERGER
The Paradigm Board considered a wide variety of information and a number of
factors in connection with its evaluation of the proposed Merger and the
Merger Agreement, and determined that the Merger provides an opportunity that
serves the best interests of Paradigm and its stockholders. The Paradigm Board
believes that the Merger may result in a number of benefits to Paradigm and
its stockholders, including, among other benefits, the following:
. By combining IXYS' capability in power semiconductors and Paradigm's
capability in high performance integrated circuits, Paradigm and IXYS
together will have the potential to develop new products with higher
value that each company would not separately be able to produce.
. The proposed Merger will help insulate Paradigm from adverse market
conditions based on current market conditions for SRAMs, the intense
competition, and lower than desired selling prices, by improving
Paradigm's cost structure through consolidation and Paradigm's sales
channels through IXYS' distribution channels in countries where Paradigm
does not have a strong market presence.
. Paradigm will be in a better position to sell SRAM products to current
IXYS customers who are not current Paradigm customers. This will
therefore, improve Paradigm's opportunity to increase revenue.
. Paradigm's recent operating results, revenue level and current financial
condition necessitates additional funding. The proposed Merger will
provide such funding, which the Paradigm Board believes is a better
alternative than additional equity financings.
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In addition to the reasons set forth above, in the course of its
deliberations concerning the Merger, the Paradigm Board consulted with
Paradigm's management, legal counsel and accountants and reviewed a number of
other factors relevant to the Merger, including:
. Information concerning the business, assets, operations, properties,
management, financial condition, operating results, competitive position
and prospects of IXYS and Paradigm.
. Other alternatives available to Paradigm in the short and long-term to
achieve Paradigm's funding and other strategic objectives, including the
availability of public and private financing and a range of business
combinations.
. Paradigm's belief that the management styles and corporate cultures of
the two companies would be complementary.
. Reports from management and legal counsel concerning the specific terms
of the Merger Agreement and ancillary documents, including the
obligation of Paradigm not to solicit or encourage other acquisition
proposals, the topping fee provisions, the circumstances under which
either Paradigm or IXYS can terminate the Merger Agreement and the
closing conditions to the Merger.
The Paradigm Board also considered a number of potentially negative factors
in its deliberations concerning the Merger, including:
. The possibility of management disruption associated with the Merger and
the risk that key technical and management personnel of Paradigm or IXYS
might not continue with the Combined Company.
. The possibility that the Merger might adversely affect Paradigm's or
IXYS' relationship with certain of their respective customers.
. The risk that the potential benefits of the Merger might not be
realized.
. The possibility that the Merger might preclude other potential strategic
transactions by Paradigm.
. The other risks described above under "Risk Factors."
The Paradigm Board concluded, however, that the benefits of the transaction
to Paradigm and its stockholders outweighed the risks associated with the
foregoing factors.
The foregoing discussion of the information and factors considered by the
Paradigm Board is not intended to be exhaustive but is believed to include all
material factors considered by the Paradigm Board. In view of the wide variety
of factors considered by the Paradigm Board, the Paradigm Board did not find
it practicable to quantify or otherwise assign relative weight to the specific
factors considered. However, after taking into account all of the factors set
forth above, the Paradigm Board unanimously agreed that the Merger Agreement
and the Merger were fair to, and in the best interests of, Paradigm and its
stockholders and that Paradigm should proceed with the Merger.
RECOMMENDATION OF THE PARADIGM BOARD
FOR THE REASONS DISCUSSED ABOVE, THE PARADIGM BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE MERGER
AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, PARADIGM
AND THE PARADIGM STOCKHOLDERS. ACCORDINGLY, THE PARADIGM BOARD HAS UNANIMOUSLY
RECOMMENDED THAT THE PARADIGM STOCKHOLDERS VOTE FOR APPROVAL OF THE ISSUANCE
PROPOSAL.
PARADIGM VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of Paradigm Common Stock is entitled to one vote per share held.
The holders of a majority of the shares of the Paradigm Common Stock issued
and outstanding constitute a quorum. The affirmative vote of holders of a
majority of the outstanding shares of Paradigm Common Stock is required for
approval of the
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Issuance Proposal. In the event that a quorum is not present or represented at
the Paradigm Annual Meeting, the stockholders entitled to vote at the meeting
present in person or by proxy shall have power to adjourn the Paradigm Annual
Meeting until a quorum shall be present or represented. Proxies solicited by
the Paradigm Board will be voted for approval of the Issuance Proposal, unless
otherwise instructed.
A stockholder voting through a proxy who abstains with respect to approval
of the Issuance Proposal shall be considered to have cast a negative vote with
respect to the Issuance Proposal, but shall be treated as present and entitled
to vote on the approval of the Reverse Stock Split Proposal, Increased
Authorization Proposal, Name Proposal, Stock Plan Proposal, Directors Proposal
and Ratification Proposal at the Paradigm Annual Meeting; provided, however,
that a stockholder (including a broker) who does not give authority to a proxy
to vote on the approval of the other proposals shall not be considered present
and entitled to vote on the other proposals.
IXYS' REASONS FOR THE MERGER
The IXYS Board has unanimously determined that the Merger Agreement and the
Merger are fair to, and in the best interests of, IXYS and its stockholders.
In reaching its determination, the IXYS Board consulted with IXYS' management,
as well as its consultants, and gave significant consideration to a number of
factors bearing on its decision. The following are reasons why the IXYS Board
believes the Merger will be beneficial to IXYS and its stockholders:
. The combination of the technologies and product development resources of
IXYS and Paradigm should enable IXYS to respond more effectively to the
rapid technological change in, and continuing emergence of, power
management control products; the technical know-how and design
capabilities of the designers who design for Paradigm will allow IXYS to
develop a new line of power management control products.
. In the Merger, IXYS stockholders will receive securities traded in an
active trading market, the Nasdaq SmallCap Market, thereby permitting
the stockholders to obtain liquidity for their investments, in contrast
to the illiquid nature of their present holdings of IXYS Capital Stock.
. IXYS currently manufactures and designs various die sizes under 3 to 4
micron design rules. Paradigm designs and markets die sizes at submicron
design rules. IXYS believes that the Combined Company's ability to
operate under a wide spectrum of process technologies, including
submicron design rules not currently addressed by IXYS, is expected to
enhance IXYS' ability to service its existing customer base as well as
to expand into different customer bases.
. The Merger is expected to provide IXYS with an expanded customer base
and product development resources to support its current marketing,
sales and distribution efforts; Paradigm's products are marketed,
distributed and sold in applications and market segments not currently
served by IXYS.
. The Merger will provide IXYS with a publicly traded security to serve as
a currency for strategic transactions, including acquisitions and
strategic partnerships.
. The Merger will result in the Combined Company having an expanded base
of intellectual property.
In addition to the reasons set forth above, in the course of its
deliberations concerning the Merger, the IXYS Board consulted with IXYS'
management, legal counsel and accountants and reviewed a number of other
factors relevant to the Merger, including:
. Information concerning the business, assets, operations, properties,
management, financial condition, operating results, competitive position
and prospects of IXYS and Paradigm.
. The historical price and volume trading data for the Paradigm Common
Stock as well as the composition of Paradigm's stockholder base.
. Other alternatives available to IXYS in the short and long-term to
achieve IXYS' funding, liquidity and other strategic objectives,
including the availability of public and private financing and a range
of business combinations.
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. IXYS' belief that the management styles and corporate cultures of the
two companies would be complementary.
. The expectation that the Merger will be tax deferred for federal income
tax purposes to IXYS' stockholders.
. Reports from management and legal counsel concerning the specific terms
of the Merger Agreement and ancillary documents, including the
obligation of Paradigm not to solicit or encourage other acquisition
proposals, the topping fee provisions, the circumstances under which
either Paradigm or IXYS can terminate the Merger Agreement and the
closing conditions to the Merger.
The IXYS Board also considered a number of potentially negative factors in
its deliberations concerning the Merger, including:
. The possibility of management disruption associated with the Merger and
the risk that key technical and management personnel of Paradigm or IXYS
might not continue with the combined company.
. The possibility that the Merger might adversely affect Paradigm's or
IXYS' relationship with certain of their respective customers.
. The risk that the potential benefits of the Merger might not be
realized.
. The possibility that the Merger might preclude other potential strategic
transactions by IXYS.
. The other risks described above under "Risk Factors".
The IXYS Board concluded, however, that the benefits of the transaction to
IXYS and its stockholders outweighed the risks associated with the foregoing
factors.
The foregoing discussion of the information and factors considered by the
IXYS Board is not intended to be exhaustive but is believed to include all
material factors considered by the IXYS Board. In view of the wide variety of
factors considered by the IXYS Board, the IXYS Board did not find it
practicable to quantify or otherwise assign relative weight to the specific
factors considered. However, after taking into account all of the factors set
forth above, the IXYS Board unanimously agreed that the Merger Agreement and
the Merger were fair to, and in the best interests of, IXYS and its
stockholders and that IXYS should proceed with the Merger.
RECOMMENDATION OF THE IXYS BOARD
FOR THE REASONS DISCUSSED ABOVE, THE IXYS BOARD HAS APPROVED THE MERGER
AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, IXYS AND THE IXYS
STOCKHOLDERS. ACCORDINGLY, THE IXYS BOARD HAS UNANIMOUSLY RECOMMENDED THAT THE
IXYS STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
IXYS VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of IXYS Capital Stock is entitled to one vote per share held.
The holders of a majority of the shares of the IXYS Capital Stock issued and
outstanding constitute a quorum. The affirmative vote of holders of a majority
of the outstanding shares of IXYS Capital Stock entitled to vote, voting
together as a single class and the affirmative vote of holders of a majority
of the outstanding shares of IXYS Preferred Stock entitled to vote, are
required for approval of the Merger Proposal. In the event that a quorum is
not present or represented at the IXYS Special Meeting, the stockholders
entitled to vote at the meeting present in person or by proxy shall have power
to adjourn the IXYS Special Meeting until a quorum shall be present or
represented. Proxies solicited by the IXYS Board will be voted for approval of
the Merger Proposal, unless otherwise instructed.
A stockholder voting through a proxy who abstains with respect to approval
of the Merger Proposal shall be considered to have cast a negative vote with
respect to the Merger Proposal, but shall be treated as present and entitled
to vote on the approval of the IXYS Certificate Proposal at the IXYS Special
Meeting; provided,
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however, that a stockholder (including a broker) who does not give authority
to a proxy to vote on the approval of the other proposals shall not be
considered present and entitled to vote on the other proposal.
OPINION OF FINANCIAL ADVISOR TO PARADIGM
Paradigm retained Alliant Partners, an investment banking firm which
performed investment banking services for Paradigm during fiscal 1997, to
render a fairness opinion letter in connection with the Merger. Alliant
Partners was selected by the Paradigm Board to provide a written opinion (the
"Alliant Partners Opinion") based on Alliant Partners' qualifications,
expertise and reputation.
Paradigm engaged Alliant Partners to act as its financial advisor to render
an opinion as to the fairness, from a financial point of view, to Paradigm
stockholders of the consideration to be paid for IXYS in connection with the
Merger. Alliant Partners rendered its oral opinion, subsequently confirmed in
writing, on March 5, 1998, to the Paradigm Board that, as of such date, the
consideration to be paid by Paradigm pursuant to the Merger Agreement is fair
to Paradigm's stockholders, from a financial point of view. No limitations
were placed on Alliant Partners by the Paradigm Board with respect to the
investigation made or the procedures followed in preparing and rendering its
opinion.
In its review of the Merger, and in arriving at its opinion, Alliant
Partners, among other things: (i) reviewed the financial statements of IXYS
for recent years, interim periods to date, projections for future years and
certain other relevant financial and operating data of IXYS made available to
Alliant Partners; (ii) discussed with certain members of the management of
Paradigm and IXYS, the business, financial condition and prospects of IXYS;
(iii) reviewed and discussed with management of Paradigm and IXYS the
strategic rationale for, and the potential benefits of, the Merger; (iv)
reviewed the recent reported prices and trading activity and compared certain
financial information of other companies engaged in businesses which Alliant
Partners considered comparable to those of IXYS; (v) reviewed the financial
terms, to the extent publicly available, of certain comparable merger and
acquisition transactions; (vi) reviewed the projected financial statements and
projected cash flows of IXYS in a discounted cash flow analysis; (vii)
analyzed the relative contribution each company would make to the proposed
Combined Company's financial statements; (viii) examined Paradigm's financial
position, their plans and their ability to operate as a going concern; (ix)
reviewed the Merger Agreement; (x) discussed the tax and accounting treatment
of the Merger with IXYS' management and IXYS' consultants; and (xi) performed
such other analyses and examinations and considered such other information,
financial studies, analyses and investigations and financial, economic and
market data as Alliant Partners deemed relevant.
Alliant Partners did not independently verify any of the information
concerning IXYS considered in connection with their review of the Merger and,
for purposes of its opinion, Alliant Partners assumed and relied upon the
accuracy and completeness of all such information. In connection with its
opinion, Alliant Partners did not prepare or obtain any independent evaluation
or appraisal of any of the assets or liabilities of IXYS. For purposes of
their opinion, Alliant Partners assumed that the Merger would qualify as a
tax-free reorganization for the stockholders of IXYS and that the Merger would
be accounted for as a purchase accounting transaction. Alliant Partners'
opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of the opinion
and any subsequent change in such conditions would require a reevaluation of
such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
summary of the Alliant Partners analyses set forth below does not purport to
be a complete description of the presentation by Alliant Partners to the
Paradigm Board. Accordingly, Alliant Partners believes that its analyses and
the summary set forth below must be considered as a whole. Selecting portions
of its analyses, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Alliant Partners presentation to the Paradigm Board and its opinion. In
performing its analyses, Alliant Partners made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of IXYS. The analyses
performed by Alliant Partners (and summarized below) are not necessarily
indicative of
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actual values beyond these specific facts on this date or of actual future
results, which may be significantly more or less favorable than suggested by
such analyses.
The following is a brief summary of material financial analyses performed by
Alliant Partners in connection with providing its written opinion to the
Paradigm Board dated March 5, 1998:
Valuation Summary. Based upon the financial information provided to Alliant
Partners, the financial performance of IXYS and Paradigm, and the current
semiconductor market conditions, Alliant Partners rendered its opinion that
the value of IXYS, from a financial point of view, is $167 million, with the
range between $142 million and $192 million. The value of the consideration to
be paid for IXYS, calculated as $177 million at the time the fairness opinion
was rendered, is within in the range Alliant Partners determined to be fair
from a financial point of view.
The valuation for IXYS was derived from a weighted average calculation of
four valuation methodologies: Relative Contribution, Public Market
Comparables, Related Industry M&A Transactions, and Discounted Cash Flow (see
below for results of each method).
The Relative Contribution and the Public Market Comparables methodologies
were weighted at 40% each because Alliant Partners believed these
methodologies were significantly more relevant than the Related Industry M&A
Transactions and Discounted Cash Flow. The Relative Contribution methodology
evaluates IXYS' direct contribution to the Combined Company while the Public
Market Comparables methodology evaluates current market value of semiconductor
companies as a going concern.
The Related Industry M&A Transactions methodology was weighted at 10%
because the transactions in the M&A population were mostly accounted for as
pooling of interest transactions while the Paradigm and IXYS transaction was
accounted for as purchase accounting. The transaction accounting method
generally has an impact on the acquiror's decision regarding the amount of
consideration to be paid in a merger or acquisition. Higher prices may be paid
in pooling transactions because the acquiror is not required to recognize
goodwill that could, in the short term, dilute the acquiror's earnings per
share. The Discounted Cash Flow methodology was weighted at 10% because such
methodology derives its value from uncertain future projections and not on
historical results. In this transaction, historical results played a
significant role in valuation.
Public Market Comparables. Alliant Partners reviewed and compared selected
historical and projected financial information of IXYS corresponding financial
information and ratios of publicly traded companies which Alliant Partners
deemed to be comparable in many respects to IXYS. Such data and ratios
included the market value, revenue, net earnings, cash and debt of each
company. The Public Market Comparables were companies which manufactured
memory semiconductor products or personal computer semiconductor products.
Companies used as public comparables included International Rectifier, Linear
Technology, Micrel, Microsemi, Siliconix, Supertex, Telcom Semiconductor, and
Unitrode. Alliant Partners used the average of the comparables' last twelve
months revenue multiples and the average of the comparables' last twelve
months earnings multiples to determine the value of IXYS. Alliant Partners
analyzed the projected operating performance of IXYS, compared it to the last
twelve month operating performance of the comparable companies, and made
appropriate adjustments to the last twelve months revenue and earnings
multiples. Alliant Partners utilized the financial projections for IXYS's
fiscal year ending March 31, 1998 multiplied by the adjusted average of the
comparable companies' last twelve months revenue and earnings multiples. The
public market comparables valuation was $165 million, with a range between
$140 million and $190 million.
Related Industry Transactions. Alliant Partners compared the proposed merger
with selected comparable completed merger and acquisition transactions. In the
population of merger and acquisition transactions, the companies manufactured
memory semiconductor products or personal computer semiconductor products.
These transactions included: Benchmarq Microelectronics acquired by Unitrode,
BKC Semiconductors acquired by Microsemi, Raytheon Semiconductor acquired by
Fairchild Semiconductor, Edge Semiconductor acquired by Semtech, Chips &
Technologies acquired by Intel, Cyrix acquired by National Semiconductor, and
Lite-On
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Power Semiconductor acquired by Vishay International. This analysis of the
selected transactions derived an average for the consideration paid as a
multiple of latest twelve month revenues and an average for the consideration
paid as a multiple of earnings. Alliant Partners utilized the financial
projections for IXYS' fiscal year ending March 31, 1998 multiplied by the
average of the merger and acquisition transactions revenues and earnings
multiples. The related industry transaction valuation was $125 million with a
range between $106 million and $143 million.
Discounted Cash Flow. Alliant Partners analyzed IXYS based on a discounted
cash flow analysis of the projected financial performance of IXYS. The
discounted cash flow analysis determined the after-tax cash flows generated
through IXYS' fiscal year of 2000. Alliant Partners used three years of
projected financial statements for IXYS, provided by the management of IXYS,
derived the after-tax cash flows, and discounted the cash flows using a
discount rate appropriate for a company with performance, technological,
manufacturing, and operational risks similar to IXYS. The final discounted
cash flow also included a terminal value reflecting the value of the business
at the end of year three. The discounted cash flow valuation was $175 million
with a range between $149 million and $201 million.
Relative Contribution. Alliant Partners utilized a comparative analysis of
IXYS' and Paradigm's financial contribution in relation to the total
financials of the proposed combined company. The relative contribution
analysis includes an income statement contribution analysis. In addition, the
relative contribution analysis includes a balance sheet contribution analysis.
The income statement and balance sheet relative contribution analysis were
then averaged to determine the final overall relative contribution. The
relative contribution valuation was $177 million with a range between $151
million and $204 million.
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, corporate partnerings and
strategic alliances.
Pursuant to the terms of an engagement letter by and between Paradigm and
Alliant Partners, dated December 2, 1996, and a subsequent letter agreement
dated January 13, 1998, Paradigm has agreed to pay Alliant Partners a
transaction fee of $225,000, upon consummation of the Merger, and an
additional $100,000 for rendering the Alliant Partners Opinion. Paradigm has
also agreed to reimburse Alliant Partners for certain of its reasonable out-
of-pocket expenses and to indemnify it against certain liabilities relating to
or arising out of services performed by Alliant Partners as financial advisor
to Paradigm.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Officers and Directors of Paradigm. Certain members of Paradigm's management
and Board of Directors may be deemed to have certain interests in the Merger
that are in addition to their interests as stockholders of Paradigm generally.
The interest of Paradigm's management and the Paradigm Board are as described
in""--Employment/Severance Arrangement" and "Other Information Regarding
Paradigm--Certain Relationships and Related Transactions." Other than as set
forth in "--Employment/Severance Arrangement" and "Other Information Regarding
Paradigm--Certain Relationships and Related Transactions" and "Security
Ownership of Certain Beneficial Owners and Management of Paradigm," no other
benefit will be received by the Paradigm executive officers and directors. The
Paradigm Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Indemnification and Insurance. The Merger Agreement provides that all rights
to indemnification existing in favor of the persons serving as directors and
officers of Paradigm as of the date of the Merger Agreement for acts or
omissions occurring prior to the Effective Time, as provided in Paradigm's
Certificate of Incorporation and Bylaws and in certain indemnification
agreements between Paradigm and such directors and officers, will survive the
Merger, and that Paradigm will cause the Surviving Corporation to perform its
obligations arising thereunder for at least six years from the Effective Time.
Subject to certain limitations, Paradigm has also agreed to cause the Combined
Company to maintain in effect for three years after the Effective Time the
policy of
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directors' and officers' liability insurance in existence at the date of the
Merger Agreement for the benefit of persons serving as directors and officers
of Paradigm as of such date. Such limitations include the fact that the
Combined Company shall not be required to maintain the directors' and
officers' liability insurance in existence as of the date of the Merger
Agreement if equivalent coverage is provided to such directors and officers
under another policy of directors' and officers' liability insurance. Further,
if coverage is provided to such persons under another policy of officers' and
directors' liability insurance, the Combined Company shall not be required to
expend in any one year an amount in excess of 150% of the annual premium
currently paid by Paradigm for such insurance, and if the annual premiums of
such insurance coverage exceed 150% of the annual premium currently paid by
Paradigm for such insurance, the Combined Company shall be obligated to obtain
a policy with the greatest coverage available for a cost not exceeding such
amount. See "The Merger Agreement--Indemnification and Insurance."
Employment/Severance Arrangement. Each of Messrs. Campbell and Morley have
entered into Executive Compensation Agreements with Paradigm which provide
that if the Executive's employment with the Combined Company is terminated
without "cause" within six months following the Effective Time, such Executive
would be paid, in a single lump sum payment, two months of salary at the rate
in effect on the date of the Executive Compensation Agreement. Messrs.
Campbell and Morley are entitled to two months of annual base salary for an
aggregate of $10,834 and $25,000, respectively, if they are terminated without
"cause" within six months of the Effective Time.
Election as Director. Pursuant to the Merger Agreement, Mr. Kochman, who is
currently a director of Paradigm, will be nominated as a management nominee
for election to the Paradigm Board and shall remain as a director of the
Combined Company after the Merger. Mr. Kochman is also a managing partner and
director of Alliant Partners. However, Mr. Kochman will not derive any
economic benefit from Alliant Partners' representation of Paradigm in
connection with the Merger.
Officers and Directors of IXYS. Certain members of IXYS' management and
Board of Directors may be deemed to have certain interests in the Merger that
are in addition to their interests as stockholders of IXYS generally. The IXYS
Board was aware of these interests and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
At the Effective Time, Dr. Zommer, Mr. Agbayani and Dr. Karg will be appointed
to the board of directors of the Combined Company. It is currently expected
that the executive officers of IXYS will serve after the Effective Time as the
executive officers of the Combined Company. In addition to the benefits
described below, the officers and directors of IXYS will benefit on the same
basis with respect to their stock and option holdings of IXYS as other holders
of IXYS Capital Stock and options exercisable for IXYS Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management of IXYS."
Indemnification and Insurance. The Merger Agreement provides that Paradigm
will cause the Surviving Corporation to perform its obligations arising under
IXYS' Certificate of Incorporation and Bylaws for at least six years from the
Effective Time. Subject to certain limitations, Paradigm has also agreed to
cause the Combined Company to maintain in effect for three years after the
Effective Time the policy of directors' and officers' liability insurance in
existence at the date of the Merger Agreement for the benefit of persons
serving as directors and officers of Paradigm as of such date. Such
limitations include the fact that the Combined Company shall not be required
to maintain the directors' and officers' liability insurance in existence as
of the date of the Merger Agreement if equivalent coverage is provided to such
directors and officers under another policy of directors' and officers'
liability insurance. Further, if coverage is provided to such persons under
another policy of officers' and directors' liability insurance, the Combined
Company shall not be required to expend in any one year an amount in excess of
150% of the annual premium currently paid by Paradigm for such insurance, and
if the annual premiums of such insurance coverage exceed 150% of the annual
premium currently paid by Paradigm for such insurance, the Combined Company
shall be obligated to obtain a policy with the greatest coverage available for
a cost not exceeding such amount. See "The Merger Agreement--Indemnification
and Insurance."
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Registration Rights Agreement. As a condition to the consummation of the
Merger, two of IXYS' principal stockholders, ABB, Inc. and ABB AG
(collectively "ABB"), shall enter into the Registration Rights Agreement with
Paradigm on or prior to the Effective Time. Dr. Karg is an officer of ABB AG
and a director of IXYS. Pursuant to the Registration Rights Agreement, ABB
will be entitled to certain rights with respect to registration of the
Paradigm Common Stock it receives pursuant to the Merger (the "Merger Shares")
under the Securities Act. If the Combined Company proposes to register any of
its securities under the Securities Act, either for its own account or for the
account of other security holders after the Effective Time (the "Company
Registration"), ABB will be entitled to notice of the registration and will be
entitled to include the Merger Shares therein, except, among other conditions,
that (i) the underwriters have the right to limit the number of such Merger
Shares included in the Company Registration, and (ii) except with respect to
any one offering after the first Company Registration, in no event may the
underwriters reduce the securities of ABB included in the Company Registration
below 25% of the total amount of securities in the offering. In addition, ABB
may require the Combined Company to file a registration statement under the
Securities Act with respect to its Merger Shares, and the Combined Company
would be required to use its reasonable best efforts to effect the
registration, subject to certain restrictions and limitations. Further, under
the Registration Rights Agreement, ABB may require the Combined Company to
register its shares on Form S-3 when such form is available to the Combined
Company, subject to certain conditions and limitations. The Registration
Rights Agreement also provides ABB with certain inspection rights and rights
to attend Board of Directors meetings of the Combined Company provided that,
at the time of such board meetings, ABB holds more than 10% of the outstanding
shares of common stock of the Combined Company.
VOTING AGREEMENT
Pursuant to the Voting Agreement, Dr. Zommer, who owned in the aggregate
issued and outstanding shares of IXYS Capital Stock representing approximately
30.90% of the shares of IXYS Capital Stock issued and outstanding as of the
IXYS Record Date, has agreed that, prior to the Expiration Date, he will vote
his shares of IXYS Common Stock in favor of: (i) the Merger; (ii) the
execution and delivery by IXYS of the Merger Agreement; (iii) the adoption and
approval of the terms of the Merger Agreement; and (iv) each of the other
actions contemplated by the Merger Agreement and any action required in
furtherance thereof. Dr. Zommer has also delivered to Paradigm an irrevocable
proxy with respect to the matters covered by the Voting Agreement. In
addition, subject to certain exceptions, Dr. Zommer has agreed not to transfer
any IXYS Capital Stock owned by him unless and until the proposed transferee
of such IXYS Capital Stock shall have (i) executed a counterpart of the Voting
Agreement and the corresponding irrevocable proxy and (ii) agreed to hold such
IXYS Capital Stock subject to all of the terms and conditions of the Voting
Agreement.
AFFILIATE AGREEMENTS
Under the Merger Agreement, IXYS will deliver to Paradigm an agreement
executed by each person who could reasonably be determined to be an
"affiliate" of IXYS, as such term is defined in Rule 145 promulgated under the
Securities Act (an "Affiliate"), that generally requires such person, for the
one year period following consummation of the Merger, to sell shares to the
public only in accordance with the volume restrictions and manner of sale
restrictions of Rule 144. These restrictions generally require that sales to
the public be made only through unsolicited "brokers' transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144. Additionally, the number of shares to be sold by an Affiliate (together
with certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of 1%
of the outstanding shares of common stock of the Combined Company or the
average weekly trading volume of such stock during the four calendar weeks
preceding such sale. One year after the Effective Time, an Affiliate would be
able to sell such common stock of the Combined Company without such sale or
volume limitations provided that the Combined Company was current with its
Exchange Act informational filings and such Affiliate was not then an
Affiliate of the Combined Company. This requirement will lapse if the SEC
repeals the provisions currently contained in Rule 145(c) in a manner that
would apply to this transaction.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of IXYS
Capital Stock. This discussion assumes that holders of shares of IXYS Capital
Stock hold such shares as capital assets. This discussion is based on
currently existing provisions of the Code, existing Treasury Regulations
thereunder and current administrative rulings and court decisions, all of
which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to the IXYS stockholders.
IXYS stockholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular IXYS
stockholders in light of their particular circumstances, such as stockholders
who are dealers in securities, banks, insurance companies or tax-exempt
organizations, who are subject to the alternative minimum tax provisions of
the Code, who are non-United States persons, who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions or who hold their shares as a hedge or as part of a hedging,
straddle, conversion or other risk reduction transaction. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws or the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger).
It is the opinion of Cooley Godward LLP ("Cooley Godward"), counsel to IXYS,
and Pillsbury Madison & Sutro LLP ("Pillsbury"), counsel to Paradigm, that the
Merger will constitute a reorganization (a "Reorganization") pursuant to
Section 368(a) of the Code (collectively, the "Tax Opinions"). In addition,
IXYS' obligation to consummate the Merger is conditioned on the receipt by
IXYS of an opinion from Cooley Godward, confirming that the Merger will
constitute a Reorganization (the "Closing Opinion"). Such condition will not
be waived without a resolicitation of the IXYS' stockholders' consent. Cooley
Godward has advised IXYS that it currently expects to be able to deliver such
Closing Opinion. See "The Merger Agreement--Conditions to of the Merger--IXYS'
Conditions." The Tax Opinions and Closing Opinion (i) will not be binding on
the Internal Revenue Service (the "IRS") nor preclude the IRS from adopting a
contrary position, (ii) will be based on the assumptions discussed below, as
well as representations received from Paradigm, Merger Subsidiary and IXYS,
(iii) will be based on the assumption that the Merger will be consummated in
accordance with the terms of the Merger Agreement and (iv) will be subject to
the limitations discussed below. Neither Paradigm nor IXYS has requested, or
will request, a ruling from the IRS with regard to any of the federal income
tax consequences of the Merger. The Tax Opinions and Closing Opinion assume
and are conditioned upon (i) the truth and accuracy of the statements,
covenants, representations and warranties contained in the Merger Agreement,
in the representations received from Paradigm, Merger Subsidiary and IXYS to
support the Tax Opinions and Closing Opinion (the "Tax Representations") and
in all other instruments and documents related to the formation, organization
and operation of Paradigm, Merger Subsidiary and IXYS examined by and relied
upon by Cooley Godward and Pillsbury in connection with the Merger; (ii) that
original documents submitted to such counsel are authentic, documents
submitted to such counsel as copies conform to the original documents, and
that all such documents have been (or will be by the Effective Time) duly and
validly executed and delivered where due execution and delivery are a
prerequisite to the effectiveness thereof; (iii) that all covenants contained
in the Merger Agreement and in the Tax Representations are performed without
waiver or breach of any material provision thereof; and (iv) that any
representation or statement made "to the best of knowledge" or similarly
qualified is correct without such qualification.
Subject to the limitations and qualifications referred to herein and in the
Tax Opinions and Closing Opinion, it is the opinion of Cooley Godward and
Pillsbury that as a result of the Merger's qualifying as a Reorganization, the
following U.S. federal income tax consequences will result:
. No gain or loss will be recognized for federal income tax purposes by
the holders of IXYS Capital Stock upon the receipt of common stock of
the Combined Company solely in exchange for such IXYS Capital Stock in
the Merger (except to the extent that cash is received in lieu of
fractional shares).
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. The aggregate tax basis of the common stock of the Combined Company so
received by IXYS stockholders in the Merger (including any fractional
shares of common stock of the Combined Company not actually received)
will be the same as the aggregate tax basis of the IXYS Capital Stock
surrendered in exchange therefor.
. The holding period of the common stock of the Combined Company so
received by each IXYS stockholder in the Merger will include the holding
period of the shares of IXYS Capital Stock surrendered in exchange
therefor.
. Cash payments received by holders of IXYS Capital Stock in lieu of
fractional shares of common stock of the Combined Company will be
treated as if such fractional shares had been issued in the Merger and
then redeemed by Paradigm. An IXYS stockholder receiving such cash will
recognize gain or loss upon such payment, measured by the difference (if
any) between the amount of cash received and the basis allocated to such
fractional share. The gain or loss should be capital gain or loss,
provided that each such fractional share of common stock of the Combined
Company was held as a capital asset at the Effective Time of the Merger.
. A holder of IXYS Capital Stock who exercises appraisal rights with
respect to a share of IXYS Capital Stock and receives a cash payment for
such shares generally should recognize capital gain or loss measured by
the difference between the stockholder's basis in such share and the
amount of cash received, provided that such payment is not "essentially
equivalent to a dividend" within the meaning of Section 302 of the Code
nor has the effect of a distribution of a dividend within the meaning of
Section 356(a)(2) of the Code after giving effect to the constructive
ownership rules of the Code (collectively, a "Dividend Equivalent
Transaction"). A sale of shares pursuant to an exercise of appraisal
rights generally will not be a Dividend Equivalent Transaction if, as a
result of such exercise, the stockholder exercising the appraisal rights
owns no shares of capital stock of the Combined Company (either actually
or constructively within the meaning of Section 318 of the Code)
immediately after the Merger.
A successful IRS challenge to the Reorganization status of the Merger could
result in significant adverse tax consequences to IXYS stockholders. An IXYS
stockholder would recognize gain or loss with respect to each share of IXYS
Capital Stock surrendered equal to the difference between the stockholder's
basis in such share and the fair market value, as of the Effective Time, of
the common stock of the Combined Company received in exchange therefor. In
such event, a stockholder's aggregate basis in the common stock of the
Combined Company so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger is consummated.
Even if the Merger qualifies as a Reorganization, a recipient of common
stock of the Combined Company would recognize income to the extent that, for
example, any such shares were determined to have been received in exchange for
services, to satisfy obligations or in consideration for anything other than
the IXYS Capital Stock surrendered. In addition, to the extent that an IXYS
stockholder were treated as receiving (directly or indirectly) consideration
other than common stock of the Combined Company in exchange for such
stockholder's IXYS Capital Stock, gain, if any, would have to be recognized.
Certain noncorporate IXYS stockholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share
interest in common stock of the Combined Company. Backup withholding will not
apply, however, to a stockholder who furnishes a correct taxpayer
identification number ("TIN") and certifies that he, she or it is not subject
to backup withholding on the substitute Form W-9 included in the Letter of
Transmittal, who provides a certificate of foreign status on Form W-8, or who
is otherwise exempt from backup withholding. A stockholder who fails to
provide the correct TIN on Form W-9 may be subject to a $50 penalty imposed by
the IRS.
Each IXYS stockholder will be required to retain records and file with such
holder's U.S. federal income tax return a statement setting forth certain
facts relating to the Merger.
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THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, HOLDERS
OF IXYS CAPITAL STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL
AND OTHER APPLICABLE TAX LAWS AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE
TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT
In the proposed transaction, Paradigm will be acquiring all of the
outstanding shares of IXYS stock and the combination will be accounted for
under the purchase method of accounting. However, for financial accounting
purposes the transaction will be accounted for as a "reverse merger" and IXYS'
historical financial statements will be the financial statements of the post-
merger Combined Company. Under the purchase method of accounting, Paradigm's
results of operations will be combined with those of IXYS from and after the
Effective Time, and Paradigm's specific tangible and identifiable intangible
assets and liabilities will be recorded in IXYS' financial statements at their
respective fair values at the Effective Time. The excess of the purchase price
over the fair value of Paradigm's specific tangible and identifiable
intangible assets and liabilities will be recorded as goodwill and amortized
over a period not expected to exceed three years. The fiscal year end of the
Combined Company will be March 31.
REGULATORY MATTERS
Paradigm and IXYS are not aware of any governmental or regulatory
requirements relating to the consummation of the Merger, other than compliance
with the HSR Act. Under the HSR Act and the rules promulgated thereunder by
the FTC, the Merger may not be consummated until notifications have been given
and certain information has been furnished to the FTC and the Antitrust
Division and specified waiting period requirements have been satisfied or
early termination of the waiting period is granted at the request of Paradigm
and IXYS. On May 13, 1998, Paradigm and ABB filed notification and report
forms under the HSR Act with the FTC and the Antitrust Division. They have
subsequently received a notice of early termination of such waiting period
from the FTC.
RIGHTS OF APPRAISAL
If the Merger is consummated, stockholders of IXYS who make the demand
described below with respect to their shares, who continuously are the record
holders of such shares through the Effective Time, who otherwise comply with
the statutory requirements of Section 262 of the DGCL (a copy of which Section
is attached as Annex C to this Joint Proxy Statement/Prospectus) and who
neither vote in favor of the Merger Agreement nor consent thereto in writing
will be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of their shares of IXYS Capital Stock.
Except as set forth herein, stockholders of IXYS will not be entitled to
appraisal rights in connection with the Merger. Holders of Paradigm Common
Stock do not have rights of appraisal under Section 262 in connection with the
Merger because Paradigm is not a constituent corporation in the Merger.
A holder of shares of IXYS Capital Stock wishing to exercise dissenters'
rights of appraisal must, before the taking of the vote on the Merger at the
IXYS Special Meeting, deliver to IXYS a written demand for appraisal of such
shares. A demand for appraisal will be sufficient if it reasonably informs
IXYS of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his or her shares. A proxy or vote against
the Merger shall not constitute such a demand. A failure to vote against the
Merger shall not constitute waiver of appraisal rights.
Within 10 days after the Effective Time, the Surviving Corporation shall
notify each stockholder of IXYS who has satisfied the foregoing conditions and
not voted in favor of the Merger as of the date on which the
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<PAGE>
Merger became effective. Within 120 days after the Effective Time, either the
Surviving Corporation or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Court, with a
copy served on the Surviving Corporation in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. There is no present intent on the part of the
Surviving Corporation to file an appraisal petition and stockholders seeking
to exercise appraisal rights should not assume that the Surviving Corporation
will file such a petition or that the Surviving Corporation will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
stockholders who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. Within 120 days
after the Effective Time, any stockholder who has theretofore complied with
the applicable provisions of Section 262 will be entitled, upon written
request, to receive from the Surviving Corporation, a statement setting forth
the aggregate number of shares of IXYS Capital Stock not voted in favor of the
Merger and the number of shares of IXYS Capital Stock with respect to which
demands for appraisal have been received by IXYS and the aggregate number of
holders of such shares. Such statement must be mailed within 10 days after the
written request therefor has been received by the Surviving Corporation or
within 10 days after expiration of the period for the delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may
dismiss the proceedings as to such stockholder. Where proceedings are not
dismissed, the Delaware Court will appraise the shares of IXYS Capital Stock
owned by such stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining fair
value, the Delaware Court is to take into account all relevant factors. In
Weinberger v. UOP Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that in making this determination of fair value
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." However, the court noted that, in
determining fair value under Section 262, "the speculative elements of value
that may arise from the "accomplishment' or "expectation' of the merger are
excluded."
Holders of shares of IXYS Capital Stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262
could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of IXYS, the Delaware Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
From and after the Effective Time, no stockholder who has demanded appraisal
rights in compliance with the requirements of Section 262 of the DGCL will be
entitled to vote such stock for any purpose or to receive payment of dividends
or other distributions on the stock (except dividends or other distributions
that were payable to record holders prior to the Effective Time).
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At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Surviving Corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal will cease, and all
holders of shares of IXYS Capital Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the
Surviving Corporation has no obligation to file such a petition, and the
Surviving Corporation has no present intention to do so, any holder of shares
of IXYS Capital Stock who desires such a petition to be filed is advised to
file it on a timely basis. No petition timely filed in the Delaware Court of
Chancery demanding appraisal shall be dismissed as to any stockholder without
the approval of the Delaware Court, and such approval may be conditioned upon
such terms as the Delaware Court deems just.
The foregoing is only a summary of Section 262, and is qualified in its
entirety by reference to the provisions thereof, the full text of which is set
forth as Annex C to this Joint Proxy Statement/Prospectus. Each stockholder of
IXYS is urged to read carefully the full text of Section 262.
NO PARADIGM APPRAISAL RIGHTS
Holders of Paradigm Common Stock are not entitled to appraisal rights under
the DGCL because Paradigm is not a constituent corporation to the Merger
Agreement under the DGCL.
RESALE OF PARADIGM COMMON STOCK
The Paradigm Common Stock issued in connection with the Merger will be
freely transferable, except that shares issued to any IXYS stockholder who is
an Affiliate of IXYS or who becomes an Affiliate of the Combined Company are
subject to certain restrictions on resale. An Affiliate is defined generally
as including, without limitation, directors, certain executive officers and
certain other persons who control a company. Certain stockholders of IXYS who
may be deemed to be Affiliates have executed agreements that prohibit the
sale, transfer or other disposition of common stock of the Combined Company
received by such stockholders in the Merger, except where such sale, transfer
or other disposition (i) is effected pursuant to an effective registration
statement under the Securities Act, (ii) is made in conformity with the
requirements of Rule 145 under the Securities Act, (iii) is made in reliance
upon a written opinion of counsel that such sale, transfer or other
disposition is exempt from registration under the Securities Act, or (iv) is
made in reliance upon the written advice from an authorized representative of
the Commission to the effect that the Commission would take no action with
respect to such sale, transfer or other disposition. See "--Affiliate
Agreements."
MANAGEMENT AFTER THE MERGER
At the Effective Time, all directors and executive officers of Paradigm
shall resign from their respective positions as director or executive officer
(but not as employee), except for Mr. Kochman who shall remain as a director
of the Combined Company. At the Effective Time, Dr. Zommer, Mr. Agbayani and
Dr. Karg will be appointed to the board of directors of the Combined Company.
It is currently expected that the executive officers of IXYS will serve after
the Effective Time as the executive officers of the Combined Company.
THE PARADIGM BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE ISSUANCE PROPOSAL.
THE IXYS BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE MERGER PROPOSAL.
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THE MERGER AGREEMENT
GENERAL
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex 1 to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. However, the
following is not a complete statement of all provisions of the Merger
Agreement and related agreements. Statements made in this Joint Proxy
Statement/Prospectus with respect to the terms of the Merger Agreement and
such related agreements are qualified in their respective entireties by
reference to the more detailed information set forth in the Merger Agreement
and such related agreements.
The Merger Agreement provides for the merger of Merger Subsidiary with and
into IXYS. As a result of the Merger, Merger Subsidiary will cease to exist,
IXYS will become a wholly-owned subsidiary of Paradigm and the former
stockholders of IXYS will become the holders of a majority of the outstanding
shares of Paradigm Common Stock. IXYS will continue as the surviving
corporation of the Merger (the "Surviving Corporation") and will retain all of
its separate corporate existence, with all its purposes, objects, rights,
privileges, powers and franchises unaffected by the Merger. Merger Subsidiary
has been formed solely for the purpose of effecting the Merger, and there will
be no other activity in Merger Subsidiary. The Merger will become effective
upon the filing of a Certificate of Merger with the Delaware Secretary of
State. Such filing is anticipated to take place as soon as practicable after
the approval of the Merger Proposal by the IXYS stockholders and approval of
the Issuance Proposal, Reverse Stock Split Proposal, Increased Authorization
Proposal and Name Change Proposal by the Paradigm stockholders, subject to the
satisfaction or waiver of the other conditions to the Merger. It is currently
anticipated that the Merger will be consummated, and the Effective Time will
occur, in August 1998. There can be no assurance, however, that the conditions
to the Merger will be satisfied by such date, or at all, or that the Merger
Agreement will not be terminated. See "--Conditions to the Merger" and "The
Merger Proposal and the Issuance Proposal--Regulatory Matters."
MERGER CONSIDERATION
IXYS Capital Stock. Subject to the provisions contained in the Merger
Agreement relating to the payment of cash in lieu of fractional shares, at the
Effective Time, each share of IXYS Capital Stock then outstanding (except for
any such shares held by IXYS as treasury stock and any shares held by Paradigm
or any subsidiary of Paradigm or IXYS) will be converted into the right to
receive Paradigm Common Stock based on the Exchange Ratio.
The Exchange Ratio shall be the greater of two ratios. The two ratios will
be evaluated, and the greater of the two ratios will be determined and fixed,
immediately prior to the Effective Time. The Percentage Formula Ratio will be
determined according to the following formula:
A = 19 X B
-------
C
where "A" is the Percentage Formula Ratio, "B" is the fully diluted
capitalization of Paradigm, immediately prior to the Effective Time and having
given effect to the Reverse Stock Split, expressed as the sum of (x) the
number of shares of Paradigm Common Stock outstanding, (y) the number of
shares of Paradigm Common Stock into which the outstanding Paradigm Preferred
Stock converts and (z) the aggregate number of shares of Paradigm Common Stock
for which outstanding warrants, options or other rights to acquire Paradigm
Common Stock are exercisable and "C" is the fully diluted capitalization of
IXYS immediately prior to the Effective Time, expressed as the sum of (A) the
number of shares of IXYS Common Stock outstanding, (B) the number of shares of
IXYS Common Stock issuable upon conversion of the outstanding shares of IXYS
Preferred Stock and (C) the aggregate number of shares of IXYS Common Stock
for which outstanding warrants, options or other rights to acquire IXYS Common
Stock are exercisable.
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The Valuation Formula Ratio will be determined according to the following
formula:
D = $150,000,000
---------
(E X C)
where "D" is the Valuation Formula Ratio, "E" is the average of the closing
sale prices of Paradigm Common Stock for the ten trading days ending (and
including) the trading day two business days prior to the date of the Paradigm
Annual Meeting (appropriately adjusted to reflect the Reverse Stock Split) and
"C" is the IXYS Fully Diluted Capitalization.
For illustrative purposes only, the table below sets forth examples
estimating the Exchange Ratio for several alternative values of Paradigm
Common Stock.
<TABLE>
<CAPTION>
AFTER
PROPOSED
6-FOR-1
INITIAL REVERSE SPLIT EXCHANGE
STOCK PRICE (1) STOCK PRICE RATIO (2)
--------------- ------------- ---------
<S> <C> <C>
$5.00 $30.00 0.034023
$4.75 $28.50 0.034252
$4.50 $27.00 0.034506
$4.25 $25.50 0.034790
$4.00 $24.00 0.035109
$3.75 $22.50 0.035471
$3.50 $21.00 0.035885
$3.311107 $19.866642 0.036239
$3.25 $19.50 0.036920
$3.00 $18.00 0.039997
$2.75 $16.50 0.043633
$2.50 $15.00 0.047996
$2.25 $13.50 0.053329
$2.00 $12.00 0.059995
$1.75 $10.50 0.068566
$1.50 $ 9.00 0.079993
$1.25 $ 7.50 0.095992
$1.00 $ 6.00 0.119990
$0.75 $ 4.50 0.159987
$0.50 $ 3.00 0.239980
$0.25 $ 1.50 0.479961
</TABLE>
--------
(1) Stock price based on fluctuating stock prices for illustrative
purposes.
(2) Based on the proposed 6-for-1 reverse stock split. Please note that
where the initial stock price of Paradigm Common Stock was less than
$3.311107 per share, the Valuation Formula Ratio was used because the
value of the total number of shares the IXYS stockholders would receive
under the Percentage Formula Ratio (in using that price) would have
been less than $150 million. Conversely, if the initial stock price of
Paradigm was more than $3.311107 per share, then the Percentage Formula
Ratio was used. Therefore, all exchange ratio calculations made based
on initial stock prices of Paradigm that were above $3.311107 were
calculated using the Percentage Formula Ratio and all exchange ratio
calculations made based on initial stock prices of Paradigm that were
below $3.311107 were calculated using the Valuation Formula Ratio.
Therefore, the "benchmark" stock price is $3.311107 per share.
For each value of Paradigm Common Stock set forth in the foregoing table,
the table assumes that the outstanding shares of Paradigm Preferred Stock are
converted into Paradigm Common Stock in accordance with the terms of the
Paradigm Certificate of Incorporation based upon a five (5) day closing bid
price average equivalent to the value set forth for Paradigm Common Stock in
the table. The number of shares of Paradigm Common Stock issuable upon
conversion of the Paradigm 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
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on factors which cannot be predicted by Paradigm, including, among other
things, the future market price of Paradigm Common Stock. Additionally, for
each value of Paradigm Common Stock set forth in the foregoing table, the
table assumes that the ten (10) day average of closing sale prices for
Paradigm Common Stock to be used in the Valuation Formula Ratio is equivalent
to the value set forth in the table. Additionally, the table assumes (i) a
variable number of shares representing the Paradigm Fully Diluted
Capitalization which, as of June 16, 1998, was 557,818 shares and (ii) an IXYS
Fully Diluted Capitalization of 208,350,429 shares, based on securities
outstanding on June 16, 1998. Finally, the table assumes the Reverse Stock
Split has taken place (collectively, the "Exchange Ratio Assumptions").
Consequently, at any given value for Paradigm Common Stock in the table, the
actual Exchange Ratio will vary from the number set forth in the table if the
averages of the closing sale prices of Paradigm Common Stock differ from one
another or the price of Paradigm Common Stock at the Effective Time or if the
fully diluted capitalization of either company at the Effective Time varies
from the amount assumed herein. The actual value of the consideration and the
number of shares to be issued by Paradigm may differ from the value of the
consideration and the number of shares to be issued in accordance with the
Assumed Exchange Ratio. The number of shares to be issued in connection with
the Valuation Formula Ratio (if such exchange ratio is used) will not be
determined until immediately preceding the Annual Stockholder Meeting of
Paradigm and the number of shares to be issued in connection with the
Percentage Formula Ratio (if such exchange ratio is used) will not be
determined until immediately prior to the Effective Time. In both instances,
fluctuating market conditions relating to Paradigm's trading price are a
factor and may cause the final exchange ratio to be different from the Assumed
Exchange Ratio.
As of June 16, 1998, the value of the IXYS Fully Diluted Capitalization
would be less than $150 million if the Percentage Formula Ratio were used.
Therefore, in accordance with the Merger Agreement, the Valuation Formula
Ratio was used to calculate the Assumed Exchange Ratio instead of the
Percentage Formula Ratio.
No Fractional Shares. No fractional shares of Paradigm Common Stock will be
issued in connection with the Merger, and no certificates or scrip for any
such fractional shares will be issued. In lieu of such fractional shares, any
holder of IXYS Capital Stock who would otherwise be entitled to receive a
fraction of a share of Paradigm Capital Stock (after aggregating all
fractional shares of Paradigm Common Stock issuable to such holder) will, upon
surrender of such holder's stock certificate(s) representing IXYS Capital
Stock to the Exchange Agent, be paid in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying such fraction
by the closing price of a share of Paradigm Common Stock on the Nasdaq
SmallCap Market on the date the Merger becomes effective.
STOCK OPTIONS; WARRANTS
Stock Options. At the Effective Time, all rights with respect to IXYS Common
Stock in connection with IXYS Options then outstanding shall be converted into
and become rights with respect to Paradigm Common Stock, and each such option
shall be assumed by Paradigm and continue to have, and be subject to, the same
terms and conditions, including any restriction on the exercise of any such
option, except that (i) each such option assumed by Paradigm may be
exercisable solely for shares of Paradigm Common Stock; (ii) the number of
shares of Paradigm Common Stock subject to each such option shall be equal to
the number of shares of IXYS Common Stock subject to such option immediately
prior to the Effective Time multiplied by the Exchange Ratio and rounded down
to the nearest whole share (with cash, less the applicable exercise price,
being payable for any fraction of a share); and (iii) the exercise price per
share under each such option shall equal the exercise price immediately prior
to the Effective Time divided by the Exchange Ratio and rounding up to the
nearest hundredth of a cent. After the Effective Time, Paradigm will file with
the Commission, no later than 30 days after the date on which the Registration
Statement on Form S-4 becomes effective, a Registration Statement on Form S-8
relating to the shares of Paradigm Common Stock issuable with respect to the
assumed IXYS Options.
Warrants. At the Effective Time, all rights with respect to IXYS Warrants
then outstanding shall be converted into and become rights with respect to
Paradigm Common Stock, and Paradigm shall assume each such IXYS Warrant in
accordance with the terms of the Warrant by which it is evidenced, except that
(i) each such IXYS Warrant assumed by Paradigm may be exercised solely for
shares of Paradigm Common Stock;
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(ii) the number of shares of Paradigm Common Stock subject to each such IXYS
Warrant shall be equal to the number of shares of IXYS Common Stock subject to
such IXYS Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounding down to the nearest whole share (with cash, less the
applicable exercise price, being payable for any fraction of a share); and
(iii) the per share exercise price under each such IXYS Warrant shall be
adjusted by dividing the per share exercise price under such IXYS Warrant by
the Exchange Ratio and rounding up to the nearest hundredth of a cent.
STOCK OWNERSHIP FOLLOWING THE MERGER
Assuming the Exchange Ratio Assumptions, the occurrence of the Reverse Stock
Split and a price per share of Paradigm Common Stock of $7.4076 (after the
Reverse Stock Split), the Assumed Exchange Ratio based on the Valuation
Formula Ratio of 0.097189 would result. At the Assumed Exchange Ratio and
based upon the foregoing assumptions, an aggregate of approximately 17,845,964
shares of Common Stock of the Combined Company will be issued to holders of
IXYS Common Stock and an additional approximately 2,403,406 shares of Common
Stock of the Combined Company will be issuable to holders of options and
warrants exercisable for IXYS Capital Stock. Based upon the number of shares
of Paradigm Common Stock issued and outstanding as of the Paradigm Record
Date, and after giving effect to the Reverse Stock Split and the additional
shares of Paradigm Common Stock that are proposed to be issued in the Merger
and assuming the Valuation Formula Exchange Ratio is applicable (and assuming
no exercise of outstanding options to purchase Paradigm Common Stock or IXYS
Common Stock), the former holders of IXYS Capital Stock would hold
approximately 97.1% of the Combined Company's total issued and outstanding
shares and the former stockholders of Paradigm will hold the balance of the
Combined Company's total issued and outstanding shares, estimated to be
approximately 2.9%.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to the registered holders of IXYS Common Stock (i) the Letter
of Transmittal and (ii) instructions for use of the Letter of Transmittal in
effecting the surrender of IXYS Stock Certificates in exchange for
certificates representing Paradigm Common Stock. Upon surrender of an IXYS
Stock Certificate to the Exchange Agent for exchange, together with a duly
executed Letter of Transmittal and such other documents as may be reasonably
required by the Exchange Agent or Paradigm, the holder of such IXYS Stock
Certificate shall be entitled to receive in exchange therefor a certificate
representing the whole number of shares of Paradigm Common Stock that such
holder has the right to receive. No fractional shares of Paradigm Common Stock
will be issued in connection with the Merger, and no certificates for any such
fractional shares will be issued. After the Effective Time and until
surrendered as provided above, such certificates shall be deemed to represent
only the right to receive certificates representing the number of shares of
Paradigm Common Stock into which the shares of IXYS Capital Stock formerly
represented by such IXYS stock certificates were converted in the Merger and a
cash payment in lieu of any fractional shares. See "--No Fractional Shares."
Although holders of IXYS Capital Stock are encouraged to surrender their stock
certificates for exchange promptly after the consummation of the Merger, there
is no deadline for holders of IXYS Capital Stock to surrender their stock
certificates in exchange for certificates representing the common stock of the
Combined Company.
IXYS STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR IXYS STOCK
CERTIFICATES FOR EXCHANGE UNTIL SUCH TRANSMITTAL LETTER AND INSTRUCTIONS ARE
RECEIVED BY THEM.
EFFECT ON CERTIFICATES
At the Effective Time, (i) all shares of IXYS Common Stock outstanding
immediately prior to the Effective Time will automatically be canceled and
retired and will cease to exist, and all holders of certificates representing
shares of IXYS Common Stock that were outstanding immediately prior to the
Effective Time will cease to have any rights as stockholders of IXYS, and (ii)
the stock transfer books of IXYS will be closed with respect to all
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shares of IXYS Common Stock outstanding immediately prior to the Effective
Time. No further transfer of any such shares of IXYS Capital Stock will be
made on such stock transfer books after the Effective Time. If, after the
Effective Time, an IXYS Stock Certificate is presented to the Exchange Agent
(or to IXYS or Paradigm), such IXYS Stock Certificate will be canceled and
will be exchanged as provided above under the caption "--Conversion of Shares;
Procedures for Exchange of Certificates."
CORPORATE MATTERS
As of the Effective Time, the Certificate of Incorporation of the Surviving
Corporation will be amended and restated to conform to the form of certificate
of incorporation attached to the Merger Agreement, and the Bylaws of the
Surviving Corporation will be the Bylaws of IXYS as in effect immediately
prior to the Effective Time. The Merger Agreement provides that concurrently
with the Effective Time, certain directors and officers of Paradigm will
resign and the directors of the Combined Company immediately after the
Effective Time shall be Messrs. Zommer, Karg, Agbayani and Kochman, and the
officers of the Combined Company immediately after the Effective Time shall be
the officers of IXYS, occupying corresponding positions at the Combined
Company.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties
by IXYS, as to, among other things, (i) its corporate organization, standing
and power; (ii) its capitalization; (iii) the accuracy of IXYS' financial
statements; (iv) the absence of certain changes with respect to its business,
condition, assets, capitalization, liabilities, operations or financial
performance or prospects since the date of certain financial statements
delivered to Paradigm; (v) the validity of IXYS' title to, and certain other
matters relating to, the assets purported to be owned by IXYS that are
material to its business; (vi) certain matters relating to IXYS' accounts
receivables and inventory; (vii) intellectual property matters; (viii)
material contracts and the absence of any material breaches or violations
thereof; (ix) certain business practices; (x) compliance with legal
requirements and the maintenance of necessary governmental authorizations to
conduct its business; (xi) tax matters; (xii) employee and labor matters and
employee benefit plans; (xiii) compliance with environmental laws; (xiv)
insurance matters; (xv) transactions with certain parties related to IXYS;
(xvi) the absence of pending or threatened litigation; (xvii) IXYS' corporate
power and authority to enter into, and the enforceability against IXYS of, the
Merger Agreement, (xviii) the absence of discussions or negotiations regarding
any other merger or similar transaction; (xix) the vote of IXYS stockholders
necessary to adopt and approve the Merger Agreement, the Merger and the
transactions contemplated by the Merger Agreement; (xx) the Merger Agreement's
non-contravention of laws, agreements and governmental permits; and (xxi) the
absence of financial advisors employed by IXYS.
The Merger Agreement also includes representations and warranties by
Paradigm and Merger Subsidiary as to, among other things, (i) their corporate
organization, standing and power; (ii) Paradigm's capitalization; (iii) the
accuracy of Paradigm's financial statements and information contained in
certain filings of Paradigm with the Commission; (iv) the absence of certain
changes with respect to Paradigm's business, condition, assets,
capitalization, liabilities, operations or financial performance or prospects
since the date of certain financial statements delivered to IXYS; (v) the
validity of Paradigm's title to, and certain other matters relating to, the
assets purported to be owned by Paradigm that are material to its business;
(vi) certain matters relating to Paradigm's accounts receivables and
inventory; (vii) intellectual property matters; (viii) material contracts and
the absence of any material breaches or violations thereof; (ix) certain
business practices; (x) compliance with legal requirements and the maintenance
of necessary governmental authorizations to conduct Paradigm's business; (xi)
tax matters; (xii) employee and labor matters and employee benefit plans;
(xiii) compliance with environmental laws; (xiv) insurance matters; (xv)
transactions with certain parties related to Paradigm; (xvi) the absence of
pending or threatened litigation; (xvii) the corporate power and due
authorization for, and enforceability of, the Merger Agreement, with respect
to Paradigm and Merger Subsidiary; (xviii) the absence of discussions or
negotiations regarding any other merger or similar transaction; (xix) the vote
of Paradigm stockholders necessary to approve the Issuance Proposal, the
Reverse Stock Split Proposal, the Increased
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Authorization Proposal and the Name Change Proposal in connection with the
Merger Agreement; (xx) the Paradigm Preferred Stock Conversion; (xxi) the
Merger Agreement's non-contravention of laws, agreements and governmental
permits; (xxii) the fairness opinion from Paradigm's financial advisor; and
(xxiii) the fees of financial advisors employed by Paradigm and Merger
Subsidiary.
None of the representations and warranties of IXYS, Paradigm or Merger
Subsidiary contained in the Merger Agreement or in any certificate delivered
pursuant to the Merger Agreement shall survive the Merger.
COVENANTS
Conduct of Paradigm's Business Prior to the Effective Time. Pursuant to the
Merger Agreement, Paradigm has agreed that, prior to the Effective Time, it
shall (i) provide IXYS with reasonable access to Paradigm's officers,
directors, employees, agents, attorneys, accountants, advisors,
representatives, personnel and assets and to all existing books, records, tax
returns, work papers and other relevant documents and information; (ii)
provide IXYS copies of such documents and any additional information
reasonably requested; (iii) conduct its business and operations in the
ordinary course, in accordance with past practices, and in material compliance
with legal requirements and contractual requirements; (iv) use all reasonable
efforts to preserve intact its current business organization, to keep
available the services of its current officers and employees, and to maintain
its relations and goodwill with all individuals and entities with which it has
a business relationship; (v) keep in full force all material insurance
policies; and (vi) cause its officers (to the extent required by IXYS) to
report regularly to IXYS concerning the status of Paradigm's business.
In addition, Paradigm has agreed that, prior to the Effective Time, and
subject to certain qualifications, it shall not do any of the following
without the written consent of IXYS: (i) declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock or repurchase, redeem or otherwise reacquire any shares of capital stock
or other securities; (ii) sell, issue, grant or authorize shares of Paradigm
Common Stock or securities or rights exercisable for or convertible into
shares of Paradigm Common Stock (except (A) in connection with a sale of
preferred stock of Paradigm that is convertible, in the aggregate, into not
more than 200,000 shares of Paradigm Common Stock (a "Preferred Sale"), (B)
the issuance of Paradigm Common Stock upon the valid exercise of options
outstanding as of the date of the Merger Agreement, and (C) the repricing of
outstanding stock options or the granting of stock awards in exchange for the
cancellation of existing stock options, provided that the aggregate number of
shares so repriced or granted, when combined with the number of shares subject
to options that are not repriced or canceled, does not exceed 103,976); (iii)
amend or waive any rights, or accelerate the vesting under, any provision of
Paradigm's stock option plans, any provision of any agreement evidencing any
outstanding stock option or any restricted stock purchase agreement, or
otherwise modify any of the terms of any outstanding option, warrant or other
security, except for the full vesting of Paradigm stock options that may occur
at the Effective Time as a result of the Merger or any repricing of stock
options; (iv) except as contemplated by the Merger Agreement and except in
connection with a Preferred Sale, amend its certificate of incorporation or
bylaws or become a party to any merger, recapitalization or similar
transaction; (v) form any subsidiary or acquire any equity interest in any
other entity; (vi) expend more than an aggregate of $50,000 in capital
expenditures; (vii) enter into, amend or terminate any material contract other
than in the ordinary course of business; (viii) acquire, sell, lease or
license any right or other asset, except in each case for assets acquired,
leased, licensed or disposed of by Paradigm in the ordinary course of business
consistent with past practices; (ix) write off as uncollectable any accounts
receivable other than in the ordinary course of business; (xii) pledge or
encumber any of its assets, except for pledges of immaterial assets made in
the ordinary course of business and consistent with past practices; (xiii)
except pursuant to lines of credit and subject to credit limits in effect
prior to the date of the Merger Agreement and except for up to an additional
$1,000,000 in indebtedness for borrowed money which may be incurred by
Paradigm, lend money to any person or incur or guarantee any indebtedness;
(xiv) adopt or amend any employee benefit plan, pay any bonus or increase the
amount of wages or other compensation payable to, any of its directors,
officers or employees, except for severance and fully vested deferred
compensation this is payable upon termination of employment from Paradigm
without cause on or after the Effective Time; (xv) hire any new employee or
engage any consultant or independent contractor; (xvi) change any of its
accounting methods or
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practices; (xvii) make any tax election; (xviii) commence or settle any legal
proceeding, except to enforce its rights under the Merger Agreement; (xix)
enter into any material transaction or take any other material action outside
the ordinary course of business; or (xx) agree or commit to do any of the
foregoing.
Conduct of IXYS' Business Prior to the Effective Time. Pursuant to the
Merger Agreement, IXYS has agreed that, prior to the Effective Time, it shall
provide Paradigm with reasonable access to IXYS' officers, directors,
employees, agents, attorneys, accountants, advisors, representatives,
personnel and assets and to all existing books, records, tax returns, work
papers and other relevant documents and information and provide Paradigm
copies of such documents and information. In addition, IXYS has agreed that,
prior to the Effective Time, it shall not do any of the following without the
written consent of Paradigm: (i) declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, or repurchase or redeem any shares of capital stock or other securities
except as IXYS deems appropriate to consummate the Merger; (ii) amend its
certificate of incorporation or bylaws except as IXYS deems appropriate to
consummate the Merger; or (iii) change any of its accounting methods or
practices.
Mutual Covenants. The Merger Agreement also contains certain additional
covenants of the parties including covenants relating to: (i) the preparation
and filing of the Registration Statement and Joint Proxy Statement/Prospectus;
(ii) IXYS' obligations with respect to the IXYS Special Meeting; (iii)
Paradigm's obligations with respect to the Paradigm Annual Meeting; (iv) the
filing of all notices, reports and documentation required by law to be filed
with respect to the Merger and any other transaction contemplated by the
Merger Agreement; (v) responses to inquiries and requests from the FTC or the
Department of Justice or from any state attorney general or other governmental
body in connection with antitrust or related matters; (vi) providing notice to
the other party of any material legal proceeding with respect to the Merger or
any other transaction contemplated by the Merger Agreement and keeping the
other party informed of the status of such legal proceeding; (vii) making all
filings and giving all notices that may be required in connection with the
Merger and other transactions contemplated by the Merger Agreement and any and
all consents required to be obtained in connection with the Merger or other
transactions contemplated by the Merger Agreement; (viii) press releases,
public statements and other disclosures relating to the Merger or other
transactions relating to the Merger Agreement; and (ix) tax matters.
Other Covenants. Pursuant to the Merger Agreement, Paradigm has agreed to
(i) effect the Paradigm Preferred Stock Conversion; (ii) cause the Paradigm
Common Stock to be combined on a sixty (60) for one (1) basis in one or more
steps; (iii) the Increased Authorization; (iv) the Name Change; (v) use
reasonable efforts to obtain all necessary regulatory approvals under state
securities laws; (vi) obtain and deliver to IXYS at the Closing the
resignation of each officer and director of Paradigm, other than the
resignation or Mr. Kochman as a director of Paradigm; (vii) take all necessary
action to reconstitute the Paradigm Board to consist as of the Effective Time
of Mr. Agbayani, Dr. Karg, Mr. Kochman and Dr. Zommer; and (viii) enter into a
Registration Rights Agreement with ABB.
Pursuant to the Merger Agreement, IXYS has agreed to use all reasonable
efforts to cause each of its Affiliates to deliver an Affiliate Agreement to
Paradigm prior to the date of mailing of the Joint Proxy Statement/Prospectus
to IXYS' stockholders.
NON-SOLICITATION
Pursuant to the Merger Agreement, Paradigm has agreed that it shall not, nor
shall any of its officers, directors, employees, agents or representatives,
directly or indirectly (i) solicit, initiate or encourage the making,
submission or announcement of any "Acquisition Proposal" (which generally is
defined to include any proposal for a transaction or series of transactions
contemplating any merger, consolidation, tender offer, exchange offer or
similar transaction involving the subject corporation in which any person
would acquire more than 20% of the outstanding securities of any class of
voting securities of the subject corporation or in which the subject
corporation would issue more than 20% of the outstanding securities of any
class of its voting securities, or contemplating the sale, lease, license or
transfer of more than 50% of the subject corporation's business);
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(ii) furnish any information regarding Paradigm in connection with an
Acquisition Proposal; (iii) negotiate or engage in discussions with respect to
an Acquisition Proposal; (iv) approve or recommend any Acquisition Proposal;
or (v) enter into any letter of intent or other contract relating to an
Acquisition Proposal; provided, however, that Paradigm may, prior to the vote
of Paradigm's stockholders to approve the Issuance Proposal, engage in
discussions or negotiations with and supply information to a third party who,
without any involvement of Paradigm or its officers, employees, directors,
agents or representatives after the date of the Merger Agreement, directly or
indirectly, seeks to initiate negotiations or discussions if and to the extent
that (A) the third party has presented an Acquisition Proposal that is
financially superior to the terms of the Merger and has demonstrated that
financing for such Acquisition Proposal is reasonably likely to be obtained (a
"Superior Offer"), (B) the Paradigm Board has concluded in good faith that
failure to take such action would result in a substantial likelihood of
liability for breach of fiduciary duties, and (C) prior to entering into such
discussions or negotiations, or furnishing such information, Paradigm notifies
IXYS of its intent to do so, Paradigm obtains an executed confidentiality
agreement from the third party, and Paradigm furnishes any such nonpublic
information to IXYS prior to furnishing such information to the third party.
Paradigm must promptly notify IXYS of any inquiries, offers or proposals
relating to an Acquisition Proposal received after the date of the Merger
Agreement and must keep IXYS informed of the status of any such inquiries,
offers or proposals. In addition, as of the date of the Merger Agreement,
Paradigm agreed to cease and terminate any then existing negotiations or
discussions concerning an Acquisition Proposal.
Pursuant to the Merger Agreement, IXYS has agreed that it shall not, nor
shall any of its officers, directors, employees, agents or representatives,
directly or indirectly (i) solicit, initiate or encourage the making,
submission or announcement of any Acquisition Proposal; (ii) furnish any
information regarding IXYS in connection with an Acquisition Proposal; (iii)
negotiate or engage in discussions with respect to an Acquisition Proposal;
(iv) approve or recommend any Acquisition Proposal; or (v) enter into any
letter of intent or other contract relating to an Acquisition Proposal;
provided, however, that IXYS may, prior to the vote of IXYS' stockholders to
approve the Merger Agreement, engage in discussions or negotiations with and
supply information to a third party who, without any involvement of IXYS or
its officers, employees, directors, agents or representatives after the date
of the Merger Agreement, directly or indirectly, seeks to initiate
negotiations or discussions if and to the extent that (A) the third party has
presented an Acquisition Proposal that is a Superior Offer, (B) the IXYS Board
has concluded in good faith that failure to take such action would result in a
substantial likelihood of liability for breach of fiduciary duties, and (C)
prior to entering into such discussions or negotiations, or furnishing such
information, IXYS notifies Paradigm of its intent to do so, IXYS obtains an
executed confidentiality agreement from the third party, and IXYS furnishes
any such nonpublic information to Paradigm prior to furnishing such
information to the third party. IXYS must promptly notify Paradigm of any
inquiries, offers or proposals relating to an Acquisition Proposal received
after the date of the Merger Agreement and must keep Paradigm informed of the
status of any such inquiries, offers or proposals. In addition, as of the date
of the Merger Agreement, IXYS agreed to cease and terminate any then existing
negotiations or discussions concerning an Acquisition Proposal.
INDEMNIFICATION AND INSURANCE
From and after the Effective Time, Paradigm will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of IXYS
pursuant to (i) each indemnification agreement currently in effect between
Paradigm and each person who is or was a director or officer of Paradigm at or
prior to the Effective Time and (ii) any indemnification provision under IXYS'
Certificate of Incorporation or bylaws and any indemnification provision under
Paradigm's Certificate of Incorporation or bylaws, all as is in effect as of
the date of the Merger Agreement. The Certificate of Incorporation and bylaws
of the Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the IXYS'
Certificate of Incorporation and bylaws on the date of Merger Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period
of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of any Indemnified Party.
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In addition, Paradigm shall maintain in effect for a period of three years
after the Effective Time the policy of officers' and directors' liability
insurance maintained by Paradigm on the date of the Merger Agreement, with
coverage in the amount and scope, subject to certain limitations, at least as
favorable as the Paradigm's existing directors' and officers' liability
insurance coverage. Such limitations include the fact that the Combined
Company shall not be required to maintain the directors' and officers'
liability insurance as of the date of the Merger Agreement if equivalent
coverage is provided to such directors and officers under another policy of
directors' and officers' liability insurance. Further, if coverage is
provided to such persons under another policy of officers' and directors'
liability insurance, the Combined Company shall not be required to expend in
any one year an amount in excess of 150% of the annual premium currently paid
by Paradigm for such insurance, and if the annual premiums of such insurance
coverage exceed 150% of the annual premium currently paid by Paradigm for such
insurance, the Combined Company shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount. See "The
Merger Agreement--Indemnification and Insurance."
CONDITIONS TO THE MERGER
General. The respective obligations of IXYS, Paradigm and Merger Subsidiary
to effect the Merger and the other transactions contemplated by the Merger
Agreement are subject to the satisfaction, at or prior to the closing under
the Merger Agreement (the "Closing"), of each of the following conditions:
(i) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part shall have become effective in accordance
with the Securities Act, and no stop order shall have been issued by the
Commission with respect thereto;
(ii) the Merger Proposal shall have been duly approved;
(iii) the Issuance Proposal, sixty-for-one reverse stock split, Increased
Authorization Proposal and Name Change Proposal and the Paradigm Preferred
Stock Conversion shall have been duly approved;
(iv) the shares of Paradigm Common Stock to be issued in the Merger shall
have been approved for trading on the Nasdaq SmallCap Market;
(v) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated; and
(vi) no temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger shall have been
issued and remain in effect; nor shall there have been any law, regulation
or order enacted or deemed applicable to the Merger which makes the
consummation of the Merger illegal.
Paradigm's and Merger Subsidiary's Conditions. The obligations of Paradigm
and Merger Subsidiary to effect the Merger are subject to the satisfaction, at
or prior to the Closing, of the following conditions:
(i) the representations and warranties of IXYS shall have been accurate
in all material respects when made and as of the Closing Date;
(ii) IXYS shall have complied with or performed all of the covenants
required by the Merger Agreement to be performed at or prior to the
Closing, in each case in all material respects;
(iii) Paradigm shall have received a legal opinion of Cooley Godward and
a certificate executed on behalf of IXYS by its Chief Executive Officer
confirming that certain conditions have been duly satisfied;
(iv) there shall have been no material adverse change in the business,
condition, capitalization, assets, liabilities, operations or financial
performance of IXYS; and
(v) all material consents required to be obtained by IXYS in connection
with the Merger shall have been obtained by IXYS and shall be in full force
and effect.
Although Paradigm and Merger Subsidiary do not currently expect to waive any
of the conditions as set forth in the Merger Agreement, Paradigm and Merger
Subsidiary would consider waiving the following
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conditions (as described above) in order to consummate the Merger; (i), (ii),
(iii), and (v). The parties do not currently expect to amend the registration
statement and resolicit proxies if such conditions are waived unless the event
giving rise to such waiver would materially and adversely affect the
stockholders of Paradigm or IXYS or give rise to a materially altered
transaction.
IXYS' Conditions. The obligations of IXYS to effect the Merger are subject
to the satisfaction, at or prior to the Closing, of the following conditions:
(i) the representations and warranties of Paradigm and Merger Subsidiary
shall have been accurate in all material respects when made and as of the
Closing Date;
(ii) Paradigm and Merger Subsidiary shall have complied with or performed
all of the covenants required by the Merger Agreement to be performed at or
prior to the Closing, in each case in all material respects;
(iii) the Preferred Stock Conversion, the sixty-for-one reverse stock
split and the Increased Authorization shall have been duly effected;
(iv) IXYS shall have received (i) affiliate agreements executed by each
person who could reasonably be deemed to be an "affiliate" of IXYS; (ii) a
legal opinion of Pillsbury; (iii) a legal opinion of Cooley Godward (or
alternatively from Pillsbury) to the effect that the Merger will constitute
a reorganization within the meaning of Section 368 of the Code; (iv) a
certificate executed on behalf of Paradigm by its Chief Executive Officer
confirming that certain conditions have been duly satisfied; (v) the
written resignations of all executive officers of Paradigm (as officers and
not as employees) and the resignation of all directors of Paradigm, except
for the resignation of Mr. Kochman as a director of Paradigm; (vi) evidence
of Paradigm's compliance with its covenant to reconstitute the Paradigm
Board; and (vii) a Registration and Stockholder Rights Agreement executed
by Paradigm and ABB;
(v) there shall have been no material adverse change in the business,
condition, capitalization, assets, liabilities, operations or financial
performance of Paradigm;
(vi) Paradigm Common Stock shall be traded on the Nasdaq SmallCap Market
and IXYS shall be reasonably satisfied that Paradigm has complied with NASD
Manual Rule 4330(f);
(vii) not more than one percent (1%) of the outstanding shares of IXYS
Common Stock and not more than one percent (1%) of the outstanding shares
of IXYS Preferred Stock shall have appraisal rights available under Section
262 of the DGCL;
(viii) Paradigm shall have received all permits and other authorizations
required under applicable state securities laws for the issuance of shares
of Paradigm Common Stock pursuant to the Merger;
(ix) there shall not be any pending or threatened legal proceeding by a
governmental body challenging or relating to the Merger;
(x) there shall not be any pending or threatened legal proceeding in
which there is a reasonable possibility of an outcome that would have a
materially adverse effect on IXYS or Paradigm;
(xi) all Paradigm tax returns due to be filed on or before the Closing
Date shall have been filed and shall have been prepared in all material
respects in compliance with all applicable legal requirements; and
(iv) all material consents required to be obtained by Paradigm in
connection with the Merger shall have been obtained by Paradigm and shall
be in full force and effect.
Although IXYS does not currently expect to waive any of the conditions as
set forth in the Merger Agreement, IXYS would consider waiving the following
conditions (as described above) in order to consummate the Merger: (i), (ii),
(iv) with respect to the Affiliate Agreements, the legal opinion of Pillsbury,
and the certificate executed by the Chief Executive Officer, (vii), (x), and
(xi). The parties do not currently expect to amend the registration statement
and resolicit proxies if such conditions are waived unless the event giving
rise to such waiver would materially and adversely affect the stockholders of
Paradigm or IXYS or give rise to a materially altered transaction.
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TERMINATION
The Merger Agreement may be terminated prior to the Effective Time:
(i) by mutual written consent of Paradigm and IXYS;
(ii) by either Paradigm or IXYS if the Merger shall not have been
consummated by August 14, 1998 (unless the failure to consummate the Merger
is attributable to a failure on the part of the party seeking to terminate
the Merger Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Time);
(iii) by either Paradigm or IXYS if a court of competent jurisdiction or
other Governmental Body shall have issued a final and nonappealable order
or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(iv) by either Paradigm or IXYS if (i) the IXYS Special Meeting shall
have been held and (ii) the Merger Agreement shall not have been adopted at
such meeting by the IXYS stockholders;
(v) by either Paradigm or IXYS if (i) the Paradigm Annual Meeting shall
have been held and (ii) the Issuance Proposal, the sixty-for-one reverse
stock split, the Increased Authorization Proposal, the Name Change Proposal
or the Paradigm Preferred Stock Conversion shall not have been adopted at
such Paradigm Annual Meeting (or in the case of the sixty-for-one reverse
stock split, in conjunction with any prior Paradigm stockholder meeting
following the date of the Merger Agreement) by the Paradigm stockholders;
(vi) by IXYS (at any time prior to the adoption of the Merger Agreement
by the Paradigm Required Vote) if a Triggering Event shall have occurred;
(vii) by Paradigm if any of IXYS' representations and warranties
contained in the Merger Agreement shall be or shall have become materially
inaccurate, or if any of IXYS' covenants contained in the Merger Agreement
shall have been breached in any material respect; provided, however, that
if an inaccuracy in IXYS' representations and warranties or a breach of a
covenant by IXYS is curable by IXYS and IXYS is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then Paradigm may not
terminate the Merger Agreement on account of such inaccuracy or breach; or
(viii) by IXYS if any of Paradigm's representations and warranties
contained in the Merger Agreement shall be or shall have become materially
inaccurate, or if any of Paradigm's covenants contained in the Merger
Agreement shall have been breached in any material respect; provided,
however, that if an inaccuracy in Paradigm's representations and warranties
or a breach of a covenant by Paradigm is curable by Paradigm and Paradigm
is continuing to exercise all reasonable efforts to cure such inaccuracy or
breach, then IXYS may not terminate the Merger Agreement on account of such
inaccuracy or breach.
EXPENSES AND TERMINATION FEES
All fees and expenses incurred in connection with the Merger Agreement and
the transactions contemplated by the Merger Agreement shall be paid by the
party incurring such expenses, whether or not the Merger is consummated;
provided, however, (i) if the Merger Agreement is terminated by Paradigm or
IXYS because the Issuance Proposal, the Reverse Stock Split Proposal, the
Increase Authorization Proposal or the Name Change Proposal has not been
adopted at the Paradigm Annual Meeting or the Paradigm Preferred Stock
Conversion has not been effectuated, or if the Merger Agreement is terminated
by IXYS because a Triggering Event has occurred, and (ii) if prior to the date
six months after the date of such termination, (A) Paradigm enters into any
agreement involving an Acquisition Transaction, (B) a tender offer, an
exchange offer, or a share exchange is commenced that would constitute an
Acquisition Transaction if completed or (C) an Acquisition Transaction is
otherwise consummated (each, the "Alternate Transaction") then, upon
consummation of such Alternate Transaction, Paradigm shall pay to IXYS, in
cash, a nonrefundable fee in the amount of $500,000. If the Merger Agreement
is terminated by Paradigm or IXYS because the Merger Agreement shall not have
been adopted at the IXYS Special Meeting, then IXYS shall pay to Paradigm a
nonrefundable fee in the amount of $500,000 to cover Paradigm's expenses in
connection with the proposed transaction.
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In a separate agreement, ABB agreed that if IXYS were required to pay the
termination fee described above, ABB would reimburse IXYS in an amount not to
exceed $500,000 if (i) IXYS did not, on or prior to the date on which ABB was
required to vote its shares on the Merger Agreement, waive any rights IXYS may
have not to consummate the Merger because of Paradigm's failure to meet the
condition relating to the absence of any material adverse change with respect
to Paradigm and (ii) Dr. Zommer had voted all of the shares of IXYS Capital
Stock owned by him in favor of the Merger Proposal.
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended in writing with the approval of the
Boards of Directors of IXYS and Paradigm at any time before or after approval
of the Merger; provided, however, that after such approval, no amendment shall
be made which requires further approval of IXYS' stockholders or Paradigm's
stockholders without such stockholder approval.
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THE REVERSE STOCK SPLIT PROPOSAL
APPROVAL OF A SIX-FOR-ONE REVERSE
STOCK SPLIT OF PARADIGM'S COMMON STOCK
INTRODUCTION
In June 1998, the Paradigm Board approved, subject to stockholders' approval
solicited hereby, a proposal to amend Paradigm's Certificate of Incorporation
to effectuate a reverse stock split of Paradigm's Common Stock in a ratio of
six-for-one (such that every six shares shall be combined into one share).
The directors propose to amend Paradigm's Certificate of Incorporation to
reclassify the Paradigm Common Stock to effectuate a six-for-one reverse stock
split, par value $.01 per share, such that for every six (6) pre-amendment
common shares held by a stockholder, such holder would be entitled to one (1)
post-amendment common share, fractional shares being rounded up to the nearest
full post-amendment share, and outstanding warrants and options to purchase
stock being adjusted accordingly. The Reverse Stock Split will become
effective upon the filing with the Secretary of State of Delaware of an
amendment to Paradigm's Certificate of Incorporation.
Adjustments to the corporate financial statements to reflect the
reclassification and reverse split are expected to be minimal. The immediate
effect in the market would be expected to increase the trading price per share
sixfold, and to decrease the number of post-amendment shares involved in a
trade to one-sixth of the pre-amendment number of shares that would have been
involved in an identical trade. Outstanding pre-amendment shares of Paradigm
Common Stock of approximately 1,779,401 would become approximately 296,567
outstanding post-amendment shares.
PURPOSE OF REVERSE STOCK SPLIT
One of the conditions to IXYS' obligation to consummate the Merger as set
forth in the Merger Agreement is that Paradigm effect a sixty-for-one reverse
stock split in one or more steps. Paradigm's stockholders approved, at a
Paradigm Special Meeting of Stockholders, a ten-for-one reverse stock split.
The Paradigm Special Meeting was held on May 1, 1998. In conjunction with the
ten-for-one reverse stock split, the proposed six-for-one reverse stock split
as set forth in this Reverse Stock Split Proposal, if approved, fulfills
Paradigm's obligations under the Merger Agreement.
Holders of Paradigm Common Stock have no preemptive or other subscription
rights.
PRINCIPAL EFFECTS OF THE REVERSE STOCK SPLIT
If the stockholders approve the Reverse Stock Split Proposal, Paradigm's
Certificate of Incorporation will be amended to replace the existing provision
relating to Paradigm's authorized capital with the following provision.
Accordingly, the last sentence of the second paragraph of Article IV(B) of the
Certificate of Incorporation shall be amended to read as follows:
"Each six (6) shares of the Common Stock of the Corporation issued as of
the date and time immediately preceding [insert Date which Amended
Certificate is filed], the effective date of a reverse stock split (the
"Split Effective Date") shall be automatically changed and reclassified, as
of the Split Effective Date and, without further action, into one (1) fully
paid and nonassessable share of Common Stock of the Corporation; provided,
however, that any fractional interest resulting from such change and
classification shall be rounded upward to the nearest whole share."
If the stockholders approve the Reverse Stock Split Proposal, the above
amendment to Paradigm's Certificate of Incorporation shall become effective
upon the filing of an amendment to the Certificate of Incorporation with the
Delaware Secretary of State.
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The proposed Reverse Stock Split (without giving effect to the Merger) will
not affect any stockholder's proportionate equity interest in Paradigm or the
rights, preferences, privileges or priorities of any stockholder, other than
an adjustment which may occur due to the rounding up of fractional shares. The
proposed Reverse Stock Split, however, may result in a stockholder incurring
greater trading costs due to some stockholders becoming holders of less than
one hundred (100) shares of Paradigm Common Stock. Likewise, the proposed
Reverse Stock Split (without giving effect to the Merger) will not affect the
total stockholders' equity of Paradigm or any components of stockholders'
equity as reflected on the financial statements of Paradigm except (i) to
change the numbers of the issued and outstanding shares of capital stock and
(ii) for an adjustment which will occur due to the costs incurred by Paradigm
in connection with this Joint Proxy Statement/Prospectus and the
implementation of such of the proposals as are approved by the stockholders.
However, because the number of shares of capital stock that Paradigm is
authorized to issue will not be decreased in proportion to the six-for-one
reverse stock split, the number of shares which are authorized but unissued,
and the percentage of ownership of Paradigm represented by such shares if they
are issued in the future in the discretion of the Paradigm Board, effectively
will be increased.
EFFECT OF THE REVERSE STOCK SPLIT
The following table illustrates the principal effects on Paradigm's capital
stock of the Reverse Stock Split:
NUMBER OF SHARES OF CAPITAL STOCK
<TABLE>
<CAPTION>
PRIOR TO REVERSE AFTER REVERSE
STOCK SPLIT STOCK SPLIT
---------------- -------------
<S> <C> <C>
COMMON
Authorized.................................. 40,000,000(1) 40,000,000(1)
Issued and outstanding(2)................... 1,779,401 296,567
PREFERRED
Authorized.................................. 5,000,000 5,000,000
Issued and outstanding...................... 112 112
</TABLE>
- --------
(1) Assumes approval of the Increased Authorization Proposal.
(2) Excludes approximately (i) 133,834 shares issuable upon exercise of
outstanding options (approximately 22,306 shares after the Reverse Stock
Split), (ii) 39,500 shares issuable upon exercise of outstanding warrants
(approximately 6,583 shares after the Reverse Stock Split), each as of
June 16, 1998 and (iii) 112 shares of Paradigm Preferred Stock which are
convertible into approximately 1,394,172 shares of Paradigm Common Stock
(approximately 232,362 shares after the Reverse Stock Split).
EXCHANGE OF SHARES; NO FRACTIONAL SHARES
Pursuant to the proposed Reverse Stock Split, every six (6) shares of issued
Paradigm Common Stock would be converted and reclassified into one (1) share
of post-split Paradigm Common Stock, and any fractional interests resulting
from such reclassification would be rounded upward to the nearest whole share.
For example, a holder of one hundred (100) shares prior to the Split Effective
Date would be the holder of seventeen (17) shares at the Split Effective Date,
and the holder of twelve (12) shares prior to the Split Effective Date would
be the holder of two (2) shares at the Split Effective Date. All shares held
by a stockholder will be aggregated and one new stock certificate will be
issued, unless the transfer agent is otherwise notified by the stockholder.
The proposed Reverse Stock Split would become effective immediately following
the Split Effective Date. Stockholders will be notified on or after the Split
Effective Date that the Reverse Stock Split has been effected. Paradigm's
transfer agent, ChaseMellon Shareholder Services, L.L.C. will act as
Paradigm's exchange agent (the "Exchange Agent") for stockholders in
implementing the exchange of their certificates.
As soon as practicable after the Split Effective Date, stockholders will be
notified and provided the opportunity (but shall not be obligated) to
surrender their certificates to the Exchange Agent in exchange for
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certificates representing post-split Paradigm Common Stock. Stockholders will
not receive certificates for shares of post-split Paradigm Common Stock unless
and until the certificates representing their shares of pre-split Paradigm
Common Stock are surrendered and they provide such evidence of ownership of
such shares as Paradigm or the Exchange Agent may require. Stockholders should
not forward their certificates to the Exchange Agent until they have received
notice from Paradigm that the Reverse Stock Split has become effective.
Beginning on the Split Effective Date, each certificate representing shares of
Paradigm's pre-split Common Stock will be deemed for all corporate purposes to
evidence ownership of the appropriate number of shares of post-split Paradigm
Common Stock.
No service charge will be payable by stockholders in connection with the
exchange of certificates, all costs of which will be borne and paid by
Paradigm.
CHANGE OF CONVERSION RATIO FOR CONVERTIBLE PREFERRED STOCK AND NOTICE TO
HOLDERS OF SUCH STOCK
Pursuant to the authority conferred on it by the Paradigm Certificate of
Incorporation, the Paradigm Board adopted certain resolutions dated January 9,
1997, July 11, 1997 and November 14, 1997, respectively (the "Board
Resolutions"), pursuant to which Paradigm issued Paradigm Series A Preferred
Stock, Paradigm Series B Preferred Stock, and Paradigm Series C Preferred
Stock. The Paradigm Series A Preferred Stock, Paradigm Series B Preferred
Stock and Paradigm Series C Preferred Stock are all convertible into shares of
Paradigm 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 Paradigm Preferred Stock being converted by (B) the conversion price
in effect at the time of conversion for each of the Paradigm Series A
Preferred Stock, the Paradigm Series B Preferred Stock and the Paradigm Series
C Preferred Stock. The conversion price is equal to the lower of (i) $135,
$82.50 and $35.40 for the Paradigm Series A Preferred Stock, Paradigm Series B
Preferred Stock and Paradigm Series C Preferred Stock, respectively, after the
Reverse Stock Split) or (ii) eighty-two percent (82%) of the average closing
bid price of a share of Paradigm Common Stock as quoted on the Nasdaq SmallCap
Market (or such other national or regional securities exchange or automated
quotations system upon which the Paradigm Common Stock is listed and primarily
traded) over the five (5) consecutive trading days immediately preceding the
date of the conversion.
In accordance with the terms of those Board Resolutions, the conversion
ratios for Paradigm Series A Preferred Stock, Paradigm Series B Preferred
Stock and Paradigm Series C Preferred Stock will be adjusted concurrently with
the Split Effective Date so that the record owner of Paradigm Series A
Preferred Stock, Paradigm Series B Preferred Stock and Paradigm Series C
Preferred Stock shall be entitled to receive upon exercise of such conversion
the number of shares of Paradigm Common Stock that he would have owned or been
entitled to receive after the Reverse Stock Split had such holder exercised
his or her option to convert immediately prior to the Split Effective Date.
Paradigm will send to each record owner of Paradigm Series A Preferred Stock,
Paradigm Series B Preferred Stock and Paradigm Series C Preferred Stock,
notice of such adjustments.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Reverse Stock Split that are generally applicable to
holders of Paradigm Common Stock. This discussion is based on currently
existing provisions of the Code, existing Treasury Regulations thereunder and
current administrative rulings and court decisions, all of which are subject
to change. Any such change, which may or may not be retroactive, could alter
the tax consequences to the Paradigm stockholders.
Paradigm stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
Paradigm stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, banks, insurance companies or tax-
exempt organizations, who are subject to the alternative minimum tax
provisions of the Code, who are non-United States persons, who
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acquired their shares in connection with stock option or stock purchase plans
or in other compensatory transactions or who hold their shares as a hedge or
as part of a hedging, straddle, conversion or other risk reduction
transaction. In addition, the following discussion does not address the tax
consequences of the Reverse Stock Split under foreign, state or local tax laws
or the tax consequences of transactions effectuated prior to or after the
Reverse Stock Split (whether or not such transactions are in connection with
the Reverse Stock Split).
It is the opinion of Pillsbury that if the Reverse Stock Split is carried
out in accordance with its description herein, the Reverse Stock Split will
constitute a Reorganization pursuant to section 368(a) of the Code and that,
accordingly, for U.S. federal income tax purposes:
. Neither Paradigm nor the holders of Paradigm Common Stock will recognize
any gain or loss upon the exchange of Paradigm Common Stock for a
reduced number of shares of Paradigm Common Stock.
. Holders of Paradigm Preferred Stock will recognize no income, gain or
loss as a result of the changes to the conversion ratios for such stock
incident to the Reverse Stock Split.
. The aggregate tax basis for computing gain or loss of Paradigm Common
Stock to be issued as a result of the Reverse Stock Split will be the
same as the stockholder's aggregate tax basis in the Paradigm Common
Stock surrendered in exchange therefor.
. The holding period of Paradigm Common Stock to be issued as a result of
the Reverse Stock Split will include the holding period for the shares
of Paradigm Common Stock surrendered in exchange therefor, provided that
such shares of stock were held by the stockholder as capital assets on
the Split Effective Date.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE REVERSE STOCK SPLIT.
THUS, HOLDERS OF PARADIGM COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK
SPLIT, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS AND THE EFFECTS
OF ANY PROPOSED CHANGES IN THE TAX LAWS.
VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of Paradigm Common Stock is entitled to one vote per share held.
The holders of a majority of the shares of the Paradigm Common Stock issued
and outstanding shall constitute a quorum. The affirmative vote of holders of
a majority of the outstanding shares of Paradigm Common Stock is required for
approval of the Reverse Stock Split Proposal. In the event that a quorum is
not present or represented by proxy at the Paradigm Annual Meeting, the
stockholders entitled to vote at the meeting present in person or by proxy
shall have power to adjourn the Paradigm Annual Meeting until a quorum shall
be present or represented. Proxies solicited by the Paradigm Board will be
voted for approval of the Reverse Stock Split Proposal, unless otherwise
instructed.
A stockholder voting through a proxy who abstains with respect to approval
of the Reverse Stock Split Proposal shall be considered to have cast a
negative vote with respect to the Reverse Stock Split Proposal, but shall be
treated as present and entitled to vote on the approval of the other proposals
presented to the stockholders of the Paradigm Annual Meeting; provided,
however, that a stockholder (including a broker) who does not give authority
to a proxy to vote on the approval of the other Proposals shall not be
considered present and entitled to vote on the other Proposals.
In the event that the Reverse Stock Split Proposal is approved by the
Paradigm stockholders and the Merger Proposal and the Issuance Proposal is not
approved by the Paradigm stockholders, Paradigm will take no action to
implement the Reverse Stock Split Proposal.
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RECOMMENDATION OF THE BOARD
The Paradigm Board recommends a vote "FOR" the proposal to amend Paradigm's
Certificate of Incorporation to effectuate a reverse stock split in the ratio
of six-for-one, par value $.01 per share. Unless a contrary choice is
specified, proxies solicited by the Paradigm Board will be voted FOR approval
of the Reverse Stock Split Proposal.
THE PARADIGM BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF
THE REVERSE STOCK SPLIT PROPOSAL.
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THE INCREASED AUTHORIZATION PROPOSAL
APPROVAL TO AMEND PARADIGM'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
INTRODUCTION
Paradigm's Certificate of Incorporation currently authorizes the issuance of
twenty-five million (25,000,000) shares of Paradigm Common Stock and five
million (5,000,000) shares of Paradigm Preferred Stock, each par value $.01
per share. The Paradigm Board in March 1998, adopted a resolution proposing
that the Paradigm Certificate of Incorporation be amended to increase the
authorized number of shares of Paradigm Common Stock to forty million
(40,000,000), par value $.01 per share, subject to stockholder approval of the
amendment.
As of June 16, 1998, Paradigm had approximately 1,779,401 shares of Paradigm
Common Stock outstanding and approximately 149,800 shares reserved for
issuance under Paradigm's employee stock plans, of which, currently,
approximately 133,834 are covered by outstanding options and approximately
4,250 are available for grant or purchase. Paradigm has also reserved 39,500
shares of Paradigm Common Stock issuable upon exercise of outstanding warrants
and approximately 1,394,172 shares of Paradigm Common Stock based upon what
Paradigm projected as of June 16, 1998 to be the approximate number of
Paradigm Common Stock shares to be issued upon conversion of Paradigm
Preferred Stock. Based upon the foregoing number of outstanding and reserved
shares of Paradigm Common Stock, Paradigm currently has approximately
21,637,127 shares remaining available for other purposes.
PROPOSED AMENDMENT TO THE PARADIGM CERTIFICATE OF INCORPORATION
The Paradigm Board has adopted resolutions setting forth (i) the proposed
amendment to the first and second paragraphs of Article IV of Paradigm's
Certificate of Incorporation (the "Amendment"); (ii) the advisability of the
Amendment; and (iii) a call for submission of the Amendment for approval by
Paradigm's stockholders at the Paradigm Annual Meeting.
The following is the text of the first and second paragraphs of Article IV
of the Paradigm Certificate of Incorporation, as proposed to be amended:
"(A) This Corporation is authorized to issue 45,000,000 shares of its
Capital Stock, which shall be divided into two classes known as "Common
Stock' and "Preferred Stock,' respectively.
(B) The total number of shares of Common Stock which this Corporation is
authorized to issue is 40,000,000. The total number of shares of Preferred
Stock which this Corporation is authorized to issue is 5,000,000. All of
the shares of Common Stock and Preferred Stock shall have a par value of
$.01 per share."
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT
One of the conditions to IXYS' obligation to consummate the Merger as set
forth in the Merger Agreement is that Paradigm increase the authorized number
of shares of Paradigm Common Stock. The Paradigm Board believes that the
availability of additional authorized but unissued shares will provide
Paradigm with the ability to fulfill its obligations under existing agreements
by enabling it to fully convert all of the outstanding shares of Paradigm
Preferred Stock. It will also provide Paradigm with the flexibility to issue
Paradigm Common Stock for other proper corporate purposes which may be
identified in the future, such as to raise equity capital and to adopt
additional employee benefit plans or reserve additional shares for issuance
under such plans. Paradigm does not currently have plans to issue any shares
of Common Stock, other than the shares issued pursuant to the Merger.
No additional action or authorization by Paradigm's stockholders would be
necessary prior to the issuance of such additional shares, unless required by
applicable law or the rules of any stock exchange or national securities
association trading system on which the Paradigm Common Stock is then listed
or quoted. Paradigm reserves the right to seek a further increase in
authorized shares from time to time in the future as considered appropriate by
the Paradigm Board.
Under Paradigm's Certificate of Incorporation, Paradigm's stockholders do
not have preemptive rights with respect to Paradigm Common Stock. Thus, should
the Paradigm Board elect to issue additional shares of Paradigm Common Stock,
existing stockholders would not have any preferential rights to purchase such
shares. In addition, if the Paradigm Board elects to issue additional shares
of Paradigm Common Stock, such issuance could have a dilutive effect on the
earnings per share, voting power, and share holdings of current stockholders.
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The proposed Amendment to increase the authorized number of shares of
Paradigm Common Stock could, under certain circumstances, have an anti-
takeover effect, although this is not the intention of this proposal. For
example, in the event of a hostile attempt to take over control of Paradigm,
it may be possible for Paradigm to endeavor to impede the attempt by issuing
shares of the Paradigm Common Stock, thereby diluting the voting power of the
other outstanding shares and increasing the potential cost to acquire control
of Paradigm. The Amendment therefore may have the effect of discouraging
unsolicited takeover attempts. By potentially discouraging initiation of any
such unsolicited takeover attempt, the proposed Amendment may limit the
opportunity for Paradigm's stockholders to dispose of their shares at the
higher price generally available in takeover attempts or that may be available
under a merger proposal. The proposed Amendment may have the effect of
permitting Paradigm's current management, including the current Paradigm
Board, to retain its position, and place it in a better position to resist
changes that stockholders may wish to make if they are dissatisfied with the
conduct of Paradigm's business. However, the Paradigm Board is not aware of
any attempt to take control of Paradigm other than as described in this Joint
Proxy Statement/Prospectus, and the Paradigm Board has not presented this
proposal with the intent that it be utilized as a type of anti-takeover
device.
If the proposed Amendment to increase the authorized number of shares of
Paradigm Common Stock is approved and the Reverse Stock Split as set forth in
the Reverse Stock Split Proposal is approved, the Paradigm Board will both
effectuate the Reverse Stock Split and increase the authorized number of
Paradigm Common Stock (the number of Paradigm Common Stock authorized will
increase to 40,000,000). If, on the other hand, the Reverse Stock Split is
approved but the proposed Amendment to increase to the authorized number of
shares of Paradigm Common Stock is not approved, it will have the effect of
authorizing the Paradigm Board to amend the Paradigm Certificate of
Incorporation to effectuate the Reverse Stock Split only (the authorized
number of shares of Paradigm Common Stock will remain 25,000,000). However, if
the Reverse Stock Split Proposal is not approved and the proposed Amendment to
increase the authorized number of shares of Paradigm Common Stock is approved,
it will have the effect of authorizing the Paradigm Board to amend the
Paradigm Certificate of Incorporation to only increase the authorized number
of shares of Paradigm Common Stock to 40,000,000 shares, par value of $.01 per
share. See "The Reverse Stock Split Proposal."
VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of Paradigm Common Stock is entitled to one vote per share held.
The holders of a majority of the shares of the Paradigm Common Stock issued
and outstanding shall constitute a quorum. The affirmative vote of holders of
a majority of the outstanding shares of Paradigm Common Stock is required for
approval of the Increased Authorization Proposal. In the event that a quorum
is not present or represented at the Paradigm Annual Meeting, the stockholders
entitled to vote at the meeting present in person or by proxy shall have power
to adjourn the Paradigm Annual Meeting until a quorum shall be present or
represented. Proxies solicited by the Paradigm Board will be voted for
approval of the Increased Authorization Proposal, unless otherwise instructed.
A stockholder voting through a proxy who abstains with respect to approval
of the Increased Authorization Proposal shall be considered to have cast a
negative vote with respect to the Increased Authorization Proposal, but shall
be treated as present and entitled to vote on the approval of the other
proposals presented to the stockholders of the Paradigm Annual Meeting;
provided, however, that a stockholder (including a broker) who does not give
authority to a proxy to vote on the approval of the other proposals shall not
be considered present and entitled to vote on the other Proposals.
In the event that the Increased Authorization Proposal is approved by the
Paradigm stockholders and the Merger Proposal and the Issuance Proposal is not
approved by the Paradigm stockholders, Paradigm will take no action to
implement the Increased Authorization Proposal.
RECOMMENDATION OF THE BOARD
The Paradigm Board recommends a vote "FOR" the proposal to amend Paradigm's
Certificate of Incorporation to increase the number of authorized shares of
Paradigm Common Stock from twenty-five million (25,000,000) to forty million
(40,000,000), par value of $.01 per share. Unless a contrary choice is
specified, proxies solicited by the Paradigm Board will be voted FOR approval
of the Increased Authorization Proposal.
THE PARADIGM BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE INCREASED
AUTHORIZATION PROPOSAL.
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THE NAME CHANGE PROPOSAL
APPROVAL TO AMEND THE PARADIGM CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF PARADIGM
INTRODUCTION
The Paradigm Board has determined that it is advisable to change Paradigm's
name to "IXYS Corporation", and in March 1998, voted to recommend that the
stockholders adopt an amendment to Paradigm's Certificate of Incorporation
effecting the proposed name change.
PURPOSE OF THE PROPOSED NAME CHANGE
One of the conditions of the Merger Agreement is that Paradigm change its
name to "IXYS Corporation", which Paradigm believes will minimize confusion
when identifying the post-Merger business entity.
PRINCIPAL EFFECTS OF THE PROPOSED NAME CHANGE
Paradigm Common Stock is currently traded on the Nasdaq SmallCap Market
under the symbol PRDM. If the proposed name change is approved by the
stockholders, the Common Stock of the Combined Company will trade under the
new symbol IXYS. There will be no interruption in trading due to the name
change or the symbol change.
VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of Paradigm Common Stock is entitled to one vote per share held.
The holders of a majority of the shares of Paradigm Common Stock issued and
outstanding shall constitute a quorum. The affirmative vote of holders of a
majority of the outstanding shares of Paradigm Common Stock is required for
approval of the Name Change Proposal. In the event that a quorum is not
present or represented at the Annual Meeting, the stockholders entitled to
vote at the meeting represented in person or by proxy shall have power to
adjourn the Paradigm Annual Meeting until a quorum shall be present or
represented. Proxies solicited by the Paradigm Board will be voted for
approval of the Name Change Proposal, unless otherwise instructed.
A stockholder voting through a proxy who abstains with respect to approval
of the Name Change Proposal shall be considered to have cast a negative vote
with respect to the Name Change Proposal, but shall be treated as present and
entitled to vote on the approval of the other Proposals presented to the
stockholders at the Paradigm Annual Meeting; provided, however, that a
stockholder (including a broker) who does not give authority to a proxy to
vote on the approval of the other Proposals shall not be considered present
and entitled to vote on the other Proposals.
In the event that the Name Change Proposal is approved by the Paradigm
stockholders and the Merger Proposal and the Issuance Proposal is not approved
by the Paradigm stockholders, Paradigm will take no action to implement the
Name Change Proposal.
RECOMMENDATION OF THE PARADIGM BOARD
The Paradigm Board recommends a vote "FOR" the proposal to amend Paradigm's
Certificate of Incorporation to change its name to IXYS Corporation. Unless a
contrary choice is specified, proxies solicited by the Paradigm Board will be
voted FOR approval of the amendment to the Paradigm Certificate of
Incorporation to change Paradigm's name to IXYS Corporation.
THE PARADIGM BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE NAME CHANGE
PROPOSAL.
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ELECTION OF DIRECTORS
At the Paradigm Annual Meeting, a Board of three (3) directors will be
elected. The term of office of each person elected as a director will continue
until the next Annual Meeting of Stockholders or until a successor has been
duly elected and qualified. All of the nominees are presently directors of
Paradigm.
It is the intention of the proxy holders named in the enclosed form of proxy
to vote such proxies (except those containing contrary instructions) for the
nominees named below.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Management's nominees named below. In the event that any
Management nominee shall become unavailable, or if other persons are
nominated, the proxy holders will vote in their discretion for a substitute
nominee. It is not expected that any nominee will be unavailable.
THE NAME AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE DIRECTORS
NOMINATED BY MANAGEMENT ARE:
George J. Collins, 55, has served as a Director of Paradigm since October
1995. Mr. Collins has been a professor of electrical engineering at Colorado
State University since 1973. Mr. Collins is a Fellow with the American
Physical Society and the Institute of Electrical Engineers. Mr. Collins is a
Director of Quantum Research Corporation. Mr. Collins received his B.S.E.E.
from Manhattan University and his M.S. and Ph.D. in engineering from Yale
University.
Michael R. Gulett, 45, former President and Chief Executive Officer of
Paradigm, joined Paradigm in March 1992. Mr. Gulett was elected President in
February 1993, was appointed Chief Executive Officer in July 1993, was
appointed to the Paradigm Board in March 1994 and resigned as President and
Chief Executive Officer in June 1998. Mr. Gulett remains a director of
Paradigm. Prior to joining Paradigm, Mr. Gulett was a consultant from May 1989
until March 1992. From July 1987 until May 1989, Mr. Gulett was the Director
of ASIC Operations at VLSI Technology, Inc., a semiconductor manufacturer. He
has also worked for NCR Microelectronics, California Devices, Intel
Corporation and Burroughs Corporation. Mr. Gulett received his B.S. in
electrical engineering from the University of Dayton.
James L. Kochman, 48, has served as Director of Paradigm since June 1994 and
has been a partner with the investment banking firm of Alliant Partners LLP
(formerly Bentley, Hall, Von Gehr International) since April 1992. He was
formerly President and Chief Executive Officer of TEKNA/S-TRON ("TEKNA"), a
consumer products company. Prior to joining TEKNA, he spent six years with FMC
Corporation in a variety of corporate staff and operating assignments,
including Director of Manufacturing and Director of Technology and Business
Development with FMC's Ordinance Division in San Jose. Previously, Mr. Kochman
worked for International Harvester Company. Mr. Kochman received his B.S. in
mechanical engineering from the University of Illinois and a M.B.A. from the
University of Chicago.
Director nominees receiving the highest number of affirmative votes up to
the number of directors to be elected will be elected.
THE PARADIGM BOARD RECOMMENDS A VOTE "FOR" MANAGEMENT'S NOMINEES.
75
<PAGE>
OTHER INFORMATION REGARDING PARADIGM
STOCK PERFORMANCE GRAPH
Set forth below is a graph, based on the closing price of the last business
trading day in each calendar month for the period, comparing Paradigm's total
cumulative stockholder return as compared to the Standard & Poor's 500 Index
and the Standard & Poor's Small Cap Semiconductor Index for the period from
June 28, 1995 (the date of Paradigm's initial public offering) through
December 31, 1997. Total stockholder return assumes $100 invested at the
beginning of the period in Paradigm Common Stock, the stocks represented in
the Standard & Poor's 500 Index and the stocks represented in the Standard &
Poor's Small Cap Semiconductor Index, respectively. Total return also assumes
reinvestment of dividends. Paradigm has paid no dividends on Paradigm Common
Stock.
Historical stock price performance should not be relied upon as indicative
of future stock price performance.
INDEXED STOCK PRICE COMPARISON
JUNE 28, 1995 THROUGH DECEMBER 31, 1997
[LINE GRAPH APPEARS HERE]
PARADIGM S&P 500 S&P SEMI.
PLOT PLOT PLOT
DATE POINTS POINTS POINTS
---- ------ ------ ------
6/30/95 100.00% 100.00% 100.00%
7/31/95 133.70% 103.20% 114.20%
8/31/95 147.10% 103.10% 107.50%
9/29/95 137.00% 107.30% 109.50%
10/31/95 98.10% 106.70% 104.00%
11/30/95 81.30% 111.10% 96.70%
12/29/95 60.20% 113.10% 88.10%
1/31/96 74.70% 116.80% 80.70%
2/29/96 66.90% 117.60% 86.50%
3/29/96 43.50% 118.50% 81.40%
4/30/96 44.60% 120.10% 97.50%
5/31/96 41.20% 122.80% 95.30%
6/28/96 32.90% 123.40% 91.40%
7/31/96 21.70% 117.50% 90.30%
8/30/96 22.30% 119.70% 98.50%
9/30/96 23.40% 126.20% 119.40%
10/31/96 12.80% 129.50% 125.10%
11/29/96 14.50% 139.00% 150.90%
12/31/96 10.60% 136.00% 158.30%
1/31/97 9.50% 144.30% 179.80%
2/28/97 6.70% 145.20% 176.90%
3/31/97 8.40% 139.00% 173.70%
4/30/97 5.00% 147.10% 185.40%
5/30/97 5.00% 155.70% 202.70%
6/30/97 3.30% 162.50% 180.70%
7/31/97 5.60% 175.20% 215.70%
8/29/97 7.00% 165.10% 226.40%
9/30/97 5.80% 173.90% 229.80%
10/31/97 4.50% 167.90% 192.00%
11/28/97 2.60% 175.40% 180.50%
12/31/97 1.50% 178.10% 165.00%
PARADIGM BOARD MEETINGS AND COMMITTEES
The Paradigm Board held fifteen (15) regular meetings during the last fiscal
year. Each director attended at least seventy-five percent (75%) of the
Paradigm Board meetings and the meetings of the committees of the Paradigm
Board on which such director served.
The Audit Committee of the Paradigm Board, which presently consists of Dr.
Collins and Mr. Kochman, did not meet during the last fiscal year. The Audit
Committee has the responsibility to review the scope of the annual audit, to
recommend to the Paradigm Board the appointment of the independent accountants
and to meet with the independent accountants for review and analysis of
Paradigm's systems which include the adequacy of controls and the sufficiency
of financial reporting and legal accounting compliance. Dr. Collins and Mr.
Kochman served on the Audit Committee during fiscal year 1997.
The Compensation Committee of the Paradigm Board, which presently consists
of Dr. Collins and Mr. Kochman, did not meet during the last fiscal year. The
Compensation Committee has the responsibility for determining the compensation
to be paid to each of Paradigm's executive officers. Dr. Collins and Mr.
Kochman served on the Compensation Committee during fiscal year 1997.
76
<PAGE>
The Stock Option Committee of the Paradigm Board, which presently consists
of Dr. Collins, did not meet during the last fiscal year. The Stock Option
Committee administers and manages Paradigm's 1994 Stock Option Plan. Dr.
Collins served on the Stock Option Committee during fiscal year 1997.
The Paradigm Board met collectively to discuss and to take such appropriate
action as would have been discussed and taken by the respective committees.
Paradigm does not have a standing Nominating Committee.
COMPENSATION OF DIRECTORS
Paradigm's non-employee directors ("Outside Directors") receive a fee of
$3,000 per quarter. All Outside Directors are also reimbursed for expenses
incurred in connection with attending board of directors and committee
meetings. Paradigm's 1994 Stock Option Plan (the "Option Plan") provides for
the grant of options to Outside Directors pursuant to a nondiscretionary,
automatic grant mechanism, whereby each Outside Director is granted an option
at fair market value to purchase 313 shares of Common Stock on the date of
each Annual Meeting of Stockholders, provided such director is re-elected.
These options vest over four years at the rate of 25% per year so long as the
optionee remains an Outside Director of Paradigm. Each new Outside Director
who joins the Paradigm Board is automatically granted an option at fair market
value to purchase 1,250 shares of Common Stock upon the date on which such
person first becomes an Outside Director. These options vest over four years
at the rate of 25% per year.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to Paradigm's Chief Executive Officer, and each of the other
four most highly compensated executive officers, who were serving as executive
officers on December 31, 1997 (the "Paradigm Named Executive Officers") and
whose aggregate salary and bonus exceeded $100,000, for the fiscal years ended
December 31, 1995, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION PAYOUTS
------------------------------------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2)
- --------------------------- ---- --------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Michael R. Gulett(3).... 1997 $ 243,408 $ -- $ -- --
Former President and
Chief 1996 249,185 85,000 -- 2,500(4)
Executive Officer 1995 219,692 115,000 -- 1,500(5)
James Boswell(6)........ 1997 153,779 -- 7,477(7) --
Vice President, Sales
and 1996 119,638 9,174 1,385(8) 2,625(9)
Marketing 1995 6,250 -- -- 1,500(10)
Dennis McDonald(11)..... 1997 103,037 -- -- --
Former Vice President, 1996 134,302 19,174 -- 1,700(12)
Human Resources 1995 70,400 175 -- 2,500(13)
Richard Morley(14)...... 1997 124,471 -- -- --
Acting President, Chief
Executive Officer
and Vice President of
Operations
</TABLE>
- --------
(1) Represents cash bonuses, profit sharing and commissions paid during the
year.
(2) Restated for the ten-for-one reverse stock split effectuated on May 1,
1998.
(3) Mr. Gulett resigned in June 1998.
(4) Includes options granted on February 3, 1997 for 2,500 shares upon
cancellation of a previous option granted on July 24, 1996.
(5) Includes options granted on February 3, 1997 for 1,500 shares upon
cancellation of a previous option granted on June 15, 1995.
77
<PAGE>
(6) Mr. Boswell was hired by Paradigm in November 1995.
(7) Represents car allowance.
(8) Represents automobile expenses.
(9) Includes options granted on February 3, 1997 for 1,500 shares and 1,125
shares upon cancellation of previous options granted on July 24, 1996 and
November 21, 1996, respectively.
(10) Includes options granted on February 3, 1997 for 1,500 shares upon
cancellation of previous options granted on December 28, 1995.
(11) Mr. McDonald, hired by Paradigm in May 1997, became a consultant with
Paradigm in March 1998.
(12) Includes options granted on February 3, 1997 for 500 shares and 1,200
shares upon cancellation of previous options granted on January 1, 1996
and July 24, 1996, respectively.
(13) Includes options granted on February 3, 1997 for 2,500 shares upon
cancellation of a previous option granted on May 24, 1995.
(14) Mr. Morley was hired by Paradigm in February 1997. Mr. Morley assumed the
title of Acting President and Chief Executive Officer in June 1998.
STOCK OPTIONS
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1997 to the Paradigm Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE) DATE 5% ($) 10% ($)
------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Gulett....... 2,550 2.3% $14.70 08/18/07 $ 235,580 $ 597,000
James H. Boswell........ 2,375 2.1 12.50 04/25/07 186,700 473,140
1,125 1.0 14.70 08/18/97 103,930 263,390
1,000 * 2.50 12/23/07 15,720 39,840
Dennis McDonald......... -- -- -- -- -- --
Richard Morley.......... 1,125 1.0 14.70 08/18/07 103,930 263,390
300 * 2.50 12/23/07 4,720 11,950
</TABLE>
- --------
* Less than one percent.
(1) Six months after the original grant date, 1/8th of the shares will be
vested and thereafter the remaining shares will vest over four years at
1/48th per month. Restated for the ten-for-one reverse stock split
effectuated on May 1, 1998.
(2) Based on options to purchase an aggregate of 112,900 shares of Paradigm
Common Stock granted during fiscal 1997.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Paradigm Common Stock. The gains
shown are net of the option exercise price, but do not include deductions
for taxes or other expenses associated with the exercise of the options or
the sale of the underlying shares. The actual gains, if any, on the stock
option exercises will depend on the future performance of the Paradigm
Common Stock, the optionee's continued employment through applicable
resting periods and the date on which the options are exercised.
78
<PAGE>
The following table shows stock options exercised by the Paradigm Named
Executive Officers as of December 31, 1997. In addition, this table includes
the number of shares of Paradigm Common Stock represented by outstanding stock
options held by each of the Paradigm Named Executive Officers as of December
31, 1997. The closing price of the Paradigm Common Stock at fiscal year-end
was $3.44 (after giving effect to the ten-for-one reverse stock split
effectuated on May 1, 1998).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Gulett....... -- $-- 19,763 3,288 $72,600 $ --
James Boswell........... -- -- 2,063 6,563 -- 9,400
Dennis McDonald......... -- -- 2,040 2,161 -- --
Richard Morley.......... -- -- 750 8,675 -- 2,820
</TABLE>
- --------
(1) Value is calculated by (i) subtracting the exercise price per share from
the year-end closing price of $3.44 per share (after giving effect to the
ten-for-one reverse stock split effectuated on May 1, 1998); and (ii)
multiplying the number of shares subject to the option.
TEN-YEAR OPTION REPRICINGS
Repricing of Stock Options
In February 1997, Paradigm offered all option holders the opportunity to
exchange their options for new options at the February 3, 1997 fair market
value of $20.625 per share (after giving effect to the ten-for-one reverse
stock split effectuated on May 1, 1998). The options retain their original
vesting schedule and expiration date. The following table sets forth the
repricing of options held by the Paradigm Named Executive Officers and
directors.
<TABLE>
<CAPTION>
LENGTH OF
MARKET ORIGINAL
NUMBER OF PRICE OF EXERCISE OPTION TERM
SECURITIES NUMBER STOCK AT PRICE AT REMAINING
UNDERLYING OF NEW TIME OF TIME OF NEW AT DATE OF
OPTIONS OPTIONS REPRICING REPRICING EXERCISE REPRICING
NAME DATE REPRICED (#) GRANTED ($) ($) PRICE ($) (YEARS.MONTHS)
---- -------- ------------ ------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Gulett.......... 02/03/97 1,500 1,500 $ 20.625 $ 90.00 $ 20.625 8.4
Former President and 02/03/97 2,500 2,500 20.625 45.00 20.625 9.5
Chief
Executive Officer
Robert C. McClelland.... 02/03/97 1,000 1,000 20.625 90.00 20.625 8.4
Former Chief Financial 02/03/97 500 500 20.625 135.00 20.625 8.10
Officer 02/03/97 800 800 20.625 45.00 20.625 9.5
Philip Siu.............. 02/03/97 6,250 6,250 20.625 85.00 20.625 8.2
Former Vice President, 02/03/97 1,000 1,000 20.625 135.00 20.625 8.10
Engineering 02/03/97 1,200 1,200 20.625 45.00 20.625 9.5
Dennis McDonald......... 02/03/97 2,500 2,500 20.625 90.00 20.625 8.3
Former Vice President, 02/03/97 500 500 20.625 135.00 20.625 8.10
Human Resources 02/03/97 1,200 1,200 20.625 45.00 20.625 9.5
James Boswell........... 02/03/97 1,500 1,500 20.625 45.00 20.625 9.5
Vice President, Sales 02/03/97 1,125 1,125 20.625 25.00 20.625 9.9
and Marketing 02/03/97 1,500 1,500 20.625 135.00 20.625 8.9
George Collins.......... 02/03/97 1,250 1,250 20.625 250.00 20.625 8.8
Director
James Kochman........... 02/03/97 1,250 1,250 20.625 60.00 20.625 8
Director
Atiq Raza............... 02/03/97 1,250 1,250 20.625 135.00 20.625 8.10
Former Director
</TABLE>
79
<PAGE>
In March 1998, Paradigm offered all option holders the opportunity to
exchange their options for new options at 85% of the March 5, 1998 fair market
value at a price of $3.1875 per share (after giving effect to the ten-for-one
reverse stock split effectuated on May 1, 1998). The options retain their
original vesting schedule and expiration date. The following table sets forth
the repricing of options held by the Paradigm Named Executive Officers and
directors.
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF MARKET EXERCISE OPTION TERM
SECURITIES NUMBER PRICE OF PRICE AT REMAINING
UNDERLYING OF NEW STOCK AT TIME OF NEW AT DATE OF
OPTIONS OPTIONS TIME OF REPRICING EXERCISE REPRICING
NAME DATE REPRICED (#) GRANTED REPRICING ($) PRICE ($) (YEARS.MONTHS)(1)
---- -------- ------------ ------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Boswell, James H........ 03/05/98 1,500 1,500 $3.75 $20.625 $3.187 8.4
Vice President, Sales 03/05/98 1,125 1,125 $3.75 $20.625 $3.187 8.8
and Marketing 03/05/98 1,500 1,500 $3.75 $20.625 $3.187 7.8
03/05/98 2,375 2,375 $3.75 $12.500 $3.187 9.1
03/05/98 1,125 1,125 $3.75 $14.690 $3.187 9.4
Campbell, David G....... 03/05/98 5,000 5,000 $3.75 $13.130 $3.187 9.1
Vice President of Fi-
nance 03/05/98 1,013 1,013 $3.75 $14.690 $3.187 9.4
and Chief Financial
Officer
Gulett, Mike R.......... 03/05/98 1,500 1,500 $3.75 $20.625 $3.187 7.3
Former President and 03/05/98 2,500 2,500 $3.75 $20.625 $3.187 8.4
Chief Executive Officer 03/05/98 2,550 2,550 $3.75 $14.690 $3.187 9.4
McDonald, Dennis........ 03/05/98 2,500 2,500 $3.75 $20.625 $3.187 7.2
Former Vice President, 03/05/98 500 500 $3.75 $20.625 $3.187 7.9
Human Resources 03/05/98 1,200 1,200 $3.75 $20.625 $3.187 8.4
Morley, Richard......... 03/05/98 6,500 6,500 $3.75 $13.750 $3.187 8.11
Acting President, Chief
03/05/98 1,500 1,500 $3.75 $13.130 $3.187 9.5
Executive Officer and 03/05/98 1,125 1,125 $3.75 $14.690 $3.187 9.4
Vice President of
Operations
Rajpal, Suneel.......... 03/05/98 2,700 2,700 $3.75 $15.000 $3.187 9.1
Vice President 03/05/98 650 650 $3.75 $14.690 $3.187 9.4
of Sales 03/05/98 3,000 3,000 $3.75 $11.560 $3.187 9.7
Siu, Phillip K.......... 03/05/98 6,250 6,250 $3.75 $20.625 $3.187 7.1
Former Vice President 03/05/98 1,000 1,000 $3.75 $20.625 $3.187 7.9
of Engineering 03/05/98 1,200 1,200 $3.75 $20.625 $3.187 8.4
03/05/98 1,500 1,500 $3.75 $14.690 $3.187 9.4
03/05/98 2,500 2,500 $3.75 $13.130 $3.187 9.5
Collins, George J....... 03/05/98 1,250 1,250 $3.75 $20.625 $3.187 7.7
Director
Kochman, Jim............ 03/05/98 1,250 1,250 $3.75 $ 5.000 $3.187 9.9
Director 03/05/98 1,250 1,250 $3.75 $20.625 $3.187 7
</TABLE>
- --------
(1) In connection with the proposed Merger, the Paradigm Board accelerated the
vesting of all outstanding options to become fully vested and immediately
exercisable at the Effective Time.
80
<PAGE>
EMPLOYMENT AGREEMENTS
Each of Messrs. Campbell and Morley have entered into Executive Compensation
Agreements with Paradigm which provide that if the Executive's employment with
the Combined Company is terminated without "cause" within six months following
the Effective Time, such Executive would be paid, in a single lump sum
payment, two months of salary at the rate in effect on the date of the
Executive Compensation Agreement. Messrs. Campbell and Morley are entitled to
two months of salary for an aggregate of $10,834 and $25,000, respectively, if
they are terminated without "cause" within six months of the Effective Time.
Further, Mr. Suneel Rajpal has entered into a letter agreement with Paradigm
which provides that if Mr. Rajpal is involuntarily terminated for any reason
other than for "cause," he will receive three months of base salary for an
aggregate of $21,667 plus any earned commission pro-rated. Mr. Rajpal's stock
options will continue to vest for six months from the date of such
termination.
TERMINATION ARRANGEMENTS
Mr. Gulett resigned on June 15, 1998 pursuant to a resignation agreement
with Paradigm (the "Resignation Agreement"). The Resignation Agreement
provided that Mr. Gulett's existing employment contract was terminated, and in
lieu of any payments under the employment contract he would receive (i) nine
months of salary continuation, (ii) continuation of group health and welfare
benefit coverages for up to 18 months following termination (with early
termination of benefit coverages upon Mr. Gulett's obtaining comparable
benefit coverages), (iii) full vesting of Mr. Gulett's outstanding options,
and the extension of the terms of the outstanding options until June 15, 2001,
(iv) repricing of Mr. Gulett's outstanding options to an exercise price of
$0.01 per share at the Effective Date and (v) the grant of a new option to
purchase 32,000 shares of Paradigm Common Stock at an exercise price of $0.01
per share which, at the Effective Time, will be fully vested and will have a
three year term.
Mr. Boswell and Paradigm entered into a letter agreement (the "Boswell
Agreement") as of June 19, 1998. Pursuant to the Boswell Agreement, Mr.
Boswell ceased accruing salary and vacation as of June 19, 1998, but will
remain an employee through the Effective Time. Following the Effective Time,
Mr. Boswell will be paid his accrued vacation and severance totaling two
months' base salary over approximately five months. The Boswell Agreement
provides that Mr. Boswell's stock options will be eligible for any repricing
or other adjustments applicable to active employees through the Effective Time
and will be fully vested at the Effective Time.
OPTION REPRICING
In February 1997, the Paradigm Board agreed that additional incentives were
needed since many of Paradigm's employees and directors held stock options
with grants priced significantly higher than the fair market value of Paradigm
Common Stock. Therefore, Paradigm implemented a program whereby option holders
could exchange higher priced option shares for the same number of lower priced
option shares. The new options were issued on February 3, 1997 at the then
fair market value of $20.625 per share. Executive officers must remain active
on Paradigm's payroll until August 3, 1997 to exercise their new options. All
executive officers and directors holding options were eligible to participate
in this program. The total options owned by directors and executive officers
prior to the repricing represented 5% and 35%, respectively. Data for
executive officers and directors who were eligible to reprice options are
shown in the first table entitled "Ten-Year Option Repricings."
In March 1998, the Paradigm Board agreed that in order to provide incentives
to its employees and directors, repricing of outstanding options was needed to
align the option exercise price more closely with the fair market value of the
underlying Paradigm Common Stock as determined by the market place. Therefore,
Paradigm implemented a program whereby option holders could exchange higher
priced option shares for the same number of lower priced option shares. The
new shares were issued on March 6, 1998 at $3.187 per share, which is 85% of
the fair market value of $3.75. Executive officers must remain active on
Paradigm's payroll to exercise their new options. All executive officers and
directors holding options were eligible to participate in this program. The
total options owned by directors and executive officers prior to the repricing
represented 3% and 64%, respectively. Data for executive officers and
directors who were eligible to reprice shares are shown in the second table
entitled "Ten-Year Option Repricings."
George J. Collins
Michael R. Gulett
James L. Kochman
81
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Commission requires disclosure where an executive officer of a company
served or serves as a director or on the compensation committee of another
entity and an executive officer of such other entity served or serves as a
director or on the compensation committee of the company. Michael Gulett,
Paradigm's former President, Chief Executive Officer and director,
participated in Paradigm Board meetings where compensation and stock option
matters were discussed. Decisions as to executive compensation are made by the
Compensation Committee and the Stock Option Committee. During fiscal year
1997, the Compensation Committee and the Stock Option Committee were comprised
entirely of non-employee directors. Such committees did not meet during fiscal
year 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NKK. During the years ended December 31, 1995, 1996 and 1997, Paradigm
purchased product with a value of $3,237,000, $6,111,000 and $2,667,000,
respectively, from NKK Corporation ("NKK"). There was no amount due NKK at
December 31, 1996 or December 31, 1997.
In April 1995, NKK and Paradigm modified their previous technology license
and development agreements. This 1995 agreement provides for payment of
royalties to Paradigm by NKK on certain quantities of 1M SRAM's sold and, with
certain exceptions, cancels further obligations of each party to deliver
technology improvements or design updates to the other.
On April 28, 1995, pursuant to certain agreements with certain of Paradigm's
stockholders, Atmel Corporation ("Atmel") acquired 42,500 shares of common
stock from Paradigm, 30,000 shares of common stock from certain stockholders
of Paradigm who had been unsecured creditors of Paradigm as of the
reorganization, and 12,805 shares of common stock from Paradigm's equipment
lessors all of which shares were purchased at a price of $80.00 per share (the
"Atmel Stock"). Atmel also acquired certain warrants to purchase 17,500 shares
of common stock at an exercise price of $10.00 per share, for a purchase price
of $70.00 per share subject to the warrants. In connection with these
transactions, Paradigm entered into an Agreement with Atmel (the "Stock
Purchase Agreement") pursuant to which Atmel agreed to certain transfer
restrictions for a period of three years. Atmel agreed not to increase its
beneficial ownership above 19.9% of the voting power of Paradigm on a fully
diluted basis for a period of five years from the date of the Stock Purchase
Agreement. The foregoing restrictions terminate on the date on which a person
or entity acquires more than 50% of the voting power of Paradigm. On April 28,
1995, Atmel also entered into a Licensing and Manufacturing Agreement (the
"Agreement") with Paradigm. This Agreement provides Atmel with a nonexclusive,
royalty bearing license to manufacture, use and sell certain of Paradigm's
products. The royalty fee is based on a percentage of the average selling
price of the products sold. In addition, under the Agreement, a certain wafer
manufacturing capacity per week has been made available to Paradigm by Atmel.
The Agreement does not include a purchase commitment by Paradigm. However, to
the extent Paradigm provides Atmel with its three-month demand forecast, it is
committed to purchase the three-month forecasted quantities. No obligation to
purchase wafers existed as of December 31, 1997. The price of the wafers has
been fixed at the current fair market value. The Agreement expires on April
28, 2000. There were no purchases from Atmel in 1997, and there was no amount
due Atmel at December 31, 1997. The value of product purchased from Atmel in
the year ended December 31, 1996 was $429,000 of which $140,000 is included in
the accounts payable, related party balance at December 31, 1996.
Alliant Partners LLP. James L. Kochman, a director of Paradigm, is a partner
of Alliant Partners LLP ("Alliant") (formerly Bentley, Hall, Von Gehr
International), an investment banking firm which performed investment banking
services for Paradigm during the twelve (12) months ended December 31, 1997.
Compensation to Alliant during 1997 was $6,000, which did not exceed 5% of
Alliant's consolidated gross revenues for its most recent fiscal year.
Paradigm retained Alliant to render a fairness opinion letter in connection
with the Merger. Alliant may also perform investment banking services for
Paradigm from time to time in the future.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules of the Securities and Exchange Commission (the "Commission")
thereunder require Paradigm's directors, executive officers and 10% beneficial
owners to file reports of their ownership and changes in ownership of Common
Stock with the Commission. Personnel of Paradigm generally prepare these
reports on the basis of information obtained from Paradigm's directors and
officers. Based on such information, Paradigm believes that all reports
required by Section 16(a) of the Exchange Act to be filed by its directors and
executive officers during the last fiscal year were filed on time, except that
Dennis McDonald inadvertently filed a Form 3 late relating to the acquisition
of Common Stock in January 1997, James Boswell inadvertently filed a Form 3
and Form 5 late relating to grants of nonstatutory stock options in July 1997
and November 1997. Although each is a greater than 10% beneficial owner of
Paradigm's Common Stock, Paradigm believes that Vintage Products, Inc. and
Lyford Ltd. made no filings required by Section 16(a) of the Exchange Act.
BOARD REPORT ON COMPENSATION
The Executive Compensation Committee of the Paradigm Board did not meet in
1997. Due to the poor financial performance of Paradigm in 1997, all executive
officers voluntarily reduced their salary during 1997 in exchange for stock
option grants with an exercise price set at the then fair market value, and an
aggregate exercise price equal to the amount of such reduction, and no bonuses
were paid.
Base salary for Mr. Gulett, former President and Chief Executive Officer,
for fiscal 1997 was $243,408, consisting of (i) $255,000 in base salary that
was negotiated as part of his Employment Agreement dated August 26, 1996, as
amended, less (ii) $25,500 of salary waived by Mr. Gulett for a six month
period, with part of such period continuing into fiscal 1998. The factors and
criteria used to set Mr. Gulett's compensation were (i) his individual
performance and contributions to the Company; (ii) the financial results of
the Company, including pre-tax profit; and (iii) the compensation of executive
officers employed by companies in similar industries with similar revenue
levels.
Effective February 3, 1997, and March 5, 1998, the Board approved the
repricing of Mr. Gulett's stock options covering 4,000 and 6,500 shares,
respectively (restated for the ten-for-one reverse stock split effectuated on
May 1, 1998), as described in the Ten-Year Option Repricings Table. Effective
August 18, 1998, the Board approved an option grant to Mr. Gulett to purchase
2,550 shares (restated for the ten-for-one reverse stock split effectuated on
May 1, 1998) of Common Stock in connection with his waiver of $25,500 in
salary.
In February 1997, the Paradigm Board agreed that additional incentives were
needed since many of Paradigm's employees and directors held stock options
with grants priced significantly higher than the fair market value of Paradigm
Common Stock. Therefore, Paradigm implemented a program whereby option holders
could exchange higher priced option shares for the same number of lower priced
option shares. The new options were issued on February 3, 1997 at the then
fair market value of $20.625 per share. Executive officers must have remained
active on Paradigm's payroll until August 3, 1997 to exercise their new
options. All executive officers and directors holding options were eligible to
participate in this program. Data for executive officers and directors who
were eligible to reprice options are shown in the first table entitled "Ten
Year Option Repricings."
In December 1997, certain of Paradigm's current executive officers received
stock options in amounts which are set forth in Paradigm's Summary
Compensation Table in this Joint Proxy Statement/Prospectus. Stock options
were granted to these executive officers on the basis of each such executive's
anticipated future performance and contributions to Paradigm. The stock option
grants were designed to align more closely the interest of the executives with
the interests of the stockholders.
Since the compensation of Paradigm's executive officers does not exceed
$1,000,000 for any single officer, Paradigm does not have a policy regarding
qualifying compensation under Section 162(m) of the Code.
George J. Collins
Michael R. Gulett
James L. Kochman
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<PAGE>
PROPOSALS INTENDED TO BE PRESENTED AT THE NEXT PARADIGM ANNUAL MEETING
Proposals of security holders intended to be presented at Paradigm's 1999
Annual Meeting of Stockholders must have been received by Paradigm for
inclusion in Paradigm's proxy statement and form of proxy no later than March
4, 1999.
OTHER MATTERS
Management knows of no business that will be presented for consideration at
the Paradigm Annual Meeting other than as stated in the Notice of Meeting. If,
however, other matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying form of proxy to vote the
shares represented thereby on such matters in accordance with their best
judgment.
ANNUAL REPORT
Paradigm will provide a copy of its 1997 Annual Report to Stockholders,
without charge, to any stockholder who makes written request to Richard
Morley, Acting President and Chief Executive Officer, Paradigm Technology,
Inc., 694 Tasman Drive, Milpitas, California 95035.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PARADIGM
The following table sets forth certain information regarding beneficial
ownership of Paradigm Common Stock as of June 16, 1998, of which there were
1,779,401 shares outstanding, by: (i) each person known to Paradigm to
beneficially own more than five percent (5%) of Paradigm Common Stock, (ii)
each of Paradigm's directors, (iii) each of the executive officers of
Paradigm, and (iv) all directors and executive officers of Paradigm as a
group. Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all shares
of Paradigm Common Stock shown as beneficially owned by such person subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENT (%)
------------------------ ------------ -----------
<S> <C> <C>
Lyford Ltd.(1).................................... 534,978 30.1
28 Hagvura
Karni-Shomron, Israel
Vintage Products, Inc.(2)......................... 859,194 48.3
Arlozorv Street
Tel Aviv, Israel
Chiang Lam(3)..................................... 125,000 7.0
ACMA Limited(4)................................... 125,000 7.0
17 Jurong Port Road
Singapore 2261
Michael R. Gulett(5).............................. 57,800 3.1
Philip Siu(6)..................................... 12,450 *
James L. Kochman(7)............................... 2,500 *
Richard Morley(8)................................. 12,175 *
James Boswell(9).................................. 8,625 *
George J. Collins(10)............................. 625 *
David G. Campbell(11)............................. 6,876 *
Suneel Rajpal(12)................................. 9,850 *
All directors and executive officers as a group (8 110,901 5.9%
persons)(13).....................................
</TABLE>
- --------
* Less than one percent (1%).
(1) Represents up to 534,978 shares of Paradigm Common Stock issuable upon
conversion of Paradigm Series B Preferred Stock. For purposes of
determining the number of shares of Paradigm Common Stock owned by Lyford
Ltd., the number of shares of Paradigm Common Stock calculated to be
issuable upon conversion of the Paradigm Series B Preferred Stock is
based on a conversion price of $0.84. Such conversion price is
arbitrarily selected and is 82% of the average closing bid price over the
five consecutive trading days preceding June 16, 1998 of $1.025. The
number of shares of Paradigm Common Stock issuable upon conversion of the
Paradigm 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 Paradigm including, among other things, the future market price of the
Paradigm Common Stock. The natural persons who share beneficial ownership
of the shares of Paradigm Common Stock owned by Lyford Ltd. are unknown
to Paradigm. John Gainsford is a director of Lyford who has voting and
investment power with respect to the shares held by Lyford.
(2) Represents up to 382,164 shares of Paradigm Common Stock issuable upon
conversion of Paradigm Series A Preferred Stock and up to 477,030 shares
of Paradigm Common Stock issuable upon conversion of the
85
<PAGE>
Paradigm Series C Preferred Stock. For purposes of determining the number
of shares of Paradigm Common Stock owned by Vintage Products, Inc., the
number of shares of Paradigm Common Stock calculated to be issuable upon
conversion of the Paradigm Preferred Stock is based on a conversion price
of $0.84. Such conversion price is arbitrarily selected and is 82% of the
average closing bid price over the five consecutive trading days preceding
June 16, 1998 of $1.025. The number of shares of Paradigm Common Stock
issuable upon conversion of the Paradigm 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 Paradigm including, among other things, the
future market price of the Paradigm Common Stock. The natural persons who
share beneficial ownership of the shares of Paradigm Common Stock owned by
Vintage are unknown to Paradigm. John Gainsford and Brian Bell are
directors of Vintage who share voting and investment power with respect to
the shares held by Vintage.
(3) Includes 105,000 shares held by ACMA and 20,000 shares issuable upon
exercise of outstanding warrants. Mr. Lam is a consultant and advisor to
ACMA. Mr. Lam disclaims beneficial ownership of the shares held by ACMA.
(4) Includes 20,000 shares issuable upon exercise of outstanding warrants.
ACMA is a publicly held Singapore Corporation. The directors of ACMA who
share voting and investment power with respect to the shares held by ACMA
are as follows: Quek Sim Pin, Executive Chairman; Tan Chee Jin; Tan Seng
Tjie; Rai Rajen, Managing Director; Low Seow Chye; Kwok Chee Wai; Tan Keng
Lin; and Chou Kong Seng, Finance Director. See note 3 above.
(5) Includes 56,550 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(6) Includes 12,450 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(7) Includes 2,500 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(8) Includes 9,425 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(9) Includes 8,625 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(10) Includes 625 shares subject to stock options that are exercisable or will
become exercisable within 60 days of June 16, 1998.
(11) Includes 6,313 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(12) Includes 9,850 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
(13) Includes 106,338 shares subject to stock options that are exercisable or
will become exercisable within 60 days of June 16, 1998.
86
<PAGE>
THE STOCK PLAN PROPOSAL
APPROVAL OF THE AMENDMENT TO THE 1994 STOCK OPTION PLAN
INTRODUCTION
The 1994 Stock Option Plan of Paradigm was adopted by the Paradigm Board in
June 1994 and approved by the stockholders at the 1996 Annual Meeting. In
April 1998, the Paradigm Board amended and restated the 1994 Stock Option Plan
(the "1994 Plan") to (i) increase the number of shares available for grant
thereunder to employees, independent contractors and advisors by 250,000
shares (after the Reverse Stock Split described in the Reverse Stock Split
Proposal), which would be available for incentive stock options subject to
approval by stockholders, (ii) increase the number of shares available for
grant thereunder to non-employee directors by 35,000 shares (after the Reverse
Stock Split described in the Reverse Stock Split Proposal), which would be
available for nonqualified statutory options, (iii) provide that non-employee
directors who are employed by stockholders of the Combined Company who hold
more than 5% of the outstanding shares of common stock of the Combined Company
shall not be eligible to receive non-discretionary grants of stock options
under the 1994 Plan and (iv) increase the number of shares that can be made
subject to options in any fiscal year to 200,000 (after the Reverse Stock
Split).
The text of the 1994 Plan is set forth in Annex D of this Joint Proxy
Statement/Prospectus. The following is a brief summary of portions of the 1994
Plan's features and does not purport to be complete. It is subject to and
qualified in its entirety by reference to Annex D.
PURPOSE OF THE PROPOSED AMENDMENTS TO THE 1994 PLAN
After the Effective Time, the post-Merger entity will require additional
shares of common stock to grant stock options to current and new employees and
new non-employee directors in the future. The increase in the number of shares
of common stock available for grant under the 1994 Plan will provide
sufficient shares to enable management to grant such options in the
foreseeable future.
SHARES SUBJECT TO THE 1994 PLAN
Prior to the amendment and restatement of the 1994 Plan, there are 149,800
shares of Paradigm Common Stock (approximately 24,967 shares after the Reverse
Stock Split described in the Reverse Stock Split Proposal) authorized for
option grants. Upon approval of this amendment by the stockholders, there will
be a total of 462,450 shares authorized under the 1994 Plan (after the Reverse
Stock Split described in the Reverse Stock Split Proposal). The authorized
shares issuable in connection with the 1994 Plan are subject to adjustment in
the event of stock splits, stock dividends and other situations.
As of June 16, 1998, Paradigm had options outstanding under the 1994 Plan to
purchase an aggregate of 133,826 shares of Paradigm Common Stock
(approximately 22,305 shares after the Reverse Stock Split described in the
Reverse Stock Split Proposal), at an exercise price of $3.187 per share, or a
weighted average per share exercise price of $3.187. If any option granted
under the 1994 Plan expires or terminates for any reason without having been
exercised in full, then the unpurchased shares subject to that option will
once again be available for additional option grants. As of June 16, 1998, a
total of 15,000 (approximately 2,500 shares after the Reverse Stock Split
described in the Reverse Stock Split Proposal) shares of Paradigm Common Stock
were available for future issuance under the 1994 Plan to executive officers
and employees and a total of 11,250 shares of Paradigm Common Stock
(approximately 1,875 shares after the Reverse Stock Split described in the
Reverse Stock Split Proposal) were available for future issuance under the
1994 Plan to non-employee directors.
PARTICIPANTS
Any person who is an employee (including an officer or director) of, or
independent contractor or advisor to, Paradigm is eligible to receive options
under the 1994 Plan. Optionees will be selected by the Stock Option Committee
or in the alternative, the Paradigm Board.
87
<PAGE>
The 1994 Plan also provides for automatic grants for non-employee directors.
Non-employee directors will automatically receive nonstatutory options to
purchase 1,563 shares of Paradigm Common Stock (after the Reverse Stock Split
described in the Reverse Stock Split Proposal) for every regular annual
meeting after which they remain on the Board. Each new non-employee director
who joins the Paradigm Board is automatically granted an option to purchase
6,250 shares of Paradigm Common Stock (after the Reverse Stock Split described
in the Reverse Stock Split Proposal) upon the date on which such person first
becomes a non-employee director. The non-employee director options will have
ten (10) year terms and will be exercisable ratably at twenty-five percent
(25%) a year from the date of the annual meeting of stockholders on which date
the options are granted.
FEDERAL TAX INFORMATION
The following discussion of the federal income tax consequences of the 1994
Plan is intended to be a summary of applicable federal law. Foreign, state and
local tax consequences may differ. Because the federal income tax rules
governing options and related payments are complex and subject to frequent
change, optionees are advised to consult their tax advisors prior to exercise
of options or dispositions of stock acquired pursuant to option exercise.
Incentive Stock Options ("ISOs") and Nonqualified Stock Options ("NSOs") are
treated differently for federal income tax purposes. ISOs are intended to
comply with the requirements of Section 422 of the Code. NSOs need not comply
with such requirements.
An employee is not taxed on the grant or exercise of an ISO. The difference
between the exercise price and the fair market value of the shares on the
exercise date will, however, be a preference item for purposes of the
alternative minimum tax. If an optionee holds the shares acquired upon
exercise of an ISO for at least two years following grant and at least one
year following exercise, the optionee's gain, if any, upon a subsequent
disposition of such shares is taxed at capital gains rates. The measure of the
gain is the difference between the proceeds received on disposition and the
optionee's basis in the shares (which generally equals the exercise price). If
an optionee disposes of stock acquired pursuant to exercise of an ISO before
satisfying the one- and two-year holding periods described above, the optionee
will recognize both ordinary income and capital gain in the year of
disposition. The amount of the ordinary income will be the lesser of (i) the
amount realized on disposition less the optionee's adjusted basis in the stock
(usually the exercise price) or (ii) the difference between the fair market
value of the stock on the exercise date and the exercise price. The balance of
the consideration received on such a disposition will be taxed at capital
gains rates if the stock had been held for at least one year following
exercise of the ISO. Paradigm is not entitled to an income tax deduction on
the grant or exercise of an ISO or on the optionee's disposition of the shares
after satisfying the holding period requirement described above. If the
holding periods are not satisfied, Paradigm will be entitled to a deduction in
the year the optionee disposes of the shares, in an amount equal to the
ordinary income recognized by the optionee.
An optionee is not taxed on the grant of an NSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the
exercise price and the fair market value of the shares on the date of
exercise. Paradigm is entitled to an income tax deduction in the year of
exercise in the amount recognized by the optionee as ordinary income. Any gain
on subsequent disposition of the shares is capital gain. Paradigm does not
receive a deduction for this gain.
VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of Paradigm Common Stock is entitled to one vote per share held.
The holders of a majority of the shares of the Paradigm Common Stock issued
and outstanding shall constitute a quorum. The affirmative vote of holders of
a majority of the outstanding shares of Common Stock voting on the Stock Plan
Proposal at the duly convened Paradigm Annual Meeting is required for approval
of the amendment to increase the number of shares issuable under the 1994
Plan. In the event that a quorum is not present or represented at the Paradigm
Annual Meeting, the stockholders entitled to vote at the meeting present in
person or by proxy shall have power
88
<PAGE>
to adjourn the Paradigm Annual Meeting until a quorum shall be present or
represented. Proxies solicited by the Paradigm Board will be voted for
approval of the Stock Plan Proposal, unless otherwise instructed.
A stockholder voting through a proxy who abstains with respect to approval
of the Stock Plan Proposal shall be considered to have cast a negative vote
with respect to the Stock Plan Proposal, but shall be treated as present and
entitled to vote on the approval of the other Proposals presented to the
stockholders at the Paradigm Annual Meeting; provided, however, that a
stockholder (including a broker) who does not give authority to a proxy to
vote on the approval of the other Proposals shall not be considered present
and entitled to vote on the other Proposals.
In the event that the Stock Plan Proposal is approved by the Paradigm
stockholders and the Merger Proposal and Issuance Proposal is not approved by
the Paradigm stockholders, Paradigm will take no action to implement the Stock
Plan Proposal.
RECOMMENDATION OF THE PARADIGM BOARD
The Paradigm Board recommends a vote "FOR" the proposal to amend the 1994
Plan to increase the number of shares issuable thereunder. Unless a contrary
choice is specified, proxies solicited by the Paradigm Board will be voted FOR
approval of the amendment to the 1994 Plan to increase the number of shares
issuable thereunder.
THE PARADIGM BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE STOCK PLAN
PROPOSAL.
89
<PAGE>
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board has approved the retention of Price Waterhouse LLP as independent
accountants for Paradigm until revoked by further action. Price Waterhouse LLP
has been Paradigm's independent accountants since June 1994.
The stockholders are asked to ratify the designation of Price Waterhouse LLP
as independent accountants for Paradigm for the fiscal year ending December
31, 1998. A representative of Price Waterhouse LLP is expected to be present
at the Paradigm Annual Meeting to make a statement if he or she desires to do
so, and such representative is expected to be available to respond to
appropriate questions.
Should the stockholders fail to ratify the designation of Price Waterhouse
LLP as independent accountants, retention of the firm for the fiscal year
ending December 31, 1998 will be reconsidered by the Board. If the Merger is
consummated, then historical financial statements of IXYS shall become the
historical financial statements of the Combined Company following the Merger.
The independent accountants of IXYS, Coopers & Lybrand L.L.P., will become the
independent accountants of the Combined Company, in substitution for Price
Waterhouse LLP.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of Price Waterhouse LLP as independent
accountants for Paradigm's fiscal year ending December 31, 1998.
Ratification of Paradigm's independent accountants requires the affirmative
vote of holders of a majority of the outstanding shares of Paradigm Common
Stock present in person or by proxy at the Paradigm Annual Meeting that vote
on such proposal.
THE BOARD OF DIRECTORS OF PARADIGM UNANIMOUSLY RECOMMENDS
A VOTE "FOR" RATIFICATION OF PARADIGM'S INDEPENDENT ACCOUNTANTS.
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<PAGE>
THE IXYS CERTIFICATE PROPOSAL
The Certificate of Incorporation of IXYS Corporation (the "IXYS
Certificate") currently provides that any merger of IXYS with or into any
other corporation in which the stockholders of IXYS own less than 50% of
IXYS's voting power immediately after such merger shall be considered a
liquidation under the IXYS Certificate. In a liquidation, the holders of IXYS
Preferred Stock would be entitled to be paid their respective liquidation
preferences, which would require the payment of $37,556,000 in cash. Although
the stockholders of IXYS will own more than 50% of the voting power of the
Combined Company immediately after the Merger, because of the structure of the
transaction, they will not own any shares of IXYS itself after the Merger,
which will instead be owned by the Combined Company. The structure was
selected to permit the stockholders of IXYS to hold shares in a public company
and to avoid merging IXYS directly into Paradigm, whereby IXYS would disappear
as a corporation. IXYS and Paradigm do not intend by virtue of the Merger to
cause the payment of the liquidation preferences of the IXYS Preferred Stock.
To avoid any inference that the Merger could be construed as a liquidation
under the IXYS Certificate, it is proposed that the following Paragraph e. be
added at the end of Section 3 of Paragraph E. of Article IV of the IXYS
Certificate:
"e. Notwithstanding anything in this Section 3 to the contrary, neither a
merger of the Corporation with Paradigm Enterprises, Inc., a Delaware
corporation, nor a transfer of voting power in connection with such merger
shall be considered a liquidation under this Section."
By approving the foregoing amendment to the IXYS Certificate, the
stockholders of IXYS will also approve a change in the name of IXYS to "IXYS
USA, Inc." The Combined Company will be renamed "IXYS Corporation" upon
consummation of the Merger.
VOTE NECESSARY TO APPROVE THE PROPOSAL
Each holder of IXYS Capital Stock is entitled to one vote per share held.
The holders of a majority of the issued and outstanding shares of IXYS Capital
Stock shall constitute a quorum. The affirmative vote of holders of a majority
of the outstanding shares of IXYS Capital Stock, voting together as a single
class, and the affirmative vote of a majority of the outstanding shares of
IXYS Preferred Stock, voting together as a single class, are required for
approval of the IXYS Certificate Proposal. In the event that a quorum is not
present or represented at the IXYS Special Meeting, the stockholders entitled
to vote at the meeting present in person or by proxy shall have power to
adjourn the IXYS Annual Meeting until a quorum shall be present or
represented.
A stockholder voting through a proxy who abstains with respect to approval
of the IXYS Certificate Proposal shall be considered to have cast a negative
vote with respect to the IXYS Certificate Proposal, but shall be treated as
present and entitled to vote on the Merger Proposal at the IXYS Special
Meeting; provided, however, that a stockholder (including a broker) who does
not give authority to a proxy to vote on approval of the Merger Proposal shall
not be considered present and entitled to vote on the Merger Proposal.
RECOMMENDATION OF THE IXYS BOARD
The IXYS Board recommends a vote "FOR" the proposal to amend IXYS'
Certificate of Incorporation to avoid any inference that the Merger could be
construed as a liquidation under the IXYS Certificate of Incorporation. Unless
a contrary choice is specified, proxies solicited by the IXYS Board will be
voted FOR approval of the IXYS Certificate Proposal.
THE IXYS BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE IXYS CERTIFICATE
PROPOSAL
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the proposed merger of Paradigm and IXYS using the purchase
method of accounting in accordance with generally accepted accounting
principles. IXYS is considered the accounting acquiror. The unaudited pro
forma condensed combined financial statements are based on the respective
historical financial statements which are included elsewhere in this Joint
Proxy Statement/Prospectus. The unaudited pro forma condensed combined balance
sheets assume that the Merger took place on March 31, 1998 and combine
Paradigm's March 31, 1998 historical balance sheet with IXYS' March 31, 1998
historical consolidated balance sheet. The unaudited pro forma condensed
combined statements of operations assume that the Merger took place as of
January 1, 1997 for the twelve months ended December 31, 1997 and combine IXYS
consolidated statements of operations for the three months ended March 31,
1997 (unaudited) and the nine months ended December 31, 1997 (unaudited) with
Paradigm's historical results of operations for the twelve months ended
December 31, 1997. The unaudited pro forma condensed combined statements of
operations for the three months ended March 31, 1998 combine Paradigm's
condensed statement of operations for the three months ended March 31, 1998
(unaudited) with IXYS' condensed consolidated statement of income for the same
period (unaudited). The unaudited pro forma condensed combined financial
statements are based on the estimates and assumptions set forth in the notes
to such statements. The pro forma adjustments are based on a preliminary
valuation of Paradigm that has yet to be finalized, made in connection with
the development of the pro forma information for illustrative purposes to
comply with the disclosure requirements of the Commission. The pro forma
adjustments included in the unaudited pro forma condensed combined financial
information may be revised upon the finalization of the valuation of the net
assets acquired by IXYS. The unaudited pro forma condensed combined financial
statements do not purport to be indicative of the results of operations for
future periods or the combined financial position or results that would have
been realized had the companies been a single entity during these periods.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
the related notes thereto of Paradigm and IXYS, which are included elsewhere
herein. See "Index to Financial Statements."
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PARADIGM
TECHNOLOGY, IXYS PRO FORMA PRO FORMA
INC. CORPORATION(3) ADJUSTMENTS COMBINED
----------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales...................... $12,449 $53,988 $66,437
Cost of sales.............. 11,946 34,060 46,006
------- ------- -------
Gross profit............... 503 19,928 20,431
------- ------- -------
Research and development... 3,406 2,935 6,341
Selling, general and
administrative............ 4,920 8,774 13,694
Amortization of
intangibles............... $ 196(1) 196
------- ------- ----- -------
Total operating
expenses................ 8,326 11,709 196 20,231
------- ------- ----- -------
Operating income (loss).... (7,823) 8,219 (196) 200
Interest expense........... 370 183 553
Other (income) expense,
net....................... 718 429 1,147
------- ------- ----- -------
Income (loss) before
taxes..................... (8,911) 7,607 (196) (1,500)
Provision for taxes........ 3,652 3,652
------- ------- ----- -------
Net income (loss).......... $(8,911) $ 3,955 $(196) $(5,152)
======= ======= ===== =======
Income (loss) per share--
basic and diluted......... $(11.87) $ (0.29)
======= =======
Shares used in per share
calculation--basic and
diluted................... 861 17,989(2)
======= =======
</TABLE>
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PARADIGM IXYS PRO FORMA PRO FORMA
TECHNOLOGY, INC. CORPORATION ADJUSTMENTS COMBINED
---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales.................... $1,914 $15,412 $17,326
Cost of sales............ 1,770 11,634 13,404
------ ------- -------
Gross profit............. 144 3,778 3,922
------ ------- -------
Research and
development............. 304 1,052 1,356
Selling, general and
administrative.......... 744 2,465 3,209
Amortization of
intangibles............. $ 49(1) 49
------ ------- ---- -------
Total operating
expenses.............. 1,048 3,517 49 4,614
------ ------- ---- -------
Operating income (loss).. (904) 261 (49) (692)
Interest expense......... 71 107 178
Other (income) expense,
net..................... (38) (4,192) (4,230)
------ ------- ---- -------
Income (loss) before
taxes................... (937) 4,346 (49) 3,360
Provision for taxes...... (1,596) (1,596)
------ ------- ---- -------
Net income (loss)........ $ (937) $ 2,750 $(49) $ 1,764
====== ======= ==== =======
Income (loss) per share--
basic .................. $(0.68) $ 0.10
====== =======
Shares used in per share
calculation--basic ..... 1,420 18,083(2)
====== =======
Income (loss) per share
-- diluted.............. $(0.68) $ 0.10
====== =======
Shares used in per share
calculation--diluted.... 1,420 18,247(2)
====== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
operations.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS:
(1) Adjustment reflects the amortization of the amount of the purchase price
allocated to identified intangible assets over 12 months ending December
31, 1997 and 3 months ending March 31, 1998. Intangibles are being
amortized over 2 years.
(2) Shares used in the per share calculation reflect 17.8 million shares
issued to IXYS stockholders as if they were outstanding from the beginning
of each period presented and Paradigm shares following the reverse stock
splits. IXYS shares are calculated using 111,409,363 shares of preferred
stock and 72,211,873 shares of common stock converted at the exchange
ratio of 0.097189 per share.
Shares used in proforma income (loss) per share--basic and diluted
calculations for the year ended December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
IXYS shares based on assumed exchange ratio........................ 17,846
Paradigm shares following one-for-six reverse split................ 143
------
17,989
======
</TABLE>
Shares used in proforma income (loss) per share calculations for the three
months ended March 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
IXYS shares based on assumed exchange ratio...................... 17,846
Paradigm shares following one-for-six reverse split.............. 237
------
Shares used in per share calculation--basic..................... 18,083
Paradigm preferred stock following one-for-six reverse split..... 164
Paradigm options and warrants following one-for-six reverse
split........................................................... --
------
Shares used in per share calculation--diluted................... 18,247
======
</TABLE>
(3) The year ended December 31, 1997 for IXYS is unaudited and consists of the
fourth quarter of IXYS' fiscal year ended March 31, 1997 and the first
three quarters of its fiscal year ending March 31, 1998.
Note: In-process research and development costs in the amount of $1,108, which
will be written off immediately after the transaction is completed, have
been excluded from these unaudited pro forma condensed combined
statements of operations.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARADIGM
TECHNOLOGY, IXYS PRO FORMA PRO FORMA
INC. CORPORATION ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents.... $ 218 $ 9,644 $ 9,862
Accounts receivable.......... 1,346 10,009 11,355
Inventories.................. 2,722 17,103 19,825
Other current assets......... 397 2,567 2,964
Intangible assets............ $ 393 (1) 393
Property and equipment....... 2,518 10,602 13,120
Other........................ 263 4,415 4,678
------ -------- -------- -------
Total ..................... $7,464 $ 54,340 $ 393 $62,197
====== ======== ======== =======
Current liabilities.......... $4,989 $ 25,489 $ (9,300)(2) $21,178
Long-term liabilities........ 399 12,551 12,950
Mandatorily redeemable pre-
ferred stock, net........... 28,256 (28,256)(2)
Stockholders' equity (defi-
cit)........................ 2,076 (11,956) 37,556 (2)
393 (1) 28,069
1,108 (3)
(1,108)(3)
------ -------- -------- -------
Total...................... $7,464 $ 54,340 $ 393 $62,197
====== ======== ======== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined balance
sheet.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET:
(1) Reflects allocation of a portion of the estimated purchase price of $3.6
million to identified intangible assets and the related deferred tax
liability. The total purchase price of $3.6 million was calculated based
on the market price of Paradigm Common Stock at the assumed date of the
transaction ($0.875 per share at June 16, 1998) multiplied by Paradigm's
total stock outstanding (1,779,401 shares of common stock and 1,394,172
shares of common stock issuable upon conversion of preferred stock) and
includes approximately $800,000 of transaction related costs born by IXYS.
The excess of the purchase price over the net assets of Paradigm has been
allocated to current products ($182), workforce and other identified
intangibles ($211), and in-process research and development ($1,108).
IXYS' management estimates that the net book value of Paradigm's fixed
assets approximate their fair value at the purchase date.
(2) Reflects the conversion of IXYS mandatorily redeemable convertible
preferred stock into IXYS Common Stock at the date of the transaction.
(3) Reflects the impact on stockholders' equity of the anticipated write-off
of in-process research and development in the amount of $1,108, net of
income tax effects. Amount is initially recorded in paid-in capital and
then is expensed into accumulated deficit.
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<PAGE>
PARADIGM BUSINESS
The discussion in this Joint Proxy Statement/Prospectus contains forward-
looking statements which involve risks and uncertainties. Paradigm's actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences
include, without limitation, those discussed in this section and in the
sections entitled "Risk Factors" and "Paradigm Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as those
discussed elsewhere in this Joint Proxy Statement/Prospectus.
GENERAL
Paradigm 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. Paradigm focuses
on high performance, 10 nanosecond ("ns") and faster SRAMs. For the year ended
December 31, 1997, 10ns and faster SRAMs accounted for approximately 49% of
Paradigm's sales. Using a combination of innovative process architecture and
design know-how, Paradigm 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 in 1997
included Iomega, IKOS, Samsung and Motorola.
RECENT DEVELOPMENTS
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices. During the latter part of 1995 continuing into 1996, 1997 and the
first three months of 1998, the market for certain SRAM devices experienced an
excess supply relative to demand which resulted in a significant downward
trend in prices.
The selling prices that Paradigm is able to command for its products are
highly dependent on industry-wide production capacity and demand. In this
regard, Paradigm did experience rapid erosion in product pricing in 1996, 1997
and during the first three months of 1998 which was not within the control of
Paradigm. Paradigm could continue to experience a downward trend in pricing
which could adversely affect Paradigm's operating results.
Paradigm's recent operations have consumed substantial amounts of cash.
During 1997, Paradigm completed the private placement of Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock for aggregate
net proceeds of approximately $4,673,000. Paradigm believes that it will
require additional cash infusion from similar private placements of equity or
other sources of liquidity, such as asset sales and equipment financing to
meet Paradigm's projected working capital and other cash requirements. The
sale of additional equity or other securities could result in additional
dilution to Paradigm's stockholders. There can be no assurance that such
additional financing, if required, can be obtained on acceptable terms, if at
all.
As a result of these circumstances, Paradigm's independent accountants'
opinion on Paradigm's December 31, 1997 financial statements includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about Paradigm's ability to continue as a going concern.
On March 6, 1998, Paradigm entered into a definitive merger agreement
providing for the acquisition of all of the outstanding capital stock of IXYS
Corporation ("IXYS") in exchange for Common Stock of Paradigm. The exchange
ratio in the Merger for the IXYS equity securities will be the greater of two
ratios. The first ratio provides that upon the Merger the holders of equity
securities of IXYS hold 95% of the fully diluted capitalization of the
combined company and that the holders of equity securities of Paradigm will
hold 5% of the fully diluted capitalization of the combined company. (As used
herein, fully diluted capitalization means
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<PAGE>
the sum of the number of shares of common stock outstanding and issuable upon
exercise or conversion of all outstanding preferred stock, warrants, options
and other rights.) The second ratio provides that the value associated with
the fully diluted capitalization of IXYS, at the time of the consummation of
the Merger, be at least $150 million, based on an average of the closing
prices of Paradigm's Common Stock prior to Paradigm's stockholders meeting.
Consummation of the Merger requries the approval of Paradigm's and IXYS'
stockholders and various regulatory agency approvals. If approved, the
transaction is anticipated to be accounted for as a purchase of Paradigm by
IXYS for financial reporting purposes.
On May 1, 1998, Paradigm's stockholders approved a ten-for-one reverse stock
split of Paradigm's common stock, such that every ten shares shall be combined
into one share of common stock. All prior period common shares and per share
data in this Joint Proxy Statement/Prospectus have been restated to reflect
this reverse stock split.
INDUSTRY BACKGROUND
Virtually all digital electronic systems, including cellular telephones,
workstations, PCs and modems, contain memory devices. Over the past decade,
the drive to reduce the size and increase the speed and functionality of
electronic systems has required concurrent increases in the density and speed
of memory devices used in these systems. The most widely used memory devices
are dynamic random access memories ("DRAMs") and SRAMs. DRAMs are commercially
available with higher densities than SRAMs, while SRAMs generally are capable
of significantly higher speeds than DRAMs of comparable density. SRAMs achieve
this speed advantage principally by incorporating more transistors in each
memory cell, rendering SRAMs larger and more costly to manufacture. Until
recently, DRAMs have produced acceptable performance levels at a lower cost
and reduced size compared to SRAMs. However, the increased computing speeds of
digital signal processors contained in advanced telecommunications equipment
and recently introduced processors, such as Intel's Pentium and the PowerPC,
have exceeded the ability of DRAMs to provide timely access to data. For
example, to take advantage of the significantly increased performance
capabilities of these new processors in high performance PCs, SRAMs are often
used as cache memory between the processor and the DRAM main memory. The cache
memory stores the most frequently or most recently used data from the DRAM
main memory, enabling quicker access by the processor. When SRAMs are used to
provide access to a high percentage of the information the processor requests,
data access speeds can be greatly enhanced.
The vast majority of SRAMs currently sold are industry standard asynchronous
SRAMs that have only relatively simple interface logic and are required to
operate only at normal commercial temperatures. Synchronous SRAMs, which
operate at the same clock speed as the processor, are more complex and
difficult to produce than asynchronous SRAMs because they combine SRAM memory
with additional logic. Synchronous burst mode SRAMs permit high-end
processors, such as the Pentium and PowerPC, to access data more quickly by
allowing data bits to be transferred in blocks rather than one bit at a time.
Both synchronous and asynchronous SRAMs vary in performance features, such as
speed, density and temperature tolerance, which enable them to support various
high-end applications. In addition, the demand for reduced power consumption
in electronic products has resulted in an increasing demand for low voltage
SRAM devices.
Dataquest Incorporated, an information technology research firm, estimates
that the worldwide market for SRAM products will grow from $6.7 billion in
1996 to $8.9 billion in 1999, with the market for sub-20ns SRAMs growing from
$2.0 billion to $2.5 billion over the same period. In addition to high
performance PCs, SRAMs are used in a variety of other electronics products. In
commercial communications, SRAMs are used in both cellular base stations and
digital cellular telephones. SRAMs are also increasingly used in high speed
communication networks, such as Ethernet and FDDI-based networks. In military
and aerospace systems, SRAMs can also provide the high performance memory
required by fast military processors. For example, high speed military
computers utilize high performance SRAMs in pattern recognition and command,
control and communication applications embedded in today's advanced electronic
weapons, planes and satellites.
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<PAGE>
PARADIGM'S PRODUCTS
Paradigm designs, manufactures and sells a broad range of SRAM products with
various density, speed, configuration, temperature range and packaging options
for a wide range of commercial, industrial and military applications.
Paradigm's products range in density from 256K to 4M. Paradigm's fastest
products currently achieve 7ns access times, and for the year ended December
31, 1997, 10ns and faster SRAMs accounted for 49% of Paradigm's sales. The
majority of Paradigm's products are available in two levels of power
consumption, standard and low, and three temperature ranges, commercial,
industrial and military. Paradigm also offers its products in a wide variety
of packaging options to accommodate various product features and cost
considerations. Paradigm designs its SRAM packages and pinouts to meet the
standards prescribed by the Joint Electron Device Engineering Council
("JEDEC").
Asynchronous SRAMs. Paradigm's asynchronous SRAM products include high speed
256K, 1M and 4M CMOS SRAMs. They are available in a variety of configurations
and commercial and industrial temperature range versions, as well as military
versions manufactured to comply with the most recent military specifications.
SRAM Modules. Paradigm offers SRAM modules in which multiple SRAMs are
connected and grouped on a printed circuit board and sold as a single unit.
Paradigm module offerings are designed to support the specific needs of the PC
cache market and the requirements for JEDEC standard SRAM modules. Paradigm's
PC cache module offerings include Intel COAST compliant modules and modules
which support PowerPC CHRP based designs. The JEDEC standard module product
offerings include modules ranging in size from 750K to 8M. These modules are
used in a variety of applications including networking, communications,
digital signal processing ("DSP") boards and memory testers.
Products Under Development. Timely development and introduction of new
products are essential to maintaining Paradigm's competitive position.
Paradigm works closely with leading electronics manufacturers in order to
anticipate and develop future generations of high performance SRAMs required
by these customers. Paradigm's current design development objectives include
very fast SRAM products for the telecommunications, networking and
military/aerospace industries. Products currently under development include:
asynchronous, low voltage and high-speed SRAMs; and special configuration
SRAMs for cellular phone and modem applications. In addition, by working
closely with customers, Paradigm is developing a line of module offerings.
Paradigm believes that these modules will provide high quality, high value
SRAM-based industry standard products, as well as custom solutions. In
addition to new product development, Paradigm is focused on redesigning
existing products to reduce manufacturing costs, increase yields, and increase
the speeds of its products.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production over-capacity and accelerated erosion of average selling
prices. During the latter part of 1996 and throughout 1997, the market for
certain SRAM devices experienced an excess supply relative to demand which
resulted in a significant downward trend in prices. Paradigm expects such
downward price trend to continue. See "Risk Factors--Semiconductor Industry;
SRAM Market."
The selling prices that Paradigm is able to command for its products are
highly dependent on industry-wide production capacity and demand. In this
regard, Paradigm did experience rapid erosion in product pricing during 1996
and 1997 which was not within the control of Paradigm. Paradigm could continue
to experience a downward trend in pricing which could adversely effect
Paradigm's operating results. See "Risk Factors--Semiconductor Industry; SRAM
Market."
Paradigm's future success will depend, in part, on its ability to offset
expected price erosion through manufacturing cost savings, yield improvements
and developing and introducing on a timely basis new products and enhanced
versions of existing products which incorporate advanced features and command
higher prices.
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<PAGE>
CUSTOMERS AND APPLICATIONS
Recent market trends, such as the rapid expansion of telecommunications,
graphics, multimedia and networking applications and the proliferation of
high-end workstations and PCs, have resulted in significant demand for high
performance SRAMs. Paradigm has targeted this higher performance segment of
the SRAM market, where it believes critical performance criteria such as speed
and temperature tolerance are more highly valued.
For the year ended December 31, 1997, Paradigm's sales of products to
Samsung, IKOS, All American and Iomega accounted for 16%, 16%, 15% and 10% of
sales, respectively.
SALES AND MARKETING
Paradigm sells its products in North America through a combination of a
direct sales force, independent sales representatives and distributors. Direct
sales personnel are responsible for calling on key accounts in North America
and coordinating the activities of Paradigm's sales representatives. Paradigm
has a sales manager in each of its regional sales offices in Dallas, Chicago
and Milpitas. Paradigm sells its products in Asia and Europe through a network
of distributors and independent sales representatives. Paradigm intends to
expand the size of its direct sales force and the number of outside sales
representatives to provide additional customer service and broaden its
customer base.
Paradigm's sales representatives and distributors are not subject to minimum
purchase requirements and can discontinue marketing Paradigm's products at any
time. Paradigm's distributors are permitted to return to Paradigm any or all
of the products purchased by them and are offered price protection. As is
standard in the semiconductor industry, distributors are granted a credit for
the difference, at the time of a price reduction, between the price they were
originally charged for the products in inventory and the reduced price which
Paradigm subsequently charges distributors. From time to time, distributors
are also granted credit on an individual basis for Company-approved price
reductions on specific transactions, usually to meet competitive prices.
Paradigm believes that its relations with it sales representatives and
distributors are good.
Paradigm believes that customer service and technical support are important
competitive factors in selling to key customers. Paradigm emphasizes on-time
delivery and quick responses to the demand changes of its customers. Paradigm
has trained employees of its sales representatives and distributors to provide
technical support, with Paradigm technical support engineers available to
provide assistance with more difficult questions.
BACKLOG
Paradigm's backlog includes all purchase orders that have been received,
accepted and scheduled for delivery. Paradigm counts in its backlog only those
orders which it believes will be shipped within the next six months. Most
orders in backlog are subject to delivery rescheduling, price renegotiations
and cancellation at the option of the purchaser, usually without penalty. As a
result, although backlog may be useful for scheduling production, it may not
be a reliable measure of sales for future periods. As of December 31, 1997,
Paradigm's backlog was approximately $2.7 million.
MANUFACTURING
On November 15, 1996, Paradigm sold its Wafer Fab to Orbit. Paradigm
conducts business with two offshore wafer foundries by delivering written
purchase orders specifying the particular product ordered, quantity, price,
delivery date and shipping terms and, therefore, such foundries are not
obligated to supply products to Paradigm 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 Paradigm'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 Paradigm, or should Paradigm's supply from a foundry be
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<PAGE>
interrupted or terminated for any other reason, Paradigm may not have a
sufficient amount of time to replace the supply of products manufactured by
the foundry. Should Paradigm 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. Currently, there is no
shortage of supply, however, until late 1995, there had been a worldwide
shortage of advanced process technology foundry capacity and there can be no
assurance that there will not be such a shortage in the future. If such a
shortage occurs, there can be no assurance that Paradigm will be able to
obtain sufficient foundry capacity to meet customer demand in the future.
Paradigm 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 Paradigm's requirements on a timely
basis or at acceptable quality or per unit prices.
Constraints or delays in the supply of Paradigm'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 Paradigm's operating results, including
effects that may result should Paradigm be forced to purchase products from
higher cost foundries or pay expediting charges to obtain additional supply.
See "Risk Factors--Risks Related to the Business of Paradigm."
STRATEGIC RELATIONSHIPS
NKK Corporation. Under several technology license and development
agreements, the first two of which were executed in December 1990, Paradigm
and NKK Corporation ("NKK") entered into various product development and
technology licensing relationships, resulting in Paradigm's successful
transfer of its 0.6 micron process technology to NKK's wafer fabrication
facility in Japan. These relationships were modified on April 13, 1995 by an
agreement (the "NKK Agreement") which significantly simplified the
relationship between the parties and substantially ended each party's
obligation to disclose or deliver technological improvements to the other.
Under the NKK Agreement, NKK has agreed to supply Paradigm with a significant
quantity of 1M SRAMs of Paradigm's design each month for a three year period
in exchange for additional and expanded license rights with respect to certain
proprietary technology. However, Paradigm is under no obligation to purchase
the 1M SRAMs under the NKK Agreement. In effect, the NKK Agreement provides
Paradigm with an important, discretionary ability to increase capacity on an
as-needed basis. Therefore, Paradigm's rights under the NKK Agreement will not
be affected if it does not purchase the 1M SRAMs contemplated by the NKK
Agreement. Paradigm began shipping SRAMs produced by NKK during the fourth
quarter of 1995. The NKK Agreement also rescinded NKK's right to restrict
Paradigm from entering into other foundry relationships or granting additional
licenses for Paradigm's products. The NKK Agreement will automatically
terminate upon completion of the joint development work contemplated by the
Agreement and may be terminated upon default by either party. Paradigm
believes that if the NKK Agreement were terminated it would not have a
material adverse effect on Paradigm's results, operations or financial
condition. See "--Factors That May Affect Future Results" and "--Strategic
Relationships; Potential Competition."
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapidly changing technology, short product life cycles, cyclical oversupply
and rapid price erosion. Paradigm competes with large domestic and
international semiconductor companies, most of which have substantially
greater financial, technical, marketing, distribution and other resources than
Paradigm. Paradigm's principal competitors in the high performance SRAM market
include Motorola and Samsung. Other competitors in the SRAM market include
Alliance Semiconductor, Cypress Semiconductor, Integrated Device Technology,
Integrated Silicon Solution and numerous other large and emerging
semiconductor companies. In addition, other manufacturers can be expected to
enter the high speed, high density SRAM market. In 1995, NKK commenced
production of products using Paradigm's design and process technologies, and
therefore may become a more significant competitor of Paradigm. Paradigm has
also licensed to Atmel the right to produce certain of its SRAM products, and
as a result
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<PAGE>
may compete with Atmel with respect to such products. Because both NKK and
Atmel have greater resources than Paradigm and have foundry capacity, any such
competition could adversely affect Paradigm. To the extent that Paradigm
enters into similar arrangements with other companies, it may compete with
such companies as well. See "--Strategic Relationships; Potential Competition"
and "Risk Factors--Risks Related to the Business of Paradigm."
The ability of Paradigm to compete successfully depends on elements outside
its control, including the rate at which customers incorporate Paradigm's
products into their systems, the success of such customers in selling those
systems, Paradigm'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, Paradigm'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 can be no assurance that Paradigm will be able to
compete successfully in the future. See "Risk Factors--Risks Related to the
Business of Paradigm."
PATENTS AND LICENSED TECHNOLOGY
Paradigm seeks to protect its proprietary technology by filing applications
to obtain patents in the United States and foreign countries and by
registering its circuit designs pursuant to the U.S. Semiconductor Chip
Protection Act of 1984. Paradigm also relies on trade secrets and confidential
technological know-how in the conduct of its business. As of December 31,
1997, Paradigm held 17 U.S. patents and one Canadian patent, and had four U.S.
and 15 foreign patent applications pending. Paradigm believes that its patent
portfolio strengthens its negotiating position with respect to technology
ownership disputes that may occur in the future.
Paradigm intends to continue to pursue patent, trade secret, and mask work
protection for its semiconductor process technologies and designs. To that
end, Paradigm has obtained certain patents and patent licenses and intends to
continue to seek patents on its inventions, 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 Paradigm. In
particular, there can be no assurance that any patents held by Paradigm will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantage to Paradigm. Paradigm 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 be fully effective or
will not be breached, that Paradigm will have adequate remedies for any
breach, or that Paradigm's trade secrets will not otherwise become known to or
independently developed by others. In addition, the laws of certain countries
in which Paradigm's products are or may be developed, manufactured or sold may
not protect Paradigm's products and intellectual property rights to the same
extent as the laws of the United States. See "Risk Factors--Risks Related to
the Business of Paradigm."
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 Paradigm, to protect
trade secrets or know-how owned by Paradigm, or to defend Paradigm against
claimed infringement of the rights of others and to determine the scope and
validity of the proprietary rights of others. Paradigm 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
Paradigm, which could have a material adverse effect on Paradigm. Further,
adverse determinations in such litigation could result in Paradigm's loss of
proprietary rights, subject Paradigm to significant liabilities to third
parties, require Paradigm to seek licenses from third parties or prevent
Paradigm from manufacturing or selling its products, any of which could have a
material adverse effect on Paradigm. See "Risk Factors--Risks Related to the
Business of Paradigm."
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In December 1990, as part of an agreement terminating a strategic
relationship with AT&T, Paradigm entered into a nonexclusive license agreement
with AT&T giving Paradigm a license to use all AT&T-owned, semiconductor-
related patents over a period of eight years. Under the agreement, Paradigm
agreed to pay AT&T a royalty of 0.75% of revenue for each product produced by
Paradigm. Under the same agreement, Paradigm licensed to AT&T its poly-iso
structure for a similar royalty.
Paradigm has also entered into certain license agreements with NKK. See "--
Strategic Relationships."
ENVIRONMENTAL MATTERS
Paradigm believes that compliance with federal, state and local provisions
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment will not have a material effect
upon its capital expenditures, operations or competitive position.
EMPLOYEES
As of December 31, 1997, Paradigm had 21 employees, of whom 2 were engaged
in research and development and engineering, 5 in marketing, sales and
customer support, 6 in manufacturing, 4 in finance and 4 in administration.
Paradigm's employees are not represented by a collective bargaining
organization and Paradigm has never experienced a work stoppage. Paradigm
believes that its employee relations are good. See "Risk Factors--Risks
Related to the Business of Paradigm."
PROPERTIES
Paradigm leases its 20,000 square foot principal facility in Milpitas,
California pursuant to a lease that expires in January 2002. Paradigm also has
domestic sales offices in the Chicago and Dallas metropolitan areas. Paradigm
believes that the size of its existing facility is adequate to meet its
current needs.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The operations and business prospects of Paradigm are subject to certain
qualifications based on potential business risks faced by Paradigm. This Joint
Proxy Statement/Prospectus should be reviewed in light of the potential
effects of events that may occur as outlined in the risk factors presented in
the section titled "Risk Factors."
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PARADIGM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Joint Proxy Statement/Prospectus contains forward-looking statements
that involve risks and uncertainties. Paradigm's actual results may differ
materially from the results discussed in such forward-looking statements.
Factors that may cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
OVERVIEW
Paradigm was founded in January 1987 and focused its initial development
efforts primarily on high speed 256K and 1M SRAMs, producing its first
prototype product in 1988. In July 1989, Paradigm began operating its wafer
fabrication facility in San Jose, California and in April 1990 shipped its
first commercial products, high speed 256K SRAMs. In July 1990 and October
1993, respectively, Paradigm began shipping 1M SRAMs and limited quantities of
4M SRAMs. On November 15, 1996, Paradigm sold its fabrication facility to
Orbit. See "Sale of Wafer Fabrication Facility."
From its inception through the Paradigm Reorganization in June 1994,
Paradigm incurred substantial operating losses as it developed its technology
and manufacturing processes. During this period, Paradigm incurred significant
indebtedness to fund its operations, including capital expenditures associated
with its wafer fabrication facility. This increasing indebtedness resulted in
a significant increase in interest expense, which negatively impacted cash
flow. In addition, Paradigm incurred operating losses due to manufacturing
inefficiencies and a less than optimal sales mix that was comprised primarily
of customers in lower margin markets. Specifically, prior to the Paradigm
Reorganization, many of Paradigm's suppliers temporarily suspended shipments
or demanded payment in cash prior to delivery of products. In addition, due to
Paradigm's urgent cash needs, it sold the majority of its high performance
SRAM products into lower margin commodity markets, resulting in reduced sales
and lower margins than would otherwise have been achievable. In January 1994,
Paradigm concluded that it could not meet its debt obligations and began to
develop a plan for restructuring its debt and capital structure. See "--
Chapter 11 Reorganization."
Prior to the Paradigm Reorganization, Paradigm's new management team adopted
a strategy of focusing on emerging markets for higher performance asynchronous
and synchronous SRAMs and specialty products. This emphasis on the higher end
of the SRAM market was facilitated by the Paradigm Reorganization, which gave
Paradigm the financial flexibility and time to target high-end markets for its
high performance products. As a result of Paradigm's change in marketing
strategy, Paradigm made a transition from a customer base composed largely of
contract manufacturers to one increasingly represented by market leading
product developers, resulting in increased sales to Paradigm's targeted
markets in the telecommunications, networking, workstation, high performance
PC and military/aerospace industries.
Beginning in late 1995 and continuing through 1997, Paradigm has experienced
significant decreases in average selling prices for certain products. Such
price decreases have had an adverse effect on Paradigm's operating results.
Accordingly, Paradigm's ability to maintain or increase revenues 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
Paradigm's gross margins unless Paradigm is able to reduce its costs per unit
to offset such declines.
Paradigm's recent operations have consumed substantial amounts of cash.
During 1997, Paradigm completed the private placement of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock for aggregate net
proceeds of approximately $4,673,000. Paradigm believes that it will require
additional cash infusion from similar private placements of equity or other
sources of liquidity, such as asset sales and equipment financing to meet
Paradigm's projected working capital and other cash requirements. Absent
additional cash infusion from private placements of equity or other sources of
liquidity, such as asset sales and
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equipment financing, Paradigm's continued existence is in substantial doubt.
Management does not believe it is likely to achieve any of the alternatives
set forth above. The sale of additional equity or other securities could
result in additional dilution to Paradigm's stockholders. There can be no
assurance that such additional financing, if required, can be obtained on
acceptable terms, if at all.
As a result of these circumstances, Paradigm's independent accountants'
opinion on Paradigm's December 31, 1997 financial statements includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about Paradigm's ability to continue as a going concern.
Management's plans for Paradigm's continued existence is to consummate the
pending merger with IXYS Corporation ("IXYS"). On March 6, 1998, Paradigm
entered into a definitive merger agreement providing for the acquisition of
all of the outstanding capital stock of IXYS in exchange for Common Stock of
Paradigm. The exchange ratio in the Merger for the IXYS equity securities will
be the greater of two ratios. The first ratio provides that upon the Merger
the holders of equity securities of IXYS hold 95% of the fully diluted
capitalization of the combined company and that the holders of equity
securities of Paradigm will hold 5% of the fully diluted capitalization of the
combined company. (As used herein, fully diluted capitalization means the sum
of the number of shares of common stock outstanding and issuable upon exercise
or conversion of all outstanding preferred stock, warrants, options and other
rights.) The second ratio provides that the value associated with the fully
diluted capitalization of IXYS, at the time of the consummation of the Merger,
be at least $150 million, based upon an average of the closing prices of
Paradigm's Common Stock prior to Paradigm's stockholders meeting. Consummation
of the merger requires the approval of Paradigm's and IXYS' stockholders and
various regulatory agency approvals. If approved, the transaction is
anticipated to be accounted for as a purchase of Paradigm by IXYS for
financial reporting purposes.
CHAPTER 11 REORGANIZATION
On February 23, 1994, Paradigm entered into a letter of intent with ACMA
Limited ("ACMA") and a letter of intent with National Semiconductor
Corporation ("NSC") to restructure its obligations and provide additional
capital to Paradigm. On March 30, 1994 and pursuant to the ACMA letter of
intent, Paradigm filed in the United States Bankruptcy Court for the Northern
District of California (the "Court") a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. On April 7, 1994, Paradigm filed
its initial Plan of Reorganization with the Court. On May 24, 1994, after
further negotiations between Paradigm and the Official Committee of Unsecured
Creditors in its bankruptcy proceeding, Paradigm filed its Third Amended Joint
Plan of Reorganization (the "Plan"). On June 7, 1994, the Court confirmed the
Plan, which became effective on June 21, 1994.
The Plan provided for the elimination of a significant portion of Paradigm's
indebtedness and a significant reduction in its interest expense. At the time
of filing of Paradigm's Chapter 11 proceeding, Paradigm's indebtedness,
consisting of bank and other borrowings, capital lease obligations and trade
payables, amounted to $33.9 million, and Paradigm had an accumulated deficit
of $52.7 million. The Plan provided for a substantial restructuring of this
indebtedness through reduction or elimination of certain amounts owed, based
on the order of priority of claims in the Paradigm Reorganization.
Accordingly, bank borrowings and secured borrowings were repaid in full,
capital lease obligations were restructured, and holders of trade payables and
other unsecured borrowings received cash in the amount of 5% of allowed
claims, promissory notes in the amount of 25% of allowed claims, and shares of
Paradigm Common Stock equal to 8.5% of the capital stock of Paradigm on a
fully diluted basis. Under the Plan, the rights and interests of Paradigm's
equity holders at that time were terminated. In addition, pursuant to letters
of intent with Paradigm, ACMA and NSC purchased shares of preferred stock of
Paradigm for an aggregate purchase price of $6.0 million.
In connection with the Paradigm Reorganization, Paradigm's basis of
accounting for financial reporting purposes changed, effective June 21, 1994,
as follows: (i) Paradigm's assets and liabilities reflect a reorganization
value generally approximating the fair value of Paradigm as a going concern on
an unleveraged basis, (ii) Paradigm's accumulated deficit was eliminated, and
(iii) Paradigm's capital structure was adjusted to reflect
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consummation of the Plan. Accordingly, Paradigm's results of operations after
June 20, 1994 are not comparable to the results of operations prior to that
date, and the results of operations for the periods from April 1, 1994 to June
20, 1994 and from June 21, 1994 to December 31, 1994 have not been aggregated.
Further, the financial position of Paradigm on or after June 21, 1994 is not
comparable to its financial position at any date prior thereto.
SALE OF WAFER FABRICATION FACILITY
In fiscal 1996, Paradigm adopted a strategy of having its products
manufactured at outside foundries to provide greater flexibility and lower
fixed costs. In that respect, on November 15, 1996, Paradigm sold its Fab to
Orbit. Following the sale of the Fab, Paradigm and Orbit entered into a Wafer
Manufacturing Agreement whereby Orbit supplied a quantity of wafers to
Paradigm over a specified period of time.
Orbit paid to Paradigm aggregate consideration of $20,000,000 consisting of
$6.7 million in cash, assumption of $7.5 million of indebtedness associated
with and secured by the Fab, and promissory notes in the aggregate principal
amounts of $5.8 million. Paradigm recorded a loss of $4.6 million in the
quarter ended December 31, 1996 as a result of the sale of its wafer
fabrication facility. This charge included the excess of the net book value of
leasehold improvements, wafer fabrication equipment, fabrication work in
process inventory and other assets sold to Orbit over the proceeds received
from Orbit, an accrual for professional fees, a reserve for an adverse
purchase commitment related to the wafer manufacturing agreement and accruals
for other costs. See Note 11 of Notes to Financial Statements.
In connection with the sale of the Fab, substantially all of the 109
employees associated with the Fab were terminated and became employees of
Orbit. No severance payments were made to employees transferred to Orbit.
Paradigm also implemented a reduction in the work force of approximately 35
employees and took a charge of approximately $150,000 in the fourth quarter of
1997 associated with severance payments and other related costs.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 TO
THE YEAR ENDED DECEMBER 31, 1996
Sales. Sales decreased by 46% to $12.4 million in the year ended December
31, 1997, from $23.2 million in the year ended December 31, 1996. Paradigm
experienced a significant downward trend in pricing during 1997 and 1996,
caused by an excess supply relative to demand for certain SRAM products.
Paradigm expects the downward price trend in the industry to continue. The
decrease in unit prices was offset by a higher volume of units shipped in 1997
compared to 1996. Unit shipments increased by 33% from 1996 to 1997.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times. These downturns have been characterized by
diminished product demand, production overcapacity, intense competition and
accelerated erosion of average selling prices.
Gross Profit. Gross profit increased to a profit of $503,000 in the year
ended December 31, 1997, from a loss of $(13.2) million in the year ended
December 31, 1996. As a percentage of sales, gross profit in the year ended
December 31, 1997 was 4%, compared to (57%) for the year ended December 31,
1996. The increase in gross profit resulted primarily from the implementation
of a strict company-wide cost reduction program which enabled Paradigm to
reduce its external wafer fabrication subcontract costs and internal test and
assembly costs. During the year ended December 31, 1997, in response to the
continuing erosion of average selling prices, Paradigm made lower of cost or
market provisions of $650,000. During the year ended December 31, 1996,
Paradigm provided lower of cost or market provisions of $2,475,000 and write-
offs of $3,325,000 related to older generation SRAM products to reflect
reduced product demand and current industry pricing trends.
Research and Development. Research and development expenses decreased by 45%
to $3.4 million in the year ended December 31, 1997, from $6.2 million in the
year ended December 31, 1996. The decrease in
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expenses in 1997 resulted from headcount reductions, the decision in early
1997 to shut down product development associated with the NewLogic acquisition
made in 1996, and a more direct focus on core SRAM products and markets. As a
percent of sales, research and development expenses were approximately 27% in
1997 and 1996.
Selling and Administrative. Selling, general and administrative expenses
decreased by 48% to $4.9 million in the year ended December 31, 1997, from
$9.5 million in the year ended December 31, 1996. The decrease resulted from
headcount reductions and Paradigm's cost reduction program implemented in mid-
1997.
Other Operating Expenses. Paradigm recorded a loss of $4.6 million in the
year ended December 31, 1996 as a result of the sale of its wafer fabrication
facility. This charge included the excess of the net book value of leasehold
improvements, wafer fabrication equipment, fabrication work in process
inventory and other assets sold to Orbit over the proceeds received from
Orbit, an accrual for professional fees incurred to complete the transaction,
a reserve for an adverse purchase commitment related to the wafer
manufacturing agreement and accruals for other estimated costs to be incurred.
In June 1996, Paradigm acquired, through a stock purchase and merger
transaction, NewLogic, a company which developed and manufactured logic
designs with large memory arrays. In exchange for its purchase of the NewLogic
capital stock, Paradigm issued 31,439 shares of Paradigm's common stock, with
a market value of approximately $2,656,000, and approximately $825,000 in
cash. In addition, Paradigm incurred transaction costs of approximately
$237,000. The fair value of NewLogic's tangible net assets at the date of
acquisition was a deficit of $373,000. Approximately $3,841,000 of the
purchase price in excess of the fair market value of the net tangible assets
was allocated to in-process technology which Paradigm wrote off in the quarter
ended June 30, 1996. Approximately $250,000 was allocated to other
intangibles. The unamortized balance of these other intangibles was written
off in connection of the shut-down of NewLogic in early 1997.
Interest Expense. Interest expense decreased to $370,000 in the year ended
December 31, 1997, from $1.1 million in the year ended December 31, 1996. The
decrease reflects the reduced level of debt in 1997 following the repayment of
certain outstanding debt in 1996, and Paradigm's efforts to reduce its
operating expenses and capital equipment spending in 1997.
Other (Income) Expense, Net. For the year ended December 31, 1997, other
expenses, net, mainly consisted of losses on sales of, and write offs of,
equipment. For the year ended December 31, 1996, other income, net, reflected
interest income earned on the remaining portion of net proceeds of Paradigm's
1995 public offering and a gain on the sale of certain fixed assets.
Taxes. Paradigm has a tax year that ends in March. In 1997 and 1996,
Paradigm's effective tax rates were 0% and (3%), respectively. The 1996 tax
benefit reflects the benefit at the statutory rate of the operating losses
reduced by valuation allowances on tax losses not recognized due to the
uncertainty of realizing the benefit of these losses. No net benefit was
recognized in 1997.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 TO
THE YEAR ENDED DECEMBER 31, 1995
Sales. Sales decreased by 55% to $23.2 million in the year ended December
31, 1996 from $51.9 million in the year ended December 31, 1995. Paradigm
experienced a significant downward trend in pricing during 1996 that was
caused by an excess supply relative to demand for certain SRAM devices.
Paradigm expects this downward price trend to continue. In addition, Paradigm
shipped lower volumes of units in 1996 compared to 1995. Unit shipments
declined 48% from 1995 to 1996.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices.
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Gross Profit. Gross profit decreased from $20.9 million in the year ended
December 31, 1995 to a loss of ($13.2) million in the year ended December 31,
1996 and, as a percentage of sales, from 40% to (57%), respectively. The
decrease in gross profit resulted principally from industry-wide pricing
pressures experienced by Paradigm in 1996 caused by an oversupply in the SRAM
marketplace. These pricing pressures directly impacted profits as average
selling prices for Paradigm's products declined during the year ended December
31, 1996 when compared to 1995. In addition, during 1996 Paradigm provided
lower of cost or market provisions of $2,475,000 and write-offs of $3,325,000
related to older generation SRAM products to reflect reduced product demand
and current industry pricing trends.
Paradigm's conversion of its internal fabrication facility from five-inch to
six-inch wafer manufacturing was completed in 1996 and caused temporary
declines in output and reductions in yield. This facility was sold in November
1996 to provide Paradigm increased flexibility and lower fixed costs.
Research and Development. Research and development expenses increased by 35%
to $6.2 million in the year ended December 31, 1996, from $4.6 million in the
year ended December 31, 1995. As a percentage of sales, research and
development expenses have increased from 9% in 1995 to 27% in 1996. Increased
expenses result primarily from increased headcount required to support
Paradigm's co-development activities with Atmel, new product development and
other development activities. In addition, research and development expenses
increased in 1996 as a result of Paradigm's acquisition of NewLogic in June
1996. Research and development expenses, as a percentage of revenue, have also
increased as a result of the decline in revenue in 1996 compared to 1995.
In June 1996, Paradigm acquired NewLogic with the strategy to expand
Paradigm's product line beyond SRAMs. In early 1997, Paradigm believed that it
was in Paradigm's best interest to shut down the NewLogic operation and focus
on Paradigm's core SRAM products and markets.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 17% to $9.5 million in the year ended December 31, 1996
from $8.1 million in the year ended December 31, 1995. Selling, general and
administrative expenses include approximately $1.4 million in bad debt expense
in 1996 compared to $.1 million in 1995 due to financial problems at several
of Paradigm's customers.
Interest Expense. Interest expense decreased to $1.1 million in the year
ended December 31, 1996, from $1.4 million in the year ended December 31,
1995. This decrease in interest expense reflects repayment of certain
outstanding debt by Paradigm from the proceeds of its initial public offering,
which was subsequently replaced in 1996 with new debt at lower interest rates.
See "--Liquidity and Capital Resources."
Other Income, Net. For the years ended December 31, 1996 and December 31,
1995, other income, net, reflects interest income earned on the investment of
the net proceeds to Paradigm from its initial public offering. In addition,
other income in 1996 includes a gain on the sale of fixed assets.
Taxes. Paradigm has a tax year that ends in March. Paradigm's tax provision
for the resultant nine month tax period ended December 31, 1995 reflected the
statutory rate reduced by net operating loss benefits and other credits. The
amount of net operating loss Paradigm may utilize in any year is limited due
to the change of ownership which occurred as a result of the Paradigm
Reorganization. Paradigm incurred a net loss for its tax year ended March 31,
1995 and thus no provision has been reflected in the quarters in the period
from the reorganization through March 31, 1995. In 1996 Paradigm's effective
tax rate was (3%) which reflects the benefit of the statutory rate of the
operating loss reduced by tax losses not recognized due to the uncertainty of
realizing the benefit of these losses.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, Paradigm's operating, investing and
financing activities used $126,000 of cash, compared to using cash of $3.4
million during the year ended December 31, 1996, and generating cash of $3.9
million during the year ended December 31, 1995.
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During the year ended December 31, 1997, $5.3 million of cash was used in
operations, compared to the use of $15.6 million of cash during the year ended
December 31, 1996 and $8.1 million in cash generated from operations in 1995.
The $5.3 million of cash used by operations during the year ended December 31,
1997, was mainly attributed to the net loss for the year of $8.9 million and a
reduction of accounts payable and other liabilities of $4.2 million, offset by
non-cash charges of $1.7 million for depreciation and amortization, a loss of
$1.7 million on the sale of and write off of fixed assets, a reduction in
other assets of $4.3 million, including $3.1 million related to the sale of
the wafer fabrication facility in 1996 and proceeds from a refund of Federal
income taxes of $1.2 million. The $15.6 million of cash used by operations
during the year ended December 31, 1996, was mainly attributable to the net
loss for the year of $36.4 million and a reduction in other liabilities of
$3.7 million, offset by non-cash charges of $5.7 million for depreciation and
amortization, the write-off of in-process technology associated with the New
Logic acquisition of $3.8 million, a loss of $4.6 million on the sale of
Paradigm's wafer fabrication facility and a reduction of $6.1 million in
accounts receivable that reflects the lower sales volume in 1996 compared to
1995. The $8.1 million of cash generated from operations during the year ended
December 31, 1995, was mainly attributable to the net profit for the year of
$5.3 million and an increase in accounts payable of $3.5 million as Paradigm
re-established its relationship with suppliers subsequent to the Paradigm
Reorganization in 1994, and other liabilities (primarily income taxes payable)
of $3.0 million. In addition, an increase of $5.7 million in accounts
receivable was offset by non-cash charges of $5.1 million for depreciation and
amortization.
Investing activities generated $506,000 in 1997, compared to $9.7 million
generated in 1996, and $30.8 million used in 1995. Funds generated in 1997 are
primarily attributable to proceeds from the sale of fixed assets. In 1996, the
sale of $19.9 million of short-term investments funded Paradigm's conversion
of its wafer fabrication facility to 6" wafers ($14 million). In 1995, $18.7
million of short-term investments were purchased from the net proceeds of
Paradigm's initial public offering in June of 1995. In addition, $13.7 million
was used to convert the wafer fabrication facility to 6" wafers and expand
Paradigm's test floor.
Cash generated from financing activities amounted to $4.6 million during the
year ended December 31, 1997, and resulted primarily from the issuance of
Paradigm Series A, B, and C Preferred Stock. Cash generated from financing
activities in the amount of $2.5 million in 1996 resulted primarily from an
increase of $2.0 million in borrowings from Paradigm's line of credit and the
issuance of $11.3 million of notes payable, offset by $11.6 million of
payments made on notes payable. Cash provided from financing activities in
1995 amounted to $26.8 million and is mainly attributable to Paradigm's
initial public offering on June 28, 1995, which provided net proceeds to
Paradigm of approximately $28.3 million, and issuance of notes payable ($9.3
million), partially offset by payments on capital leases ($7.7 million) and
the decrease in a line of credit ($4.6 million). In addition, in April 1995
Paradigm sold a total of 42,500 shares of Common Stock to Atmel for an equity
investment of $3.4 million.
In November 1996, Paradigm replaced an existing line of credit with a new
line of credit from Greyrock Business Credit with a borrowing limit of $6
million of which $513,000 was available at December 31, 1996. Borrowings under
this line of credit were limited to up to 80% of eligible receivables and
interest was at the greater of LIBOR plus 5.25% or 9%. At December 31, 1996,
the outstanding balance under this line of credit was $2.0 million.
In October 1997, Paradigm renewed its line of credit with Greyrock Business
Credit, with certain modifications. Borrowing was limited to the lesser of $5
million or the sum of (a) 80% of the amount of eligible receivables owing from
original equipment manufacturers; plus (b) 50% of the amount of eligible
receivables owing from distributors. The interest rate remained unchanged from
the November 1996 agreement. The line of credit is subject to renewal again in
October 1998, unless prior notice is given by either party to terminate the
agreement. The line of credit is secured by Paradigm's trade receivables,
inventory, equipment and general intangibles. Paradigm cannot incur additional
debt or pledge assets without the prior approval of Greyrock Business Credit.
At December 31, 1997, the outstanding balance under the line of credit was
$1.7 million.
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In November 1996, Paradigm sold its wafer fabrication operations to Orbit.
Orbit assumed $7.5 million of outstanding borrowings with the CIT Group that
were secured by wafer fabrication equipment that was purchased. Paradigm used
approximately $2.2 million of the cash proceeds from the sale of the wafer
fabrication facility to pay off existing borrowings under lines of credit.
Paradigm's recent operations have consumed substantial amounts of cash.
During 1997, Paradigm completed the private placement of Paradigm Series A
Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock for
aggregate net proceeds of approximately $4,673,000. (See Note 7 of Notes to
Financial Statements.) Paradigm believes that it will require additional cash
infusion from similar private placements of equity or other sources of
liquidity, such as asset sales and equipment financing to meet Paradigm's
projected working capital and other cash requirements. The sale of additional
equity or other securities could result in additional dilution to Paradigm's
stockholders. There can be no assurance that such additional financing, if
required, can be obtained on acceptable terms, if at all.
On March 6, 1998, Paradigm entered into a definitive merger agreement
providing for the acquisition of all of the outstanding capital stock of IXYS
in exchange for Paradigm Common Stock. Consummation of the Merger requires the
approval of Paradigm's and IXYS' stockholders and various regulatory
approvals. If approved, the transaction is anticipated to be accounted for as
a purchase of Paradigm by IXYS for financial reporting purposes.
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 29, 1998 COMPARED TO MARCH 31,
1997
Sales
Paradigm's net sales of $1.9 million for the three month period ended March
29, 1998 decreased 46% from sales of $3.6 million in corresponding period in
fiscal year 1997. Paradigm has continued to experience a significant downward
trend in pricing that began in late 1995 in addition to lower volumes of units
shipped when compared to 1997. The reduced selling prices of Paradigm's
products and reduced unit shipments are both principally a result of the
significant excess supply of SRAM devices relative to demand that the SRAM
market has been experiencing since late 1995.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices. During the latter part of 1995, continuing into 1996, 1997 and 1998,
the market for SRAM devices experienced an excess supply relative to demand
which resulted in a significant downward trend in prices. Paradigm could
continue to experience a downward trend in pricing which could adversely
affect Paradigm's operating results.
Gross Profit
Gross profit of $144,000 for the three month period ended March 29, 1998
decreased 44% from gross profit of $258,000 for the comparable period in
fiscal 1997. Paradigm continues to experience industry-wide pricing pressures
caused by an oversupply in the worldwide SRAM marketplace. These pricing
pressures directly impacted profits as average selling prices of Paradigm's
products declined during the quarter ended March 29, 1998 when compared to the
comparable periods in 1997.
Paradigm's future needs for wafers will need to be supplied by third
parties. Constraints or delays in the supply of Paradigm'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 Paradigm's operating results,
including effects that may result should Paradigm be forced to purchase
products from higher cost foundries or pay expediting charges to obtain
additional supply.
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Research and Development
Research and development expenses decreased to $304,000 in the three month
period ended March 29, 1998 from $1.2 million in the corresponding period in
fiscal 1997. As a percentage of revenues, these expenses have decreased to 16%
in the three month period ended March 29, 1998 from 33% in the corresponding
period of 1997. This decrease is due to the shutdown of NewLogic and other
cost cutting measures implemented by Paradigm.
Selling, General and Administrative
Selling, general and administrative expenses were $744,000 in the three
month period ended March 29, 1998 compared to $1.6 million in the comparable
period in 1997. This decline is attributable to the cost cutting measures
implemented by Paradigm.
Interest Expense, Net
Interest expense, net, of $71,000, for the three month period ended March
29, 1998 compares to $42,000 in the corresponding period in fiscal 1997. This
increase in net interest expense for the three month period in 1998 reflects
higher average outstanding debit balances.
Taxes
Paradigm provides for income taxes during interim reporting periods based
upon an estimated annual tax rate. During the three month period ended March
29, 1998, Paradigm recorded a loss for tax purposes. Paradigm has net
operating loss carryforwards to offset future regular and alternative minimum
taxable income. Paradigm's net operating loss carryforwards expire through
2011, if not utilized.
LIQUIDITY AND CAPITAL RESOURCES--MARCH 29, 1998
Paradigm's operating, investing and financing activities used $243,000 in
cash in the three month period ended March 29, 1998 compared to generating
$768,000 of cash in the comparable period in 1997. Operating activities
provided $215,000 in cash in 1998 compared to a use of $736,000 of cash in
1997. This increase of $951,000 is primarily due to a smaller net loss as a
result of reductions in operating expenses and a decrease in accounts
receivable balances.
There were no investing activities in the 1998 period compared to fixed
asset purchases of $261,000 in the 1997 period. This is due to the fact that
Paradigm has successfully transferred its manufacturing and testing activities
to outside foundries and sub contractors.
Financing activities used $458,000 in the 1998 period compared to providing
$1.8 million in the 1997 period. Borrowing under Paradigm's line of credit
decreased by $680,000 in the 1998 period compared to the 1997 period. This is
due to lower revenue in the 1998 period compared to the 1997 period and a
change in the terms of the line of credit agreement with Greyrock Business
Credit.
In November 1996, Paradigm replaced an existing line of credit with a line
of credit from Greyrock Business Credit with a borrowing limit of $6,000,000.
Borrowings under this new line of credit with Greyrock Business Credit were
limited to up to 80% of eligible receivables and interest was at the greater
of LIBOR plus 5.25% or 9%.
In October 1997, Paradigm renewed its line of credit with Greyrock Business
Credit with certain modifications. Borrowing was limited to the lesser of $5
million or the sum of (a) 80% of the amount of eligible receivables owing from
original equipment manufacturers; plus (b) 70% of the amount of eligible
receivables owing from distributors. The interest rate remained unchanged from
the November 1996 agreement.
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In January 1998, Paradigm amended its line of credit with Greyrock Business
credit to limit borrowing to the lesser of $5 million or the sum of (a) 80% of
the amount of eligible receivables owing from original equipment
manufacturers; plus (b) 50% of the amount of eligible receivables owing from
distributors. The interest rate remained unchanged from the November 1996
agreement. At March 29, 1998, the outstanding balance under this line of
credit was approximately $1.3 million. The line of credit is secured by
Paradigm's trade receivables, inventory, equipment and general intangibles.
Paradigm's recent operations have consumed substantial amounts of cash.
During 1997, Paradigm completed the private placement of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock for aggregate net
proceeds of approximately $4,673,000. Paradigm believes that it will require
additional cash infusion from similar private placements of equity or other
sources of liquidity, such as asset sales and equipment financing to meet
Paradigm's projected working capital and other cash requirements. The sale of
additional equity or other securities could result in additional dilution to
Paradigm's stockholders. There can be assurance that such additional
financing, if required, can be obtained on acceptable terms, if at all.
As a result of these circumstances, Paradigm's independent accountants'
opinion on Paradigm's December 31, 1997 financial statements includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about Paradigm's ability to continue as a going concern.
On March 6, 1998, Paradigm entered into a definitive merger agreement
providing for the acquisition of all of the outstanding capital stock of IXYS
Corporation ("IXYS") in exchange for Common Stock of Paradigm. The exchange
ratio in the Merger for the IXYS equity securities will be the greater of two
ratios. The first ratio provides that upon the Merger the holders of equity
securities of IXYS hold 95% of the fully diluted capitalization of the
combined company and that the holders of equity securities of Paradigm will
hold 5% of the fully diluted capitalization of the combined company. (As used
herein, fully diluted capitalization means the sum of the number of shares of
common stock outstanding and issuable upon exercise or conversion of all
outstanding preferred stock, warrants, options and other rights.) The second
ratio provides that the value associated with the fully diluted capitalization
of IXYS, at the time of the consummation of the Merger, be at least $150
million, based upon an average of the closing prices of Paradigm's Common
Stock prior to Paradigm's stockholders meeting. Consummation of the merger
requires the approval of Paradigm's and IXYS' stockholders and various
regulatory agency approvals. If approved, the transaction is anticipated to be
accounted for as a purchase of Paradigm by IXYS for financial reporting
purposes.
LITIGATION--SEE "RISK FACTORS."
FACTORS AFFECTING FUTURE RESULTS
Paradigm's operating results have been, and in the future may be, subject to
fluctuations due to a wide variety of factors, including the timing of new
product and process technology, announcements and introductions by Paradigm or
its competitors, competitive pricing pressures, fluctuations in manufacturing
yields, changes in the mix of products sold, availability and costs of raw
materials, industry-wide shifts in the supply of and demand for SRAMs,
intellectual property disputes and litigation, and other risks, including
risks disclosed in this Joint Proxy Statement/Prospectus and other filings
with the Commission. There can be no assurance that Paradigm will be able to
effectively compete in the future against existing or potential competitors or
that Paradigm's operating results or financial condition will not continue to
be adversely affected by increased price competition.
The semiconductor industry is highly cyclical and has been subject to
significant down-turns at various times and by diminished product demand,
production overcapacity and accelerated erosion of average selling prices.
During 1996 and 1997, Paradigm experienced, and expects it will continue to
experience, significant decreases in selling prices for its SRAM products.
Such price decreases could have a material adverse effect on Paradigm's
operating results.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustment and
unrealized gain/loss on available for sale securities. The disclosure
prescribed by SFAS must be made beginning with the first quarter of fiscal
1998 and will have no impact on Paradigm's financial position or results of
operations.
In June 1997, the FASB issued SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
disclosures prescribed by SFAS 131 are effective in fiscal 1998.
YEAR 2000--SEE "RISK FACTORS."
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IXYS BUSINESS
GENERAL
IXYS designs, develops and markets power semiconductors used primarily in
controlling energy in motor drives, power conversion (including
uninterruptible power supplies ("UPS") and switch mode power supplies
("SMPS")) and medical electronics. IXYS' power semiconductors convert
electricity at relatively high voltage and current levels to create efficient
power as required by a specific application. IXYS' target market includes
segments of the power semiconductor market that require medium to high power
semiconductors, with a particular emphasis on higher power semiconductors,
which IXYS considers to be those capable of processing greater than 500 watts
of power. IXYS offers a broad line of power semiconductors, including power
MOSFETs, insulated gate bipolar transistors ("IGBTs"), thyristors (silicon
controlled rectifiers or "SCRs") and rectifiers, including fast recovery
epitaxial diodes ("FREDs"). A glossary of relevant technical terms is set
forth at the end of this section of the Joint Proxy Statement/Prospectus.
IXYS' major customers include Still GmbH, Rockwell International
Corporation, Emerson Electric Company, Eurotherm Ltd. (U.K.), Medtronics Inc.,
ABB, Guidant Corporation, General Signal, Alpha Technology and Siemens AG.
There has been no public market for the IXYS Capital Stock. IXYS has not
declared or paid any cash dividends on any series of its capital stock during
any period for which information is provided in this Joint Proxy
Statement/Prospectus. Following the Merger, the Combined Company does not
intend to declare or pay any cash dividends in the foreseeable future.
BACKGROUND
As the world enters the 21st century, demand for electricity is forecasted
to increase faster than demand for other forms of energy. Electrical energy is
demanded worldwide at an increasing rate due to (i) the introduction of new
technologies that require electricity, including computers, telecommunications
equipment, industrial machinery and automation and transportation, (ii) the
increased use of electrical processes in industry and transportation, (iii)
the increasing energy demands of electrical products requiring greater power
than more traditional electrical products because of the additional features
provided by these products and (iv) the economic development of emerging third
world countries, including China which industry sources report is expected to
more than double its electrical consumption from 1990 to 2010. As a result of
these and other factors, the U.S. Department of Energy reports that worldwide
electrical power consumption is expected to increase from approximately 11.4
trillion kilowatt hours in 1995 to approximately 20 trillion kilowatt hours in
2015.
The increasing demand for electrical energy, government regulation requiring
energy efficiency and social and environmental concerns have caused an
increased demand for energy efficiency. Government regulations are also
imposing efficiency requirements on products and equipment. For example, the
European Community has adopted the IEC-555 standard that regulates the
efficiency of certain power supplies and has effectively required SMPS
manufacturers to incorporate power factor correction ("PFC") circuits, which
require power semiconductors, in their higher power supplies. Finally,
environmental concerns related to pollution and the depletion of natural
resources further support the demand for energy efficiency.
In addition to the demand for energy efficiency, electrical products in all
markets are becoming increasingly sophisticated, offering "intelligence"
through the use of microprocessors and additional components. The integration
of microprocessors into such products as home appliances, office equipment and
industrial controls will continue as products gain "intelligence." As a result
of the introduction of microprocessors and integrated circuits, products
require increasingly sophisticated power supplies that are capable of
providing precisely regulated power (free of spikes and surges) as required by
a specific application. This must be done without adding to the existing size
of the product or equipment, thereby putting pressure on power supply
designers to improve efficiency (i.e., increase the power output of power
supplies without increasing their size). Additionally,
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uninterruptible power operation is a requirement for such applications as
intranet and internet servers, telecommunications, hospitals and financial
institution equipment.
ROLE OF POWER SEMICONDUCTORS
Power semiconductors address the demand for energy efficiency and are
essential for providing the precisely regulated power required by
sophisticated electrical products and equipment. Power semiconductors process
and control the electrical energy generated by electrical utilities to provide
efficient power systems and precisely regulated power as required by a
specific application. Most equipment needs to process the voltage level and
frequency delivered by the utility to derive the required power at specific
voltage, current and frequency levels, and power semiconductors help provide
this function. Power semiconductors (i) convert or "rectify" alternating
current ("AC") power delivered by electrical utilities to direct current
("DC") power which is useable by most equipment; (ii) convert DC power at a
certain voltage level to DC power at a different voltage level to meet the
specific voltage requirement for an application; (iii) invert DC power to high
frequency AC power to permit the processing of power with substantially
smaller electronic components and (iv) rectify high frequency AC power from
SMPS to meet the specific DC voltage required by an application. Energy
efficiency is obtained in part through efficient power control designs. As a
result, the power semiconductors that perform the task of controlling and
regulating the power in equipment are required to perform with a high degree
of efficiency, with minimal wasting of energy.
POWER SEMICONDUCTOR APPLICATIONS
Power semiconductors are used in controlling energy in motor drives and
power conversion systems, including SMPS and UPS. Motor drive controls
regulate the voltage, current and frequency of power to a motor to control the
speed, torque, position, efficiency and other features of a motor. A SMPS
efficiently converts power as provided by electrical utilities to meet the
specific voltage requirements of an application. A UPS provides a short term
backup of electricity to the power supply in the case of an interruption of
power from the primary source of electricity.
Power semiconductors can be classified based upon the amount of power that
they are capable of handling. Generally, IXYS views lower power semiconductors
as those capable of handling less than 500 watts of power. lower power
semiconductors are used in small motor drives, UPS and SMPS for personal
computers, telephones, automotive electronics, stereo equipment and battery
operated tools and equipment.
IXYS views higher power semiconductors as those capable of handling power in
excess of 500 watts. Industrial and commercial motor drive control
applications for higher power semiconductors include robotics, machine tools,
pumps, heating, ventilation and air conditioning systems ("HVAC"), appliances
and transportation systems. Applications for higher power semiconductors in
SMPS include mainframe and workstation computers, instrumentation and
telecommunications. Applications for higher power semiconductors in UPS
include power back-up for hospitals, financial institutions, mainframes,
workstations, local area networks, communications systems and industrial
equipment.
POWER SEMICONDUCTOR MARKET
The power semiconductor market consists of power transistors (including
IGBTs and power MOSFETs), rectifiers and thyristors. According to World
Semiconductor Trade Statistics ("WSTS"), the worldwide market for power
semiconductors in 1997 was $8.2 billion and is projected to increase to $9.1
billion in 1998. IXYS believes that growth in the power semiconductor market
is driven in part by the need for an increased number of power semiconductors
for a given application as power control requirements become more
sophisticated, the increased number of end-user applications for power
semiconductors and the resulting higher dollar value of power semiconductors
included in products and equipment.
WSTS indicate that worldwide sales of IGBTs, substantially all of which are
higher power semiconductors, and power MOSFETs, a substantial portion of which
are higher power semiconductors, were projected to grow
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from approximately $2.6 billion in 1995 to $2.8 billion in 1997 to $3.4
billion in 1998. Sales of power MOSFETs and IGBTs are experiencing stronger
growth than other segments of the power semiconductor market as these products
are used to replace traditional bipolar transistors, such as rectifiers and
thyristors. In addition to the relatively fast rate of growth for power
MOSFETs and IGBTs, IXYS believes that FREDs will grow at higher growth rates
than standard diodes since they are required in the same faster switching
circuits in which power MOSFETs and IGBTs are included. In fact, almost all
IGBTs included in motor drives require a FRED, and SMPS with PFCs require a
FRED as a boost diode or as an output rectifier.
IXYS APPROACH
Since its inception, IXYS has focused on the higher power segment of the
power semiconductor market and has focused its product development and
marketing efforts on the specific needs of customers in this segment of the
market. In contrast to most other competitors in the power semiconductor
market, including large international companies, IXYS is focused almost
exclusively on the design, manufacture and marketing of power semiconductors,
with a particular emphasis on higher power semiconductors. Approximately 90%
of the IXYS' sales in fiscal 1998 were of higher power products. Through its
broad product line and range of packaging options, its ability to mobilize its
focused organization (which includes a wide range of technical capabilities)
quickly to bring new products to the market and its ability to collaborate
with its customers in the development of products designed to meet their
needs, IXYS has become a leader in the higher power semiconductor market.
IXYS STRATEGY
IXYS intends to build a leadership position within its targeted higher power
segment of the power semiconductor market by pursuing the following business
strategies:
Maintain Technological Leadership Within Higher Power Market
IXYS intends to maintain its technological leadership with respect to higher
power semiconductors by focusing its scientific expertise on the development
of these semiconductors. This expertise encompasses a wide range of technical
capabilities, including physics, mechanical engineering, chemistry, circuit
design and material science capabilities. IXYS also intends to use its
expertise with respect to semiconductor packaging and assembly to develop
technologically advanced packaging of its higher power semiconductors.
Target Rapid Growth Applications Within the Higher Power Market
IXYS' strategy is to target markets by evaluating the growth of those
markets and IXYS' ability to establish a leadership position in them based
upon its technological capabilities, the level of competition in the markets
and the overall performance of the products offered by competitors. For
example, IXYS has targeted the market for power supplies used in servers,
which IXYS believes represents an attractive market, and has focused its
efforts on providing power semiconductors for this application. IXYS intends
to pursue this element of its strategy through the development of new
technology and products for high growth markets and the packaging of its
existing technology into products tailored to new high growth applications.
Offer Broad Range of Higher Power Products
IXYS' product line is targeted at the higher power segment of the power
semiconductor market across a broad range of functionality and price. IXYS
offers a comprehensive range of power semiconductors that allows it to provide
an appropriate solution to its customers' power semiconductor needs from its
range of standard products. IXYS' product line allows its customers to
purchase a substantial portion of their power semiconductor needs from a
single supplier. IXYS intends to continue to offer a wide array of products by
developing additional products that offer improvements over current products
or address new applications.
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Promote Product Development Collaborations
IXYS seeks to enter into collaborative arrangements with leaders in
attractive end-user markets in order to optimize IXYS products for use by
these customers in their products. IXYS' strategy is to leverage these
collaborative arrangements into sales to other manufacturers of end-user
products in these markets. For example, in 1988 IXYS targeted the
defibrillator market and continues to be the leading supplier of IGBTs for
this application. IXYS has leveraged its relationships with the two
implantable defibrillator market leaders to include other IXYS products,
including power MOSFETs and thyristors, in their products. IXYS believes that
its ability to provide technical assistance with respect to the design of
hardware and software systems by its customers encourages the incorporation of
its devices in products manufactured by its customers. IXYS believes that it
has gained a reputation for strong product development collaborations, which
has contributed to the inclusion of its semiconductors in products designed by
its customers, and intends to expand its efforts in this area.
Maintain Balance Between Internal and External Manufacturing
IXYS intends to take advantage of its combination of in-house wafer
fabrication facilities and its foundry relationships to maximize its
manufacturing efficiency and flexibility. IXYS believes that its in-house
manufacturing capabilities enable it to lower its manufacturing cost with
respect to certain products, bring products to the market more quickly than
would be possible if IXYS were required to rely exclusively on outside
foundries, retain certain proprietary aspects of its process technology and
more quickly introduce new process innovations. In particular, IXYS continues
to fabricate its 1,600 volt and greater power MOS devices at its Lampertheim
facility to better protect its process technologies with respect to the
fabrication of these products. IXYS also believes that its in-house wafer
fabrication facilities provide it with a significant competitive advantage
because the fabrication facilities permit close collaborations between design
and process engineers in the development of new products. In addition to
maintaining its own fabrication facilities, IXYS establishes alliances with
selected foundries for wafer fabrication. This approach allows IXYS to reduce
substantial capital spending and manufacturing overhead expenses, obtain
competitive pricing and technologies and optimize production schedules while
retaining the flexibility to shift the production of its products to a
different or additional foundries for cost or performance reasons. IXYS'
product designs enable the production of its devices at multiple foundries
using well-established and cost-effective processes. IXYS intends to continue
to strategically expand its in-house manufacturing capabilities while
continuing its significant reliance on outside foundries which permit IXYS to
reduce its exposure to the large capital expenditures required for increasing
in-house manufacturing capacity.
PRODUCTS AND APPLICATIONS
IXYS' products perform any of the four functions performed by power
semiconductors:
. Conversion or "rectification" of power delivered by electrical utilities
to DC power which is useable by most equipment ("input rectification")
. Conversion of DC power at a certain voltage level to DC power at a
different voltage level to meet the specific voltage requirement for an
application
. Inversion of DC power to high frequency AC power to permit the
processing of power with substantially smaller electronic components
. Rectification of high frequency AC power from SMPS to meet the specific
DC voltage required by an application ("output rectification")
IXYS designs, develops and markets power semiconductors used primarily in
controlling energy in motor drives, power conversion (including UPS and SMPS)
and medical devices, sales of which represented 39%, 38% and 5% of IXYS'
revenues in fiscal 1998, respectively.
An SMPS converts AC power to regulated DC power. AC power is converted to
high voltage DC power through input rectifiers and is then switched to a very
high frequency AC. The AC power is then stepped down to a different voltage
and converted through output rectification to produce the required DC power.
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A UPS continues to supply AC power to electronic equipment in the event of
an electrical utility power failure. A UPS consists of an SMPS, battery
chargers, a semiconductor transfer switch to activate the UPS and an inverter
to invert DC battery power to AC power.
IXYS' principal products are power MOSFETs, IGBTs, FREDs, thyristors and
other rectifiers. During fiscal 1998, power MOS products (including MOSFETs
and IGBTs), rectifiers, FREDs and thyristors constituted approximately 44%,
15%, 14% and 23% of IXYS' revenues, respectively. IXYS also markets DCB
substrates for use with power semiconductors and integrated circuits. IXYS'
power semiconductors are sold separately and are also packaged in high power
modules that frequently consist of multiple semiconductor die. IXYS believes
that the packaging of its modules constitutes an important element of IXYS'
products, as packaging determines how much power can be controlled and the
reliability of the module.
The following table summarizes the primary categories of uses for power
semiconductors, the IXYS products used in each category, the end-user
applications served by these products and representative customers of IXYS for
each application.
<TABLE>
<CAPTION>
IXYS SELECTED
CATEGORY PRODUCTS APPLICATION CUSTOMERS
- ------------------- -------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
Motor Drive Control Thyristor/diode HVAC, pumps, hoists, Emerson Electric Company
modules cranes, machine tools, Siemens AG
Diode bridges fork lift trucks, Still GmbH
Discrete diodes and electric vehicles, Rockwell International Corp.
thyristors IGBTs traction, elevators, Eurotherm Ltd.
MOSFETs robotics,
FREDs industrial and process controls
Power Conversion Thyristor/diode SMPS, UPS, General Signal
modulesDiode bridges communications, Alpha Technologies Incorporated
IGBTs battery chargers, HC Power, Incorporated
MOSFETs welding, plasma cutting, Transistor Devices, Incorporated
FREDs radio frequency generators, ABB Power Supplies GmbH
power generation Siemens-AG
Delta Electronics, Inc.
Astec International
Medical Electronics IGBTs Implantable and external Medtronics Incorporated
MOSFETs defibrillators, laser power Guidant Corporation
Thyristors supplies Heartstream
</TABLE>
Power MOS Transistors
Power MOS transistors offer significant benefits over traditional bipolar
transistors. Power MOS transistors operate at much greater switching speed,
which allows the design of smaller and less costly end products, due primarily
to the smaller and less expensive additional peripheral components required at
higher switching frequencies. Power MOS transistors are activated by voltage
rather than current (compared to bipolar transistors), so they require less
external circuitry to operate, making them more compatible with IC controls.
They also offer more reliable long-term performance and are more rugged,
permitting them to better withstand adverse operating conditions. In addition,
power MOSFETs and IGBTs compare favorably to bipolar power transistors on a
system price/performance basis.
Power MOSFETs. A power MOSFET (metal oxide silicon field effect transistor)
is a switch controlled by voltage at its gate. Power MOSFETs are used in
combination with passive components to vary the amperage and frequency of
electricity by switching on and off at high frequency.
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IXYS' power MOSFETs are focused on higher voltage applications (ranging from
60 to 1,100 volts) and have on-state resistance among the lowest available for
a given die size and voltage. Lower on-state resistance results in increased
efficiency of a power semiconductor device. IXYS believes that as the power
requirements of workstations, servers and other computers increase as the
result of larger and more powerful microprocessors, disk drives and CD/ROMs,
the designers of power supplies will increasingly demand higher power MOSFETs,
particularly to address the greater power requirements of the equipment
without increasing the physical size of the power supply incorporated into the
equipment.
Power MOSFETs have improved the volumetric efficiency of SMPS by allowing
faster switching frequencies (in some cases into the megahertz range),
dramatically reducing the size of associated components such as power
transformers and capacitors. IXYS' power MOSFETs are used primarily in SMPS
and UPS. The prices of IXYS' power MOSFETs vary depending on the quantity
ordered and the packaging of the semiconductors and generally range for
moderate quantities from $5 to $150.
IGBTs. IGBTs (insulated gate bipolar transistors) also are used as switches.
IGBTs have achieved many of the advantages of power MOSFETs and of traditional
bipolar technology by combining the voltage controlled switching features of
power MOSFETs with the superior conductivity and energy efficiency of bipolar
transistors. IGBTs serve the same functions as power MOSFETs, but have
different features, which make their use preferable in certain applications.
For a given semiconductor die size, IGBTs can operate at higher currents and
voltages, making them a more cost effective device compared to power MOSFETs
for high energy applications. The principal tradeoff of IGBTs compared to
power MOSFETs is the switching speed of IGBTs, which is slower than that of
power MOSFETs. IGBTs are seldom used in applications where very fast switching
is required, including SMPS operating at speeds over 150 kilohertz.
An IGBT is the most cost-effective technology used in AC variable speed
motor drives due to its ability to efficiently switch higher power. IGBTs
allow drives to operate at faster frequencies, thereby reducing system cost,
simplifying drive electronics, increasing efficiency and reducing noise. IXYS'
IGBTs are used principally in AC motor drives and defibrillators. The prices
of IXYS' IGBTs vary depending on the quantity ordered and the packaging of the
semiconductors and generally range for moderate quantities from $1 to $120.
Bipolar Products
Rectifiers. Rectifiers convert AC power to DC power and are used primarily
in input and output rectification and inverters. IXYS' rectifiers are used in
DC and AC motor drives, power supplies, lighting and heating controls and
welding. The prices of IXYS' rectifiers vary depending on the quantity ordered
and the packaging of the semiconductors and generally range for moderate
quantities from $1 to $120.
A newer subset of IXYS' rectifier product group is a very fast switching
device known as a FRED (fast recovery epitaxial diode). FREDs limit spikes in
voltage across the power switch to reduce power dissipation and
electromagnetic interference. Because most IGBTs require a FRED to address its
output, FRED sales are expected to move in concert with IGBTs. IXYS' FREDs are
used principally in AC motor drives and power supplies. The prices of IXYS'
FREDs vary depending on the quantity ordered and the packaging of the
semiconductors and generally range for moderate quantities from $0.50 to $55.
Thyristors. Thyristors are switches that can be turned on by a controlled
signal and are turned off only when the output current is reduced to zero,
which occurs in the flow of AC power. Thyristors are preferred over power
MOSFETs and IGBTs in high-voltage, low-frequency AC applications because their
on-state resistance is lower than the on-state resistance of power MOSFETs and
IGBTs. Thyristors also represent the most cost-effective solution in many AC
motor control and amplifier applications.
IXYS' thyristors are used in motor drives, power supplies, lighting and
heating controls and welding. The prices of IXYS' thyristors vary depending on
the quantity ordered and the packaging of the semiconductors and generally
range for moderate quantities from $1 to $250.
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Other Products
IXYS markets its patented DCB (direct copper bond) substrates to a variety
of customers, including those in the power semiconductor industry, and uses
DCB in the manufacturing of its modules. DCB technology cost-effectively
provides excellent thermal transfer while maintaining high electrical
isolation. It addresses thermal fatigue and die cracking problems encountered
by manufacturers of power semiconductor modules utilizing traditional copper
base plates. The prices of IXYS' DCB products vary and generally range for
moderate quantities from $1.00 to $5.50.
IXYS also markets integrated circuits that have applications associated with
power semiconductors, such as high voltage current regulators, motion
controllers, digital pulse width modulators and power MOSFET/IGBT drivers.
SALES AND MARKETING
IXYS sells its products by means of a worldwide selling organization that
includes direct sales personnel, independent representatives and distributors
managed through IXYS' California and Germany offices. IXYS employs 21 people
in its sales and marketing efforts, including 5 in marketing, 7 in sales and 9
in customer support and service. IXYS currently uses 15 independent sales
representative organizations and 7 distributors in North America. IXYS
currently uses 7 independent sales representative organizations and 42
distributors and stocking representatives in the rest of the world. In fiscal
1998, net revenues derived from North American and international sales
represented approximately 37% and 63%, respectively, of IXYS' net revenues,
with approximately 53% of IXYS' net revenues derived from sales to Europe and
the Middle East and 10% of IXYS' net revenues derived from sales to Asia. No
single customer accounted for more than 10% of IXYS' net revenues in fiscal
1998.
In addition to new products developed for general use in target markets,
IXYS custom designs and manufactures products in which product design efforts
are coordinated with manufacturers. Custom products are achieved through IXYS'
wide selection of products and packaging options. IXYS provides product
samples and works directly with manufacturers in designing end-user products
using IXYS' semiconductors. Specific products are then delivered to the
manufacturers.
IXYS markets its services and programs through advertisements, technical
articles and press releases that appear regularly in a variety of trade
publications, as well as through the dissemination of Company brochures, data
sheets and technical manuals. Additionally, IXYS participates in industry
trade shows on a regular basis. IXYS has also initiated a presence on the
Internet with a worldwide web page enabling engineers to access and download
technical information and data sheets.
The majority of IXYS' revenues are derived from international sales.
International sales are subject to certain risks, including unexpected changes
in regulatory requirements, fluctuations in exchange rates, tariffs and other
barriers, political and economic instability, difficulties in staffing and
managing foreign subsidiary operations and potentially adverse tax
consequences.
During fiscal 1996, 1997 and 1998, sales to independent distributors and
stocking representatives accounted for approximately 43%, 46% and 46% of net
revenues, respectively. Some of these distributors and stocking
representatives have a limited right to return unsold products to IXYS, and
there can be no assurance that such returns will not have a material adverse
effect on IXYS. These independent distributors and stocking representatives
generally are not subject to any minimum purchase requirements and can
discontinue marketing IXYS' products at any time upon proper notice.
Accordingly, IXYS must compete for the focus and sales efforts of its
distributors and stocking representatives. There can be no assurance that
IXYS' distributors and stocking representatives will continue to distribute
IXYS' products or do so successfully. Although IXYS believes that other
channels of distribution would be available if IXYS were to lose the services
of one or more of its independent distributors or stock representatives, there
can be no assurance that such loss would not have an adverse effect on its
results of operations.
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RESEARCH AND DEVELOPMENT
The ability of IXYS to successfully compete in the power semiconductor
market will be substantially dependent on its ability to design, develop and
introduce to the market on a timely basis new products offering technological
improvements. IXYS is a pioneer in technology with respect to higher power
IGBTs, IGBT modules and DCB and introduced the power semiconductor industry's
first 800 volt, 50 ampere IGBT and an IGBT and FRED combination high power
discrete device. While the time from sampling to volume production of new
power semiconductors products can take up to 18 months, power semiconductors
also have a product lifetime exceeding an average of 10 years. In fiscal 1998,
sales of products introduced within the last 4 years constituted approximately
20% of total net revenues. In fiscal 1998, IXYS introduced over 145 new part
types. During fiscal 1997 and 1998, IXYS' research and development expenses
were approximately $3.4 million and $3.3 million, respectively, and, at March
31, 1998, IXYS employed 18 people in engineering and research and development
activities. IXYS expects that it will continue to spend substantial funds on
research and development activities.
IXYS is engaged in ongoing research and development efforts focused on
enhancements to existing products and the development of new products.
Currently, IXYS is pursuing research and development projects with respect to
increasing the voltage operating range of its MOS products beyond 1,800 volts,
improving the thermal conductivity of its DCB products, increasing the voltage
ratings of its bipolar products beyond 2,200 volts, developing 500 kilowatt
IGBT modules, developing a complete range of bipolar MOS products capable of
handling 1,400 to 2,000 volts and improving its multiple die module assembly
technology. Research and development activities are conducted in collaboration
with manufacturing activities to help expedite new products from the
development phase to manufacturing and more quickly implement new process
technologies.
From time to time, IXYS has entered into agreements with customers to
develop specific products for inclusion in the customer's end product.
Pursuant to such agreements, the non-recurring engineering cost associated
with such development work, which is treated by IXYS as research, development
and engineering expense, is generally reimbursed by the customer. IXYS'
research and development efforts also include participation in technology
joint ventures with universities and research institutions. These joint
ventures allow research and development activities that would otherwise
require potentially cost prohibitive capital expenditures since the necessary
capital equipment is often available at research institutes and universities.
Through these joint ventures, IXYS is able to maximize its range of research
and development activities without defusing the focus of its in-house research
and development work and reduce its research and development costs. Research
and development projects currently being pursued through research institutes
or universities include MOS process simplification, new starting silicon wafer
development and new "higher power' semiconductor packaging and process
simplification.
There can be no assurance that IXYS will be able to identify new products
successfully and develop and bring to market such new products or that IXYS
will be able to respond effectively to new technological changes or new
product announcements by others. There also can be no assurance that IXYS' new
products will be accepted by the market. Moreover, the end markets for IXYS'
products are subject to rapid technological change and there can be no
assurance that as such markets change IXYS' product offerings will remain
current and suitable for them.
PATENTS AND LICENSES
IXYS holds 32 patents, including 27 which have been filed in the U.S. and 5
that have been filed in international jurisdictions. IXYS also has 17 patent
applications pending in the United States and 31 pending in international
jurisdictions. IXYS relies on a combination of patent rights, copyrights and
trade secrets to protect the proprietary elements of its products. IXYS'
policy is to file patent applications to protect technology, inventions and
improvements that are important to its business. There can be no assurance
that patents will issue from any of IXYS' pending applications or that any
claims allowed from existing or pending patents will be sufficiently broad to
protect IXYS' technology. While IXYS intends to protect its intellectual
property rights
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vigorously, there can be no assurance that any patents held by IXYS will not
be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to IXYS.
IXYS also seeks to protect its trade secrets and proprietary technology, in
part, through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that IXYS will have adequate remedies for any breach, or that IXYS' trade
secrets will not otherwise become known to or independently developed by
others. In addition, the laws of some foreign countries do not protect IXYS'
proprietary rights to the same extent as the laws of the United States.
While IXYS believes that its intellectual property rights are valuable, IXYS
also believes that, because of the rapid pace of technological change in the
industry, factors such as innovative skills, technical expertise, the ability
to adapt quickly to new technologies and evolving customer requirements,
product support and customer relations are of greater competitive
significance.
MANUFACTURING
The production of IXYS' products is a highly complex and precise process.
IXYS manufactures its products in manufacturing facilities which are owned and
operated by IXYS and by utilizing outside wafer foundries and subcontract
assembly facilities. IXYS divides its manufacturing operations into two key
areas: wafer fabrication and assembly.
Wafer Fabrication. IXYS owns an approximately 170,000 square foot
manufacturing facility in Lampertheim, Germany at which it manufactures
rectifiers and thyristors. IXYS has also retained the manufacturing of its
1,600 volt and higher power MOS devices at this facility in order to protect
its process technologies with respect to the fabrication of these products. In
addition to the Lampertheim facility, IXYS has an approximately 20,000 square
foot manufacturing facility in Santa Clara. IXYS designs and tests
substantially all of its IGBT and power MOSFET wafers in Santa Clara,
California and designs and tests its bipolar and custom MOS modules in
Lampertheim, Germany. IXYS believes that its in-house manufacturing
capabilities enable it to lower its manufacturing cost with respect to certain
products, bring products to the market more quickly than would be possible if
IXYS were required to rely exclusively on outside foundries, retain certain
proprietary aspects of its process technology and more quickly introduce new
process innovations.
In addition to maintaining its own fabrication facility, IXYS establishes
alliances with selected foundries for wafer fabrication. This approach allows
IXYS to reduce substantial capital spending and manufacturing overhead
expenses, obtain competitive pricing and technologies and optimize production
schedules while retaining the flexibility to shift the production of its
products to a different or additional foundries for cost or performance
reasons. IXYS' product designs enable the production of its devices at
multiple foundries using well-established and cost-effective processes.
IXYS relied on outside foundries for 44% of its wafer fabrication
requirements in fiscal 1998, and dependency on outside foundries is expected
to grow. IXYS has arrangements with five wafer foundries, of which two
foundries provide 99% of the wafers provided to IXYS by outside foundries.
IXYS has a supply agreement with one foundry, Samsung. Other than the
commitment with respect to the next two months' demand to be delivered
monthly, there are no obligations on the part of IXYS to order any minimum
quantities. See "Risk Factors--Risks Relating to the Business of IXYS--
Dependence on Third Parties for Wafer Fabrication and Assembly."
Wafer fabrication of power semiconductors generally employs process
technology and equipment already proven in IC manufacturing. Power
semiconductors are manufactured using fabrication equipment that is one or
more generations behind the equipment used to fabricate state-of-the-art ICs.
Used fabrication equipment can be obtained at prices substantially less than
the original cost of such equipment or than the cost of current, state-of-the-
art equipment. Consequently, the fabrication of power semiconductors is less
capital intensive than the fabrication of ICs.
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Minute levels of contaminants in the manufacturing environment, difficulties
in the fabrication process, defects in the masks used to print circuits on a
wafer, manufacturing equipment failure, wafer breakage or other factors can
cause a substantial percentage of wafers to be rejected or numerous die on
each wafer to be nonfunctional. In the event that IXYS increases its
manufacturing output, there can be no assurance that IXYS will not experience
a decrease in manufacturing yields. Moreover, there can be no assurance that
IXYS in general will be able to maintain acceptable manufacturing yields in
the future. To the extent IXYS does not achieve acceptable manufacturing
yields or experiences product shipment delays, its business, financial
condition and results of operations would be materially and adversely
affected.
There are significant risks associated with IXYS' reliance on outside
foundries, including the lack of assured supply of an adequate quantity of
semiconductor devices, control over delivery schedules and limited control
over quality assurance, manufacturing yields and production costs. IXYS'
foundries may from time to time experience lower than anticipated
manufacturing yields, particularly in connection with the introduction of new
products and the installation and start-up of new process technologies. There
can be no assurance that IXYS' foundries will not experience lower than
expected manufacturing yields in the future, which could materially and
adversely affect IXYS' business, financial condition and results of
operations.
Although from time to time certain materials, including silicon wafers, have
been in short supply, to date IXYS has not experienced substantial delays in
obtaining raw materials which have materially adversely affected production.
There can be no assurance that IXYS will not experience such delays in the
future. As is typical in the industry, IXYS must allow for significant lead
time in delivery of its materials. See "Risk Factors--Dependence on
Suppliers."
Packaging and Assembly. Generally, each die on IXYS' wafers is electrically
tested for performance, and most of the wafers are subsequently sent to
independent subcontract assembly facilities. Packaging or assembly is the
sequence of production steps that divide the wafer into individual chips and
enclose the chips in external structures (termed packages) that make them
useable in a circuit. Discrete manufacturing involves the assembly and
packaging of single die devices. Module manufacturing involves the assembly of
multiple devices within a single package. The resulting packages vary in
configuration, but all have leads which are used to mount the package through
holes in the customer's printed circuit boards.
IXYS has equipment at, or manufacturing supply agreements with, assembly
subcontractors located in the Philippines, Portugal and Thailand in order to
take advantage of low assembly costs. Approximately 40% of IXYS' products are
assembled at these assembly facilities. Following assembly, IXYS' products are
returned to Santa Clara or Germany for testing and final inspection prior to
shipment to customers. IXYS' reliance on independent assemblers may subject
IXYS to supply constraints and longer manufacturing cycle times. IXYS from
time to time has experienced competition with respect to these contractors
from other manufacturers seeking assembly of circuits by independent
contractors. Although IXYS currently believes that alternative assembly
sources could be obtained, there can be no assurance that such alternative
sources could be quickly obtained. Foreign assembly is subject to risks
normally associated with foreign operations, including changes in local
governmental policies and the imposition of export controls or increased
import tariffs. See "Risk Factors".
COMPETITION
The power semiconductor industry is intensely competitive and is
characterized by price competition, technological change, limited fabrication
capacity, international competition and manufacturing yield problems. The
ability of IXYS to compete successfully in its evolving industry depends on
factors both within and outside its control, including success in designing
and subcontracting the manufacture of new products that implement new
technologies, protection of Company products by effective utilization of
intellectual property laws, product quality, reliability, price, efficiency of
production, the pace at which customers incorporate IXYS' power semiconductors
into their products, success of competitors' products and general economic
conditions.
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IXYS encounters differing degrees of competition for its various products,
depending upon the type of product and the particular market served. Many of
IXYS' competitors are larger companies with greater technical, financial and
marketing resources than IXYS. The competitive factors in the market for IXYS'
products include overall functional performance of the products, quality,
price, reliability, breadth and availability of products, delivery time to the
customer and service.
IXYS believes that it is able to effectively compete in the power
semiconductor market, and in the higher power segment of this market in
particular, because of (i) its broad product line in the higher power segment,
(ii) its ability to focus its technical resources on the development of higher
power semiconductors, (iii) its ability to target new market opportunities and
extensions of existing power semiconductor applications more quickly than may
be possible by a larger, more diversified organization and (iv) its ability
and willingness to collaborate with customers to provide custom products. IXYS
believes that it is one of only a few companies focused on the development and
marketing of higher power semiconductors capable of performing all of the
basic functions of power semiconductors.
In the power MOSFET market, IXYS' competitors include Advanced Power
Technology, Inc. ("APT"), International Rectifier Corporation ("I.R."), Harris
Corporation ("Harris"), Motorola, Inc. ("Motorola") and SGS-Thomson
Microelectronics ("SGS"). IXYS targets the higher power segment of the MOSFET
market rather than the lower voltage, lower current segment of the market
dominated by IXYS' larger competitors. Currently, IXYS competes most directly
in this market with APT. IXYS believes that it is able to effectively compete
against APT by offering a wider range of products, improved body diode
performance at voltages over 500 volts and a greater number of high current
module packaging options.
With respect to the IGBT market, IXYS competes primarily with Toshiba
Corporation, I.R., Harris, Siemens AG, Fuji Electric Company and Powerex, Inc.
("Powerex"). IXYS believes that its relatively quick time to market and its
package and product enhancements provide it with a competitive advantage over
most of its competitors.
With respect to the FRED market, IXYS competes primarily with I.R., Harris,
Motorola and SGS. IXYS believes that FRED product performance is circuit
dependent but that in many chases, competitive products can be virtually
interchangeable. FREDs are necessary components of IGBT-based systems, and
IXYS' ability to package FREDs with IGBTs in one package without compromising
the performance of the IGBT allows it to be competitive with other larger
suppliers.
IXYS' thyristors, standard diodes and thyristor/diode modules compete
primarily with the products of I.R., Eupec GmbH, Semikron International and
Powerex. As opposed to the market for IXYS' other products, this market tends
to be driven primarily by price and product availability. Therefore, IXYS
competes in this market through guaranteed inventory programs, custom
products, custom module capability and selective competitive pricing. See
"Risk Factors".
BACKLOG
As of March 31, 1998, IXYS' backlog of orders was approximately $24.2
million, as compared with $25.3 million as of March 31, 1997. Backlog
represents firm orders anticipated to be shipped within the next 12 months.
IXYS' business and, to a large extent, that of the entire semiconductor
industry is characterized by short-term order and shipment schedules. Since
orders constituting IXYS' current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without
significant penalty, backlog is not necessarily an indication of future
revenue.
EMPLOYEES
As of March 31, 1998, IXYS employed 315 full-time employees, of whom 18 were
primarily engagedin engineering and research and development activities, 28 in
marketing, sales and customer support, 251 in
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manufacturing and 18 in administration and finance. A high percentage of the
employees have advanced degrees, including 13 Ph.D.s. IXYS' future success
will be greatly dependent upon its ability to attract, motivate and retain
technical, marketing, sales and management personnel who are in great demand
in the semiconductor industry. Certain employees at IXYS' Lampertheim facility
are subject to collective bargaining agreements. IXYS believes that its
employee relations are good.
FACILITIES
IXYS' administrative, marketing, development and manufacturing facilities
are located in Santa Clara, California and Lampertheim, Germany. The Santa
Clara facility consists of approximately 20,000 square feet under a lease
which expires in December 1998. IXYS has an option to extend the lease for
five years. The base rent under this lease is approximately $169,500 per year.
The Lampertheim facility, which is owned by IXYS, consists of approximately
170,000 square feet. IXYS believes that its current facilities will be
adequate through at least fiscal 1999 and that suitable additional space will
be available in the future as needed on commercially reasonably terms.
ENVIRONMENTAL MATTERS
IXYS is subject to a variety of federal, state and local laws, rules and
regulations, and IXYS GmbH is subject to laws, rules and regulations in
Germany, related to the use, storage, handling, discharge and disposal of
certain chemicals and gases used in IXYS' manufacturing process. Any of those
regulations could require IXYS to acquire equipment or to incur substantial
other expenses to comply with environmental regulations. If substantial
additional expenses were incurred by IXYS, product costs could significantly
increase, thus materially adversely affecting IXYS' business, financial
condition and results of operations. IXYS believes that its activities conform
to present environmental regulations. Increasing public attention has,
however, been focused on the environmental impact of semiconductor operations.
While IXYS has not experienced any materially adverse effects on its
operations from environmental regulations, there can be no assurance that
changes in such regulations will not impose the need for additional capital
equipment or other requirements or restrict IXYS' ability to expand its
operations. Any failure by IXYS to comply with present or future environmental
laws rules and regulations could result in fines being imposed on IXYS,
suspension of production or cessation of operations, any of which could have a
material adverse effect on IXYS' business, financial condition and results of
operations. IXYS' business, financial condition and results of operations
would be subject to similar effects as a result of comparable laws and
regulations in Germany. See "Risk Factors--Risks Related to the Business of
IXYS."
IXYS' leased Lampertheim facility is located in an industrial area in which
there is known environmental contamination. In connection with the purchase of
the Lampertheim facility, IXYS conducted an environmental assessment of the
site, and no material contamination under German law was found on the
Lampertheim facility premises. There can be no assurance that IXYS' business,
financial condition and results of operations will not be materially adversely
affected by this situation. See "Risk Factors--Risks Related to the Business
of IXYS."
GLOSSARY
The following are definitions of certain technical terms used in the Joint
Proxy Statement/Prospectus:
ASSEMBLY--The process of encasing a semiconductor chip in a package to
produce a finished product.
AC--Alternating current electricity. The form of electricity supplied by the
electrical utility alternating in voltage and current at a given frequency.
The voltage polarity of the conductors change eventually.
BIPOLAR TRANSISTOR--A transistor that is controlled by electrical current.
DC--Direct current electricity. The voltage polarity of the conductors does
not change.
DIODE--A discrete device which conducts current in one direction. Frequently
employed with a power transistor in power conditioning circuits. Discrete
device--An electrical or electronic component that performs a single function.
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EPITAXY--A chemical vapor deposition process to grow a silicon single
crystal layer on a silicon substrate wafer.
FRED (FAST RECOVERY EPITAXIAL DIODE)--A diode suited to applications above
200 volts that quickly switches from on to off and is fabricated on epitaxial
silicon wafers.
FET (FIELD EFFECT TRANSISTOR)--A transistor that is controlled by electrical
voltage.
FREQUENCY--The rate per second that electricity power oscillates. One cycle
per second = 1Hz, 1KHz = 1,000 Hz and 1MHz = 1,000,000 Hz.
HIGHER POWER--In IXYS' view, the range of discrete semiconductor components
and products generally capable of handling greater than 500 watts of power.
IGBT (INSULATED GATE BIPOLAR TRANSISTOR)--A power transistor which combines
elements of MOSFET and bipolar transistor technology; suited to medium- and
high-power applications.
IC (INTEGRATED CIRCUIT)--A semiconductor device that integrates multiple
components to form an electronic circuit on a single silicon chip.
INVERTER--An electronic circuit that converts DC electricity to AC
electricity.
LOWER POWER--In IXYS' view, the range of discrete semiconductor components
and products generally capable of handling less than 500 watts of power.
MODULE--A multi-pin package that contains multiple chips mounted on an
isolated substrate.
PACKAGE--The external structure or housing that encases a semiconductor
chip.
PFC--"Power Factor Correction," a necessary function for power conversion
systems to improve their efficiency in using the AC power provided by the
utilities.
POWER--Electrical power, measured in watts, is the product of voltage and
current (volts multiplied by amperes).
POWER MOSFET--A power field effect transistor (FET) that is manufactured
using MOS (metal oxide semiconductor) processing technology similar to that
used in manufacturing certain integrated circuits.
POWER SEMICONDUCTOR--A silicon-based component that operates at a power
level above approximately one watt and has the ability both to conduct and to
block the flow of electricity. Power semiconductors are used to switch (turn
on and off) electricity or to condition electricity, for example by converting
AC to DC.
RECTIFIER--A diode that converts alternating current to direct current.
SMART POWER IC--A semiconductor device having logic and power handling
capacity on the same chip.
THERMAL FATIGUE--A failure mechanism that results from power and thermal
cycling of power semiconductor devices where the bond between the silicon chip
and the copper heat sinks in the package cracks.
THYRISTOR OR SCR--A four layer bipolar latching semiconductor device that
has a gate structure for turning on to a latched position allowing current to
flow in an electrical circuit.
TRANSISTOR--A semiconductor device that switches (turns on and off) or
amplifies electric power in a circuit.
WAFER--Single crystal silicon slice that is processed to produce
semiconductors devices.
WAFER FABRICATION--The sequence of semiconductor processing steps that
creates semiconductor devices on a silicon wafer.
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IXYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of IXYS should be read in conjunction with the consolidated
financial statements and the related notes thereto included herein. The
discussion in this Joint Proxy Statement/Prospectus contains forward-looking
statements that involve risks and uncertainties. IXYS' actual results may
differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute such differences include,
without limitation, those discussed in this section and the sections entitled
"Risk Factors" and "IXYS Business" as well as those discussed elsewhere in
this Joint Proxy Statement/Prospectus.
OVERVIEW
IXYS was founded in 1983 to design, develop and market power semiconductors
used primarily in controlling energy in motor drives and power conversion.
IXYS' target market includes segments of the power semiconductor market that
require medium to higher power semiconductors, with a particular emphasis on
higher power semiconductors, which are those capable of processing greater
than 500 watts of power.
IXYS has been an innovator in power MOS semiconductor products and
technologies since its inception. IXYS pioneered the high voltage, high
current MOSFET and IGBT technologies and was the industry's first developer
and manufacturer of a 1,000 volt, 100 amp IGBT, which has proven to be
superior in reliability and performance to traditional bipolar Darlington
transistors.
In 1989, IXYS acquired the ABB AG power semiconductor operation in
Lampertheim, Germany from Zurich-based ABB, a world leader in power
generation, transmission, distribution equipment, industrial controls and
motor drives. Now called IXYS Semiconductor GmbH, the power semiconductor
operation in Lampertheim is recognized for pioneering work in DCB packaging
technology. The group also developed a line of FREDs that significantly reduce
energy losses in motor control and UPS applications. IXYS Semiconductor GmbH
provides IXYS with a strong foothold in the European Community ("EC") and
positions IXYS to take advantage of tariff and import incentives to EC-based
entities.
In January 1993, in answer to continuing operational losses, IXYS underwent
a reorganization of its upper level management structure. Subsequent cost
cutting in its US operations as well as in its Lampertheim facility allowed
IXYS to operate more efficiently and achieve profitability.
In 1995, IXYS reincorporated in Delaware. Also in 1995, ABB AG converted
approximately $10.5 million in debt owed to it by IXYS into IXYS Series B
Preferred Stock.
In January 1998, IXYS completed the purchase of the Lampertheim facility
previously leased from ABB AG. This facility is approximately 170,000 square
feet and houses IXYS' Lampertheim offices and manufacturing operations. ABB AG
leases some office space in this facility. IXYS feels that the Lampertheim
facility is sufficient to serve its needs in the module and bipolar product
lines for the foreseeable future.
RESULTS OF OPERATIONS--YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Net Revenue. IXYS' net revenues for fiscal 1998 were $56.9 million, a 2.9%
increase from revenue of $55.3 million in 1997. The increase is primarily
related to an increase of approximately 12% in units shipped in 1998 as
compared to 1997, offset by a 10% decrease in average selling prices.
International net revenue represents $35.8 million for fiscal 1998 or 63% of
total net revenue as compared to $34.3 million for fiscal 1997 or 62% of net
revenue.
Gross Margin. IXYS' gross margin for 1998 was 33% as compared to 38% in
1997. The decrease in gross margin is due to average selling prices which, in
response to competition, declined at a faster rate than IXYS' ability to
reduce its costs.International gross margin for 1998 was 25% as compared to
35% in 1997. Domestic gross margin for 1998 was 42% as compared 44% in 1997.
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Research, Development and Engineering ("R&D"). For the fiscal year ended
1998 R&D was $3.3 million or 5.8% of net revenues, as compared to $3.0
million, or 5.4%, for fiscal year 1997. R&D expenses increase was due to
higher engineering headcount in 1998.
Selling, General, Administrative Expenses ("SG&A"). For the fiscal year
1998, SG&A was $8.4 million (14.8% of net sales) as compared to $9.0 million
(16.3% of net sales) in fiscal year 1997. In absolute dollars, SG&A decreased
by $600,000 reflecting significantly lower costs associated with IXYS' defense
of a patent claim made by Harris Corporation (the "Harris Matter"), which was
settled in fiscal 1998.
Interest Expense. During 1998, interest expense was $431,000 compared to
$116,000 in 1997. The increase in interest expense is due to higher average
borrowings in 1998 as compared to 1997.
Other Income (Expense), Net. Other income in fiscal 1998 includes $3.7
million attributable to the settlement of the Harris Matter.
Provision/Benefit For Income Taxes. The 1998 provision for income taxes
reflected an effective tax rate of 41.0% in 1998 compared to 47.2% in 1997.
IXYS' effective tax rate approximates statutory foreign and US federal and
state rates.
Net Income. IXYS had net income of $6.1 million, or $0.03 per share on a
diluted basis, for 1998 compared to $4.4 million, or $0.02 per share on a
diluted basis, for 1997. The increase in net income is primarily attributed to
other income of $3.7 million which represents the proceeds from the settlement
of the Harris Matter.
FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
Net Revenue. IXYS' net revenues for fiscal 1997 were $55.3 million, a 3.7%
decrease from net revenues of $57.4 million in fiscal 1996. The decrease is
primarily related to lower demand and therefore fewer units shipped in 1997 as
compared to 1996, primarily in Europe. International net revenue represents
$34.3 million for fiscal 1997 or 62% of total net revenue as compared to $37.7
million for fiscal 1996 or 66% of net revenue.
Gross Margin. IXYS' gross margin in each of fiscal 1997 and fiscal 1996 was
approximately 38%. International gross margin for 1997 was 35% as compared to
33% in 1996. Domestic gross margin for 1997 was 44% as compared to 48% in
1996.
Research, Development and Engineering Expenses. For fiscal 1997, R&D
expenses were $3.0 million, or 5.9% of net revenues, as compared to $3.4
million, or 6.0% of net revenues for fiscal 1996. The decrease in R&D expenses
from 1996 to 1997 was the result of lower engineering headcount in 1997.
Selling, General, Administrative Expenses. For fiscal 1997, SG&A was $8.9
million, or 16.1% of net revenues, as compared to $9.4 million, or 16.4% of
net revenues, in fiscal 1996. SG&A decreased by $500,000 from 1996 to 1997
reflecting declining costs associated with IXYS' defense of the litigation
involving the Harris Matter.
Interest Expense. During fiscal 1997, interest expense was $116,000 compared
to $78,000 in fiscal 1996.
Provision Benefit for Income Taxes. The fiscal 1997 provision for income
taxes of $3.9 million reflected an effective tax rate of 47.2% in 1997
compared to a tax benefit of $4.3 million in fiscal 1996. The benefit in 1996
reflects the reversal of the deferred tax valuation allowance, based on
management's opinion that it is more likely than not that the net deferred tax
asset will be realized in the future. IXYS' effective tax rate approximates
statutory foreign and U.S. federal and state rates.
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Net Income. IXYS had net income of $4.4 million, or $0.02 per share on a
diluted basis, for fiscal 1997 compared to $11.6 million, or $0.09 per share
on a diluted basis, for fiscal 1996. The decrease in net income from 1996 to
1997 is primarily attributable to the income tax benefit of $4.3 million
applicable to 1996 and the income tax provision of $3.9 million applicable to
1997.
LIQUIDITY AND CAPITAL RESOURCES
IXYS has financed its operations to date through the private sale of equity,
lease financing, and bank borrowings. As of March 31, 1998, cash and cash
equivalents were $9.6 million, an increase of $3.0 million from cash and cash
equivalents of $6.6 million at March 31, 1997. The increase in cash and cash
equivalents was primarily due to cash generated from operations of $3.3
million.
Line of credit facilities available to IXYS are as follows: A line of credit
with a U.S. bank that as of March 31, 1998 consists of a $5.0 million
commitment amount which is available through August 1999. The line bears
interest at the bank's prime rate (8.50% at March 31, 1998). The line is
collateralized by certain assets and contains certain general and financial
covenants which include provisions stating that IXYS cannot incur additional
debt or pledge assets without the prior approval of such bank. At March 31,
1998, IXYS had drawn $2.1 million against such line of credit.
As of March 31, 1998, IXYS had cash deposits with a financial institution in
the amount of $950,000, which is restricted as to use and represents
compensating balances on future discounted acceptances and letters of credit.
During February 1997, IXYS entered into an agreement to purchase the
property on which the German subsidiary operates for DM 13,250,000 (U.S. $7.9
million at March 31, 1997). The purchase closed in January, 1998. The purchase
price was entirely financed by a loan from a bank in Germany with principal
and interest payable over twelve years at a fixed interest rate of 5.4% per
annum until August 2001, and at Market rates thereafter.
The accounts receivable at March 31, 1998 were 22% greater than the accounts
receivable at March 31, 1997 as a consequence of greater revenues during the
period immediately preceding March 31, 1998 as compared to the period
immediately preceding March 31, 1997. The inventories at March 31, 1998 were
47% greater than the inventories at March 31, 1997 as a consequence of
expectations for increased orders deliverable during the period immediately
following March 31, 1998 as compared to expectations for the period
immediately following March 31, 1997 and as a consequence of relatively
depressed inventory levels at March 31, 1997. Plant and equipment at March 31,
1998 increased 212% as compared to March 31, 1997, as a result of the purchase
of the facility in Germany.
IXYS evaluates the acquisition of businesses, products or technologies that
complement IXYS' business. Any such transactions, if consummated, may use a
portion of the IXYS working capital or require the issuance of equity
securities which may result in further dilution to the IXYS stockholders.
IXYS believes that cash generated from operations, if any, and banking
facilities will be sufficient to meet its cash requirements through fiscal
1999. To the extent that funds generated from operations, together with
banking facilities are insufficient to meet its capital requirements, IXYS
will be required to raise additional funds. No assurance can be given that
additional financing will be available or, if available, that it will be
available on acceptable terms. The lack of such financing, if needed, would
have a material adverse effect on IXYS' business, financial condition and
results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of
comprehensive income and becomes effective for IXYS for fiscal year 1999, with
reclassification of earlier financial statements for comparative purposes.
Comprehensive income generally
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represents all changes in stockholders' equity except those resulting from
investments or contributions by stockholders. IXYS is evaluating alternative
formats for presenting this information, but does not expect this
pronouncement to materially impact IXYS' results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information". This statement establishes
standards for disclosure about operating segments in annual financial
statements and selected information in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes Statement of
Financial Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise." The new standard becomes effective for IXYS' fiscal year
1999, and requires that comparative information from earlier years be restated
to conform to the requirements of this standard. IXYS is evaluating the
requirements of SFAS 131 and the effects, if any, on IXYS' current reporting
and disclosures.
YEAR 2000 CONVERSION--SEE "RISK FACTORS."
128
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF IXYS
The following sets forth certain information as to the number of shares of
IXYS Common Stock and IXYS Preferred Stock beneficially owned as of June 16,
1998 and the number of shares of Paradigm Common Stock to be beneficially
owned immediately upon consummation of the Merger by (i) each person who is
known to IXYS to beneficially own 5% or more of the outstanding shares of any
class of IXYS Capital Stock, (ii) each director of IXYS, (iii) each IXYS Named
Executive Officer listed on the IXYS Summary Compensation Table and (iv) all
directors and executive officers of IXYS as a group. Unless otherwise noted,
(i) the persons named in the table have sole voting and investment power with
respect to all shares indicated as being beneficially owned by them, and (ii)
all officers and directors can be reached at the principal offices of IXYS.
<TABLE>
<CAPTION>
SHARES OF IXYS CAPITAL STOCK BENEFICIALLY OWNED(1)
------------------------------------------------------------
SHARES OF PARADIGM
COMMON STOCK
PERCENT BENEFICIALLY OWNED
COMMON STOCK PREFERRED STOCK OF ALL AFTER THE MERGER (1)
----------------------- ----------------------- IXYS ----------------------
NAME AND ADDRESS NUMBER OF PERCENT NUMBER OF PERCENT CAPITAL NUMBER
OF BENEFICIAL HOLDER SHARES OF CLASS SHARES OF CLASS STOCK OF SHARES PERCENT
-------------------- ------------- --------- ------------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Entities Affiliated with
ASEA Brown Boveri
Aktiengesellschaft(2).. 8,023,220 10.00% 86,240,797 77.41% 49.19% 9,161,426 47.83%
6800 Manheim 31
Kallstadter Strasse
Germany
Nathan Zommer(3)........ 57,911,987 78.92 -- -- 31.34 5,628,408 30.44
3540 Bassett Street
Santa Clara, CA 95054
Arnold P. Agbayani(4)... 4,509,104 6.22 -- -- 2.45 438,235 2.38
Richard S. Fassler(5)... 3,248,769 4.49 -- -- 1.77 315,745 1.72
Peter H. Ingram(6)...... 3,088,769 4.26 -- -- 1.68 300,194 1.63
Robert Kane(7).......... 2,849,403 3.94 -- -- 1.55 276,931 1.51
Rolf Karg(2)............ 8,023,220 10.00 86,240,797 77.41 49.19 9,161,426 47.83
All directors and
executive officers as a
group (6 persons)(8)... 79,631,252 96.84 86,240,797 77.41 85.65 16,120,939 83.32
</TABLE>
- --------
* Represents less than 1%
(1) Applicable percentage of ownership of IXYS Preferred Stock and IXYS Common
Stock at June 16, 1998 is based upon 111,409,363 shares of IXYS Preferred
Stock and 72,211,873 shares of IXYS Common Stock outstanding. Percent of
all IXYS Capital Stock is calculated on an as-if-converted basis based
upon the share numbers set forth above. Share numbers and applicable
percentage ownership after the Merger is based upon approximately
18,374,893 shares of Paradigm Common Stock outstanding after the Reverse
Stock Split, which assumes the issuance of 17,845,964 shares of Paradigm
Common Stock in the Merger at the Assumed Exchange Ratio of 0.097189.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes sole or shared voting or investment power with respect to
shares shown as beneficially owned. Shares of IXYS Common Stock subject to
options and warrants, in each case currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage
ownership of the person holding such warrants or options, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(2) Includes 82,260,833 shares of IXYS Preferred Stock held by ASEA Brown
Boveri Aktiengesellschaft (ABB), 3,425,265 shares of IXYS Preferred Stock
held by ASEA Brown Boveri Inc. (ABB Inc.), 333,149 shares of IXYS
Preferred Stock held by ASEA-Harvest Partners I and 221,550 shares of IXYS
Preferred Stock held by ASEA-Harvest Partners II. Also includes 5,292,020
shares of IXYS Common Stock which ABB has the right to acquire pursuant to
a warrant exercisable within 60 days, 2,300,940 shares of IXYS Common
Stock which ABB Inc. has the right to acquire pursuant to a warrant
exercisable within 60 days
129
<PAGE>
and 430,260 shares of IXYS Common Stock which ASEA-Harvest Partners I has
the right to acquire pursuant to a warrant exercisable within 60 days. Dr.
Karg is an Executive Vice President of ABB.
(3) Includes 10,000 shares held by Haya Zommer, as Custodian for Sagi Zommer
and 10,000 shares held by Haya Zommer, as Custodian for Henn Zommer. Also
includes 1,169,000 shares Mr. Zommer has the right to acquire pursuant to
options exercisable within 60 days.
(4) Includes 260,500 shares Mr. Agbayani has the right to acquire pursuant to
options exercisable within 60 days.
(5) Of such shares held, 798,496 are subject to a repurchase option in favor
of IXYS within 60 days. Includes 197,000 shares Mr. Fassler has the right
to acquire pursuant to options exercisable within 60 days.
(6) Of such shares held, 798,496 are subject to a repurchase option in favor
of IXYS within 60 days. Includes 237,000 shares Mr. Ingram has the right
to acquire pursuant to options exercisable within 60 days.
(7) Of such shares held, 737,073 are subject to a repurchase option in favor
of IXYS within 60 days. Includes 132,000 shares Mr. Kane has the right to
acquire pursuant to options exercisable within 60 days.
(8) Includes 86,240,797 shares of IXYS Preferred Stock and 8,023,220 of IXYS
Common Stock held by entities affiliated with certain directors of IXYS as
described in footnote 2 above. Also includes 10,018,720 shares of IXYS
Common Stock issuable upon exercise of outstanding warrants and options
exercisable within 60 days. See footnotes 2 through 7 above.
130
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
The following is a summary of certain material differences between the
rights of holders of Paradigm Common Stock and Paradigm Preferred Stock on the
one hand and IXYS Common Stock and IXYS Preferred Stock on the other. Because
each of Paradigm and IXYS is organized under the laws of Delaware, these
differences arise from various provisions of the Restated Certificate of
Incorporation (the "Paradigm Certificate") and the Bylaws (the "Paradigm
Bylaws") of Paradigm, and the Restated Certificate of Incorporation (the "IXYS
Certificate") and the Bylaws (the "IXYS Bylaws") of IXYS. The following
discussion is meant only to summarize certain of such differences and does not
purport to be complete. Copies of the Paradigm Certificate and the Paradigm
Bylaws may be obtained from Paradigm. See "Available Information."
VOTING
Paradigm. Except as otherwise required by law, the holders of shares of
Paradigm Common Stock are entitled to one vote for each share held. Except as
otherwise set forth in the Paradigm Certificate, the holders of shares of
Paradigm Preferred Stock are not entitled to vote, but would be entitled to
one vote for each share of Paradigm Common Stock issued upon conversion of the
Paradigm Preferred Stock.
IXYS. Except as otherwise required by law, the holders of shares of IXYS
Preferred Stock and IXYS Common Stock are entitled to one vote for each share
held. Except as otherwise set forth in the IXYS Certificate or under
applicable law, the holders of shares of IXYS Preferred Stock are entitled to
vote together with the IXYS Common Stock as a single class on all actions to
be taken by the stockholders of IXYS, and each share of IXYS Preferred Stock
entitles the holder to such number of votes per share as shall equal the
number of whole shares of IXYS Common Stock into which each share is
convertible.
DIRECTORS
Paradigm. The Paradigm Bylaws provide that the number of Paradigm directors
shall be determined from time to time by resolution of the Paradigm Board
(which currently sets the size of the Paradigm Board at three (3) directors),
and the initial Paradigm Board shall consist of four (4) directors. The
Paradigm directors shall be elected at the annual meeting or any special
meeting of the Paradigm stockholders and each director so elected shall hold
office until the next annual meeting and until his or her successor is duly
elected and qualified or until his earlier resignation or removal. Unless
otherwise restricted by statute, the Paradigm Certificate or the Paradigm
Bylaws, any director or the entire Paradigm Board may be removed, with or
without cause, by the holders of at least a majority of the shares entitled to
vote at an election of directors. Vacancies may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining
director, unless otherwise provided in the Paradigm Certificate. The Paradigm
stockholders may elect a director or directors at any time to fill any vacancy
or vacancies not filled by the Paradigm directors.
IXYS. The IXYS Bylaws provide that the IXYS Board shall consist of three (3)
members, which number can be amended from time to time by the IXYS Board. The
IXYS Certificate does not divide the IXYS Board into separate classes. The
IXYS directors shall be elected at the annual meeting of IXYS stockholders,
and each director so elected shall hold office until the next annual meeting
and until his or her successor is duly elected and qualified or until his or
her earlier resignation or removal. The IXYS Bylaws provide that no reduction
of the number of directors shall have the effect of removing a director before
his or her term expires. A director may be removed with cause by the holders
of a majority of the shares then entitled to vote at an election of directors,
or without cause by the affirmative note of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the shares then entitled to vote at an
election of directors. In addition, the IXYS Bylaws provide that vacancies in
the IXYS Board may be filled by the vote of a majority of the remaining
members of the IXYS Board, even though less than a quorum of the IXYS Board,
and that vacancies resulting from resignations may be filled by the vote of a
majority of the directors then in office (including the resigning director).
131
<PAGE>
LIABILITY OF OFFICERS AND DIRECTORS; INDEMNIFICATION
Paradigm. The Paradigm Certificate provides that a Paradigm director shall
not be personally liable, to the fullest extent permitted by the DGCL, to
Paradigm or its stockholders for monetary damages for breach of fiduciary duty
as a Paradigm director, except for liability for any breach of the director's
duty of loyalty to Paradigm or its stockholders, for acts or omissions not in
good faith or which involved intentional misconduct or a knowing violation of
the law, under section 174 of the DGCL, or for any transaction from which the
Paradigm director derived an improper personal benefit. Any repeal or
modification of the foregoing provisions by the Paradigm stockholders will not
adversely affect any right or protection of a Paradigm director existing at
the time of such repeal or modification. In addition to the indemnification
provided for under the Paradigm Certificate, each Paradigm executive officer
and director has entered into Indemnification Agreements with Paradigm.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Paradigm
pursuant to the foregoing provisions, Paradigm has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
IXYS. The IXYS Certificate provides that an IXYS director shall not be
personally liable, to the fullest extent permitted by the DGCL, to IXYS or its
stockholders for monetary damages for breach of fiduciary duty as an IXYS
director, except for liability for any breach of the director's duty of
loyalty to Paradigm or its stockholders, for act or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
under section 174 of the DGCL or for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of the
foregoing provisions by the IXYS stockholders shall not adversely affect any
right or protection of an IXYS director existing at the time of the alleged
occurrence or any action or omission to act giving rise to liability.
SPECIAL MEETINGS; WRITTEN CONSENTS
Paradigm. Special meetings of the Paradigm stockholders may be called for
any purpose or purposes, unless otherwise prescribed by the statute or by the
Paradigm Certificate, at the request of the Chairman of the Paradigm Board,
the President or the Paradigm Board or by any one Paradigm stockholder holding
not less than twenty percent (20%) of the voting power of Paradigm. Such
request shall state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting of Paradigm stockholders shall be limited to
the purposes stated in the notice. The Paradigm stockholders are not permitted
to take any action by written consent.
IXYS. The IXYS Bylaws provide that special meetings of the IXYS stockholders
may be called for any purpose or purposes by the Chairman of the IXYS Board,
the Chief Executive Officer, a majority of the IXYS Board or by the holders of
shares entitled to cast not less than ten percent (10%) of the votes at the
meeting. If a special meeting of IXYS stockholders is called by any person
other than the IXYS Board, the request shall be in writing, and such request
shall specify the purpose or purposes of the proposed meeting. Business
transacted at any special meeting of IXYS stockholders shall be limited to the
purposes stated in the notice. The IXYS stockholders are not permitted to take
any action by written consent after the closing of a qualified initial public
offering of IXYS shares.
PREFERRED STOCK
Paradigm. Paradigm currently has three series of preferred stock, designated
as "5% Series A Convertible Redeemable Preferred Stock," "5% Series B
Convertible Redeemable Preferred Stock" and "5% Series C Convertible Preferred
Stock." Each series of Paradigm Preferred Stock is governed by a Certificate
of Designation, Preferences, Rights and Limitations (the "Paradigm
Certificates of Designation"). The Paradigm Board may by resolution fix the
designation and number of shares of any such series, and may determine, alter
or revoke the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued
132
<PAGE>
series, provided that such action by the Paradigm Board be unanimously
approved by the all members of the Paradigm Board.
IXYS. IXYS currently has two series of preferred stock, designated as
"Series A Preferred Stock" and "Series B Preferred Stock." Each series of IXYS
Preferred Stock is governed by the IXYS Certificate. The IXYS Board may by
resolution fix the designation and number of shares of any such series, and
may determine, alter or revoke the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series.
VOTING BY BALLOT
Paradigm. The Paradigm Certificate provides that election of directors need
not be by written ballot unless the Paradigm Bylaws so provide. The Paradigm
Bylaws provide that the Chairman of any meeting of Paradigm stockholders shall
determine the procedure at the meeting, including such regulation of the
manner of voting.
IXYS. The IXYS Certificate provides that the election of directors need not
be by written ballot unless the IXYS Bylaws so provide. The IXYS Bylaws
provide that the Chairman of any meeting of IXYS stockholders shall determine
the procedure at the meeting, including the regulation of the manner of
voting.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Paradigm. The Paradigm stockholders have the right to amend the Paradigm
Certificate as is permitted by law. Any amendment to the Paradigm Certificate
requires the affirmative vote of a majority of the outstanding shares of
Paradigm Common Stock. The Paradigm Board is authorized to amend, alter or
repeal the Paradigm Bylaws. The Paradigm stockholders also have power to
amend, alter or repeal the Paradigm Bylaws by an affirmative vote of the
holders of at least 66 2/3% of the voting power of all of the then outstanding
shares of Paradigm Common Stock.
IXYS. The IXYS stockholders have the right to amend the IXYS Certificate as
is permitted by law. Any amendment to Articles V, VII, or VIII of the IXYS
Certificate requires the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of all of the then
outstanding shares of IXYS Capital Stock, voting together as a single class.
Subject to certain limitations, the IXYS Board reserves the right to amend,
alter, change or repeal any provision of the IXYS Certificate. The IXYS Board
is authorized to adopt, amend or repeal the IXYS Bylaws. The IXYS stockholders
also have the power to amend, alter or repeal the IXYS Bylaws by an
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then outstanding shares of IXYS Capital Stock.
DIVIDENDS; LIQUIDATION RIGHTS
Paradigm. The Paradigm Board has the power to declare dividends from time to
time in accordance with the law. Pursuant to the Paradigm Certificates of
Designation, the holders of Paradigm Preferred Stock are be entitled to
receive dividends at the rate of five percent (5%), per share per annum. The
dividends are be payable only in shares of Paradigm Preferred Stock, and the
Paradigm Preferred Stock are not be entitled to any cash dividends. The
dividends begin to accumulate upon the issuance of the Paradigm Preferred
Stock and are due and payable with respect to any share of Paradigm Preferred
Stock only immediately prior to the conversion of such share of Paradigm
Preferred Stock into Paradigm Common Stock.
Pursuant to the Paradigm Certificates of Designation, in the event of any
liquidation event, the holders of Paradigm Preferred Stock are entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of Paradigm to the holders of Paradigm Common Stock, the amount
of $10,000 per share of Paradigm Preferred Stock. If upon the occurrence of a
liquidation event, the assets and funds thus distributed among the holders of
Paradigm Preferred Stock are insufficient to permit the payment to such
holders of the full preferential amount, then the entire assets and funds of
Paradigm legally available for distribution will be distributed ratably among
the holders of Paradigm Preferred Stock in proportion to the preferential
amount each
133
<PAGE>
such holder is other-wise entitled to receive. After payment to the holders of
Paradigm Preferred Stock of the amounts set forth above, the entire remaining
assets and funds of Paradigm legally available for distribution, if any, will
be distributed among the holders of Paradigm Common Stock in proportion to the
shares of Paradigm Common Stock then held by them.
IXYS. The IXYS Board has the power to declare dividends from time to time in
accordance with the law. Pursuant to the IXYS Certificate, the holders of IXYS
Preferred Stock are entitled to receive cash dividends at the rate of two and
four-tenths percent (2.4%) and seven percent (7%) of the original issue price
per share of IXYS Series A Preferred Stock and IXYS Series B Preferred Stock,
respectively, per annum. Such dividends shall be payable only when, as and if
declared by the IXYS Board and shall be non-cumulative.
Pursuant to the IXYS Certificate, in the event of any liquidation event, the
holders of IXYS Series A Preferred Stock and IXYS Series B Preferred Stock are
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of IXYS to the holders of IXYS Common Stock, the
amount equal to all declared but unpaid dividends plus $0.738615 and $0.137671
per share of IXYS Series A Preferred Stock and IXYS Series B Preferred Stock,
respectively. If upon the occurrence of a liquidation event, the assets and
funds thus distributed among the holders of IXYS Preferred Stock are
insufficient to permit the payment to such holders of the full preferential
amount, then the entire assets and funds of IXYS legally available for
distribution will be distributed ratably among the holders of IXYS Preferred
Stock in proportion to the preferential amount each such holder is other-wise
entitled to receive. After payment to the holders of IXYS Preferred Stock of
the amounts set forth above, the entire remaining assets and funds of IXYS
legally available for distribution, if any, will be distributed among the
holders of IXYS Common Stock in proportion to the shares of IXYS Common Stock
then held by them.
SPECIAL RIGHTS OF PREFERRED STOCK
Paradigm. In addition to the rights discussed above, the Paradigm
Certificates of Designation grant certain rights to the holders of Paradigm
Preferred Stock. So long as any shares of Paradigm Preferred Stock remain
outstanding, Paradigm shall not, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of Paradigm
Preferred Stock, authorize, create or issue any other equity security senior
to the then outstanding Paradigm Preferred Stock as to liquidation preferences
or amend, alter or repeal, by any means, the Paradigm Certificate if the
powers, preferences, or special rights of the Paradigm Preferred Stock would
thereby be materially adversely affected.
IXYS. In addition to the rights discussed above, the IXYS Certificate grants
certain rights to the holders of IXYS Preferred Stock. Such shares are
convertible under certain circumstances into shares of IXYS Common Stock. So
long as at least 300,000 shares of IXYS Series A Preferred Stock remain
outstanding, the holders of IXYS Series A Preferred Stock shall have the right
to elect a director of IXYS, and so long as at least 200,000 shares of IXYS
Series B Preferred Stock remain outstanding, the holders of IXYS Series B
Preferred Stock shall have the right to elect a director of IXYS. In addition,
IXYS may not (i) amend or alter the IXYS Certificate or IXYS Bylaws so as to
materially and adversely affect the rights of the holders of IXYS Preferred
Stock; (ii) authorize or issue any class of securities, or reclassify any
class of securities, so as to create a class of securities having superior
rights to the IXYS Preferred Stock; (iii) increase or decrease the authorized
number of shares of IXYS Common Stock or IXYS Preferred Stock; (iv) redeem,
repurchase or pay dividends with respect to junior stock; (v) enter into an
asset transfer or acquisition agreement; (vi) dissolve or liquidate; or (vii)
issue more than 81,021,413 shares of IXYS Common Stock to directors, officers
or employees, without obtaining the approval of the holders of a majority of
the IXYS Preferred Stock, voting as a separate class.
134
<PAGE>
OTHER INFORMATION REGARDING IXYS
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of IXYS are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Nathan Zommer................. 50 Chairman of the Board, President and Chief
Executive Officer
Arnold Agbayani............... 52 Vice President of Finance and Administration,
Director and Secretary
Richard Fassler............... 47 Vice President of Sales and Marketing
Robert Kane................... 60 Vice President of U.S. Operations
Peter Ingram.................. 50 Vice President of European Operations
Rolf Karg..................... 48 Director
</TABLE>
Mr. Arnold Agbayani has served as Vice President of Finance and
Administration, Secretary and Director at IXYS since 1993. From 1989 to 1993,
he served as Controller of IXYS. Prior to joining IXYS, Mr. Agbayani held
various financial positions with National Semiconductor, Fairchild Camera and
Instruments, ATARI, Inc. and Frito-Lay, Inc. Mr. Agbayani received a BS in
Finance and an MBA from Roosevelt University of Chicago.
Mr. Richard S. Fassler has served as Vice President of Sales and Marketing
since 1993. From 1986 to 1993, he served as Manager of Marketing of IXYS. From
1973 to 1986, Mr. Fassler held various sales and marketing positions with
General Electric. Mr. Fassler received a BS in Electronic Engineering from
California Polytechnic State University.
Mr. Peter H. Ingram, has served as Vice President of European Operations of
IXYS since 1994. From 1989 to 1995, he served as Director of Wafer Fab
Operations at IXYS. Mr. Ingram worked with the semiconductor operations of ABB
AG from 1982 until such operations were acquired by IXYS in 1989. Mr. Ingram
received an Honors degree in Chemistry from the University of Nottingham.
Mr. Robert P. Kane has served as Vice President of U.S. Operations since
1995. From 1990 to 1995, he served as Director of Production Control of IXYS.
Prior to joining IXYS, Mr. Kane served in various operations management
positions with Siliconix, Precision Monolithics, National Semiconductor and
Fairchild Camera and Instruments. Mr. Kane received a BS in Business
Administration from the University of Maine.
Dr. Rolf Karg has served as a member of the IXYS Board since 1996. Dr. Karg
currently serves as an executive officer and a Member of the Managing Board of
ABB AG. Dr. Karg received a Ph.D. in Electrical Engineering from Erlangen
University in Germany.
Dr. Nathan Zommer the founder of IXYS, has served as a member of the IXYS
Board since the company's inception in 1983, and has served as Chairman of the
Board and President and Chief Executive Officer of IXYS since March 1993. From
1984 to 1993, Dr. Zommer served as the Executive Vice President of IXYS. Prior
to joining IXYS, Dr. Zommer served in a variety of positions with Intersil,
Hewlett Packard and General Electric, including as a scientist in the Hewlett
Packard Laboratories and Director of the Power MOS Division for
Intersil/General Electric. Dr. Zommer received BS and MA degrees in Physical
Chemistry from Tel Aviv University and a Ph.D. in Electrical Engineering from
Carnegie-Mellon University.
DIRECTOR AND EXECUTIVE COMPENSATION
Directors currently receive no cash compensation from IXYS for their
services as members of the Board of Directors, but are reimbursed for certain
expenses in connection with attendance at Board and Committee meetings.
135
<PAGE>
The following table sets forth certain compensation awarded or paid by IXYS
during the fiscal year ended March 31, 1998 to its President and Chief
Executive Officer and IXYS' other executive officers who earned more than
$100,000 during the fiscal year ended March 31, 1998 (collectively, the IXYS
Named Executive Officers):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------
SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION ($) ($)(1) ($)(2) (#) COMPENSATION(3)
- --------------------------- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Nathan Zommer........... $200,004 $267,800 $18,710(3) -- $2,200
President and Chief
Executive Officer
Arnold Agbayani......... 128,004 171,600 12,839 -- 2,830
Secretary, Vice
President, Finance and
Administration and
Director
Richard S. Fassler...... 90,250 41,405 7,800 -- --
Vice President, Sales
and Marketing
Robert P. Kane.......... 90,089 16,000 7,200 -- --
Vice President, U.S.
Operations
Peter H. Ingram......... 151,483 -- 6,373 -- --
Vice President,
European Operations
</TABLE>
- --------
(1) Represents annual bonus earned for 1998 performance.
(2) Represents car allowance.
(3) Includes group term life insurance paid by the company.
STOCK OPTIONS
There were no stock options granted to IXYS Named Executive Officers for the
fiscal year ended March 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the number of
securities underlying unexercised options held by the IXYS Named Executive
Officers as of March 31, 1998 and the value of unexercised in-the-money
options as of March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT OPTIONS AT
SHARES MARCH 31, 1998 MARCH 31, 1998(1)
ACQUIRED ON VALUE ------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Nathan Zommer........... -- -- 1,019,000 975,000 $336,300 $156,000
Arnold Agbayani......... -- -- 205,500 375,500 44,950 71,500
Richard Fassler......... -- -- 171,000 169,000 56,200 33,800
Robert P. Kane.......... -- -- 106,000 169,000 24,950 33,800
Peter A. Ingram......... -- -- 211,000 169,000 86,615 33,800
</TABLE>
- --------
(1) Based on an assumed fair market value price of the IXYS Common Stock of
$.60 per share at March 31, 1998, minus the exercise price, multiplied by
the number of shares underlying the option.
136
<PAGE>
EMPLOYMENT CONTRACTS
IXYS entered into an employment agreement, dated as of January 1, 1995, with
Dr. Nathan Zommer, Chief Executive Officer of IXYS. The agreement provides
for, among other things, salaries, bonuses and car allowances as determined by
the IXYS Board. The salary and bonus for Dr. Zommer with respect to the fiscal
year ended March 31, 1997, were $200,000 and $187,614, respectively. Under the
terms of the agreement, IXYS agrees to maintain term life insurance in the
amount of $1,000,000. In addition, the agreement provides that if IXYS
terminates Dr. Zommer's employment without cause, Dr. Zommer shall be entitled
to receive as severance his monthly salary, incremented one month per year of
service to IXYS, to a maximum of twelve months. The agreement also provides
Dr. Zommer with a paid annual physical exam and the limited services of a
financial advisor.
The agreement was amended on June 26, 1998 to extend its term to January 31,
2004. In the amended agreement, Dr. Zommer's annual bonus is 40% of his base
salary, which was increased to $285,000. In addition, he is eligible for an
incentive bonus of three times his base annual salary in the event of certain
transactions significantly affecting IXYS, including a reorganization,
consolidation, merger and sale of IXYS stock or assets (but not the Merger).
If his employment terminates within a year after a change of control event,
Dr. Zommer is entitled to receive severance equal to three times his average
annual compensation, continued benefits for 18 months and accelerated vesting
of all option shares.
IXYS entered into an employment agreement, dated as of January 1, 1995, with
Mr. Arnold Agbayani, Chief Financial Officer of IXYS. The agreement provides
for, among other things, salaries, bonuses and car allowances as determined by
the IXYS Board. The salary and bonus for Mr. Agbayani with respect to the
fiscal year ended March 31, 1997, were $128,000 and $124,336, respectively.
Under the terms of the agreement, IXYS agrees to maintain term life insurance
in the amount of $1,000,000. In addition, the agreement provides that if IXYS
terminates Mr. Agbayani's employment without cause, Mr. Agbayani shall be
entitled to receive as severance his monthly salary, incremented one month per
year of service to IXYS, to a maximum of twelve months. The agreement also
provides Mr. Agbayani with a paid annual physical exam and the limited
services of a financial advisor.
The agreement was amended on June 26, 1998 to extend its term to January 31,
2004. In the amended agreement, Mr. Agbayani's annual bonus is 30% of his base
salary, which was increased to $160,000. In addition, he is eligible for an
incentive bonus of three times his annual base salary in the event of certain
transactions significantly affecting IXYS, including a reorganization,
consolidation, merger and sale of IXYS stock or assets (but not the Merger).
If his employment terminates within a year after a change of control event,
Mr. Agbayani is entitled to receive severance equal to three times his average
annual compensation, continued benefits for 18 months and accelerated vesting
of all option shares.
CERTAIN TRANSACTIONS
On September 14, 1995, the IXYS Board authorized stock grants (the "1995
Management Stock Awards"), made pursuant to certain Stock Purchase Agreements,
to Dr. Zommer, Mr. Agbayani, Richard Fassler, Yoram Hirsch, Peter Ingram, and
Robert Kane (each referred to as an "IXYS Executive" and collectively referred
to as "IXYS Executives"). Pursuant to the terms of such agreements, if an IXYS
Executive voluntarily terminates his employment with IXYS or is terminated for
cause (the "Termination"), IXYS has the right to repurchase from such IXYS
Executive any or all of his shares that remain unvested on the Termination
date. In connection with the 1995 Management Stock Awards, an aggregate of
67,565,000 shares of IXYS Common Stock were granted at a price of $0.013 per
share to the IXYS Executives. Such shares were paid for by the IXYS Executives
with recourse promissory notes and vest on a five-year schedule. As of January
1, 1998, Dr. Zommer's and Mr. Agbayani's shares had fully vested. As of
December 31, 1997, 1,140,708 shares remain unvested for Mr. Fassler, 1,140,708
shares remain unvested for Mr. Ingram and 1,052,962 shares remain unvested for
Mr. Kane. Mr. Hirsch resigned from his employment with IXYS on December 8,
1997.
137
<PAGE>
On November 12, 1996, IXYS entered into a loan agreement with Dr. Zommer in
the amount of $75,294.38 for the purpose of assisting Dr. Zommer in acquiring
a personal residence (the "Loan"). As of February 17, 1998, $75,294 remained
outstanding under the Loan. In connection with the Loan, Dr. Zommer and IXYS
entered into a Stock Pledge Agreement whereby Dr. Zommer granted IXYS a first
priority security interest in any and all shares of IXYS Common Stock owned or
acquired by him. IXYS may collect on such collateral in the event Dr. Zommer
defaults on the Loan.
In January 1998, IXYS completed its purchase from ABB AG certain real
property and building facilities located in Lampertheim, Germany. Such real
property is currently used by IXYS' subsidiary, IXYS Semiconductor GmbH, for
its operations. IXYS paid approximately 13.250 million deutschmarks for such
real property pursuant to an agreement with ABB AG dated as of February 26,
1997.
ABB AG serves as a distributor for IXYS throughout Europe on substantially
the same terms and conditions as those entered into by IXYS with its other
distributors. In addition, ABB AG is a customer of IXYS and has purchased
semiconductor devices from IXYS. Sales to ABB AG account for less than 5% of
IXYS' total sales.
Dr. Rolf Karg, who is an executive officer of ABB AG, has served as a
director of IXYS since May 17, 1996.
IXYS believes that the foregoing transactions were in its best interests and
were on terms no less favorable to IXYS than could be obtained from
unaffiliated third parties.
EXPERTS
The financial statements of Paradigm as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997 included in
this Joint Proxy Statement/Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of IXYS as of March 31, 1997 and 1998
and for each of the three years in the period ended March 31, 1998 included in
this Joint Proxy Statement/Prospectus have been so included in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL OPINIONS
The legality of the shares of Paradigm Common Stock to be issued to IXYS
stockholders pursuant to the Merger will be passed upon by Pillsbury Madison &
Sutro LLP, Palo Alto, California.
The Merger Agreement provides that it is a condition to the obligation of
IXYS to consummate the Merger that they receive the opinion of Cooley Godward
LLP, Palo Alto, California, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code, which opinion shall not have been
withdrawn or modified in any effect.
138
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
PARADIGM TECHNOLOGY, INC.
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets as of December 31, 1996 and 1997.......................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997.................................................................... F-4
Statement of Stockholders' Equity (Deficit) for the years ended December
31, 1995, 1996 and 1997................................................. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997.................................................................... F-6
Notes to Financial Statements............................................ F-7
Condensed Statements of Operations for the three months ended March 29,
1998 and March 31, 1997 (unaudited)..................................... F-19
Condensed Balance Sheets as of March 29, 1998 and December 31, 1997 (un-
audited)................................................................ F-20
Condensed Statements of Cash Flows for the three months ended March 29,
1998 and March 31, 1997 (unaudited)..................................... F-21
Notes to Condensed Financial Statements (unaudited)...................... F-22
IXYS CORPORATION
Report of Independent Accountants........................................ F-28
Consolidated Balance Sheets as of March 31, 1997 and 1998................ F-29
Consolidated Statements of Income for the years ended March 31, 1996,
1997 and 1998........................................................... F-30
Consolidated Statements of Stockholders' Deficit for the years ended
March 31, 1996, 1997 and 1998........................................... F-31
Consolidated Statements of Cash Flows for the years ended March 31, 1996,
1997 and 1998........................................................... F-32
Notes to Consolidated Financial Statements............................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Paradigm Technology, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of Paradigm Technology, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Paradigm's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that
Paradigm will continue as a going concern. As discussed in Note 1 to the
financial statements, Paradigm has suffered recurring losses from operations
and will require additional cash to fund 1998 operations. These matters raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Price Waterhouse LLP
San Jose, California
February 21, 1998, except as to Note 13, which is as of March 9, 1998,
and except as to the first paragraph of Note 2, which is as of May 1, 1998.
F-2
<PAGE>
PARADIGM TECHNOLOGY INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 587 $ 461
Accounts receivable, net of allowances of $1,569 and
$65..................................................... 2,800 2,705
Accounts receivable, related party....................... 137 --
Inventory................................................ 2,472 2,580
Prepaid expenses and other............................... 4,918 544
-------- --------
Total current assets................................... 10,914 6,290
Property and equipment, net.............................. 6,638 2,737
Other assets............................................. 190 263
-------- --------
$ 17,742 $ 9,290
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Line of credit........................................... $ 2,015 $ 1,719
Accounts payable......................................... 6,103 2,177
Accounts payable, related party.......................... 140 --
Accrued expenses and other liabilities................... 2,766 1,787
Current portion of debt obligations...................... 282 192
-------- --------
Total current liabilities.............................. 11,306 5,875
Debt obligations, net of current portion................. 92 342
Deferred rent............................................ -- 64
-------- --------
Total liabilities.......................................... 11,398 6,281
-------- --------
Commitments and contingencies (Notes 10 and 12)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized, -0- and 257 shares issued and outstanding... -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 722,500 and 1,160,100 shares issued and
outstanding............................................. 7 12
Additional paid-in capital............................... 36,291 43,169
Accumulated deficit...................................... (29,954) (40,172)
-------- --------
Total stockholders' equity............................. 6,344 3,009
-------- --------
$ 17,742 $ 9,290
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PARADIGM TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Sales, net....................................... $51,923 $ 23,202 $ 12,449
Cost of goods sold............................... 31,033 36,364 11,946
------- -------- --------
Gross profit (loss).............................. 20,890 (13,162) 503
------- -------- --------
Operating expenses:
Research and development....................... 4,621 6,243 3,406
Selling, general and administrative............ 8,107 9,497 4,920
Loss on sale of wafer fabrication facility..... -- 4,632 --
Write-off of in-process technology acquired.... -- 3,841 --
------- -------- --------
Total operating expenses..................... 12,728 24,213 8,326
------- -------- --------
Operating income (loss).......................... 8,162 (37,375) (7,823)
Interest expense................................. 1,369 1,121 370
Other (income) expense, net...................... (615) (946) 718
------- -------- --------
7,408 (37,550) (8,911)
Provision (benefit) for income taxes............. 2,145 (1,125) --
------- -------- --------
Net income (loss)................................ 5,263 (36,425) (8,911)
Accretion related to Preferred Stock............. -- -- (1,307)
------- -------- --------
Net income (loss) attributable to common share-
holders......................................... $ 5,263 $(36,425) $(10,218)
======= ======== ========
Net income (loss) per share:
Basic.......................................... $ 13.92 $ (51.59) $ (11.87)
======= ======== ========
Diluted........................................ $ 9.14 $ (51.59) $ (11.87)
======= ======== ========
Weighted average common shares outstanding:
Basic.......................................... 378 706 861
======= ======== ========
Diluted........................................ 576 706 861
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PARADIGM TECHNOLOGY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PREFERRED STOCK SHARES)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
------------------ ------------- PAID IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
---------- ------ ------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 6,400,000 $ 960 59 $ 18 $ 159 $ 1,208 $ 2,345
Reincorporation in
Delaware............... -- -- -- (16) 16 -- --
Initial public offering
of common stock, net of
costs.................. -- -- 230 2 28,302 -- 28,304
Conversion of preferred
stock to common stock.. (6,400,000) (960) 320 3 957 -- --
Issuance of stock
pursuant to Amtel
Agreement.............. -- -- 43 -- 3,400 -- 3,400
Stock options
exercised.............. -- -- 8 -- 37 -- 37
Net income.............. -- -- -- -- -- 5,263 5,263
---------- ----- ----- ---- ------- -------- --------
Balance, December 31,
1995................... -- -- 660 7 32,871 6,471 39,349
Issuance of common stock
to acquire New Logic... -- -- 31 -- 2,656 -- 2,656
Issuance of common stock
under employee stock
plans.................. -- -- 31 -- 764 -- 764
Net loss................ -- -- -- -- -- (36,425) (36,425)
---------- ----- ----- ---- ------- -------- --------
Balance, December 31,
1996................... -- -- 722 7 36,291 (29,954) 6,344
Issuance of convertible
preferred stock, net of
offering costs......... 500 -- -- -- 4,673 -- 4,673
Issuance of common stock
upon conversion of
preferred.............. (243) -- 376 4 (4) -- --
Issuance of common stock
in payment of accounts
payable................ -- -- 51 1 803 -- 804
Issuance of common stock
under employee stock
plans.................. -- -- 6 -- 49 -- 49
Issuance of common stock
upon exercise of
warrants............... -- -- 5 -- 50 -- 50
Accretion related to
preferred stock........ -- -- -- -- 1,307 (1,307) --
Net loss................ -- -- -- -- -- (8,911) (8,911)
---------- ----- ----- ---- ------- -------- --------
Balance, December 31,
1997................... 257 $ -- 1,160 $ 12 $43,169 $(40,172) $ 3,009
========== ===== ===== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
PARADIGM TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 5,263 $(36,425) $(8,911)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization.................. 5,141 5,716 1,668
Provision for doubtful accounts................ 90 1,372 92
Loss on sale of wafer fabrication facility..... -- 4,632 --
Write off in-process technology................ -- 3,841 --
Loss (gain) on sale of and write-off of fixed
assets........................................ -- (532) 1,727
Changes in operating assets and liabilities:
Accounts receivable........................... (5,680) 6,115 140
Inventory..................................... (814) 1,430 (108)
Other assets.................................. (1,361) (48) 4,301
Accounts payable.............................. 3,475 2,023 (3,262)
Pre-1994 reorganization liabilities paid...... (1,007) (34) --
Other liabilities............................. 3,012 (3,723) (915)
-------- -------- -------
Net cash provided by (used in) operating
activities before reorganization items paid..... 8,119 (15,633) (5,268)
Reorganization items paid...................... (189) -- --
-------- -------- -------
Net cash provided by (used in) operating ac-
tivities..................................... 7,930 (15,633) (5,268)
-------- -------- -------
Cash flows from investing activities:
Purchases of property and equipment.............. (13,609) (13,985) (430)
Purchase of short-term investments............... (18,689) (2,672) --
Sale of short-term investments................... 1,491 19,870 --
Sale of fixed assets............................. -- 549 936
Proceeds from sale of wafer fabrication facili-
ty.............................................. -- 6,665 --
Acquisition of NewLogic, net of cash acquired.... -- (723) --
-------- -------- -------
Net cash provided by (used) by investing ac-
tivities..................................... (30,807) 9,704 506
-------- -------- -------
Cash flows from financing activities:
Line of credit increase (decrease)............... (4,623) 2,015 (296)
Payments on capital leases....................... (7,747) -- (147)
Issuance of notes payable........................ 9,300 11,339 442
Principal payments on notes payable.............. (1,914) (11,601) (135)
Issuance of common stock......................... 31,741 748 99
Issuance of preferred stock...................... -- -- 4,673
-------- -------- -------
Net cash provided by financing activities....... 26,757 2,501 4,636
-------- -------- -------
Net increase (decrease) in cash and cash equiva-
lents.......................................... 3,880 (3,428) (126)
Cash and cash equivalents:
Beginning of period.............................. 135 4,015 587
-------- -------- -------
End of period.................................... $ 4,015 $ 587 $ 461
======== ======== =======
Supplemental information:
Interest paid.................................... $ 1,335 $ 1,291 $ 370
======== ======== =======
Income taxes paid................................ $ 348 $ 1,067 $ --
======== ======== =======
Supplemental disclosure of non-cash items:
Issuance of warrant in connection with sale of
Convertible Preferred Stock..................... $ 67
=======
Accretion related to Convertible Preferred
Stock........................................... $ 1,307
=======
Conversion of accounts payable to common stock... $ 804
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--PARADIGM AND ITS BUSINESS:
Paradigm Technology, Inc. ("Paradigm" or the "Company") was originally
incorporated in California in January 1987. Pursuant to the May 24, 1994,
Third Amended Joint Plan of Reorganization (the "Plan") under Chapter 11 of
the United States Bankruptcy Code, amended Articles of Incorporation were
filed. On June 7, 1994, the Court confirmed the Plan, which became effective
on June 21, 1994. Paradigm reincorporated in Delaware effective June 22, 1995,
which involved the exchange of Paradigm's post-Reorganization common and
preferred stock into shares of the Delaware Company stock. Pursuant to the
reincorporation, Paradigm has authorized 25,000,000 shares of $0.01 par value
common stock and 5,000,000 shares of $0.01 par value preferred stock.
Paradigm markets high speed, high density Static Random Access Memory
("SRAM") products for uses in telecommunication devices, workstations and high
performance PCs to OEMs and distributors in the United States, Europe and the
Far East.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices. From the latter part of 1995 through 1997, the market for certain SRAM
devices experienced an excess supply relative to demand which resulted in a
significant downward trend in prices.
The selling price that Paradigm is able to command for its products is
highly dependent on industry-wide production capacity and demand. In this
regard, Paradigm did experience rapid erosion in product pricing during 1996
and 1997 which was not within the control of Paradigm. Paradigm could continue
to experience a downward trend in product pricing which could further
adversely effect Paradigm's operating results.
Paradigm's recent operations have consumed substantial amounts of cash.
During 1997, Paradigm completed the private placement of Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock for net proceeds
of approximately $4,673,000. Paradigm believes that it will require additional
cash infusion from similar or related private placements and other sources of
liquidity, such as asset sales and equipment financing to meet Paradigm's
projected working capital and other cash requirements in 1998. See Note 13.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVERSE STOCK SPLIT
Share information for all periods has been retroactively adjusted to reflect
a 10-for-1 reverse stock split of common stock effected on May 1, 1998.
BASIS OF PRESENTATION
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from those
estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Paradigm considers all highly liquid investments purchased with an initial
maturity of 90 days or less to be cash equivalents and investments with
original maturities of greater than 90 days to be short-term investments.
Paradigm accounts for its short-term investments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). As of December 31, 1996 and 1997,
Paradigm had no short-term investments.
F-7
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATION OF CREDIT RISK
Export sales, primarily to Europe and the Far East, represent 28%, 25%, and
12% of total sales for the years ended December 31, 1995, December 31, 1996,
and December 31, 1997, respectively. Paradigm's sales have been denominated in
U.S. dollars.
Paradigm performs ongoing credit evaluations of its customers and generally
does not require collateral. The following table summarizes the percentage of
net sales to significant customers:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Customer A................................... 28% 25% --
Customer B................................... -- 13% 15%
Customer C................................... -- 13% --
Customer D................................... -- -- 16%
Customer E .................................. -- -- 16%
Customer F .................................. -- -- 10%
</TABLE>
As of December 31, 1996, accounts receivable from three customers accounted
for approximately 16%, 17% and 18% of total gross accounts receivable,
respectively. As of December 31, 1997, accounts receivable from three
customers accounted for approximately 25%, 25%, and 15% of total gross
accounts receivable, respectively. Paradigm maintains allowances for potential
credit losses based upon expected collectibility of all accounts receivable.
INVENTORY
Inventory is stated at the lower of cost (determined on a first-in, first-
out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of certain equipment
impairment charges. Depreciation is computed using the straight-line method
over estimated useful lives of three to five years. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life.
Pursuant to Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
disposed of" ("SFAS 121"), Paradigm reviews long-lived assets, including the
identifiable intangible assets and goodwill and will record impairment charges
whenever events or changes in circumstances indicate the carrying amount of
the assets may not be fully recoverable.
REVENUE RECOGNITION
Revenue from product sales is generally recognized upon shipment and a
reserve is provided for estimated returns. Paradigm's sales to distributors
are made under agreements allowing certain rights of return and price
protection on products unsold by the distributors. Accordingly, Paradigm
defers recognition of revenue on such sales until the products are sold by the
distributors.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to the statement of operations
as incurred.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), encourages, but does not require companies
to record compensation cost for stock-based employee compensation plans based
on the fair value of options granted. Paradigm has chosen to continue to
F-8
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation for stock options is
measured as the excess, if any, of the quoted market price of Paradigm's stock
at the date of the grant over the amount an employee must pay to acquire the
stock. Paradigm provides additional pro forma disclosures as required by FAS
123.
NET INCOME (LOSS) PER SHARE
During the quarter ended December 31, 1997, Paradigm adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 requires presentation of both Basic EPS and Diluted EPS. Basic EPS is
computed by dividing net income available to common stockholders (numerator)
by the weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during a period. In computing Diluted EPS, the average
price for the period is used in determining the number of shares assumed to be
purchased from exercise of stock options, warrants and Convertible Preferred
Stock. Net income (loss) per share for all prior periods presented has been
restated to conform to the provisions of SFAS 128.
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)................ $ 5,263 $ (36,425) $ (8,911)
Accretion related to Convertible
Preferred Stock................. -- -- (1,307)
----------- ------------- -------------
Net income attributable to common
shareholders.................... $ 5,263 $ (36,425) $ (10,218)
=========== ============= =============
Shares calculation:
Average shares outstanding--ba-
sic............................. 378 706 861
Effect of dilutive securities:
Stock options and warrants..... 38 -- --
Convertible Preferred Stock.... 160 -- --
----------- ------------- -------------
Average shares outstanding--di-
luted........................... 576 706 861
=========== ============= =============
Net income (loss) per share--ba-
sic............................. $ 13.87 $ (51.59) $ (11.87)
=========== ============= =============
Net income (loss) per share--di-
luted........................... $ 9.14 $ (51.59) $ (11.87)
=========== ============= =============
</TABLE>
Options to purchase 112,900 shares of common stock at prices ranging from
$2.50 to $20.60 per share were outstanding during 1997 and approximately
1,067,000 shares issuable on the conversion of the 257 shares of Convertible
Preferred Stock, based on the conversion factor at December 31, 1997, were not
included in the computation of diluted EPS because the inclusion of such
options and shares would have been antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustment and
unrealized gain/loss on available for sale securities. The disclosure
prescribed by SFAS must be made beginning with the first quarter of fiscal
1998 and will have no impact on Paradigm's financial position or results of
operations.
F-9
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, the FASB issued SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
disclosures prescribed by SFAS 131 are effective in fiscal 1998.
NOTE 3--BALANCE SHEET DETAIL:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventory:
Raw materials.......................................... $ 16 $ --
Work in process........................................ 1,778 1,562
Finished goods......................................... 678 1,018
------- -------
$ 2,472 $ 2,580
======= =======
Property and equipment:
Machinery and equipment................................ $ 9,488 $ 4,081
Leasehold improvements................................. -- 245
Furniture and fixtures................................. 19 115
------- -------
9,507 4,441
Less accumulated depreciation.......................... (2,869) (1,704)
------- -------
$ 6,638 $ 2,737
======= =======
Accrued Liabilities:
Accrued payroll and commissions........................ $ 804 $ 366
Other.................................................. 1,962 1,421
------- -------
$ 2,766 $ 1,787
======= =======
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS:
As a result of Paradigm's 1994 reorganization, certain of Paradigm's
creditors became stockholders. Transactions with stockholders consist of the
following:
During the years ended December 31, 1995, 1996 and 1997, Paradigm purchased
product with a value of $3,237,000, $6,111,000 and $2,667,000, respectively,
from NKK Corporation ("NKK"). There was no amount due NKK at December 31, 1996
or December 31, 1997.
In April 1995, NKK and Paradigm modified their previous technology license
and development agreements. This 1995 agreement provides for payment of
royalties to Paradigm by NKK on certain quantities of 1M SRAM's sold and, with
certain exceptions, cancels further obligations of each party to deliver
technology improvements or design updates to the other.
On April 28, 1995, pursuant to certain agreements with certain of Paradigm's
stockholders, Atmel Corporation ("Atmel") acquired 42,500 shares of common
stock from Paradigm, 30,000 shares of common stock from certain stockholders
of Paradigm who had been unsecured creditors of Paradigm as of the
reorganization, and 12,805 shares of common stock from Paradigm's equipment
lessors all of which shares were purchased at a price of $80.00 per share (the
"Atmel Stock"). Atmel also acquired certain warrants to purchase
F-10
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17,500 shares of common stock at an exercise price of $10.00 per share, for a
purchase price of $70.00 per share subject to the warrants. In connection with
these transactions, Paradigm entered into an Agreement with Atmel (the "Stock
Purchase Agreement") pursuant to which Atmel agreed to certain transfer
restrictions for a period of three years. Atmel also agreed to certain
standstill provisions, including an agreement not to increase its beneficial
ownership above 19.9% of the voting power of Paradigm on a fully diluted basis
for a period of five years from the date of the Stock Purchase Agreement. The
foregoing restrictions terminate on the date on which a person or entity
acquires more than 50% of the voting power of Paradigm. In addition, Atmel
agreed that, for a period of ten years from the date of the Stock Purchase
Agreement, it will vote the Atmel Stock in proportion to the votes cast by the
other stockholders of Paradigm, except with respect to certain material
events. The voting and standstill restrictions terminate at such time as Atmel
beneficially owns less than 5% of the common stock of Paradigm. On April 28,
1995, Atmel also entered into a Licensing and Manufacturing Agreement (the
"Agreement") with Paradigm. This Agreement provides Atmel with a nonexclusive,
royalty bearing license to manufacture, use and sell certain of Paradigm's
products. The royalty fee is based on a percentage of the average selling
price of the products sold. In addition, under the Agreement, a certain wafer
manufacturing capacity per week has been made available to Paradigm by Atmel.
The Agreement does not include a purchase commitment by Paradigm. However, to
the extent Paradigm provides Atmel with its three-month demand forecast, it is
committed to purchase the three-month forecasted quantities. No obligation to
purchase wafers existed as of December 31, 1997. The price of the wafers has
been fixed at the current fair market value. The Agreement expires on April
28, 2000. There were no purchases from Atmel in 1997, and there was no amount
due Atmel at December 31, 1997. The value of product purchased from Atmel in
the year ended December 31, 1996 was $429,000 of which $140,000 is included in
the accounts payable, related party balance at December 31, 1996.
NOTE 5--LINE OF CREDIT AND DEBT OBLIGATIONS:
In November 1996, Paradigm replaced an existing line of credit with a new
line of credit from Greyrock Business Credit with a borrowing limit of
$6,000,000. Borrowings under this line of credit were limited to 80% of
eligible receivables and interest was at the greater of LIBOR plus 5.25% or
9%. At December 31, 1996, the outstanding balance under this line of credit
was $2,015,000.
In October 1997, Paradigm renewed its line of credit with Greyrock Business
Credit. Borrowing is limited to the lesser of $5,000,000 or the sum of (a) 80%
of the amount of eligible receivables owing from original equipment
manufacturers; plus (b) 70% of the amount of eligible receivables owing from
distributors. The interest rate remained unchanged from the November 1996
agreement. The line of credit is subject to renewal again in October 1998,
unless prior notice is given by either party to terminate the agreement. The
line of credit is secured by Paradigm's trade receivables, inventory,
equipment and general intangibles. At December 31, 1997, the outstanding
balance under the line of credit was $1,719,000.
Debt obligations aggregating $534,000 consist of outstanding promissory
notes which bear interest at rates ranging from 8.0% to 19.8% at December 31,
1997, and are repayable at various dates through 1999. These notes are secured
by the related equipment purchased.
NOTE 6--NEWLOGIC ACQUISITION:
In June 1996, Paradigm acquired, through a stock purchase and merger
transaction, NewLogic, a company which develops and manufactures logic designs
with large memory arrays. In exchange for its purchase of the NewLogic capital
stock, Paradigm issued 31,439 shares of Paradigm's common stock, with a market
value of approximately $2,656,000, and approximately $825,000 in cash. In
addition, Paradigm incurred transaction costs of approximately $237,000. The
fair value of NewLogic's tangible net assets at the date of acquisition was a
deficit of $373,000. Approximately $3,841,000 of the purchase price in excess
of the fair market value of the net
F-11
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
tangible assets was allocated to in-process technology which Paradigm wrote
off in the quarter ended June 30, 1996. Approximately $250,000 was allocated
to other intangibles. The unamortized balance of these other intangibles was
written off in connection of the shutdown of NewLogic in early 1997.
Paradigm accounted for this acquisition using the purchase method of
accounting and accordingly, the results of operations and cash flows of the
acquisition were included only from the date of acquisition. Excluding the
$3,841,000 write-off of purchased in-process technology, the pro forma impact
on Paradigm's results of operations had the acquisition been consummated on
January 1, 1995 was not materially different from the results presented in the
accompanying statement of operations.
NOTE 7--CONVERTIBLE PREFERRED STOCK:
On January 23, 1997, Paradigm sold a total of 200 shares of Series A
Preferred Stock in a private placement, 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 includes cumulative dividends at 5% per annum.
The Series A Preferred Stock also includes an embedded discount on conversion
which was accreted from the issuance date through April 23, 1997, the date
upon which the Series A Preferred Stock became convertible. The accretion of
the embedded discount and the cumulative dividends were treated as a charge to
accumulated deficit. Also in connection with the sale of the Series A
Preferred Stock Paradigm issued a warrant to purchase 15,000 shares of its
Common Stock for $41.25 per share. The warrant is exercisable until January
22, 2000. Paradigm valued these warrants at $67,000 using the Black/Scholes
option pricing model.
The Series A 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 A
Preferred Stock being converted by (B) the Series A Conversion Price in effect
at the time of conversion. The "Series A Conversion Price" is equal to the
lower of (i) $22.50 or (ii) eighty-two percent (82%) of the average closing
bid price of a share of Common Stock as quoted on the SCM (or quoted on such
other national or regional securities exchange or automated quotation system
upon which the Common Stock is listed and principally traded) over the five
(5) consecutive trading days immediately preceding the date of notice of
conversion of the Series A Preferred Stock. During 1997, the holders of the
Series A Preferred Stock converted 149 shares of the Series A Preferred Stock
into 239,605 shares of Paradigm's Common Stock. As of December 31, 1997, there
were 51 shares of the Series A Preferred Stock outstanding.
On July 22, 1997, Paradigm sold a total of 200 shares of Series B Preferred
Stock in a private placement 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 includes cumulative dividends at 5% per annum. The
Series B Preferred Stock also includes an embedded discount on conversion
which was accreted from the issuance date through September 10, 1997, the date
upon which the Series B Preferred Stock became convertible. The accretion of
the embedded discount and the cumulative dividends have been treated as a
charge to accumulated deficit.
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 Series B Conversion Price in effect
at the time of conversion. The "Series B Conversion Price" will be equal to
the lower of (i) $13.75 or (ii) eighty-two percent (82%) of the average
closing bid price of a share of Common Stock as quoted on the SCM (or quoted
on such other national or regional securities exchange or automated quotation
system upon which the Common Stock is listed and principally traded) over the
five (5) consecutive trading days immediately preceding the date of notice of
conversion of the Series B
F-12
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock. During 1997, the holders of the Series B Preferred Stock
converted 94 shares of the Series B Preferred Stock into 136,040 shares of
Paradigm's Common Stock. As of December 31, 1997, there were 106 shares of the
Series B Preferred Stock outstanding.
The Series A Preferred Stock and Series B Preferred Stock agreements
contained restrictions on the number of shares of Common Stock that were
issuable on the conversion of the Series A Preferred Stock and Series B
Preferred Stock. Shares of Preferred Stock which were not convertible as a
result of these restrictions were redeemable by Paradigm for cash. On
September 26, 1997 at a Special Meeting of Shareholders, the Stockholders
approved the elimination of the restrictions on the number of shares of Common
Stock issuable on the conversion of the Series A Preferred Stock and Series B
Preferred Stock.
On November 27, 1997, Paradigm sold a total of 100 shares of Series C
Preferred Stock in a private placement at a price of $10,000 per share, for
total proceeds (net of payments to third parties) of approximately $923,000.
The Series C Preferred Stock includes cumulative dividends at 5% per annum.
The Series C Preferred Stock also includes an embedded discount on conversion
which was accreted from the issuance date through January 27, 1998, the date
upon which the Series C Preferred Stock became convertible. The accretion of
the embedded discount and the cumulative dividends have been treated as a
charge to accumulated deficit.
The Series C 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 C
Preferred Stock being converted by (B) the Series C Conversion Price in effect
at the time of conversion. The "Series C Conversion Price" will be equal to
the lower of (i) $5.90 or (ii) eighty-two percent (82%) of the average closing
bid price of a share of Common Stock as quoted on the SCM (or quoted on such
other national or regional securities exchange or automated quotation system
upon which the Common Stock is listed and principally traded) over the five
(5) consecutive trading days immediately preceding the date of notice of
conversion of the Series C Preferred Stock. During 1997, none of the Series C
Preferred Stock was converted into shares of Paradigm's Common Stock.
NOTE 8--STOCK COMPENSATION PLANS:
The 1994 Stock Option Plan ("Option Plan") was established on June 21, 1994.
Under the Option Plan, the maximum aggregate number of shares which may be
issued under the Option Plan upon exercise of options is 149,800 shares
(subject to a 3% increase each January 1st). Nonstatutory stock options may be
granted to employees, outside directors and consultants, whereas incentive
stock options can only be granted to employees. Options are generally granted
at fair market value subject to the following:
(a) With respect to options granted to an employee who, at the time of
the grant owns stock representing more than 10% of the voting power of all
classes of stock of Paradigm or any parent or subsidiary, the per share
exercise price shall be no less than 110% of the fair market value on the
date of the grant for incentive and nonstatutory stock options.
(b) With respect to options granted to any employee other than described
in the preceding paragraph, the exercise price shall be no less than 100%
for incentive stock options and 85% for nonstatutory stock options of the
fair market value on the date of the grant.
The Option Plan separately reserves 15,000 shares of common stock for option
grants to outside directors. Grant of options to Paradigm's outside directors
are made upon appointment to the Board of Directors and in annual increments
thereafter. The exercise price of options granted is the fair market value at
the date of grant.
F-13
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Nonstatutory stock option activity under the Option Plan was as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of period......................... 73 90 114
Granted.................................................. 41 118 105
Canceled................................................. (16) (70) (108)
Exercised................................................ (8) (24) (4)
--- --- ----
Outstanding at December 31................................. 90 114 107
--- --- ----
Exercisable at December 31................................. 38 30 42
--- --- ----
Available for Grant at December 31......................... 31 15 18
--- --- ----
</TABLE>
Weighted average option exercise price information for the years 1995, 1996
and 1997 as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Outstanding at beginning of period.................... $ 3.20 $43.00 $45.40
Granted during the year............................... 102.60 62.00 15.30
Canceled during the year.............................. 33.50 82.40 48.50
Exercised during the year............................. 4.30 5.80 3.00
Outstanding at December 31............................ 43.00 45.40 12.20
Exercisable at December 31............................ 13.60 27.70 11.70
</TABLE>
Significant option groups outstanding at December 31, 1997, and related
weighted average price and life information follows (options in thousands):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------ ------------- WEIGHTED AVERAGE
REMAINING
EXERCISE PRICES SHARES PRICE SHARES PRICE LIFE (YEARS)
--------------- ------ ----- ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
$2.50-3.00....................... 30 $2.80 17 $ 3.00 8.1
$3.10-13.10...................... 25 11.50 5 10.90 9.5
$13.80-18.10..................... 22 14.60 6 14.80 9.4
$18.80-20.60..................... 30 20.60 14 20.60 8.0
</TABLE>
Options granted vest over a period of four years. The term of the options
shall be no longer than 10 years. All options were granted at an exercise
price equal to the fair market value of Paradigm's common stock at the date of
grant. The weighted average fair value at date of grant for options granted
during 1995, 1996 and 1997 was $53.40, $27.40 and $14.40 per option,
respectively. The fair value of options at date of grant was estimated using
the Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (years)...................................... 5 5 5
Risk free interest rate.................................... 6.9% 6.6% 6.2%
Volatility................................................. 48% 50% 168%
Dividend yield............................................. -- -- --
</TABLE>
In April 1995, the board of directors of Paradigm adopted the Paradigm
Technology, Inc. Employee Stock Purchase Plan (the "ESPP") to provide
employees of Paradigm with an opportunity to purchase common stock through
payroll deductions. The ESPP became effective upon the closing of Paradigm's
initial public offering in July 1995. Under the ESPP, 25,000 shares of common
stock have been reserved for issuance to full-time employees employed with
Paradigm for at least three consecutive months.
F-14
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the ESPP, the purchase price of the common stock will be equal to 85%
of the lower of (i) the market price of common stock immediately before the
beginning of the applicable participation period or (ii) the market price of
common stock at the time of purchase. In general, each participation period is
24 months long, with a new participation period beginning every six months.
During 1996 and 1997, 7,678 and 2,500 shares were issued under the plan. The
fair value of the employee's purchase rights was estimated using the Black-
Scholes model with the following assumptions for 1995, 1996 and 1997,
respectively; dividend yield of 0% in all years; an expected life of two years
for each purchase period; expected volatility of 48%, 50% and 168%; and risk
free interest rates of 6.2%, 6.3% and 6.2%. The weighted-average fair value of
these purchase rights granted in 1995, 1996 and 1997 was $53.70, $47.80 and
$18.70, respectively.
Had compensation expense for Paradigm's stock-based compensation plans been
determined based on the methods prescribed by SFAS No. 123, Paradigm's net
income (loss) and net income (loss) per share would have been as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
Net income (loss):
As reported..................................... $5,263 $(36,425) $(8,911)
Pro forma....................................... 5,024 (37,272) (9,704)
Diluted Net income (loss) per share:
As reported..................................... $ 9.14 $ (51.59) $(11.87)
Pro forma....................................... 8.72 (52.79) (12.79)
</TABLE>
NOTE 9--INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Federal:
Current........................................... $ 1,673 $ (1,125) $ --
State:
Current........................................... 472 -- --
------- -------- ------
$ 2,145 $ (1,125) $ --
======= ======== ======
</TABLE>
The components of the net deferred tax asset were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Inventory and other reserves............................. $ 3,052 $ 899
Depreciation and capital leases.......................... 972 328
Other.................................................... 551 122
Net operating losses..................................... 13,885 20,232
-------- --------
18,460 21,581
Less valuation allowance................................. (18,460) (21,581)
-------- --------
$ -- $ --
======== ========
</TABLE>
F-15
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Paradigm's effective tax rate for 1995, 1996 and 1997 was 29%, (3%) and
(0%), respectively. This rate differs from the federal statutory rate due
principally to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Tax at statutory rate...................... 34 % (34)% (34)%
State taxes, net of federal benefit........ 6 (6) (6)
Tax losses not recognized.................. (11) 37 40
------- ------- -------
Net operating losses and tax credits uti-
lized..................................... 29 % (3)% 0 %
======= ======= =======
</TABLE>
Paradigm has established a valuation allowance equal to its deferred tax
assets on the basis that realization of such assets is not probable.
Management's assessment is based on Paradigm's current net operating losses.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. Paradigm experienced ownership changes as a result of
the Reorganization of Paradigm in 1994. As a result of the conversion of
Preferred Stock to Common Stock, Paradigm experienced a change in ownership
subsequent to December 31, 1997. As a result of this change in ownership,
approximately $4 million of net operating losses will be available to Paradigm
through 2012.
NOTE 10--CAPITAL LEASE OBLIGATIONS AND COMMITMENTS:
In December 1996, Paradigm entered into an agreement to lease its new
principal administrative facility under an operating lease expiring in 2002.
Future minimum payments under noncancelable operating leases at December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING OPERATING
DECEMBER 31, LEASES
------------ ---------
<S> <C>
1998........................................................... $ 460
1999........................................................... 473
2000........................................................... 485
2001........................................................... 490
2002........................................................... 40
------
$1,948
======
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$715,000, $680,000 and $475,000, respectively.
NOTE 11--SALE OF WAFER FABRICATION FACILITY:
Paradigm recorded a loss of $4.6 million in the quarter ended December 31,
1996 as a result of the sale of its wafer fabrication facility. This charge
included the excess of the net book value of leasehold improvements, wafer
fabrication equipment, fabrication work in process inventory and other assets
sold to Orbit Semiconductor, Inc. ("Orbit") over the proceeds received from
Orbit, professional fees, a reserve for an adverse purchase commitment related
to the wafer manufacturing agreement and accruals for other estimated costs.
Orbit paid to Paradigm aggregate consideration of $20 million consisting of
$6.7 million in cash, assumption of $7.5 million of indebtedness associated
with and secured by the Fab, and promissory notes in the principal amounts of
$4.8 million and $1.0 million.
The $4.8 million promissory note was issued in connection with a wafer
supply agreement that required Orbit to supply Paradigm with approximately
9,750 of certain fabricated wafers through May 1997 at $500 per wafer
purchased by Paradigm. In accordance with the terms of the promissory note and
wafer supply agreement, for each wafer purchased from Orbit no cash payment
was required to be made, however, the amount of the promissory note receivable
was reduced by $500 for each wafer purchased. Accordingly, as Paradigm
purchased wafers from Orbit, the outstanding balance of the promissory note
receivable was reduced and inventory was recorded. No balance remained on this
note at December 31, 1997.
F-16
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The $1.0 million promissory note was held in escrow to satisfy certain
representation and warranties made by Paradigm. In July 1997, Paradigm
negotiated an accelerated payment on the $1.0 million promissory note held in
escrow. As part of the agreement, Paradigm allowed Orbit to retain $250,000
for repairs on equipment purchased as part of the Fab sale and certain
additional amounts for other matters, and Paradigm received a net payment of
$750,000 in 1997. No balance remained on this note at December 31, 1997.
In connection with the sale of the Fab, substantially all of the 109
employees associated with the Fab were terminated and became employees of
Orbit. No severance payments were made to employees transferred to Orbit.
NOTE 12--LITIGATION:
On August 12, 1996, a securities class action lawsuit was filed in Santa
Clara County Superior Court against Paradigm and certain of its officers and
directors (the "Paradigm Defendants") and PaineWebber, Inc. The class alleged
by plaintiffs consisted of purchasers of Paradigm's Common Stock from November
20, 1995 to March 22, 1996, inclusive (the "Class Period"). 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 unspecified amount of
compensatory and punitive damages. Plaintiffs allege, among other things, that
the Paradigm Defendants wrongfully represented that Paradigm would have
protection against adverse market conditions in the semiconductor market based
on Paradigm'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 against Michael
Gulett and as to all causes of actions, except for violation of certain
provisions of the California Corporate Securities Law, against the remaining
Paradigm Defendants. 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. 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.
On January 15, 1997, plaintiffs filed a motion to certify the matter as a
class action. Plaintiffs sought by their motion to certify a nationwide class
of those who purchased Paradigm's stock during the Class Period. After several
hearings and continuances, on February 9, 1998 the Court certified a class
consisting only of California purchasers of Paradigm's stock during the Class
Period. Plaintiffs have set a hearing date of April 9, 1998 for a motion to
amend their complaint to incorporate factual allegations derived from the
February 21, 1997 action described below. There can be no assurance that
Paradigm will be successful in the defense of this action. 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, Paradigm'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 Paradigm 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. Prior to the hearing on the Paradigm
Defendants' demurrer to the initial complaint, plaintiff amended his complaint
to incorporate factual allegations derived from the May 19, 1997 lawsuit
described below. The Paradigm Defendants filed a demurrer to the amended
complaint, which was heard on September 9, 1997. On September 10, 1997, the
Court issued an order sustaining the Paradigm Defendants' demurrer as to all
causes of action without leave to amend. A judgment in favor of the Paradigm
Defendants dismissing the entire complaint was entered by the Court on
F-17
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
September 23, 1997. Plaintiffs have appealed the decision and filed a brief in
support of its appeal. The Paradigm Defendants' responsive brief is due to be
filed March 30, 1998. There can be no assurances that Paradigm will be
successful in defeating the appeal. Even if Paradigm is successful in
defeating the appeal, it may incur substantial legal fees and other expenses
related to this appeal. If unsuccessful in defeating the appeal, Paradigm's
business operating results and cash flows could be materially adversely
affected.
On May 19, 1997, several former employees of Paradigm filed an action in
Santa Clara County Superior Court. The complaint names as defendants Paradigm,
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 described
above. 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 Paradigm's stock at allegedly inflated
prices and were damaged thereby. The plaintiffs seek an unspecified amount of
compensatory, rescissory and/or punitive damages. Defendants responded to the
complaint on September 12, 1997 by filing a demurrer as to all causes of
action. Prior to the hearing on the demurrer, Plaintiffs amended their
complaint to identify two allegedly fraudulent sale transactions. On February
20, 1998, defendants filed a demurrer as to all causes of action in the
amended complaint, which is set to be heard April 2, 1998. Plaintiffs have
served Paradigm and two of the individual defendants with requests for
production of documents, to which Paradigm and the individual defendants have
responded. Paradigm has served plaintiff with form interrogatories, to which
they have responded. There can be no assurance that Paradigm 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, Paradigm's business, operating
results and cash flows could be materially adversely affected.
Paradigm is involved in various other litigation and potential claims which
management believes, based on facts presently known, will not have a material
adverse effect on the results of operations or the financial position of
Paradigm.
NOTE 13--SUBSEQUENT EVENTS:
In January and February, 1998, holders of the Series A Preferred Stock,
Series B Preferred Stock, and Series C Preferred Stock converted additional
shares of the Preferred Stock into Paradigm's Common Stock, as follows:
<TABLE>
<CAPTION>
SHARES OF SHARES OF
PREFERRED STOCK COMMON STOCK
SERIES CONVERTED ISSUED
------ ---------------- -------------
<S> <C> <C>
A 21 107,565
B 38 166,840
C 15 52,700
</TABLE>
On March 6, 1998, Paradigm entered into a definitive merger agreement
providing for the acquisition of all of the outstanding capital stock of IXYS
Corporation ("IXYS") in exchange for Common Stock of Paradigm. The exchange
ratio in the Merger for the IXYS equity securities will be the greater of two
ratios. The first ratio provides that upon the Merger the holders of equity
securities of IXYS hold 95% of the fully diluted capitalization of the
combined company and that the holders of equity securities of Paradigm will
hold 5% of the fully diluted capitalization of the combined company. (As used
herein, fully diluted capitalization means the sum of the number of shares of
common stock outstanding and issuable upon exercise or conversion of all
outstanding preferred stock, warrants, options and other rights.) The second
ratio provides that the value associated with the fully diluted capitalization
of IXYS, at the time of the consummation of the Merger, be at least $150
million, based upon an average of the closing prices of Paradigm's Common
Stock prior to Paradigm's stockholders meeting. Consummation of the merger
requires the approval of Paradigm's and IXYS' stockholders and various
regulatory approvals. If approved, the transaction is anticipated to be
accounted for as a purchase of Paradigm by IXYS for financial reporting
purposes.
F-18
<PAGE>
PARADIGM TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------
MAR. 29, MAR. 31,
1998 1997
-------- --------
<S> <C> <C>
Sales, net................................................... $1,914 $ 3,572
Cost of goods sold........................................... 1,770 3,314
------ -------
Gross profit................................................. 144 258
------ -------
Operating expenses:
Research and development................................... 304 1,183
Selling, general and administrative........................ 744 1,625
------ -------
Total operating expenses................................. 1,048 2,808
------ -------
Operating loss............................................... (904) (2,550)
Interest expense............................................. 71 42
Other (income) expense, net.................................. (38) 30
------ -------
Net loss..................................................... $ (937) $(2,622)
====== =======
Accretion on preferred stock................................. $ (30) $ (388)
Net loss attributable to Common Stockholders................. $ (967) $(3,010)
====== =======
Basic and diluted loss per share............................. $(0.68) $ (4.16)
====== =======
Weighted average shares outstanding.......................... 1,420 724
====== =======
</TABLE>
See accompanying notes to condensed financial statements.
F-19
<PAGE>
PARADIGM TECHNOLOGY, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAR. 29 DEC. 31,
1998, 1997
-------- --------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 218 $ 461
Accounts receivable, net.................................. 1,346 2,705
Inventory................................................. 2,722 2,580
Other current assets...................................... 397 544
-------- --------
Total current assets.................................... 4,683 6,290
Property and equipment, net............................... 2,518 2,737
Other assets.............................................. 263 263
-------- --------
Total assets............................................ $ 7,464 $ 9,290
======== ========
Liabilities and stockholders' equity
Line of credit............................................ $ 1,265 $ 1,719
Accounts payable and other accrued liabilities............ 3,545 3,964
Current portion, long-term debt........................... 179 192
-------- --------
Total current liabilities............................... 4,989 5,875
-------- --------
Long-term debt............................................ 347 342
Deferred rent............................................. 52 64
-------- --------
Total liabilities....................................... 5,388 6,281
-------- --------
Capital stock............................................. 43,215 43,181
Accumulated deficit....................................... (41,139) (40,172)
-------- --------
Total stockholders' equity.............................. 2,076 3,009
-------- --------
Total liabilities and stockholders' equity............ $ 7,464 $ 9,290
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-20
<PAGE>
PARADIGM TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
-----------------
MAR. 29, MAR. 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (937) $(2,622)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization.............................. 219 643
Loss on disposition of fixed assets........................ -- 290
Changes in operating assets and liabilities:
Accounts receivable....................................... 1,359 120
Inventory................................................. (142) (1,165)
Other assets.............................................. 147 3,162
Accounts payable, accrued expenses and other liabilities.. (431) (1,164)
------ -------
Net cash provided by (used in) operating activities......... 215 (736)
------ -------
Cash flows used in investing activities:
Purchases of capital equipment.............................. -- (261)
------ -------
Cash flows from financing activities:
Line of credit.............................................. (454) (70)
Payments on capital leases.................................. (20) (35)
Issuance of notes payable................................... 12 --
Issuance of common stock.................................... 4 (10)
Issuance of Convertible Preferred Stock..................... -- 1,880
------ -------
Net cash provided by financing activities.................... (458) 1,765
------ -------
Net increase (decrease) in cash and cash equivalents......... (243) 768
Cash and cash equivalents:
Beginning of period......................................... 461 587
------ -------
End of period............................................... $ 218 $ 1,355
====== =======
Supplemental cash flow information:
Interest paid............................................... $ 71 $ 42
====== =======
Income taxes paid........................................... $ -- $ --
====== =======
Supplemental disclosure of non cash items:
Issuance of warrant in connection with sale of Convertible
Preferred Stock............................................ $ -- $ 67
====== =======
Accretion on Convertible Preferred Stock.................... $ 30 $ 388
====== =======
</TABLE>
See accompanying notes to condensed financial statements.
F-21
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The unaudited condensed financial statements have been prepared by Paradigm
Technology, Inc. ("Paradigm" or the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed
or omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited interim condensed financial
statements included herein have been prepared on the same basis as the
December 31, 1997 audited financial statements, contained in the Company's
annual report on Form 10-K filed on March 24, 1998 and include all
adjustments, consisting of only normal recurring adjustments, necessary to
fairly state the information set forth therein. Results for the three month
period ended March 29, 1998 are not necessarily indicative of the results to
be expected for the entire year.
The preparation of the interim condensed financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the interim condensed consolidated financial statements and the reported
amounts of revenue and expenses during the report period. Actual results could
differ from estimates.
The Company markets high speed high density Static Random Access Memory
("SRAM") products for uses in telecommunication devices, workstations and high
performance personal computers to Original Equipment Manufacturers and
distributors in the United States, Europe and the Far East.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices. During the latter part of 1995 continuing into 1996, 1997 and the
first three months of 1998, the market for certain SRAM devices experienced an
excess supply relative to demand which resulted in a significant downward
trend in prices.
The selling prices that the Company is able to command for its products are
highly dependent on industry-wide production capacity and demand. In this
regard, the Company did experience rapid erosion in product pricing in 1996,
1997 and during the first three months of 1998 which was not within the
control of the Company. The Company could continue to experience a downward
trend in pricing which could adversely affect the Company's operating results.
The Company's recent operations have consumed substantial amounts of cash.
During 1997, the Company completed the private placement of Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock for aggregate
net proceeds of approximately $4,673,000. The Company believes that it will
require additional cash infusion from similar private placements of equity or
other sources of liquidity, such as asset sales and equipment financing to
meet the Company's projected working capital and other cash requirements. The
sale of additional equity or other securities could result in additional
dilution to the Company's stockholders. There can be no assurance that such
additional financing, if required, can be obtained on acceptable terms, if at
all.
As a result of these circumstances, the Company's independent accountants'
opinion on the Company's December 31, 1997 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.
F-22
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
On March 6, 1998, the Company entered into a definitive merger agreement
providing for the acquisition of all of the outstanding capital stock of IXYS
Corporation ("IXYS") in exchange for Common Stock of the Company. The exchange
ratio in the Merger for the IXYS equity securities will be the greater of two
ratios. The first ratio provides that upon the Merger the holders of equity
securities of IXYS hold 95% of the fully diluted capitalization of the
combined company and that the holders of equity securities of the Company will
hold 5% of the fully diluted capitalization of the combined company. (As used
herein, fully diluted capitalization means the sum of the number of shares of
common stock outstanding and issuable upon exercise or conversion of all
outstanding preferred stock, warrants, options and other rights.) The second
ratio provides that the value associated with the fully diluted capitalization
of IXYS, at the time of the consummation of the Merger, be at least $150
million, based upon an average of the closing prices of the Company's Common
Stock prior to the Company's stockholders meeting. Consummation of the merger
requires the approval of the Company's and IXYS' stockholders and various
regulatory agency approvals. If approved, the transaction is anticipated to be
accounted for as a purchase of the Company by IXYS for financial reporting
purposes.
This report on Form 10-Q for the quarter ended March 29, 1998 should be read
in conjunction with the audited financial statements as of December 31, 1997,
and the notes thereto included in the Company's Annual Report on Form 10-K
filed on March 24, 1998.
NOTE 2: REVERSE STOCK SPLIT
On May 1, 1998, the Company's stockholders approved a 10-for-1 reverse stock
split of the Company's common stock, such that every 10 shares shall be
combined into one share of common stock. All prior period common shares and
per share data in these condensed financial statements have been restated to
reflect this stock split.
NOTE 3: NET INCOME (LOSS) PER SHARE
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 requires presentation of both Basic EPS and Diluted EPS. Basic EPS is
computed by dividing net income available to common stockholders (numerator)
by the weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during a period. In computing Diluted EPS, the average
price for the period is used in determining the number of shares assumed to be
purchased from exercise of stock options, warrants and Convertible Preferred
Stock. Net income (loss) per share for all prior periods presented has been
restated to conform to the provisions of SFAS 128.
F-23
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the period presented below.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------
MAR.
MAR. 29, 31,
1998 1997
-------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net income (loss)......................................... $ (937) $(2,622)
Accretion related to Convertible Preferred Stock.......... (30) (388)
------ -------
Net income attributable to common shareholders............ $ 967 $(3,010)
====== =======
Shares calculation:
Average shares outstanding-basic.......................... 1,420 724
Effect of dilutive securities:
Stock options and warrants.............................. -- --
Convertible Preferred Stock............................. -- --
------ -------
Average shares outstanding-diluted........................ 1,420 724
====== =======
Net income (loss) per share-basic......................... $(0.68) $ (4.16)
====== =======
Net income (loss) per share-diluted....................... $(0.68) $ (4.16)
====== =======
</TABLE>
Options to purchase shares of common stock and shares issuable upon the
conversion of shares of Convertible Preferred Stock were not included in the
computation of diluted EPS because the inclusion of such options and shares
would have been antidilutive.
NOTE 4: BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
MAR. 29, DEC. 31,
1998 1997
-------- --------
<S> <C> <C>
Inventory (in thousands):
Work in process........................................ $ 1,743 $ 1,562
Finished goods......................................... 979 1,018
------- -------
$ 2,722 $ 2,580
======= =======
Property and equipment (in thousands):
Machinery and equipment................................ $ 4,081 $ 4,081
Leasehold improvements................................. 245 245
Furniture and fixtures................................. 115 115
------- -------
4,441 4,441
Less accumulated depreciation.......................... (1,923) (1,704)
------- -------
$ 2,518 $ 2,737
======= =======
</TABLE>
F-24
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 5: 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") and PaineWebber, Inc. The class
alleged by plaintiffs consisted of purchasers of the Company's Common Stock
from November 20, 1995 to March 22, 1996, inclusive (the "Class Period"). The
complaint alleged 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 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 against Michael Gulett and as to all causes of actions, except for
violation of certain provisions of the California Corporate Securities Law,
against the remaining Paradigm Defendants. 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. 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. On January 15, 1997, plaintiffs filed a motion to
certify the matter as a class action. Plaintiffs sought by their motion to
certify a nationwide class of those who purchased the Company's stock during
the Class Period. After several hearings and continuances, on February 9, 1998
the Court certified a class consisting only of California purchasers of the
Company's stock during the Class Period. On April 9, 1998, the Court granted
plaintiff's motion to amend their complaint to incorporate factual allegations
derived from the May 19, 1997 action described below. There can be no
assurance that the Company will be successful in the defense of this action.
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. Prior to the hearing on the Paradigm
Defendants' demurrer to the initial complaint, Plaintiff amended his complaint
to incorporate factual allegations derived from the May 19, 1997 lawsuit
described below. The Paradigm Defendants filed a demurrer to the amended
complaint, which was heard on September 9, 1997. On September 10, 1997, the
Court issued an order sustaining the Paradigm Defendants' demurrer as to all
causes of action without leave to amend. A judgment in favor of the Paradigm
Defendants dismissing the entire complaint was entered by the Court on
September 23, 1997. Plaintiff has appealed the decision and filed a brief in
support of his appeal. The Paradigm Defendants' responsive brief was filed on
March 30, 1998. There can be no assurances that the Company will be successful
in defeating the appeal. Even if Paradigm is successful in defeating the
appeal, it may incur substantial legal fees and other expenses related to this
appeal. If unsuccessful in defeating the appeal, the Company's business,
operating results and cash flows could be materially adversely affected.
On May 19, 1997, three 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
F-25
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 described above. 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 allegedly inflated prices and were damaged thereby. The
plaintiffs seek an unspecified amount of compensatory, rescissory and/or
punitive damages. Defendants responded to the complaint on September 12, 1997
by filing a demurrer as to all causes of action. Prior to the hearing on the
demurrer, Plaintiffs amended their complaint to identify two allegedly
fraudulent sale transactions. Defendants filed a demurrer as to all causes of
action in the amended complaint, which was heard on April 2, 1998. That same
day, the Court issued its order sustaining the demurrer on multiple grounds,
but granted plaintiffs leave to amend the complaint by May 15, 1998.
Plaintiffs have served the Company and two of the individual defendants with
requests for production of documents, to which the Company and the individual
defendants have responded. Plaintiffs also took the deposition of a third
party on April 23, 1998. The Company has served plaintiffs with form
interrogatories and requests for production of documents, to which they have
responded. The Company also took plaintiffs' depositions on April 20-22, 1998.
The deposition of one of the plaintiffs is continuing. There can be no
assurance that the Company will be successful in the defense of this action.
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.
NOTE 6: PREFERRED STOCK
During the quarter ended March 29, 1998, and cumulatively since issuance of
Convertible Preferred Stock, conversions of Convertible Preferred Stock into
common stock were as follows (restated for the 10-for-1 reverse stock split
effective May 1, 1998):
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 29, 1998 CUMULATIVE
----------------- -----------------
PREFERRED COMMON PREFERRED COMMON
SHARES SHARES SHARES SHARES
CONVERTED ISSUED CONVERTED ISSUED
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Series A................................. 21 107,565 170 347,170
Series B................................. 55 223,828 149 359,868
Series C................................. 50 194,379 50 194,379
--- ------- --- -------
126 525,772 369 901,417
=== ======= === =======
</TABLE>
As of March 31, 1998, shares of Convertible Preferred Stock outstanding were
as follows:
<TABLE>
<S> <C>
Series A......... 30
Series B......... 51
Series C......... 50
</TABLE>
In April 1998, 8 shares of Series B Convertible Preferred Stock were
converted into 39,373 shares of common stock and 11 shares of Series C
Convertible Preferred Stock were converted into 53,263 shares of common stock.
F-26
<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
(UNAUDITED)
NOTE 7: OPTION REPRICING
In March 1998, the Company's Board agreed that in order to provide
incentives to its employees and directors, repricing of outstanding options
was needed to align the option exercise price more closely with the fair
market value of the underlying Common Stock as determined by the marketplace.
Therefore, the Company implemented a program whereby option holders could
exchange higher priced option shares for the same number of lower priced
option shares. The new options were issued on March 6, 1998 at $3.187 per
share, which is 85% of the fair market value of $3.75. Executive officers must
remain active on the Company's payroll to exercise their new options. All
executive officers and directors holding options were eligible to participate
in this program. A total of approximately 118,000 shares were repriced which
will result in compensation expense aggregating $67,000, which will be
recorded over the remaining vesting period of the repriced options.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
IXYS Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of IXYS
Corporation and Subsidiary as of March 31, 1997 and 1998, and the related
consolidated statements of income, stockholders' deficit and cash flows for
each of the three years in the period ended March 31, 1998. These financial
statements are the responsibility of IXYS' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IXYS
Corporation and Subsidiary as of March 31, 1997 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
May 1, 1998
F-28
<PAGE>
IXYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
<CAPTION>
Current assets:
<S> <C> <C>
Cash and cash equivalents................................ $ 6,640 $ 9,644
Restricted cash.......................................... 1,591 950
Accounts receivable, less allowance for doubtful accounts
of $467 in 1997 and $588 in 1998........................ 8,151 10,009
Inventories.............................................. 11,589 17,103
Deferred income taxes.................................... 4,585 1,617
-------- --------
Total current assets................................... 32,556 39,323
Plant and equipment, net................................... 3,383 10,602
Other assets............................................... 414 1,143
Deferred income taxes...................................... 3,057 3,272
-------- --------
Total.................................................. $ 39,410 $ 54,340
======== ========
LIABILITIES
Current liabilities:
Current portion of capitalized lease obligations......... $ 344 $ 428
Current portion of notes payable to bank................. 2,500 4,168
Current portion of mandatorily redeemable preferred
stock................................................... 9,300
Accounts payable......................................... 2,116 4,474
Accrued expenses and other liabilities................... 7,936 7,119
-------- --------
Total current liabilities.............................. 12,896 25,489
Notes payable to bank, net of current portion.............. 6,624
Capitalized lease obligations, net of current portion...... 874 814
Pension liabilities........................................ 5,213 5,113
Commitments and contingencies (Note 7)
Series A and B mandatorily redeemable convertible preferred
stock, $.001 par value:
Authorized: 116,000,000 shares in 1997 and 1998;
Issued and outstanding: 111,409,671 shares in 1997 and
1998 (Aggregate liquidation value of $37,589 in 1997 and
1998), net.............................................. 37,556 28,256
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value:
Authorized: 250,000,000 shares in 1996, 1997 and 1998
Issued and outstanding: 72,538,470 shares in 1997 and
72,211,873 shares in 1998............................... 73 72
Additional paid-in capital................................. 1,002 1,001
Notes receivable from stockholders......................... (942) (936)
Accumulated deficit........................................ (17,443) (11,359)
Cumulative translation adjustment.......................... 181 (734)
-------- --------
Total common stock, additional paid-in capital, notes re-
ceivable from stockholders, accumulated deficit, and cu-
mulative translation adjustment......................... (17,129) (11,956)
-------- --------
Total.................................................. $ 39,410 $ 54,340
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
IXYS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net revenues....................................... $57,436 $55,322 $56,856
Cost of goods sold................................. 35,629 34,158 38,048
------- ------- -------
Gross profit..................................... 21,807 21,164 18,808
------- ------- -------
Operating expenses:
Research, development and engineering............ 3,423 3,015 3,329
Selling, general and administrative.............. 9,430 8,950 8,384
------- ------- -------
Total operating expenses....................... 12,853 11,965 11,713
------- ------- -------
Operating income............................. 8,954 9,199 7,095
Interest expense................................... (78) (116) (431)
(Gain) loss on foreign currency transactions....... (32) (246) 183
Other income (expense), net........................ (1,578) (484) 3,466
------- ------- -------
Income before income tax benefit (provision)..... 7,266 8,353 10,313
Income tax benefit (provision)..................... 4,327 (3,946) (4,229)
------- ------- -------
Net income......................................... $11,593 $ 4,407 $ 6,084
======= ======= =======
Net income per share--basic........................ $ 0.45 $ 0.08 $ 0.09
======= ======= =======
Number of shares used in per share calculation--ba-
sic............................................... 25,709 53,478 65,501
======= ======= =======
Net income per share--diluted...................... $ 0.09 $ 0.02 $ 0.03
======= ======= =======
Number of shares used in per share calculation--di-
luted............................................. 124,093 208,280 201,866
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-30
<PAGE>
IXYS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------
ADDITIONAL NOTES CUMULATIVE TOTAL
PAID-IN RECEIVABLE FROM ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT ADJUSTMENT DEFICIT
------ ------ ---------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31,
1995................... 2,426 $ 2 $ 205 $(100) $(33,443) $ 513 $(32,823)
Issuance of common stock
under the restricted
stock purchase
agreement.............. 67,565 68 810 878
Exercise of stock op-
tions.................. 2,730 2 7 9
Cancellation of
promissory notes....... (267) (30) (30)
Issuance of notes
receivable from
stockholders........... (878) (878)
Payment of notes
receivable from
stockholders........... 42 42
Foreign currency
translation of
adjustments............ 187 187
Net income.............. 11,593 11,593
------ --- ------ ----- -------- ----- --------
Balances, March 31,
1996................... 72,454 72 992 (936) (21,850) 700 (21,022)
Exercise of stock op-
tions.................. 40 1 3 4
Exercise of stock war-
rants.................. 16 1 1
Issuance of note
receivable for common
stock.................. 28 6 (6)
Foreign currency
translation
adjustments............ (519) (519)
Net income.............. 4,407 4,407
------ --- ------ ----- -------- ----- --------
Balances, March 31,
1997................... 72,538 73 1,002 (942) (17,443) 181 (17,129)
Exercise of stock op-
tions.................. 35 2 2
Repurchase of common
stock.................. (368) (1) (4) (5)
Payment on notes receiv-
able from stockhold-
ers.................... 6 6
Exercise of warrants.... 6 1 1
Foreign currency
translation adjustments
....................... (915) (915)
Net income.............. 6,084 6,084
------ --- ------ ----- -------- ----- --------
Balances, March 31,
1998................... 72,212 $72 $1,001 $(936) $(11,359) $(734) $(11,956)
====== === ====== ===== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
IXYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $11,593 $ 4,407 $ 6,084
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization..................... 2,198 969 1,525
Other............................................. (216) (262) 1,018
Provision for excess and obsolete inventories..... 826 730 708
Loss (gain) on foreign currency translation....... (457) 246 (317)
Deferred income taxes............................. (4,718) 3,366 4,369
Changes in operating assets and liabilities:
Accounts receivable.............................. (571) (401) (3,447)
Inventories...................................... (4,855) (2,735) (6,907)
Prepaid expenses and other current assets........ 250 (5)
Other assets..................................... (86) (264) (754)
Accounts payable................................. (312) (812) 2,446
Accrued expenses and other liabilities........... 1,258 (4,255) (1,741)
Pension liabilities.............................. 1,277 379 353
------- ------- -------
Net cash provided by operating activities....... 6,187 1,368 3,332
------- ------- -------
Cash flows used in investing activities:
Purchases of plant and equipment................... (3,061) (1,400) (9,311)
------- ------- -------
Cash flows used in financing activities:
Proceeds from capital lease obligations............ 996 350
Restricted cash (increase) decrease................ (581) (187) 641
Principal payments on capital lease obligations.... (833) (268) (209)
Repayment of notes payable to bank................. (419) (645) (2,500)
Proceeds from bank loan............................ 2,500 11,148
Other, net......................................... 22 5 5
------- ------- -------
Net cash provided by (used in) financing activi-
ties............................................. (1,811) 2,401 9,435
------- ------- -------
Effect of foreign exchange rate fluctuations on cash
and cash equivalents............................... 1,499 (697) (452)
------- ------- -------
Net increase in cash and cash equivalents........... 2,814 1,672 3,004
Cash and cash equivalents at beginning of year...... 2,154 4,968 6,640
------- ------- -------
Cash and cash equivalents at end of year............ $ 4,968 $ 6,640 $ 9,644
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest........... $ 1 $ 36 $ 501
Cash paid during the period for income taxes....... $ 1,615 $ 326
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of notes payable to stockholder and
accrued interest to Series B preferred stock...... $10,450
Purchase of fixed assets under capital leases...... $ 617
Purchase of common stock through issuance of notes
receivable........................................ $ 878 $ 6
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF IXYS:
IXYS Corporation designs, develops and markets power semiconductors used
primarily in controlling energy in motor drives, power conversion (including
uninterruptible power supplies (UPS) and switch mode power supplies (SMPS))
and medical electronics. IXYS' power semiconductors convert electricity at
relatively high voltage and current levels to create efficient power as
required by a specific application. IXYS' target market includes segments of
the power semiconductor market that require medium to high power
semiconductors, with a particular emphasis on higher power semiconductors.
IXYS sells power semiconductors, including power MOSFETs, insulated gate
bipolar transistors (IGBTs), thyristors (silicon controlled rectifiers
or"SCRs") and rectifiers, including fast recovery epitaxial diodes (FREDs).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of IXYS and its
wholly-owned subsidiary, IXYS Semiconductor GmbH (IXYS GmbH). All material
intercompany accounts and transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could materially differ from IXYS' estimates.
Foreign Currency Translation:
The local currency is considered to be the functional currency of the
operations of IXYS GmbH. Accordingly, assets and liabilities are translated at
the exchange rate in effect at year-end and revenues and expenses are
translated at average rates during the year. Adjustments resulting from the
translation of the accounts of IXYS GmbH into U.S. dollars are included in
cumulative translation adjustment, a separate component of stockholders'
deficit. Foreign currency transaction gains and losses are included as a
component of other income and expense.
Cash Equivalents:
IXYS considers all highly liquid investments with original or remaining
maturities of three months or less at the time of purchase to be cash
equivalents.
Inventories:
Inventories, consisting primarily of bipolar devices, transistors, diodes
and integrated circuits, are stated at the lower of cost or market. Cost is
determined on a standard cost basis which approximates actual costs determined
on a first-in, first-out (FIFO) method.
Plant and Equipment:
Plant and equipment, including equipment under capital leases, is stated at
cost less accumulated depreciation and amortization. Depreciation or
amortization is computed using the straight-line method over estimated useful
lives of three to five years for equipment and twenty years for buildings.
Upon disposal, the
F-33
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assets and related accumulated depreciation are removed from IXYS' accounts
and the resulting gains or losses are reflected in the statements of income.
The Company's policy is to regularly review the carrying value of specialized
assets to evaluate the remaining life and recoverability of such equipment in
light of current market conditions.
Product Warranty:
Expected future product warranty expense is recorded when the product is
sold.
Revenue Recognition:
Revenue from product sales is recognized upon shipment and is reflected net
of an allowance for estimated returns and discounts.
Advertising:
IXYS expenses advertising as the costs are incurred. Advertising expense for
the years ended March 31, 1996, 1997 and 1998 was $288,000, $268,000 and
$408,000, respectively.
Research and Development:
Research and development costs are charged to operations as incurred.
Income Taxes:
IXYS accounts for income taxes under the liability method whereby deferred
tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Net Income Per Share:
IXYS has adopted Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings per Share," which is effective for all periods ending after
December 15, 1997. SFAS 128 requires dual presentation of basic and diluted
earnings per share (EPS) for complex capital structures on the face of the
Statement of Income. Basic EPS is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution from the exercise or conversion of other
securities into common stock.
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of
comprehensive income and becomes effective for IXYS for fiscal year 1999, with
reclassification of earlier financial statements for comparative purposes.
Comprehensive income generally represents all changes in stockholders' equity
except those resulting from investments or contributions by stockholders. IXYS
is evaluating alternative formats for presenting this information, but does
not expect this pronouncement to materially impact IXYS' results of
operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information". This statement establishes
standards for disclosure about operating segments in annual financial
statements and
F-34
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." The new standard becomes effective for the Company's fiscal year
1999, and requires that comparative information from earlier years be restated
to conform to the requirements of this standard. IXYS is evaluating the
requirements of SFAS 131 and the effects, if any, on IXYS' current reporting
and disclosures.
Business Risks:
IXYS manufactures approximately 70% of its wafers, an integral component of
its products, in its wholly owned facility in Germany. IXYS purchases the
remaining 30% of its wafers from two other suppliers. There can be no
assurance that material disruptions in supply will not occur in the future. In
such event, IXYS may have to identify and secure additional foundry capacity
and may be unable to identify or secure additional foundry capacity from
another manufacturer, particularly at the levels that IXYS currently
anticipates such foundries to provide. Even if such capacity is available from
another manufacturer, the qualification process could take six months or
longer. If IXYS were unable to qualify alternative manufacturing sources for
existing or new products in a timely manner or if such sources were unable to
produce semiconductor devices with acceptable manufacturing yields and at
acceptable prices, IXYS' business, financial condition and results of
operations would be materially and adversely affected.
Included in IXYS' consolidated balance sheet at March 31, 1998 are the net
assets, at book value, of IXYS' manufacturing operation in Germany, which
total approximately $5.7 million.
Concentration of Credit Risk:
IXYS invests its excess cash primarily in short-term time deposit accounts
with a major German bank and money market accounts with a U.S. bank. These
securities typically mature within ninety days and bear minimal credit risk.
IXYS has not experienced any losses on such investments.
IXYS sells its products primarily to distributors and original equipment
manufacturers in the United States and in Europe. IXYS performs ongoing credit
evaluations of its customers and generally does not require collateral. An
allowance for potential credit losses is maintained by IXYS and such losses
have not been material.
Fair Value of Financial Instruments:
Carrying amounts of certain of IXYS' financial instruments including cash
and cash equivalents, accounts receivable, other assets, accounts payable and
other accrued liabilities approximate fair value due to their short
maturities. Based on borrowing rates currently available to IXYS for loans
with similar terms, the carrying value of notes payable to bank and notes
receivable from shareholders approximate fair value.
F-35
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Raw materials............................................. $ 3,051 $ 3,789
Work in progress.......................................... 6,714 12,059
Finished goods............................................ 5,925 5,765
------- -------
15,690 21,613
Less inventory reserve.................................... (4,101) (4,510)
------- -------
$11,589 $17,103
======= =======
</TABLE>
4. PLANT AND EQUIPMENT:
Plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Buildings................................................ $ 5,126
Equipment--owned......................................... $11,164 13,825
Equipment--capital leases................................ 4,673 4,635
Leasehold improvements................................... 38 38
------- -------
15,875 23,624
Accumulated depreciation and amortization--owned plant
and equipment........................................... (8,804) (9,449)
Accumulated amortization--capital leases................. (3,688) (3,573)
------- -------
$ 3,383 $10,602
======= =======
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Accrued patent and licenses................................... $2,770 $ 800
Personnel accruals............................................ 1,092 1,837
Warranty and loss accrual..................................... 1,628 715
Income taxes.................................................. 156 1,602
Other......................................................... 2,290 2,165
------ ------
$7,936 $7,119
====== ======
</TABLE>
F-36
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BORROWING AND CAPITAL LEASE ARRANGEMENTS:
Borrowings and capital lease arrangements consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Notes payable to banks................................. $ 2,500 $10,792
Capitalized lease obligations.......................... 1,218 1,242
------- -------
3,718 12,034
Less current portion................................. (2,844) (2,496)
------- -------
$ 874 $ 9,538
======= =======
</TABLE>
Note payable to bank at March 31, 1997 consists of a $2,500,000 loan from a
U.S. bank which was due in January 1998. IXYS repaid the loan at its scheduled
maturity date.
In December 1997, IXYS entered into a loan and security agreement with a
U.S. bank to borrow up to an aggregate amount not to exceed $5 million. The
loan bears interest at the bank's prime rate (8.50% at March 31, 1998),
payable monthly, and matures in August 1999. The loan is collateralized by
certain assets and contains certain general and financial covenants, including
a requirement that IXYS remain solvent and able to pay its debts as they
become due. At March 31, 1998, IXYS has drawn $2,100,000 against the loan.
IXYS was in violation of a financial ratio covenant during the period from
January 1, 1998 through March 31, 1998 and, subsequent to year end, received a
waiver of the default from the bank through August 31, 1998. However, as it is
probable that the condition leading to the default will not be corrected prior
to August 31, 1998, IXYS has reclassified the entire amount outstanding at
March 31, 1998 as current.
In February 1997, the Company entered into a loan agreement with a German
bank to finance the acquisition of the Lampertheim facility (the "Facility")
from Asea Brown Boveri Aktiengesellschaft (ABB), a stockholder. The loan was
for the total amount of DM 13,250,000 ($7,175,000 at March 31, 1998), payable
in monthly installments of DM 125,226 ($67,800 at March 31, 1998) and is due
no later than October 31, 2009. The loan, which is collateralized by the
Facility, bears interest at the annual rate of 5.40% through August 2001, at
which time the interest rate will be adjusted to market rates in accordance
with the terms of the loan agreement. The acquisition of the Facility closed
in January 1998, at which time the proceeds were drawn against the loan. At
March 31, 1998, the amount outstanding under the loan agreement was DM
13,050,000 ($7,068,000).
IXYS leases certain equipment under capital lease arrangements expiring
through fiscal 2001 at interest rates of 4.9% to 6.3%.
Future minimum payments under capital lease obligations and notes payable
are (in thousands):
<TABLE>
<CAPTION>
CAPITAL NOTES
LEASES PAYABLE
------- -------
Fiscal year ending March 31,
<S> <C> <C>
1999........................................................ $ 428 $ 4,168
2000........................................................ 343 467
2001........................................................ 274 493
2002........................................................ 197 520
2003........................................................ 549
Thereafter.................................................. 4,595
------ -------
$1,242 $10,792
====== =======
</TABLE>
F-37
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
Commitments:
IXYS rents certain of its facilities under operating leases which expire in
January 1999 and March 2001. IXYS is responsible for insurance and property
taxes. Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year ending March 31,
<S> <C>
1999............................................................... $ 679
2000............................................................... 534
2001............................................................... 460
2002............................................................... 32
------
$1,705
======
</TABLE>
Rent expense, including rent expense to ABB for IXYS' main manufacturing
facility, for fiscal years ended March 31, 1996, 1997 and 1998 amounted to
$594,000, $410,000 and $571,000, respectively.
At March 31, 1997, IXYS had outstanding Discounted Acceptances totaling
$617,018 with a financial institution. The Discounted Acceptances were issued
in support of obligations to a vendor for inventory receipts prior to March
31, 1997. IXYS also had outstanding letters of credit totaling $139,000 with a
financial institution which were issued in support of inventory to be received
subsequent to March 31, 1997. At March 31, 1998, IXYS had no outstanding
Discounted Acceptances or letters of credit. As of March 31, 1997 and 1998,
IXYS had cash deposits with a financial institution of $1,591,000 and
$950,000, respectively, which were restricted as to use and represent
compensating balances for current or future Discounted Acceptances and letters
of credit.
Contingencies:
In February 1997, in U.S. District Court, a judgment was entered against
IXYS for $3.65 million related to the sale of products that infringed certain
patents. IXYS paid $3.13 million of the $3.65 million judgment in 1997 and
filed an appeal in U.S. Federal Court. Through the appeal process, IXYS
accrued the unpaid portion of the judgment and was accruing royalty expense in
accordance with the Court's judgment. At March 31, 1997, IXYS was holding
approximately $575,000 in an escrow account for payment of the balance of the
judgment.
In December 1997, IXYS entered into a settlement agreement with the
plaintiff, whereby there would be no liability to IXYS. The agreement is
subject to ratification by the U.S. District Court, and during 1998, the
plaintiff returned the $3.13 million payment plus interest which is included
in other income on the consolidated statements of income.
8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily Redeemable Convertible Preferred Stock:
At March 31, 1998, mandatorily redeemable convertible preferred stock
consists of the following:
<TABLE>
<CAPTION>
ADDITIONAL COMMON
PAID-IN ISSUED STOCK
PAR AMOUNT ISSUANCE SHARES AND RESERVED FOR LIQUIDATION
SERIES VALUE (NET) COSTS AUTHORIZED OUTSTANDING CONVERSION PREFERENCE
- ------ -------- ----------- -------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A $ 37,027 $26,817,743 $252,615 41,200,000 37,027,038 37,027,038 $27,348,726
B 74,383 10,374,705 74,800,000 74,382,633 74,382,633 10,240,331
-------- ----------- -------- ----------- ----------- ----------- -----------
$111,410 $37,192,448 $252,615 116,000,000 111,409,671 111,409,671 $37,589,057
======== =========== ======== =========== =========== =========== ===========
</TABLE>
F-38
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each share of Series A and B preferred stock is convertible into common
stock on a one-for-one basis, respectively, subject to adjustment for certain
changes in common stock.
Conversion of the Series A and B preferred stock is at the preferred
stockholder's option, except that conversion is automatic on the closing of a
public offering of IXYS' common stock which meets certain net proceeds and
per-share amounts. IXYS shall reserve and keep available out of its authorized
but unissued common stock such number of shares of common stock as shall from
time to time be sufficient to effect conversion of Series A and B preferred
stock.
The holders of Series A and B preferred stock may receive noncumulative
dividends when and as declared by the Board of Directors at the rate of $.0177
and $.0096, respectively, per annum in preference to holders of common stock.
As of March 31, 1998, no dividends have been declared or are payable. The
holders of preferred stock have certain registration rights.
Holders of Series A and B preferred stock are entitled to the number of
votes equal to the number of shares of common stock into which the preferred
shares are convertible and have the right of first refusal to purchase, pro
rata, all or any part of new securities (as defined) which may be offered for
sale by IXYS.
On December 31, 1998 and on each December 31st thereafter, IXYS has the
obligation to redeem one-fourth of the Series A and B preferred stock at a
total price of $.739 and $.138 per share, respectively, plus any unpaid
dividends, if declared. $9,300,000 has been reclassified as the current
portion of the mandatorily redeemable preferred stock.
In the event of liquidation of IXYS, holders of Series A and B preferred
stock shall be entitled to receive up to $.739 and $.138, respectively, per
share plus any declared and unpaid dividends in preference to common
stockholders. Thereafter, any remaining proceeds shall be distributed to the
holders of common stock.
In addition to the rights discussed above, the IXYS Certificate of
Incorporation grants certain rights to the holders of IXYS Preferred Stock.
Such shares are convertible under certain circumstances into shares of IXYS
Common Stock. So long as at least 300,000 shares of IXYS Series A Preferred
Stock remain outstanding, the holders of IXYS Series A Preferred Stock shall
have the right to elect a director of IXYS, and so long as at least 200,000
shares of IXYS Series B Preferred Stock remain outstanding, the holders of
IXYS Series B Preferred Stock shall have the right to elect a director of
IXYS. In addition, IXYS may not (i) amend or alter the IXYS Certificate or
IXYS Bylaws so as to materially and adversely affect the rights of the holders
of IXYS Preferred Stock; (ii) authorize or issue any class of securities, or
reclassify any class of securities, so as to create a class of securities
having superior rights to the IXYS Preferred Stock; (iii) increase or decrease
the authorized number of shares of IXYS Common Stock or IXYS Preferred Stock;
(iv) redeem, repurchase or pay dividends with respect to junior stock; (v)
enter into an asset transfer or acquisition agreement; (vi) dissolve or
liquidate; or (vii) issue more than 81,021,413 shares of IXYS Common Stock to
directors, officers or employees, without obtaining the approval of the
holders of a majority of the IXYS Preferred Stock, voting as a separate class.
Warrants:
IXYS has outstanding warrants as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDER THE
EXPIRATION DATE WARRANTS EXERCISE PRICE
--------------- ---------- ---------------
<S> <C> <C> <C>
None................ Convertible into Series A 134,840 $0.85 per share
preferred stock
April 2001.......... Convertible into common 19,841,503 $0.05 per share
stock
</TABLE>
F-39
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' DEFICIT:
Stock Purchase and Incentive Stock Option Plans:
IXYS has a 1989 Stock Option Plan (the Plan) under which incentive stock
options may be granted to key employees at prices not less than fair market
value at the time of grant, while supplemental stock options may be granted to
key employees, directors and consultants at prices not less than 85% of fair
market value at the time of grant. The options once granted expire ten years
from the date of grant. The Board of Directors has the full power to determine
the provisions of each option issued under both plans.
Stock option activity under the Plan is summarized below (in thousands,
except share data):
<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING WEIGHTED-
AVAILABLE ------------------------------- AVERAGE
FOR NUMBER EXERCISE EXERCISE
GRANT OF SHARES PRICE TOTAL PRICE
---------- ---------- ------------ ------ ---------
<S> <C> <C> <C> <C> <C>
Balances, March 31,
1995................... 4,034,463 4,266,050 $0.001-$0.15 $ 129 $0.03
Options granted......... (484,300) 484,300 $ 0.25 121 $0.25
Options exercised....... (2,730,000) $0.001-$0.15 (9) $0.01
Options canceled........ 17,500 (17,500) $0.001-$0.15 (1) $0.05
---------- ---------- ------
Balances, March 31,
1996................... 3,567,663 2,002,850 $0.001-$0.25 240 $0.12
Options granted......... (3,570,000) 3,570,000 $ 0.40-$0.44 1,488 $0.42
Options exercised....... (40,000) $ 0.10 (4) $0.10
Options canceled........ 5,000 (5,000) $0.001-$0.15 $0.06
---------- ---------- ------
Balances, March 31, 1997
....................... 2,663 5,527,850 $0.001-$0.44 1,724 $0.31
Options exercised....... (35,000) $ 0.05-$0.15 (3) $0.13
Options canceled........ 740,000 (740,000) $ 0.40 (296) $0.40
---------- ---------- ------
Balances, March 31,
1998................... 742,663 4,752,850 $0.001-$0.44 $1,425 $0.30
========== ========== ======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," which was effective for IXYS' fiscal year 1997. SFAS 123
allows companies to either account for stock-based compensation under the new
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," but
requires pro forma disclosure in the footnotes to the financial statements as
if the measurement provisions of SFAS 123 had been adopted.
F-40
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
IXYS has continued to account for its stock based compensation under the
Plan in accordance with APB 25. Accordingly, no compensation expense has been
recognized for stock options granted under the Plan. Had compensation cost for
the Plan been determined based on the fair value at the grant date for awards
in fiscal years 1996, 1997 and 1998 consistent with the provisions of SFAS No.
123, IXYS' net income and net income per share for fiscal years 1996, 1997 and
1998 would have decreased to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Net income--as reported.................................. $11,593 $4,407 $6,084
======= ====== ======
Net income--pro forma.................................... $11,593 $4,388 $5,996
======= ====== ======
Net income per share--basic--as reported................. $ 0.45 $ 0.08 $ 0.09
======= ====== ======
Net income per share--basic--pro forma................... $ 0.45 $ 0.08 $ 0.09
======= ====== ======
Net income per share--diluted--as reported............... $ 0.09 $ 0.02 $ 0.03
======= ====== ======
Net income per share--diluted--pro forma................. $ 0.09 $ 0.02 $ 0.03
======= ====== ======
</TABLE>
In future years, annual compensation expense will vary relative to the
vesting of options granted in those future years.
In accordance with the provisions of SFAS 123, the fair value of each option
is estimated using the minimum value method allowable for non-public companies
and using the following assumptions used for grants during the years ended
March 31, 1996 and 1997; dividend yield of 0%, volatility of 0%, risk-free
interest rates of between 5.23% to 6.67% at the date of grant and an expected
term of four years. The weighted-average fair value of options granted during
1996 and 1997 was $0.078 and $0.094 per share, respectively. There were no
stock options granted in fiscal year 1998.
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.001 397,500 5.37 years $0.001 397,500 $0.001
$0.05 324,400 0.82 years $0.05 324,400 $0.05
$0.10 242,000 1.82 years $0.10 242,000 $0.10
$0.15 474,650 2.96 years $0.15 474,650 $0.15
$0.25 484,300 7.97 years $0.25 196,720 $0.25
$0.40-$0.44 2,830,000 8.13 years $0.42 990,500 $0.42
--------- ---------
$0.001-$0.44 4,752,850 6.76 years $0.30 2,625,770 $0.12
========= =========
</TABLE>
Common Stock:
IXYS has sold 67,565,000 shares of common stock to certain members of IXYS'
management under a restricted stock purchase agreement subject to IXYS' right
of repurchase, which lapses ratably over five years. The shares were purchased
through recourse promissory notes at a purchase price of $0.013 per share.
Interest is due on the notes at a rate of 5% per annum, with the balance
outstanding due in full November 2000. At
F-41
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
March 31, 1997 and 1998, 13,820,114 shares and 3,234,280 shares of common
stock are subject to IXYS' right of repurchase, respectively.
10. EMPLOYEE SAVINGS AND RETIREMENT PLAN:
IXYS has a 401K plan, known as the "IXYS Corporation and Subsidiary Employee
Savings and Retirement Plan." Eligibility to participate in the plan is
subject to certain minimum service requirements. Employees may voluntarily
contribute up to 20% of yearly compensation and IXYS may make matching
contributions as determined by the Board of Directors in a resolution on or
before the end of the fiscal year. Employees are 100% vested immediately. For
the years ended March 31, 1996, 1997 and 1998, IXYS contributed $45,000,
$76,000 and $96,000, respectively.
11. PENSION PLANS:
Employees of IXYS GmbH participate in a number of employee retirement plans,
including a defined benefit pension plan, the benefits for which will be paid
out of the general assets of IXYS GmbH, as well as other government sponsored
retirement plans to which IXYS GmbH and eligible employees are required to
contribute.
In addition to providing income at retirement, many of these plans also
provide survivor, termination and disability benefits. The defined benefits
pension plan covers substantially all employees and benefits are based on
years of service and the employees' compensation.
Pension expense for the defined benefit pension plan was as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost of the current period......................... $110 $111 $ 94
Interest cost on the projected benefit obligation.......... 400 408 337
---- ---- ----
Pension expense............................................ $510 $519 $431
==== ==== ====
</TABLE>
In Germany there are no legal requirements to fund the pension obligation by
transferring cash to an outside funding agency. Consequently, the defined
benefit pension plan is unfunded.
The following table sets forth the actuarial present value of benefit
obligations and funded status for the defined benefit pension plan (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................... $5,098 $5,007
Nonvested benefit obligation................................ 75 71
------ ------
5,173 5,078
Additional benefits related to future compensation levels... 40 35
------ ------
Projected benefit obligation................................ $5,213 $5,113
====== ======
</TABLE>
The actuarial computations calculated at March 31, 1997 and 1998 assume a
discount rate used to measure the projected benefit obligation of 3%, and the
rate of increase in future compensation levels of 3%.
F-42
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES:
Income before income tax benefit (provision) consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Domestic............................................. $2,744 $3,866 $ 8,250
International........................................ 4,522 4,487 2,063
------ ------ -------
$7,266 $8,353 $10,313
====== ====== =======
</TABLE>
IXYS' benefit from (provision for) income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $ (60) $ (63) $ (175)
State........................................ (42) (188) (398)
Foreign...................................... (329) (904)
------- ------- -------
(102) (580) (1,477)
------- ------- -------
Deferred:
Federal...................................... (960) (1,289) (2,590)
State........................................ (313) 109 (147)
Foreign...................................... (3,478) (2,186) (15)
------- ------- -------
(4,751) (3,366) (2,752)
------- ------- -------
Reduction in valuation allowance............... 9,180
------- ------- -------
Total income tax benefit (provision)......... $ 4,327 $(3,946) $(4,229)
======= ======= =======
</TABLE>
IXYS' effective tax rate differs from the statutory federal income tax rate
as shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate......................... 34 % 34% 34%
State taxes, net of federal tax benefit................... 2 3 4
Foreign taxes at higher rates............................. 21 9 2
Utilization of net operating loss carryforward............ (17)
Change in valuation allowance............................. (109)
Other items............................................... 9 1 1
---- --- ---
Effective tax rate (benefit)............................ (60)% 47% 41%
==== === ===
</TABLE>
The components of net deferred income tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Other liabilities and accruals............................. $1,323 $1,562
Depreciable assets......................................... 28 72
Net operating loss carryforwards........................... 5,478 2,519
Research and development tax credit carryforward........... 813 504
Alternative minimum tax carryforward....................... 232
------ ------
Net deferred tax asset....................................... $7,642 $4,889
====== ======
</TABLE>
F-43
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Federal net operating loss carryforwards of approximately $7,400,000 expire
in the years 1999 through 2010. Federal research and development credits of
approximately $500,000 expire in the years 1999 through 2009.
Based on its recent history of profitability, IXYS considers it more likely
than not that it will realize the benefit from its net deferred tax assets.
The amount of the deferred tax asset considered realizable could be reduced if
estimates of future taxable income declines significantly. The future
utilization of IXYS' net operating loss carryforwards may be subject to
limitation as a result of any future changes in ownership.
13. FOREIGN OPERATIONS:
IXYS' foreign operations consist of those of its subsidiary IXYS GmbH in
Germany. The following table summarizes the sales, income and total assets of
IXYS' U.S. and German operations (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales:
IXYS GmbH............................................. $37,661 $34,262 $42,204
IXYS U.S. ............................................ 19,775 21,060 14,652
------- ------- -------
$57,436 $55,322 $56,856
======= ======= =======
Net Income:
IXYS GmbH............................................. $ 5,121 $ 2,157 $ 2,010
IXYS U.S. ............................................ 6,472 2,250 4,074
------- ------- -------
$11,593 $ 4,407 $ 6,084
======= ======= =======
Total Assets:
IXYS GmbH............................................. $17,921 $21,724 $27,008
IXYS U.S. ............................................ 21,705 17,686 27,332
------- ------- -------
$39,626 $39,410 $54,340
======= ======= =======
</TABLE>
There were no significant export sales from the U.S. during the years ended
March 31, 1996, 1997 or 1998.
F-44
<PAGE>
IXYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
14. COMPUTATION OF NET INCOME PER SHARE:
Basic and diluted earnings per share are calculated as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
BASIC:
Weighted-average shares............................... 25,709 53,478 65,501
------- ------- -------
Net income............................................ $11,593 $ 4,407 $ 6,084
======= ======= =======
Net income per share.................................. $ 0.45 $ 0.08 $ 0.09
======= ======= =======
DILUTED:
Weighted-average shares............................... 25,709 53,478 65,501
Restricted stock subject to repurchase................ 14,670 19,041 3,234
Common equivalent shares from stock options and
warrants............................................. 26,364 24,351 21,721
Common equivalent shares from preferred stock......... 57,350 111,410 111,410
------- ------- -------
Shares used in per share calculation.................. 124,093 208,280 201,866
======= ======= =======
Net income............................................ $11,593 $ 4,407 $ 6,084
======= ======= =======
Net income per share.................................. $ 0.09 $ 0.02 $ 0.03
======= ======= =======
</TABLE>
15. ACQUISITION AND MERGER:
In March 1998, IXYS signed a definitive agreement to acquire and merge with
Paradigm Technologies, Inc. (Paradigm), a company that designs and markets
fast SRAM products. The acquisition will be structured as a reverse merger
where Paradigm will issue shares to all IXYS stockholders in exchange for IXYS
shares. At the conclusion of the merger, IXYS stockholders will hold
approximately 98% of the Combined Company. For financial accounting purposes,
IXYS will be the surviving company and the historic financial information will
be that of IXYS.
F-45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG:
PARADIGM TECHNOLOGY, INC.,
A DELAWARE CORPORATION;
PARADIGM ENTERPRISES, INC.
A DELAWARE CORPORATION; AND
IXYS CORPORATION
A DELAWARE CORPORATION
-------------------------
DATED AS OF MARCH 6, 1998, AS AMENDED ON APRIL 10, 1998 AND MAY 29, 1998
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1. DESCRIPTION OF TRANSACTION................................ A-1
1.1 Merger of Merger Sub into the Company..................... A-1
1.2 Effect of the Merger...................................... A-1
1.3 Closing; Effective Time................................... A-1
1.4 Certificate of Incorporation and Bylaws; Directors and
Officers................................................. A-1
1.5 Conversion of Shares...................................... A-2
1.6 Closing of the Company's Transfer Books................... A-4
1.7 Exchange of Certificates.................................. A-4
1.8 Appraisal Rights.......................................... A-5
1.9 Tax Consequences.......................................... A-5
1.10 Accounting Consequences................................... A-5
1.11 Further Action............................................ A-5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. A-6
2.1 Due Organization; Subsidiaries; Etc. ..................... A-6
2.2 Certificate of Incorporation and Bylaws................... A-6
2.3 Capitalization, Etc. ..................................... A-6
2.4 Financial Statements...................................... A-7
2.5 Absence of Changes........................................ A-7
2.6 Title to Assets........................................... A-8
2.7 Receivables; Inventory.................................... A-9
2.8 Buildings, Equipment; Leasehold........................... A-9
2.9 Proprietary Assets........................................ A-9
2.10 Contracts................................................. A-10
2.11 Liabilities............................................... A-12
2.12 Compliance with Legal Requirements........................ A-12
2.13 Certain Business Practices................................ A-12
2.14 Governmental Authorizations............................... A-12
2.15 Tax Matters............................................... A-12
2.16 Employee and Labor Matters; Benefit Plans................. A-13
2.17 Environmental Matters..................................... A-15
2.18 Insurance................................................. A-16
2.19 Transactions With Affiliates.............................. A-16
2.20 Legal Proceedings; Orders................................. A-16
2.21 Authority; Inapplicability of Anti-takeover Statutes;
Binding Nature of Agreement.............................. A-17
2.22 Section 203 of the DGCL Not Applicable.................... A-17
2.23 No Existing Discussions................................... A-17
2.24 Vote Required............................................. A-17
2.25 Non Contravention; Consents............................... A-17
2.26 Financial Advisor......................................... A-18
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB... A-18
3.1 Due Organization; Subsidiaries; Etc. ..................... A-18
3.2 Certificate of Incorporation and Bylaws................... A-19
3.3 Capitalization, Etc. ..................................... A-19
3.4 SEC Filings; Financial Statements......................... A-20
3.5 Absence of Changes........................................ A-20
3.6 Title to Assets........................................... A-22
3.7 Receivables; Inventory.................................... A-22
3.8 Buildings, Equipment; Leasehold........................... A-22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.9 Proprietary Assets........................................ A-23
3.10 Contracts................................................. A-24
3.11 Liabilities............................................... A-25
3.12 Compliance with Legal Requirements........................ A-25
3.13 Certain Business Practices................................ A-25
3.14 Governmental Authorizations............................... A-25
3.15 Tax Matters............................................... A-26
3.16 Employee and Labor Matters; Benefit Plans................. A-26
3.17 Environmental Matters..................................... A-28
3.18 Insurance................................................. A-29
3.19 Transactions with Affiliates.............................. A-29
3.20 Legal Proceedings; Orders................................. A-29
3.21 Authority; Binding Nature of Agreement.................... A-29
3.22 Section 203 of the DGCL Not Applicable.................... A-30
3.23 No Existing Discussions................................... A-30
3.24 Vote Required............................................. A-30
3.25 Non Contravention; Consents............................... A-30
3.26 Fairness Opinion.......................................... A-31
3.27 Financial Advisor......................................... A-31
SECTION 4. CERTAIN COVENANTS OF THE COMPANY.......................... A-31
4.1 Access and Investigation.................................. A-31
4.2 Operation of the Company's Business....................... A-31
4.3 No Solicitation........................................... A-32
4.4 Disclosure................................................ A-32
SECTION 5. CERTAIN COVENANTS OF PARENT............................... A-33
5.1 Access and Investigation.................................. A-33
5.2 Operation of Parent's Business............................ A-33
5.3 No Solicitation........................................... A-35
5.4 Parent Capitalization; Name Change........................ A-36
5.5 Disclosures............................................... A-36
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES....................... A-36
6.1 Registration Statement; Joint Proxy Statement/Prospectus.. A-36
6.2 Company Stockholders' Meeting............................. A-37
6.3 Parent Stockholders' Meeting.............................. A-37
6.4 Regulatory Approvals...................................... A-38
6.5 Indemnification of Officers and Directors................. A-39
6.6 Additional Agreements..................................... A-40
6.7 Disclosure................................................ A-40
6.8 Affiliate Agreements...................................... A-40
6.9 Tax Matters............................................... A-41
6.10 Corporate Governance...................................... A-41
6.11 Resignations.............................................. A-41
6.12 Registration Rights Agreement............................. A-41
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
MERGER SUB............................................... A-41
7.1 Accuracy of Representations............................... A-41
7.2 Performance of Covenants.................................. A-41
7.3 Effectiveness of Registration Statement................... A-41
7.4 Parent Stockholder Approval............................... A-42
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.5 Company Stockholder Approval............................... A-42
7.6 Agreements and Documents................................... A-42
7.7 No Material Adverse Change................................. A-42
7.8 HSR Act.................................................... A-42
7.9 Additional Shares.......................................... A-42
7.10 No Restraints.............................................. A-42
7.11 Consents................................................... A-42
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY......... A-42
8.1 Accuracy of Representations................................ A-42
8.2 Performance of Covenants................................... A-42
8.3 Effectiveness of Registration Statement.................... A-42
8.4 Parent Stockholder Approval................................ A-43
8.5 Company Stockholder Approval............................... A-43
8.6 Parent Capitalization...................................... A-43
8.7 Consents................................................... A-43
8.8 Agreements and Documents................................... A-43
8.9 No Material Adverse Change................................. A-43
8.10 Market for Parent Common Stock............................. A-43
8.11 HSR Act.................................................... A-43
8.12 Additional Shares.......................................... A-43
8.13 Appraisal Rights........................................... A-44
8.14 Blue Sky Law............................................... A-44
8.15 No Restraints.............................................. A-44
8.16 No Governmental Litigation................................. A-44
8.17 No Other Litigation........................................ A-44
8.18 Taxes...................................................... A-44
SECTION 9. TERMINATION................................................ A-44
9.1 Termination................................................ A-44
9.2 Effect of Termination...................................... A-45
9.3 Expenses; Termination Fees................................. A-45
SECTION 10. MISCELLANEOUS PROVISIONS................................... A-45
10.1 Amendment.................................................. A-45
10.2 Waiver..................................................... A-46
10.3 No Survival of Representations and Warranties.............. A-46
10.4 Entire Agreement; Counterparts; Applicable Law............. A-46
10.5 Disclosure Schedule........................................ A-46
10.6 Attorneys' Fees............................................ A-46
10.7 Assignability.............................................. A-46
10.8 Notices.................................................... A-46
10.9 Cooperation................................................ A-47
10.10 Construction............................................... A-47
</TABLE>
iii
<PAGE>
EXHIBITS
<TABLE>
<C> <C> <S>
Exhibit A -- Certain Definitions
Exhibit B -- Form of Certificate of Incorporation of Surviving Corporation*
Exhibit C -- Directors of Surviving Corporation*
Exhibit D -- Company Form of Affiliate Agreement*
Exhibit E -- Form of Parent Tax Representation Letter*
Exhibit F -- Form of Company Tax Representation Letter*
Exhibit G -- Registration and Stockholder Rights Agreement
Exhibit H -- Directors of Parent*
Exhibit I -- Form of Legal Opinion of Cooley Godward LLP*
Exhibit J -- Form of Legal Opinion of Pillsbury Madison & Sutro LLP*
</TABLE>
- --------
*Not included in the Joint Proxy Statement/Prospectus
iv
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement And Plan Of Merger And Reorganization (this "Agreement") is
made and entered into as of March 6, 1998 by and among: Paradigm Technology,
Inc., a Delaware corporation ("Parent"); Paradigm Enterprises, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub");
and Ixys Corporation, a Delaware corporation (the "Company"). Certain
capitalized terms used in this Agreement but not defined herein are defined in
Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub with and into the Company in accordance with this Agreement and the
Delaware General Corporation Law (the "Merger"). Upon consummation of the
Merger, Merger Sub will cease to exist, and the Company will become a wholly
owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For financial reporting purposes, it is intended that
the Merger be accounted for as a "purchase."
C. The respective boards of directors of Parent, Merger Sub and the Company
have approved this Agreement and the Merger.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California, at 10:00 a.m. on a date to be agreed upon by Parent and the
Company (the "Closing Date"), which (subject to the satisfaction or waiver of
the conditions set forth in Sections 7 and 8) shall be no later than the fifth
business day after satisfaction of the latest to occur of the conditions set
forth in Sections 7.4, 7.5, 7.7, 8.4, 8.5 and 8.12. Contemporaneously with or
as promptly as practicable after the Closing, the parties shall cause a
properly executed certificate of merger conforming to the requirements of the
DGCL (the "Certificate of Merger") to be filed with the Secretary of State of
the State of Delaware. The Merger shall take effect at the time the
Certificate of Merger is filed with the Secretary of State of the State of
Delaware (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by the Company prior to the Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit B;
A-1
<PAGE>
(b) the Bylaws of the Surviving Corporation shall be amended and restated
as of the Effective Time to conform to the Bylaws of the Company; and
(c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the respective individuals set forth on
Exhibit C.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.5(d) and 1.8, at the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub,
the Company or any stockholder of the Company:
(i) any shares of Company Capital Stock then held by the Company or any
subsidiary of the Company (or held in the Company's treasury) shall be
canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor;
(ii) any shares of Company Capital Stock then held by Parent or Merger
Sub, or any other subsidiary of Parent, shall be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor;
(iii) except as provided in clauses "(i)" and "(ii)" above and subject to
Sections 1.5(b)(iv), 1.5(d), and 1.8 each share of Company Common Stock
then outstanding shall be converted into the right to receive a fraction of
a share of Parent Common Stock equal to the Exchange Ratio;
(iv) except as provided in clauses "(i)" and "(ii)" above and subject to
Sections 1.5(b)(iv), 1.5(d), and 1.8 each share of Company Preferred Stock
then outstanding shall be converted into the right to receive a fraction of
a share of Parent Common Stock equal to the Exchange Ratio; and
(v) each share of the common stock, par value $0.001 per share, of Merger
Sub then outstanding shall be converted into one share of common stock of
the Surviving Corporation.
(b) The "Exchange Ratio" shall be the greater of (A) the Percentage Formula
Ratio or (B) the Valuation Formula Ratio. The Exchange Ratio shall be
expressed to six digits to the right of the decimal place.
(i) As used herein, the "Percentage Formula Ratio" shall be determined
according to the following formula:
19 x B
-----
A =
C
, where "A" is the Percentage Formula Ratio, expressed to six digits to the
right of the decimal place, "B" is the fully diluted capitalization of
Parent, immediately prior to the Effective Time and having given effect to
the Reverse Stock Split, expressed as the sum of (x) the number of shares
of Parent Common Stock outstanding, (y) the number of shares of Parent
Common Stock into which the outstanding Parent Preferred Stock converts
pursuant to the Parent Preferred Stock Conversion and (z) the aggregate
number of shares of Parent Common Stock for which outstanding warrants,
options or other rights to acquire Parent Common Stock are exercisable and
"C" is the fully diluted capitalization of the Company immediately prior to
the Effective Time, expressed as the sum of (A) the number of shares of
Company Common Stock outstanding, (B) the number of shares of Company
Common Stock issuable upon conversion of the outstanding shares of Company
Preferred Stock and (C) the aggregate number of shares of Company Common
Stock for which outstanding warrants, options or other rights to acquire
Company Common Stock are exercisable (such fully diluted capitalization
being referred to herein as the "Company Fully Diluted Capitalization").
(ii) As used herein, the "Valuation Formula Ratio" shall be determined
according to the following formula:
$150,000,000
---------
D =
(E x C)
, where "D" is the Valuation Formula Ratio, expressed to six digits to the
right of the decimal place, "E" is the average of the closing sale prices
of Parent Common Stock for the ten trading days ending (and
A-2
<PAGE>
including) the trading day two business days prior to the date of the
Parent Stockholders' Meeting, adjusted to reflect the Reverse Stock Split,
and "C" is the Company Fully Diluted Capitalization.
(iii) If, between the date of this Agreement and the Effective Time, the
outstanding shares of Company Capital Stock or Parent Common Stock are
changed into a different number or class of shares by reason of any stock
split, stock dividend, reverse stock split, reclassification,
recapitalization or other similar, then the Exchange Ratio shall be
appropriately adjusted. The Exchange Ratio already contemplates the Reverse
Stock Split, and to the extent the Reverse Stock Split is implemented, no
further adjustments to the Exchange Ratio are required.
(c) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company or under which the Company has
any rights, then the shares of Parent Common Stock issued in exchange for such
shares of Company Common Stock will also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition, and the certificates
representing such shares of Parent Common Stock may accordingly be marked with
appropriate legends. The Company shall take all action that may be necessary
to ensure that, from and after the Effective Time, Parent is entitled to
exercise any such repurchase option or other right set forth in any such
restricted stock purchase agreement or other agreement.
(d) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates or scrip for any such
fractional shares shall be issued. Any holder of Company Capital Stock who
would otherwise be entitled to receive a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock issuable
to such holder) shall, in lieu of such fraction of a share and, upon surrender
of such holder's Company Stock Certificate(s) (as defined in Section 1.6), be
paid in cash the dollar amount (rounded to the nearest whole cent), without
interest, determined by multiplying such fraction by the closing price of a
share of Parent Common Stock as reported by the Nasdaq National Market on the
date the Merger becomes effective.
(e) At the Effective Time, all rights with respect to Company Common Stock
under each Company Option then outstanding under the Company Plans (as defined
in Section 2.3(b)) shall be converted into and become rights with respect to
Parent Common Stock, and Parent shall assume each such Company Option in
accordance with the terms (as in effect as of the date of this Agreement) of
the Company Plan under which it was issued and the stock option agreement by
which it is evidenced. From and after the Effective Time, (i) each Company
Option assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each such
Company Option shall be equal to the number of shares of Company Common Stock
subject to such Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounding down to the nearest whole share
(with cash, less the applicable exercise price, being payable for any fraction
of a share), (iii) the per share exercise price under each such Company Option
shall be adjusted by dividing the per share exercise price under such Company
Option by the Exchange Ratio and rounding up to the nearest hundredth of a
cent and (iv) any restriction on the exercise of any such Company Option shall
continue in full force and effect and the term, exercisability, vesting
schedule and other provisions of such Company Option shall otherwise remain
unchanged; provided, however, that each Company Option assumed by Parent in
accordance with this Section 1.5(e) shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, reverse stock split, reclassification, recapitalization or other
similar transaction subsequent to the Effective Time. Parent shall file with
the SEC, no later than 30 days after the date on which the Form S-4
Registration Statement becomes effective (and in any event prior to the
Merger), a registration statement on Form S-8 relating to the shares of Parent
Common Stock issuable with respect to the Company Options and the Company
Plans assumed by Parent in accordance with this Section 1.5(e).
(f) At the Effective Time, all rights with respect to Company Warrants then
outstanding shall be converted into and become rights with respect to Parent
Common Stock, and Parent shall assume each such Company
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Warrant in accordance with the terms (as in effect as of the date of this
Agreement) of the Warrant by which it is evidenced. From and after the
Effective Time, (i) each Company Warrant assumed by Parent may be exercised
solely for shares of Parent Common Stock, (ii) the number of shares of Parent
Common Stock subject to each such Company Warrant shall be equal to the number
of shares of Company Common Stock subject to such Company Warrant immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounding down to
the nearest whole share (with cash, less the applicable exercise price, being
payable for any fraction of a share), and (iii) the per share exercise price
under each such Company Warrant shall be adjusted by dividing the per share
exercise price under such Company Warrant by the Exchange Ratio and rounding
up to the nearest hundredth of a cent; provided, however, that each Company
Warrant assumed by Parent in accordance with this Section 1.5(f) shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, reverse stock split,
reclassification, recapitalization or other similar transaction subsequent to
the Effective Time.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At The Effective Time: (a) All
Shares Of Company Capital Outstanding Immediately Prior To The Effective Time
Shall Automatically Be Canceled And Retired And Shall Cease To Exist, And All
Holders Of Certificates Representing Shares Of Company Capital Stock That Were
Outstanding Immediately Prior To The Effective Time Shall Cease To Have Any
Rights As Stockholders Of The Company; And (b) The Stock Transfer Books Of The
Company Shall Be Closed With Respect To All Shares Of Company Capital Stock
Outstanding Immediately Prior To The Effective Time. No Further Transfer Of
Any Such Shares Of Company Capital Stock Shall Be Made On Such Stock Transfer
Books After The Effective Time. If, After The Effective Time, A Valid
Certificate Previously Representing Any Shares Of Company Capital Stock (a
"company Stock Certificate") Is Presented To The Exchange Agent (as Defined In
Section 1.7) Or To The Surviving Corporation Or Parent, Such Company Stock
Certificate Shall Be Canceled And Shall Be Exchanged As Provided In Section
1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) On or prior to the Closing Date, ChaseMellon Shareholder Services, LLC
shall act as exchange agent in the Merger (the "Exchange Agent"). Promptly
after the Effective Time, Parent shall deposit with the Exchange Agent (i)
blank certificates representing the shares of Parent Common Stock issuable
pursuant to this Section 1 and (ii) cash sufficient to make payments in lieu
of fractional shares in accordance with Section 1.5(d). The shares of Parent
Common Stock and cash amounts so deposited with the Exchange Agent, together
with any dividends or distributions received by the Exchange Agent with
respect to such shares, are referred to collectively as the "Exchange Fund."
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify (including a provision confirming that delivery of Company
Stock Certificates shall be effected, and risk of loss and title to Company
Stock Certificates shall pass, only upon delivery of such Company Stock
Certificates to the Exchange Agent) and (ii) instructions for use in effecting
the surrender of Company Stock Certificates in exchange for certificates
representing Parent Common Stock. Upon surrender of a Company Stock
Certificate to the Exchange Agent for exchange, together with a duly executed
letter of transmittal and such other documents as may be reasonably required
by the Exchange Agent or Parent, (1) the holder of such Company Stock
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of Section 1.5 (and
cash in lieu of any fractional share of Parent Common Stock in accordance with
Section 1.5(d)), and (2) the Company Stock Certificate so surrendered shall be
canceled. Until surrendered as contemplated by this Section 1.7, each Company
Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive shares of Parent Common Stock (and cash in
lieu of any fractional share of Parent Common Stock) as contemplated by this
Section 1. If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock, require the
owner of such lost, stolen or destroyed Company Stock Certificate to provide
an appropriate affidavit (but in no event a surety bond) as
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indemnity against any claim that may be made against the Exchange Agent,
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(c) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to
the shares of Parent Common Stock represented thereby until such holder
surrenders such Company Stock Certificate in accordance with this Section 1.7
(at which time such holder shall be entitled, subject to the effect of
applicable escheat or similar laws, to receive all such dividends and
distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates as of the date 180 days after the date on which
the Merger becomes effective shall be delivered to Parent upon demand, and any
holders of Company Stock Certificates who have not theretofore surrendered
their Company Stock Certificates in accordance with this Section 1.7 shall
thereafter look only to Parent for satisfaction of their claims for Parent
Common Stock, cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to Parent Common Stock.
(e) Each of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of
Company Capital Stock such amounts as may be required to be deducted or
withheld therefrom under the Code or any provision of state, local or foreign
tax law or under any other applicable Legal Requirement. To the extent such
amounts are so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.
(f) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of Company Capital Stock or to any other Person with
respect to any shares of Parent Common Stock (or dividends or distributions
with respect thereto), or for any cash amounts, delivered to any public
official pursuant to any applicable abandoned property law, escheat law or
similar Legal Requirement.
1.8 APPRAISAL RIGHTS. Notwithstanding anything to the contrary contained in
this Agreement, any shares of Company Capital Stock for which, as of the
Effective Time, "appraisal rights" within the meaning of Section 262 of the
DGCL shall have been perfected, shall not be converted into or represent the
right to receive Parent Common Stock in accordance with Section 1.5 (or cash
in lieu of fractional shares in accordance with Section 1.5(d)), and the
holder or holders of such shares shall be entitled only to such rights as may
be granted to such holder or holders in Section 262 of the DGCL; provided,
however, if any holders of such shares shall lose its appraisal rights, then,
as of the later of the Effective Time or the loss of such rights, such shares
shall automatically be converted into and shall represent only the right to
receive (upon the surrender of the certificate or certificates representing
such shares) Parent Common Stock in accordance with Section 1.5 (and cash in
lieu of fractional shares in accordance with Section 1.5(d)).
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
1.10 ACCOUNTING CONSEQUENCES. For financial reporting purposes, the Merger
is intended to be accounted for as a "purchase."
1.11 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of
the Company and otherwise) to take such action.
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company Disclosure Schedule, the Company
represents and warrants to Parent and Merger Sub as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company does not own more than 50% of the shares of the voting
capital stock, or more than 50% of the equity interest of any nature in any
Entity except for the corporations identified in Part 2.1(a)(i) of the
Acquired Corporation Disclosure Schedule (such corporations being collectively
referred to, with the Company, as the "Acquired Corporations"); and none of
the Acquired Corporations owns any capital stock of, or any equity interest of
any nature in, any other Entity, other than the Acquired Corporations. None of
the Acquired Corporations has agreed, and none of the Acquired Corporations is
obligated or bound to any contract under which it may become obligated, to
make any future investment in or capital contribution to any other Entity.
None of the Acquired Corporations has, at any time, been a general partner of
any general partnership, limited partnership or other Entity.
(b) Each of the Acquired Corporations is a corporation or other legal entity
duly organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the jurisdiction
of its organization and has all necessary power and authority: (i) to conduct
its business in the manner in which its business is currently being conducted;
(ii) to own and use its assets in the manner in which its assets are currently
owned and used; and (iii) to perform its obligations under all Contracts by
which it is bound.
(c) Each of the Acquired Corporations is qualified to do business as a
foreign corporation, and is in good standing, (with respect to jurisdictions
which recognize such concept) under the laws of all jurisdictions where the
nature of its business requires such qualification and where the failure to be
so qualified would have a Material Adverse Effect on the Acquired
Corporations.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has delivered to
Parent accurate and complete copies of the certificate of incorporation,
bylaws and other charter and organizational documents, including all
amendments thereto, of the Company.
2.3 CAPITALIZATION, ETC.
(a) The entire authorized capital stock of the Company consists of: (i)
250,000,000 shares of common stock, $0.001 par value per share; and (ii)
116,000,000 shares of preferred stock, $0.001 par value per share, of which
41,200,000 shares have been designated as Series A Preferred Stock and
74,382,633 shares have been designated as Series B Preferred Stock. There are,
as of the date of this Agreement: (i) 72,557,485 shares of Company Common
Stock issued and outstanding; (ii) 37,026,730 shares of Series A Preferred
Stock issued and outstanding and; (iii) 74,382,633 shares of Series B
Preferred Stock issued and outstanding. All of the outstanding shares of
Company Capital Stock have been duly authorized and validly issued, and are
fully paid and nonassessable. As of the date of this Agreement, there are no
shares of Company Capital Stock held by any of the other Acquired
Corporations. As of the date of this Agreement, and except as set forth in
Part 2.3(a) of the Acquired Corporation Disclosure Schedule: (i) none of the
outstanding shares of Company Capital Stock is entitled or subject to any
preemptive right, right of participation, right of maintenance or any similar
right; (ii) none of the outstanding shares of Company Capital Stock is subject
to any right of first refusal in favor of the Company; and (iii) there is no
Acquired Corporation Contract relating to the voting or registration of, or
restricting any Person from purchasing, selling, pledging or otherwise
disposing of (or granting any option or similar right with respect to), any
shares of Company Capital Stock. None of the Acquired Corporations is under
any obligation or bound by any contract pursuant to which it may become
obligated to repurchase, redeem or otherwise acquire any outstanding shares of
Company Capital Stock.
(b) As of the date of this Agreement, 5,527,850 shares of Company Common
Stock are reserved for future issuance pursuant to stock options granted and
outstanding under the Company's common stock option plans (the "Company
Plans"), (stock options granted by the Company pursuant to the Company Plans
are referred to
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in this Agreement as "Company Options") and 2,663 shares of Company Common
Stock are reserved and available for future issuance pursuant to future grants
of stock options. Part 2.3(b) of the Acquired Corporation Disclosure Schedule
sets forth the following information with respect to each Company Option
outstanding as of the date of this Agreement: (i) the name of the optionee;
(ii) the number of shares of Company Common Stock subject to such Company
Option; (iii) the exercise price of such Company Option; (iv) the date on
which such Company Option was granted; (v) the applicable vesting schedule and
the extent to which such Company Option is vested and exercisable as of the
date of this Agreement; and (vi) the date on which such Company Option
expires. The Company has delivered to Parent an accurate and complete copy of
the Company Plans.
(c) As of the date of this Agreement, 19,265,176 shares of Company Common
Stock are reserved for future issuance pursuant to outstanding warrants to
purchase Company Common Stock (the "Company Warrants"). The Company has
delivered to Parent an accurate and complete copy of the forms of all such
warrants.
(d) Except as set forth in Part 2.3(a), Part 2.3(b) and Part 2.3(c) of the
Acquired Corporation Disclosure Schedule, as of the date of this Agreement
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) granted by the Company to acquire any
shares of Company Capital Stock or other securities of the Company; (ii)
outstanding security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of Company Capital Stock or
other securities of the Company; (iii) stockholder rights plan (or similar
plan commonly referred to as a "poison pill") or Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of
(iv) Company Capital Stock or any other securities; or condition or
circumstance that may give rise to or provide a basis for the assertion of a
claim by any Person to the effect that such Person is entitled to acquire or
receive any shares of Company Capital Stock or other securities of the
Company.
(e) All outstanding shares of Company Capital Stock, all outstanding Company
Options, all outstanding warrants to purchase Company Common Stock and all
outstanding shares of capital stock of each subsidiary of the Company have
been issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements and (ii) all requirements set forth in
applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following financial statements
and notes (collectively, the "Company Financial Statements"):
(i) The audited balance sheets of the Company as of March 31, 1997 and
1996 and the related audited consolidated income statements, consolidated
statements of stockholders' equity and consolidated statements of cash
flows of the Company and its subsidiaries for the years then ended,
together with the notes thereto and the unqualified report and opinion of
Coopers & Lybrand LLP relating thereto; and
(ii) the unaudited consolidated balance sheet of the Company as of
December 31, 1997 (the "Company Unaudited Interim Balance Sheet"), and the
related consolidated unaudited income statement of the Company and its
subsidiaries for the nine months then ended.
(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the consolidated financial position of
the Company and its subsidiaries as of the respective dates thereof and the
results of consolidated operations and (in the case of the financial
statements referred to in Section 2.4(a)(i)) consolidated cash flows of the
Company and its subsidiaries for the periods covered thereby. The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods covered (except that the financial statements referred to in Section
2.4(a)(ii) do not contain footnotes and are subject to normal and recurring
year-end audit adjustments, which will not, individually or in the aggregate,
be material in magnitude).
2.5 ABSENCE OF CHANGES.
(a) Since December 31, 1997;
(i) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the assets of any of the
Acquired Corporations (whether or not covered by insurance).
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(ii) none of the Acquired Corporations has (A) declared, accrued, set
aside or paid any dividend or made any other distribution in respect of any
shares of capital stock or (B) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities;
(iii) none of the Acquired Corporations has issued, granted or authorized
the issuance of (A) any capital stock or other security (except for Company
Common Stock issued upon the exercise of outstanding Company Options), (B)
any option, warrant or right to acquire any capital stock or any other
security (except for Company Options described in Part 2.3(b) of the
Acquired Corporation Disclosure Schedule) or (C) any instrument convertible
into or exchangeable for any capital stock or other security;
(iv) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of any of
the Company Plans, (ii) any provision of any agreement evidencing any
outstanding Company Option, or (iii) any restricted stock purchase
agreement;
(v) there has been no amendment to the certificate of incorporation,
bylaws or other charter or organizational documents of any of the Acquired
Corporations;
(vi) other than in relation to Parent, none of the Acquired Corporations
has (A) received any Acquisition Proposal or (B) solicited, initiated,
encouraged or induced, or provided any nonpublic information to or entered
into any discussions with, any Person for the purpose of soliciting,
initiating, encouraging or inducing, the making or submission of any
Acquisition Proposal;
(vii) none of the Acquired Corporations has changed any of its methods of
accounting or accounting practices in any respect; and
(viii) none of the Acquired Corporations has agreed or committed to take
any of the actions referred to in clauses "(ii)" through "(vii)" above.
(b) Since March 31, 1997, except as is reflected in the Company Unaudited
Interim Balance Sheet, there has not been any material adverse change in the
business, condition, assets, capitalization, liabilities, operations,
financial performance or prospects of the Acquired Corporations taken as a
whole, and no event has occurred that could reasonably be expected to have a
Material Adverse Effect on any of the Acquired Corporations.
2.6 TITLE TO ASSETS.
(a) Part 2.6 of the Acquired Corporation Disclosure Schedule contains a
complete and accurate list of all real property, leaseholds, or other
interests in real property owned by the Acquired Corporations (all such
property owned by the Acquired Corporations being referred to herein as the
"Acquired Corporation Owned Real Property" and all such real property leased
by the Acquired Corporations being referred to herein as the "Acquired
Corporation Leased Real Property"). The Acquired Corporations hold the
leasehold interests of the Acquired Corporation Leased Real Property under the
real property leases described in Part 2.6 of the Acquired Corporation
Disclosure Schedule.
(b) Each of the Acquired Corporations owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i)
all assets reflected on the Company Unaudited Interim Balance Sheet; (ii) all
other assets reflected in the books and records of each of the Acquired
Corporations as being owned by such Acquired Corporation; and (iii) the real
property identified in Part 2.6 of the Acquired Corporation Disclosure
Schedule. All of said assets are owned by the Acquired Corporations free and
clear of any Encumbrances, except for (1) any lien for current taxes not yet
due and payable, (2) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the
operations of any of the Acquired Corporations and (3) liens described in Part
2.6 of the Acquired Corporation Disclosure Schedule. All buildings, plants and
structures owned or leased by the Acquired Corporations lie wholly within the
boundaries of the real property owned or leased by the Acquired Corporations
and do not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person.
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2.7 RECEIVABLES; INVENTORY.
(a) All existing accounts receivable of the Acquired Corporations (including
those accounts receivable reflected on the Company Unaudited Interim Balance
Sheet that have not yet been collected and those accounts receivable that have
arisen since December 31, 1997 and have not yet been collected) (i) represent
valid obligations of customers of the Acquired Corporations arising from bona
fide transactions entered into in the ordinary course of business and (ii), to
the best of the Company's knowledge, except as set forth in Part 2.7(a) of the
Acquired Corporation Disclosure Schedule, will be collected in full, without
any counterclaim or set off (net of an allowance for doubtful accounts not to
exceed $500,000 in the aggregate).
(b) Part 2.7(b) of the Acquired Corporation Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by any of the Acquired Corporations to any employee, director,
consultant or independent contractor of any of the Acquired Corporations,
other than routine travel advances made to employees in the ordinary course of
business.
(c) All inventory of the Acquired Corporations, whether or not reflected in
the Company Unaudited Interim Balance Sheet, consists of a quality and
quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Company Unaudited
Interim Balance Sheet. All inventories not written off have been priced at the
lower of cost or net realizable value on a first in, first out basis. The
quantities of each item of inventory (whether raw materials, work-in-process
or finished goods) are not excessive, but are reasonable in the present
circumstances of the Acquired Corporations.
2.8 BUILDINGS, EQUIPMENT; LEASEHOLD. The buildings, plants, structures and
all material items of equipment and other tangible assets owned by or leased
to the Acquired Corporations are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted), are
adequate for the conduct of the respective businesses of the Acquired
Corporations in the manner in which such businesses are currently being
conducted, and are in compliance with all applicable Legal Requirements.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Acquired Corporation Disclosure Schedule sets
forth, with respect to each Proprietary Asset owned by the Acquired
Corporations and registered with any Governmental Body or for which an
application has been filed with any Governmental Body, (i) a brief description
of such Proprietary Asset and (ii) the names of the jurisdictions covered by
the applicable registration or application. Part 2.9(a)(ii) of the Acquired
Corporation Disclosure Schedule identifies and provides a brief description of
any ongoing royalty or payment obligations in excess of $10,000 with respect
to, each Proprietary Asset that is licensed or otherwise made available to any
of the Acquired Corporations by any Person (except for any Proprietary Asset
that is licensed to any of the Acquired Corporations under any third party
software license generally available to the public at a price per central
processing unit less than $5,000), and identifies the Contract under which
such Proprietary Asset is being licensed or otherwise made available to such
Acquired Corporation. To the Company's knowledge, the Acquired Corporations
have good, valid and marketable title to all of the Proprietary Assets
identified in Part 2.9(a)(i) of the Acquired Corporation Disclosure Schedule
and to all other Proprietary Assets that an Acquired Corporation purports to
own, free and clear of all Encumbrances, except for (i) any lien for current
taxes not yet due and payable and (ii) minor liens that have arisen in the
ordinary course of business and that do not (individually or in the aggregate)
materially detract from the value of the assets subject thereto or materially
impair the operations of any of the Acquired Corporations. The Acquired
Corporations have a valid right to use, license and otherwise exploit all
Proprietary Assets identified in Part 2.9(a)(ii) of the Acquired Corporation
Disclosure Schedule. Except as set forth in Part 2.9(a)(iii) of the Acquired
Corporation Disclosure Schedule, none of the Acquired Corporations has
developed jointly with any other Person any Proprietary Asset that is material
to the business of the Acquired Corporations with respect to which such other
Person has any rights. Except as set forth in Part 2.9(a)(iv) of the Acquired
Corporation Disclosure Schedule, there is no Acquired Corporation Contract
pursuant to which any Person has any right (whether or not currently
exercisable) to use, license or otherwise exploit any Proprietary Asset.
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(b) Each of the Acquired Corporations has taken reasonable measures and
precautions to protect and maintain the confidentiality, secrecy and value of
all material Acquired Corporation Proprietary Assets (except Acquired
Corporation Proprietary Assets whose value would be unimpaired by disclosure).
Without limiting the generality of the foregoing, except as set forth in Part
2.9(b) of the Acquired Corporation Disclosure Schedule, (i) all current
employees of the Acquired Corporations who are or were involved in, or who
have contributed to, the creation or development of any material Acquired
Corporation Proprietary Asset have executed and delivered to the Company an
agreement that is substantially identical to the form of Confidential
Information and Invention Assignment Agreement previously delivered by the
Company to Parent and (ii) all current consultants and independent contractors
to the Acquired Corporations who are or were involved in, or who have
contributed to, the creation or development of any Acquired Corporation
Proprietary Asset have executed and delivered to the Company an agreement
(containing no exceptions to or exclusions from the scope of its coverage)
that is substantially identical to the form of Consultant Confidential
Information and Invention Assignment Agreement previously delivered by the
Company to Parent. No current or former employee, officer, director,
stockholder, consultant or independent contractor has any right, claim or
interest in or with respect to any Acquired Corporation Proprietary Asset.
None of the Acquired Corporations has disclosed or delivered to any Person, or
permitted the disclosure or delivery to any escrow agent or other Person, of
the source code, or any portion or aspect of the source code, or any
proprietary information or algorithm contained in any source code, of any
Acquired Corporation Proprietary Asset.
(c) To the best knowledge of the Company: (i) all patents, trademarks,
service marks and copyrights held by each of the Acquired Corporations are
valid, enforceable and subsisting; (ii) none of the Acquired Corporation
Proprietary Assets and no Proprietary Asset that is currently being developed
by any of the Acquired Corporations (either by itself or with any other
Person) infringes, misappropriates or conflicts with any Proprietary Asset
owned or used by any other Person; (iii) none of the products that are or have
been designed, created, developed, assembled, manufactured or sold by any of
the Acquired Corporations is infringing, misappropriating or making any
unlawful or unauthorized use of any Proprietary Asset owned or used by any
other Person, and none of such products has at any time infringed,
misappropriated or made any unlawful or unauthorized use of, and none of the
Acquired Corporations has received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful or unauthorized use of, any
Proprietary Asset owned or used by any other Person; and (iv) no other Person
is infringing, misappropriating or making any unlawful or unauthorized use of,
and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any material Acquired Corporation Proprietary Asset.
(d) The Acquired Corporation Proprietary Assets constitute all of the
Proprietary Assets necessary to enable each of the Acquired Corporations to
conduct their business in the manner in which such business has been and is
being conducted. None of the Acquired Corporations has (i) licensed any of the
material Acquired Corporation Proprietary Assets to any Person on an exclusive
basis or (ii) entered into any covenant not to compete or Contract limiting
its ability to exploit fully any material Acquired Corporation Proprietary
Assets or to transact business in any market or geographical area or with any
Person.
2.10 CONTRACTS.
(a) Part 2.10 of the Acquired Corporation Disclosure Schedule identifies
each Acquired Corporation Contract that constitutes an "Acquired Corporation
Material Contract" as of the date of this Agreement. For purposes of this
Agreement, each of the following shall be deemed to constitute an "Acquired
Corporation Material Contract":
(i) any Contract relating to the employment of, or the performance of
services by, any employee or consultant with annual compensation in excess
of $150,000, and any Contract pursuant to which any of the Acquired
Corporations is, or may become, obligated to make any severance,
termination or similar payment, bonus or relocation payment or any other
payment (other than payments in respect of salary) in excess of $150,000,
to any current or former employee or director of any of the Acquired
Corporations;
(ii) each lease, rental or occupancy agreement, installment and
conditional sales agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any
real
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or personal property (except for any personal property lease, installment
sales agreement or conditional sales agreement providing for aggregate
payments by or to the Acquired Corporations of less than $25,000 and except
for sales acknowledgments and purchase orders in the ordinary course of
business);
(iii) any Contract relating to the acquisition, transfer, development,
sharing or license of any Proprietary Asset (except for (A) any Contract
pursuant to which any Proprietary Asset is licensed to any Acquired
Corporation under any third party software license generally available to
the public at a price per central processing unit of less than $5,000, (B)
any license implied in the sale by the Company of a tangible product or (C)
any Contract between Acquired Corporations);
(iv) any Contract which provides for indemnification of any officer,
director, employee or agent of any Acquired Corporation;
(v) any Contract imposing any restriction on the right or ability of any
Acquired Corporation (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to sell
any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person,
or (C) to develop or distribute any technology;
(vi) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing the
Company with any right of first refusal with respect to, or right to
repurchase or redeem, any securities;
(vii) any Contract requiring that any Acquired Corporation give any
notice or provide any information to any Person prior to accepting an
Acquisition Proposal;
(viii) any Contract that has a term of more than 90 days and that may not
be terminated without penalty within 90 days after the delivery of a
termination notice by an Acquired Corporation (other than for the sale of
products by an Acquired Corporation entered into in the ordinary course of
business);
(ix) any Contract pursuant to which any of the Acquired Corporations is
or may become obligated to make payments aggregating in excess of $100,000
or pursuant to which any of the Acquired Corporations is or may be entitled
to receive in excess of $100,000 (other than for the sale of products or
the purchase of components or materials by an Acquired Corporation entered
into in the ordinary course of business);
(x) any Contract (not otherwise identified in clauses "(i)" through
"(ix)" of this sentence) that has or could reasonably be expected to have a
material effect on the business, condition, assets, liabilities,
capitalization, operations, financial performance or prospects of any of
the Acquired Corporations or on any of the transactions contemplated by
this Agreement (other than for the sale of products or the purchase of
components or materials by an Acquired Corporation entered into in the
ordinary course of business); and
(xi) any other Contract, if a breach of such Contract could reasonably be
expected to have a Material Adverse Effect on any of the Acquired
Corporations.
There is no Acquired Corporation Contract to which any Governmental Body is
a party or under which any Governmental Body has any rights or obligations, or
directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between any Acquired Corporation and any
contractor or subcontractor to any Governmental Body).
(b) Each Acquired Corporation Contract that is an Acquired Corporation
Material Contract is valid and in full force and effect, and is enforceable by
the respective Acquired Corporation in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Acquired Corporation Disclosure
Schedule: (i) none of the Acquired Corporations has violated or breached, or
committed any default under, any Acquired Corporation Contract and, to the
best of each of the knowledge of the Acquired Corporations, no other Person
has violated or breached, or committed any default under, any Acquired
Corporation Contract; (ii) to the best of the knowledge
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of the Acquired Corporations, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time or both) will,
or could reasonably be expected to, (A) result in a violation or breach of any
of the provisions of any Acquired Corporation Contract, (B) give any Person
the right to declare a default or exercise any remedy under any Acquired
Corporation Contract, (C) give any Person the right to a rebate, chargeback,
penalty or change in delivery schedule under any Acquired Corporation
Contract, (D) give any Person the right to accelerate the maturity or
performance of any Acquired Corporation Contract, or (E) give any Person the
right to cancel, terminate or modify any Acquired Corporation Contract; and
(iii) since September 30, 1997, none of the Acquired Corporations has received
any notice or other communication regarding any actual or possible violation
or breach of, or default under, any Acquired Corporation Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms of any
Acquired Corporation Material Contract to renegotiate, any amount paid or
payable to the Acquired Corporation under any Acquired Corporation Material
Contract or any other material term or provision of any Acquired Corporation
Material Contract.
2.11 LIABILITIES. None of the Acquired Corporations has any accrued,
contingent or other liabilities of any nature, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with GAAP, and whether due or to become due), except for: (a) liabilities
identified as such in the "liabilities" column of the Company Unaudited
Interim Balance Sheet; (b) normal and recurring liabilities that have been
incurred by any of the Acquired Corporations since December 31, 1997 in the
ordinary course of business and consistent with past practices; and (c)
liabilities described in Part 2.11 of the Acquired Corporation Disclosure
Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired Corporations
is, and has at all times since December 31, 1994 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had, either individually or in the aggregate, and
could not reasonably be expected to have, a Material Adverse Effect on the
Acquired Corporations. Since December 31, 1994, none of the Acquired
Corporations has received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 CERTAIN BUSINESS PRACTICES. None of the Acquired Corporations or any
director, officer, agent or employee of any of the Acquired Corporations has
(i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
2.14 GOVERNMENTAL AUTHORIZATIONS. The Company holds all Governmental
Authorizations necessary to enable it to conduct its business in the manner in
which such business is currently being conducted. All such Governmental
Authorizations are valid and in full force and effect. The Company is, and at
all times since December 31, 1994 has been, in substantial compliance with the
terms and requirements of such Governmental Authorizations. Since December 31,
1994, none of the Acquired Corporations has received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any material
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization. Part 2.14 of the Acquired Corporation
Disclosure Schedule contains an accurate and complete list of all presently
effective United States Government Authorizations relating to the real or
personal property of the Company, and the Company is in compliance with such
Governmental Authorizations.
2.15 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the Acquired
Corporations with any Governmental Body with respect to any taxable period
ending on or before the Closing Date (the "Acquired
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Corporation Returns") (i) have been or will be filed on or before the
applicable due date (including any extensions of such due date), and (ii) have
been, or will be when filed, prepared in all material respects in compliance
with all applicable Legal Requirements. All amounts shown on the Acquired
Corporation Returns to be due on or before the Closing Date have been or will
be paid on or before the Closing Date.
(b) The Company Unaudited Interim Balance Sheet fully accrues all actual and
contingent liabilities for Taxes with respect to all periods through the date
thereof in accordance with GAAP. The Acquired Corporations will establish, in
the ordinary course of business and consistent with past practices, reserves
adequate for the payment of all Taxes for the period from December 31, 1997
through the Closing Date.
(c) No Acquired Corporation Return has ever been examined or audited by any
Governmental Body. No extension or waiver of the limitation period applicable
to any of the Acquired Corporation Returns has been granted (by any of the
Acquired Corporations or any other Person), and no such extension or waiver
has been requested from any of the Acquired Corporations.
(d) No claim or Legal Proceeding is pending or, to the best knowledge of the
Acquired Corporations, has been threatened against or with respect to any of
the Acquired Corporations in respect of any material Tax. There are no
unsatisfied liabilities for material Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by any of the
Acquired Corporations with respect to any material Tax (other than liabilities
for Taxes asserted under any such notice of deficiency or similar document
which are being contested in good faith by such Acquired Corporation and with
respect to which adequate reserves for payment have been established). There
are no liens for material Taxes upon any of the assets of any of the Acquired
Corporations except liens for current Taxes not yet due and payable. None of
the Acquired Corporations has entered into or become bound by any agreement or
consent pursuant to Section 341(f) of the Code. None of the Acquired
Corporations has been, or will be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions or events occurring, or accounting methods
employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent
contractor of any of the Acquired Corporations that, considered individually
or considered collectively with any other such Contracts, will, or could
reasonably be expected to, give rise directly or indirectly to the payment of
any amount that would not be deductible pursuant to Section 280G or Section
162 of the Code. None of the Acquired Corporations is, or has ever been, a
party to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract.
2.16 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.16(a) of the Acquired Corporation Disclosure Schedule identifies
each salary, bonus, vacation, deferred compensation, incentive compensation,
stock purchase, stock option, severance pay, termination pay, death or
disability benefits, hospitalization, medical, life or other insurance,
flexible benefits, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement and each other employee benefit plan
or arrangement maintained within the United States (collectively, the
"Acquired Corporation Plans") sponsored, maintained, contributed to or
required to be contributed to by any of the Acquired Corporations or any ERISA
Affiliate (as defined in Section 2.16(d) below) for the benefit of any current
or former employee in the United States of any of the Acquired Corporations or
any ERISA Affiliate.
(b) Except as set forth in Part 2.16(a) of the Acquired Corporation
Disclosure Schedule, neither the Acquired Corporations nor any ERISA Affiliate
maintain, sponsor or contribute to, or have at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Titles or Subtitles of ERISA) that is maintained within the United
States for the benefit
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of employees or former employees of the Acquired Corporations or any ERISA
Affiliate (an "Acquired Corporation Pension Plan"). None of the Acquired
Corporation Pension Plans identified in the Acquired Corporation Disclosure
Schedule is a multiemployer plan (within the meaning of Section 3(37) of
ERISA) or is subject to Section 412 of the Code, Part 3 of Subtitle B of Title
I of ERISA or Title IV of ERISA.
(c) Except as set forth in Part 2.16(a) of the Acquired Corporation
Disclosure Schedule, neither the Acquired Corporations nor any ERISA Affiliate
maintain, sponsor or contribute to any: employee welfare benefit plan (as
defined in Section 3(1) of ERISA, whether or not excluded from coverage under
specific Titles or Subtitles of ERISA) that is maintained within the United
States for the benefit of any employees or former employees of any of the
Acquired Corporations or any ERISA Affiliate (an "Acquired Corporation Welfare
Plan"). None of the Acquired Corporation Plans identified in the Acquired
Corporation Disclosure Schedule is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).
(d) None of the Acquired Corporations has or has ever been required to be
treated as a single employer with any other Person under Section 4001(b)(1) of
ERISA or Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate").
None of the Acquired Corporations has ever been a member of an "affiliated
service group" within the meaning of Section 414(m) of the Code with any other
Person within the United States. Neither the Acquired Corporations nor any
ERISA Affiliate has ever made a complete or partial withdrawal from a
multiemployer plan, as such term is defined in Section 3(37) of ERISA, that is
maintained within the United States, resulting in "withdrawal liability," as
such term is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208 of
ERISA).
(e) Neither the Acquired Corporations nor any ERISA Affiliate has any plan
or commitment to create any additional Acquired Corporation Welfare Plans or
Acquired Corporation Pension Plans, or to modify or change any existing
Acquired Corporation Welfare Plan or Acquired Corporation Pension Plan (other
than to comply with applicable law) in a manner that would affect any employee
of any of the Acquired Corporations or any ERISA Affiliate.
(f) No Acquired Corporation Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of any
of the Acquired Corporations or any ERISA Affiliate after any such employee's
termination of service (other than benefit coverage mandated by applicable
law, including coverage provided pursuant to COBRA (as defined in Section
2.16(g) below)).
(g) With respect to any Acquired Corporation Plan constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code or Section
607(1) of ERISA, the provisions of Section 4980B of the Code and Sections 601
through 609 of ERISA ("COBRA") have been complied with in all material
respects.
(h) Each of the Acquired Corporation Plans has been operated and
administered in all material respects in accordance with applicable Legal
Requirements, including but not limited to ERISA and the Code.
(i) Each of the Acquired Corporation Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination as to its
qualification from the Internal Revenue Service, and nothing has occurred that
would adversely affect such qualification.
(j) Except as set forth in Part 2.16(j) of the Acquired Corporation
Disclosure Schedule, neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment in the United
States (including any bonus, golden parachute or severance payment) to any
current or former employee or director of any of the Acquired Corporations
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(k) Part 2.16(k) of the Acquired Corporation Disclosure Schedule contains a
list of all salaried employees located in the United States of each of the
Acquired Corporations or any ERISA Affiliate as of the date of this
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Agreement whose salaries are in excess of $150,000 per year, and correctly
reflects, in all material respects, their salaries, any other compensation
payable to them (including compensation payable pursuant to bonus, deferred
compensation or commission arrangements), their dates of employment and their
positions. Neither any of the Acquired Corporations nor any ERISA Affiliate is
a party to any collective bargaining agreement or other Contract with a labor
union involving any of their employees located in the United States. There has
not been, is not now pending, and no Person has threatened to commence any
slowdown, work stoppage, labor or dispute or any similar activity or dispute
in the United States affecting any of the Acquired Corporations or any ERISA
Affiliates or their employees since December 31, 1997. All of the employees in
the United States of each of the Acquired Corporations and any ERISA
Affiliates are "at will" employees.
(l) Part 2.16(l) of the Acquired Corporation Disclosure Schedule identifies
each employee in the United States of each of the Acquired Corporations or any
ERISA Affiliate who is not fully available to perform work because of
disability or other leave and sets forth the basis of such leave and the
anticipated date of return to full service.
(m) Each of the Acquired Corporations and any ERISA Affiliate in the United
States is in compliance in all material respects with all applicable Legal
Requirements and Contracts relating to employment, employment practices,
wages, bonuses and terms and conditions of employment, including employee
compensation matters.
(n) Each of the Acquired Corporations has good labor relations, and none of
the Acquired Corporations has any knowledge of any facts indicating that (i)
the consummation of the Merger or any of the other transactions contemplated
by this Agreement will have a material adverse effect on the labor relations
of any of the Acquired Corporations, or that (ii) any of the key employees of
the Company intends to terminate his or her employment with such Acquired
Corporation.
(o) The employee benefit plans and arrangements that are currently
maintained by the Acquired Corporations in Germany are in material compliance
with applicable German laws.
2.17 ENVIRONMENTAL MATTERS.
(a) Each of the Acquired Corporations is, and at all times has been, in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes (i) the possession by each of the Acquired
Corporations of all permits and other Governmental Authorizations required
under applicable Environmental Laws, and (ii) compliance with the terms and
conditions thereof (and the violation of which would have a Material Adverse
Effect).
(b) None of the Acquired Corporations has received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that an Acquired
Corporation is not in compliance with any Environmental Law or is or may be
required to undertake or bear any Environmental Liabilities. To the best
knowledge of each of the Acquired Corporations, there are no circumstances
that may prevent or interfere with the compliance by any of the Acquired
Corporations with any Environmental Law or that may require any of the
Acquired Corporations to undertake or bear any Environmental Liabilities in
the future (other than routine Environmental Liabilities incurred in the
ordinary course of business consistent with past practices) with respect to
any Property, any other property or otherwise. To the best knowledge of each
of the Acquired Corporations, no current or prior owner of any Acquired
Corporation Property has received any notice or other communication (in
writing or otherwise), whether from a Government Body, citizens group,
employee or otherwise, that alleges that such current or prior owner or such
Acquired Corporation has not been or is not in compliance with any
Environmental Law or is or may be required to undertake or bear any
Environmental Liabilities.
(c) (i) To the best knowledge of each of the Acquired Corporations all
Acquired Corporation Property and all surface water, groundwater and soil
associated with such Acquired Corporation Property and (ii) to the knowledge
of the Company without independent investigation, all Property to which the
Company has sent any Material of Environmental Concern are free of any
material environmental contamination by any Material of
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Environmental Concern in any concentration that may require any costs of
investigation, response, removal or remedial action.
(d) The Company has delivered to Parent true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by any of the Acquired Corporations pertaining to Materials of Environmental
Concern in, on, or under any Acquired Corporation Property, or concerning
compliance by any of the Acquired Corporations, or any other Person for whose
conduct it is or may be held responsible, with Environmental Laws.
(e) For purposes of this Agreement: (i) "Environmental Law" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, asbestos, petroleum and petroleum products and any other
substance that is now or hereafter regulated by any Environmental Law or that
is otherwise a danger to health, reproduction or the environment; (iii)
"Environmental Liabilities" include any cost, damages, expense, liability,
obligation, fine, penalty, judgment, award, loss or other responsibility
arising from or under Environmental Law, including financial responsibility
under Environmental Law for investigation, removal, containment, remediation,
response or other cleanup costs or corrective action; and (iv) "Acquired
Corporation Property" shall include any property, parcel or facility now or
heretofore owned, leased, used or controlled by any of the Acquired
Corporations or geologically or hydrologically adjoining any such property,
parcel or facility.
2.18 INSURANCE. The Company has delivered to Parent a copy of each material
insurance policy and each material self insurance program relating to the
business, assets or operations of each of the Acquired Corporations in the
United States. Each such insurance policy is in full force and effect. Since
December 31, 1994, none of the Acquired Corporations has received any notice
or other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any material claim under any insurance policy, or (c) material adjustment
in the amount of the premiums payable with respect to any insurance policy.
Except as set forth in Part 2.18 of the Acquired Corporation Disclosure
Schedule, there is no pending claim (including any workers' compensation
claim) under or based upon any insurance policy applicable to any of the
business, assets or operations of any of the Acquired Corporations.
2.19 TRANSACTIONS WITH AFFILIATES. Except as set forth in Part 2.19 of the
Acquired Corporation Disclosure Schedule, since December 31, 1994, no event
has occurred that would be required to be reported by the Company pursuant to
Item 404 of Regulation S K promulgated by the SEC, were the Company required
to report to its stockholders in accordance with such Item. Part 2.19 of the
Acquired Corporation Disclosure Schedule identifies each person who is an
"affiliate" (as that term is used in Rule 145 under the Securities Act) of the
Company as of the date of this Agreement.
2.20 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.20 of the Acquired Corporation Disclosure
Schedule, there is no pending Legal Proceeding and (to the best knowledge of
each of the Acquired Corporations) no Person has threatened to commence any
Legal Proceeding: (i) that involves any of the Acquired Corporations or any of
the assets owned or used by any of the Acquired Corporations; or (ii) that
challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the other
transactions contemplated by this Agreement. To the best knowledge of each of
the Acquired Corporations, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.
(b) Except as set forth in Part 2.20 of the Acquired Corporation Disclosure
Schedule, there is no material order, writ, injunction, judgment or decree to
which any of the Acquired Corporations, or any of the assets owned
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or used by any of the Acquired Corporations, is subject. To the best knowledge
of each of the Acquired Corporations, no officer or key employee of any of the
Acquired Corporations is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the business of any
of the Acquired Corporations.
2.21 AUTHORITY; INAPPLICABILITY OF ANTI-TAKEOVER STATUTES; BINDING NATURE OF
AGREEMENT. The Company has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement.
The Board of Directors of the Company (at a meeting duly called and held) has
(a) unanimously determined that the Merger is advisable and fair and in the
best interests of the Company and its stockholders, (b) unanimously authorized
and approved the execution, delivery and performance of this Agreement by the
Company and has unanimously approved the Merger, (c) unanimously recommended
the adoption of this Agreement by the holders of Company Common Stock and
directed that this Agreement be submitted for consideration by the Company's
stockholders at the Company Stockholders' Meeting (as defined in Section
6.2(a)), and (d) adopted a resolution having the effect of causing the Company
not to be subject to any state takeover law or similar Legal Requirement that
might otherwise apply to the Merger or any of the other transactions
contemplated by this Agreement. This Agreement constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable
remedies.
2.22 SECTION 203 OF THE DGCL NOT APPLICABLE. As of the date hereof and at
all times on or prior to the Effective Time, Section 203 of the DGCL is, and
will be, inapplicable to the execution, delivery and performance of this
Agreement and to the consummation of the Merger and the other transactions
contemplated by this Agreement.
2.23 NO EXISTING DISCUSSIONS. None of the Acquired Corporations, nor any
Representative of any of the Acquired Corporations, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating
to any Acquisition Proposal.
2.24 VOTE REQUIRED. The affirmative vote of the holders of (a) a majority of
the shares of Company Common Stock and Company Preferred Stock, voting as a
single class, outstanding on the record date for the Company Stockholder's
Meeting and (b) a majority of the shares of Company Preferred Stock
outstanding on the record date for the Company Stockholders' Meeting to adopt
this Agreement (the "Company Required Vote") is the only vote of the holders
of any class or series of the Company's capital stock necessary to consummate
the transactions contemplated by this Agreement.
2.25 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of the
provisions of the certificate of incorporation, bylaws or other charter or
organizational documents of any of the Acquired Corporations, or (ii) any
resolution adopted by the stockholders, the board of directors, or similar
governing body, or any committee of the board of directors, or similar
governing body, of any of the Acquired Corporations;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction, judgment or decree to which any of the Acquired
Corporations, or any of the assets owned or used by any of the Acquired
Corporations, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by any of the Acquired Corporations or that
otherwise relates to the business of
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any of the Acquired Corporations or to any of the assets owned or used by
any of the Acquired Corporations;
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Acquired Corporation
Contract that is or would constitute an Acquired Corporation Material
Contract, or give any Person the right to (i) declare a default or exercise
any remedy under any such Acquired Corporation Contract, (ii) a rebate,
chargeback, penalty or change in delivery schedule under any such Acquired
Corporation Contract, (iii) accelerate the maturity or performance of any
such Acquired Corporation Contract, or (iv) cancel, terminate or modify any
term of any such Acquired Corporation Contract;
(e) result in the imposition or creation of any Encumbrance upon or with
respect to any asset owned or used by any of the Acquired Corporations
(except for minor liens that will not, in any individual case or in the
aggregate, materially detract from the value of the assets subject thereto
or materially impair the operations of any of the Acquired Corporations);
or
(f) result in, or increase the likelihood of, the disclosure, delivery or
transfer of any material asset of any of the Acquired Corporations to any
Person.
Except as may be required by the DGCL and the HSR Act, none of the Acquired
Corporations was, is nor will be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with (x)
the execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the
Merger or any of the other transactions contemplated by this Agreement.
2.26 FINANCIAL ADVISOR. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or any of the other transactions contemplated by this Agreement based
upon arrangements made by or on behalf of the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the Parent Disclosure Schedule, Parent and Merger Sub
represent and warrant to the Company as follows:
3.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) Neither Parent nor Merger Sub own any shares of capital stock of, or
equity interest of any nature in, any Entity except for the corporations
identified in Part 3.1(a)(i) of the Parent Disclosure Schedule; and neither
Parent, Merger Sub nor any of the other corporations identified in Part
3.1(a)(i) of the Parent Disclosure Schedule owns any capital stock of, or any
equity interest of any nature in, any other Entity, other than those
identified in Part 3.1(a)(ii) of the Parent Disclosure Schedule. Neither
Parent nor Merger Sub has agreed, nor is obligated or bound to any contract
under which it may become obligated, to make any future investment in or
capital contribution to any Entity. Neither Parent nor Merger Sub has, at any
time, been a general partner of any general partnership, limited partnership
or other Entity.
(b) Parent and Merger Sub are corporations duly organized, validly existing
and in good standing under the laws of the jurisdiction of their incorporation
and each has all necessary power and authority: (i) to conduct its business in
the manner in which its business is currently being conducted; (ii) to own and
use its assets in the manner in which its assets are currently owned and used;
and (iii) to perform its obligations under all Contracts by which it is bound.
Merger Sub was incorporated for purposes of consummating the Merger and has
never conducted any business or other activities, except in connection with
this Agreement.
(c) Each of Parent and Merger Sub are qualified to do business as a foreign
corporation, and is in good standing, under the laws of all jurisdictions
where the nature of its business requires such qualification and where the
failure to be so qualified would have a Material Adverse Effect on Parent or
Merger Sub.
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3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Parent has delivered to the
Company accurate and complete copies of the certificate of incorporation,
bylaws and other charter and organizational documents, including all
amendments thereto, of Parent and Merger Sub.
3.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of Parent consists of: (i) 25,000,000
shares of common stock, $.01 par value per share ("Parent Common Stock"), of
which 14,881,039 shares have been issued and are outstanding as of the date of
this Agreement; and (ii) 5,000,000 shares of Preferred Stock, $.01 par value
per share, of which 30 shares of Series A Preferred Stock, $.01 par value, 68
shares of Series B Preferred Stock, $.01 par value, and 85 shares of Series C
Preferred Stock, $.01 par value are outstanding as the date of this Agreement
("Parent Preferred Stock"). All of the outstanding shares of Parent Common
Stock have been duly authorized and validly issued, and are fully paid and
nonassessable. Parent does not hold any of its shares of capital stock in its
treasury. Except as set forth in Part 3.3(a) of the Parent Disclosure
Schedule: (i) none of the outstanding shares of Parent Common Stock or Parent
Preferred Stock is entitled or subject to any preemptive right, right of
participation, right of maintenance or any similar right; (ii) none of the
outstanding shares of Parent Common Stock or Parent Preferred Stock is subject
to any right of first refusal in favor of Parent; and (iii) there is no
Contract relating to the voting or registration of, or restricting any Person
from purchasing, selling, pledging or otherwise disposing of (or granting any
option or similar right with respect to), any shares of Parent Common Stock or
Parent Preferred Stock. Parent is not under any obligation or bound by any
contract pursuant to which it may be obligated to repurchase, redeem or
otherwise acquire any outstanding shares of Parent Common Stock. The
authorized capital of Merger Sub consists of 1,000 shares of Common Stock, par
value $.01 per share, 100 of which are issued and outstanding and are held,
beneficially and of record, by Parent.
(b) As of the date of this Agreement: (i) 1,039,764 shares of Parent Common
Stock are reserved for future issuance pursuant to stock options granted and
outstanding under Parent's 1994 Stock Option Plan, as amended (the "Parent
Options") and 458,236 shares of Parent Common Stock are reserved and available
for future issuance pursuant to future grants of stock options; and (ii)
141,653 shares of Parent Common Stock are reserved for future issuance
pursuant to Parent's 1995 Employee Stock Purchase Plan (the "1995 Purchase
Plan"). Part 3.3(b)(i) of the Parent Disclosure Schedule sets forth the
following information with respect to each Parent Option outstanding as of the
date of this Agreement: (i) the particular plan pursuant to which such Parent
Option was granted; (ii) the name of the optionee; (iii) the number of shares
of Parent Common Stock subject to such Parent Option; (iv) the exercise price
of such Parent Option; (v) the date on which such Parent Option was granted;
(vi) the applicable vesting schedules and the extent to which such Parent
Option is vested and exercisable as of the date of this Agreement; and (vii)
the date on which such Parent Option expires. Parent has delivered to the
Company accurate and complete copies of all stock option plans pursuant to
which Parent has granted outstanding stock options, and the forms of all stock
option agreements evidencing such options. Part 3.3(b)(ii) of the Parent
Disclosure Schedule sets forth the following information with respect to the
outstanding warrants to purchase Parent Common Stock: (1) the number of shares
of Parent Common Stock subject to such warrants; (2) the exercise price of
such warrants; and (3) the date on which such warrants expire. Parent has
delivered to the Company an accurate and complete copy of the forms of all
such warrants.
(c) Except as set forth in Part 3.3(a), or Part 3.3(b)(i) or Part 3.3(b)(ii)
of Parent Disclosure Schedule, there is no: (i) outstanding subscription,
option, call, warrant or right (whether or not currently exercisable) granted
by Parent to acquire any shares of the capital stock or other securities of
Parent; (ii) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the capital stock or
other securities of Parent; (iii) stockholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under which Parent is or
may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive any shares of
capital stock or other securities of Parent.
(d) All outstanding shares of Parent Common Stock, all outstanding Parent
Options and all outstanding warrants to purchase Parent Common Stock have been
issued and granted in compliance with (i) all applicable
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securities laws and other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies of all
registration statements, proxy statements, reports, schedules, forms and other
documents filed by Parent with the SEC since December 31, 1994 (the "Parent
SEC Documents"). All statements, reports, schedules forms and other documents
required to have been filed by Parent with the SEC have been so filed. As of
the time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing): (i)
each of the Parent SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be); and (ii) none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) The financial statements (including any related notes) contained in the
Parent SEC Documents: (i) complied as to form in all material respects with
the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC, and except that the unaudited financial statements may not contain
footnotes and are subject to normal and recurring year-end adjustments which
will not, individually or in the aggregate, be material in amount); and (iii)
fairly present the financial position of Parent as of the respective dates
thereof and the results of operations and cash flows of Parent for the periods
covered thereby.
(c) Parent has delivered to the Company the audited balance sheet of Parent
as of December 31, 1997 (the "Parent Audited Balance Sheet") and the related
audited consolidated income statement, consolidated statement of stockholders'
equity and consolidated statement of cash flows of Parent and its subsidiaries
for the years then ended, together with the notes thereto and the unqualified
report and opinion of Price Waterhouse LLP relating thereto (collectively, the
"Parent Financial Statements.") The Parent Financial Statements are accurate
and complete in all material respects and present fairly the consolidated
financial position of Parent and its subsidiaries as of the respective dates
thereof and the results of consolidated operations and consolidated cash flows
of Parent and its subsidiaries for the periods covered thereby. The Parent
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered.
3.5 ABSENCE OF CHANGES. Since December 31, 1997;
(a) there has not been any material adverse change in the business,
condition, assets, capitalization, liabilities, operations, financial
performance or prospects of Parent, and no event has occurred that could
reasonably be expected to have a Material Adverse Effect on Parent; and
(b) there has not been any material loss, damage or destruction to, or any
material interruption in the use of, any of the assets of Parent (whether or
not covered by insurance).
(c) Parent has not (i) declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital stock, or (ii)
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities;
(d) Except for the sale and issuance, prior to the Effective Time, of
convertible Preferred Stock of Parent that is convertible, in the aggregate,
into not more than 2,000,000 shares of Parent Common Stock (the "Preferred
Sale"), Parent has not issued, granted or authorized the issuance of (i) any
capital stock or other .20 security (except for Parent Common Stock issued
upon the exercise of outstanding Parent Options or pursuant to the 1995
Purchase Plan), (ii) any option, warrant or right to acquire any capital stock
or any other security (except for Parent Options described in Part 3.3(b)(i)
of the Parent Disclosure Schedule), or (iii) any instrument convertible into
or exchangeable for any capital stock or other security;
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(e) Parent has not amended or waived any of its rights under, or permitted
the acceleration of vesting under, (i) any provision of any of Parent's stock
option plans, (ii) any provision of any agreement evidencing any outstanding
Parent Option, or (iii) any restricted stock purchase agreement;
(f) except as contemplated by this Agreement and except in connection with a
Preferred Sale, there has been no amendment to the certificate of
incorporation, bylaws or other charter or organizational documents of Parent,
and Parent has not effected or been a party to any merger, consolidation,
share exchange, business combination, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction or received
any Acquisition Proposal;
(g) other than in relation to the Company, Parent has not (i) received any
Acquisition Proposal, or (ii) solicited, initiated, encouraged or induced, or
provided any nonpublic information to or entered into any discussions with any
Person for the purpose of soliciting, initiating, encouraging or inducing, the
making or submission of any Acquisition Proposal;
(h) Parent has not formed any subsidiary or acquired any equity interest or
other interest in any other Entity, other than Merger Sub;
(i) Parent has not made any capital expenditures which, when added to all
other capital expenditures made by or on behalf of Parent since December 31,
1997, exceed $50,000 in the aggregate;
(j) except in the ordinary course of business and consistent with past
practices, Parent has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Parent Material Contract (as
defined in Section 2.10), or (ii) amended or terminated, or waived any
material right or remedy under, any Parent Material Contract;
(k) Parent has not (i) acquired, leased or licensed any material right or
other material asset from any other Person, (ii) sold or otherwise disposed
of, or leased or licensed, any material right or other material asset to any
other Person, or (iii) waived or relinquished any right, except for rights or
other assets acquired, leased, licensed or disposed of in the ordinary course
of business and consistent with past practices;
(l) Parent has not written off as uncollectable, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(m) Parent has not made any pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Encumbrance, except for
pledges of immaterial assets made in the ordinary course of business and
consistent with past practices;
(n) Parent has not (i) lent money to any Person, or (ii) incurred or
guaranteed any indebtedness for borrowed money;
(o) Parent has not (i) established or adopted any Parent Welfare Plan (as
defined in Section 3.16(c)) or Parent Pension Plan (as defined in Section
3.16(b)), (ii) caused or permitted any Parent Welfare Plan or Parent Pension
Plan to be amended in any material respect, or (iii) paid any bonus or made
any profit sharing or similar payment (other than as committed pursuant to
plan or agreement prior to June 30, 1997) to, or materially increased the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees;
(p) Parent has not changed any of its methods of accounting or accounting
practices in any respect;
(q) Parent has not made any material Tax election;
(r) Parent has not commenced or settled any Legal Proceeding;
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(s) Parent has not entered into any material transaction or taken any other
material action that has had, or could reasonably be expected to have, a
Material Adverse Effect on Parent;
(t) Parent has not entered into any material transaction or taken any other
material action outside of the ordinary course of business or inconsistent
with past practices; and
(u) Parent has not agreed or committed to take any of the actions referred
to in clauses "(a)" through "(t)" above.
3.6 TITLE TO ASSETS.
(a) Part 3.6 of the Parent Disclosure Schedule contains a complete and
accurate list of all real property, leaseholds, or other interests in real
property owned by Parent (all such property owned by Parent being referred to
herein as the "Parent Owned Real Property" and all such real property leased
by Parent being referred to herein as the "Parent Leased Real Property").
Parent holds the leasehold interests of the Parent Leased Real Property under
the real property leases described in Part 3.6 of the Parent Disclosure
Schedule.
(b) Parent owns, and has good, valid and marketable title to, all assets
purported to be owned by it, including: (i) all assets reflected on the Parent
Audited Balance Sheet; (ii) all other assets reflected in the books and
records of Parent as being owned by Parent; and (iii) the real property
identified on Part 3.6 of the Parent Disclosure Schedule. All of said assets
are owned by Parent free and clear of any Encumbrances, except for (1) any
lien for current taxes not yet due and payable, (2) minor liens that have
arisen in the ordinary course of business and that do not (in any case or in
the aggregate) materially detract from the value of the assets subject thereto
or materially impair the operations of Parent and (3) liens described in Part
3.6 of the Parent Disclosure Schedule. All buildings, plants, and structures
owned or leased by Parent lie wholly within the boundaries of the real
property owned or leased by Parent and do not encroach upon the property of,
or otherwise conflict with the property rights of, any other Person.
3.7 RECEIVABLES; INVENTORY.
(a) All existing accounts receivable of Parent (including those accounts
receivable reflected on the Parent Audited Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since December
31, 1997 and have not yet been collected) (i) represent valid obligations of
customers of Parent arising from bona fide transactions entered into in the
ordinary course of business, (ii) to the best of Parent's knowledge, except as
set forth in Part 3.7(a) of the Parent Disclosure Schedule, will be collected
in full, without any counterclaim or set off (net of an allowance for doubtful
accounts not to exceed $65,000 in the aggregate).
(b) Part 3.7(b) of the Parent Disclosure Schedule contains an accurate and
complete list as of the date of this Agreement of all loans and advances made
by Parent to any employee, director, consultant or independent contractor of
Parent, other than routine travel advances made to employees in the ordinary
course of business.
(c) All inventory of Parent, whether or not reflected in the Parent Audited
Balance Sheet, consists of a quality and quantity usable and salable in the
ordinary course of business, except for obsolete items and items of below-
standard quality, all of which have been written off or written down to net
realizable value in the Parent Audited Balance Sheet. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of Parent.
3.8 BUILDINGS, EQUIPMENT; LEASEHOLD. The buildings, plants, structures and
all material items of equipment and other tangible assets owned by or leased
to Parent are adequate for the uses to which they are being put, are in good
condition and repair (ordinary wear and tear excepted), are adequate for the
conduct of the business of Parent in the manner in which such business is
currently being conducted, and are in compliance with all applicable Legal
Requirements.
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3.9 PROPRIETARY ASSETS.
(a) Part 3.9(a)(i) of the Parent Disclosure Schedule sets forth, with
respect to each Proprietary Asset owned by Parent and registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part 3.9(a)(ii) of the Parent Disclosure Schedule identifies and
provides a brief description of, any ongoing royalty or payment obligations in
excess of $10,000 with respect to, each Proprietary Asset that is licensed or
otherwise made available to Parent by any Person (except for any Proprietary
Asset that is licensed to Parent under any third party software license
generally available to the public at a price per central processing unit of
not less than $5,000), and identifies the Contract under which such
Proprietary Asset is being licensed or otherwise made available to Parent. To
the knowledge of Parent, Parent has good, valid and marketable title to all of
the Proprietary Assets identified in Part 3.9(a)(i) of the Parent Disclosure
Schedule and to all other Proprietary Assets that Parent purports to own, free
and clear of all Encumbrances, except for (i) any lien for current taxes not
yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that do not (individually or in the aggregate)
materially detract from the value of the assets subject thereto or materially
impair the operations of Parent. To the knowledge of Parent, Parent has a
valid right to use, license and otherwise exploit all Proprietary Assets
identified in Part 3.9(a)(ii) of the Parent Disclosure Schedule. Except as set
forth in Part 3.9(a)(iii) of the Parent Disclosure Schedule, Parent has not
developed jointly with any other Person any Proprietary Asset that is material
to the business of Parent with respect to which such other Person has any
rights. Except as set forth in Part 3.9(a)(iv) of the Parent Disclosure
Schedule, to Parent's knowledge there is no Parent Contract pursuant to which
any Person has any right (whether or not currently exercisable) to use,
license or otherwise exploit any Parent Proprietary Asset.
(b) Parent has taken reasonable measures and precautions to protect and
maintain the confidentiality, secrecy and value of all material Parent
Proprietary Assets (except Parent Proprietary Assets whose value would be
unimpaired by disclosure). Without limiting the generality of the foregoing,
except as set forth in Part 3.9(b) of the Parent Disclosure Schedule, (i) all
current employees of Parent who are or were involved in, or who have
contributed to, the creation or development of any Parent Proprietary Asset
have executed and delivered to Parent an agreement that is substantially
identical to the form of Confidential Information and Invention Assignment
Agreement previously delivered by Parent to the Company, and (ii) all current
consultants and independent contractors to Parent who are or were involved in,
or who have contributed to, the creation or development of any material Parent
Proprietary Asset have executed and delivered to Parent an agreement
(containing no exceptions to or exclusions from the scope of its coverage)
that is substantially identical to the form of Consultant Confidential
Information and Invention Assignment Agreement previously delivered by Parent
to the Company. No current or former employee, officer, director, stockholder,
consultant or independent contractor has any right, claim or interest in or
with respect to any Parent Proprietary Asset. Parent has not disclosed or
delivered to any Person, or permitted the disclosure or delivery to any escrow
agent or other Person, of the source code, or any portion or aspect of the
source code, or any proprietary information or algorithm contained in any
source code, of any Parent Proprietary Asset.
(c) To the best knowledge of Parent: (i) all patents, trademarks, service
marks and copyrights held by Parent are valid, enforceable and subsisting;
(ii) none of the Parent Proprietary Assets and no Proprietary Asset that is
currently being developed by Parent (either by itself or with any other
Person) infringes, misappropriates or conflicts with any Proprietary Asset
owned or used by any other Person; (iii) none of the products that are or have
been designed, created, developed, assembled, manufactured or sold by Parent
is infringing, misappropriating or making any unlawful or unauthorized use of
any Proprietary Asset owned or used by any other Person, and none of such
products has at any time infringed, misappropriated or made any unlawful or
unauthorized use of, and Parent has not received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful or unauthorized use of,
any Proprietary Asset owned or used by any other Person; (iv) no other Person
is infringing, misappropriating or making any unlawful or unauthorized use of,
and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any material Parent Proprietary Asset.
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(d) The Parent Proprietary Assets constitute all the Proprietary Assets
necessary to enable Parent to conduct its business in the manner in which such
business has been and is being conducted. Parent has not (i) licensed any of
the material Parent Proprietary Assets to any Person on an exclusive basis, or
(ii) entered into any covenant not to compete or Contract limiting its ability
to exploit fully any material Parent Proprietary Assets or to transact
business in any market or geographical area or with any Person.
3.10 CONTRACTS.
(a) Part 3.10 of the Parent Disclosure Schedule identifies each Parent
Contract that constitutes a "Parent Material Contract" as of the date of this
Agreement. For purposes of this Agreement, each of the following shall be
deemed to constitute a "Parent Material Contract":
(i) any Contract relating to the employment of, or the performance of
services by, any employee or consultant, and any Contract pursuant to which
Parent is, or may become, obligated to make any severance, termination or
similar payment, bonus or relocation payment or any other payment to any
current or former employee or director of Parent;
(ii) each lease, rental or occupancy agreement, installment and
conditional sale agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any
real or personal property (except for any personal property lease,
installment sale agreement or conditional sales agreements providing for
aggregate payments by or to Parent of less than $25,000 and except for
sales acknowledgements and purchase orders in the ordinary course of
business);
(iii) any Contract relating to the acquisition, transfer, development,
sharing or license of any Proprietary Asset (except for (A) any Contract
pursuant to which any Proprietary Asset is licensed to Parent under any
third party software license generally available to the public at a price
per central processing unit of less than $5,000, or (B) any license implied
in the sale by Parent of a tangible product);
(iv) any Contract which provides for indemnification of any officer,
director, employee or agent of Parent;
(v) any Contract imposing any restriction on the right or ability of
Parent (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or
other asset to or perform any services for any other Person or to transact
business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology;
(vi) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing Parent
with any right of first refusal with respect to, or right to repurchase or
redeem, any securities;
(vii) any Contract requiring that Parent give any notice or provide any
information to any Person prior to accepting any Acquisition Proposal;
(viii) any Contract that has a term of more than 90 days and that may not
be terminated without penalty within 90 days after the delivery of a
termination notice by Parent (other than for the sale of products or the
purchase of components or materials by Parent entered into in the ordinary
course of business);
(ix) any Contract pursuant to which Parent is or may become obligated to
make payments aggregating in excess of $25,000 or pursuant to which Parent
is or may be entitled to receive in excess of $25,000 (other than for the
sale of products or the purchase of components or materials by Parent
entered into in the ordinary course of business);
(x) any Contract (not otherwise identified in clauses "(i)" through
"(ix)" of this sentence) that has or could reasonably be expected to have a
material effect on the business, condition, assets, liabilities,
capitalization, operations, financial performance or prospects of Parent or
on any of the transactions contemplated by this Agreement (other than for
the sale of products by Parent entered into in the ordinary course of
business); and
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(xi) any other Contract, if a breach of such Contract could reasonably be
expected to have a Material Adverse Effect on Parent.
There is no Parent Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or directly
or indirectly benefiting any Governmental Body (including any subcontract or
other Contract between Parent and any contractor or subcontractor to any
Governmental Body).
(b) Each Parent Contract that is a Parent Material Contract is valid and in
full force and effect, and is enforceable by Parent in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 3.10 of the Parent Disclosure Schedule: (i)
Parent has not violated or breached, or committed any default under, any
Parent Contract, and, to the best of the knowledge of Parent, no other Person
has violated or breached, or committed any default under, any Parent Contract;
(ii) to the best of the knowledge of Parent, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, (A) result in a violation or
breach of any of the provisions of any Parent Contract, (B) give any Person
the right to declare a default or exercise any remedy under any Parent
Contract, (C) give any Person the right to a rebate, chargeback, penalty or
change in delivery schedule under any Parent Contract, (D) give any Person the
right to accelerate the maturity or performance of any Parent Contract, or (E)
give any Person the right to cancel, terminate or modify any Parent Contract;
and (iii) since September 30, 1997, Parent has not received any notice or
other communication regarding any actual or possible violation or breach of,
or default under, any Parent Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms of any
Parent Material Contract to renegotiate, any amount paid or payable to Parent
under any Material Contract or any other material term or provision of any
Material Contract.
3.11 LIABILITIES. Parent has no accrued, contingent or other liabilities of
any nature, either matured or unmatured (whether or not required to be
reflected in financial statements in accordance with GAAP, and whether due or
to become due), except for: (a) liabilities identified as such in the
"liabilities" column of the Parent Audited Balance Sheet; (b) normal and
recurring liabilities that have been incurred by Parent since December 31,
1997 in the ordinary course of business and consistent with past practices;
and (c) liabilities described in Part 3.11 of the Parent Disclosure Schedule.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent is, and has at all times
since December 31, 1994 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had, either individually or in the aggregate, and could not reasonably
be expected to have, a Material Adverse Effect on Parent. Since December 31,
1994, Parent has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
3.13 CERTAIN BUSINESS PRACTICES. Neither Parent nor any director, officer,
agent or employee of Parent has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political
activity, (ii) made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
3.14 GOVERNMENTAL AUTHORIZATIONS. Parent holds all Governmental
Authorizations necessary to enable Parent to conduct its business in the
manner in which such business is currently being conducted. All such
Governmental Authorizations are valid and in full force and effect. Parent is,
and at all times since September 30, 1994 has been, in substantial compliance
with the terms and requirements of such Governmental Authorizations. Since
September 30, 1994, Parent has not received any notice or other communication
from any
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Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any material Governmental
Authorization, or (b) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any material
Governmental Authorization. Part 3.14 of the Parent Disclosure Schedule
contains an accurate and complete list of all presently effective United
States Government Authorizations relating to the real or personal property of
Parent, and Parent is in compliance with all such Governmental Authorizations.
3.15 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of Parent with any
Governmental Body with respect to any taxable period ending on or before the
Closing Date (the "Parent Returns") (i) have been or will be filed on or
before the applicable due date (including any extensions of such due date),
and (ii) have been, or will be when filed, prepared in all material respects
in compliance with all applicable Legal Requirements. All amounts shown on the
Parent Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date.
(b) The Parent Audited Balance Sheet fully accrues all actual and contingent
liabilities for Taxes with respect to all periods through the date thereof in
accordance with GAAP. Parent will establish, in the ordinary course of
business and consistent with its past practices, reserves adequate for the
payment of all Taxes for the period from December 31, 1997 through the Closing
Date.
(c) No Parent Return has ever been examined or audited by any Governmental
Body. No extension or waiver of the limitation period applicable to any Parent
Returns has been granted (by Parent or any other Person), and no such
extension or waiver has been requested from Parent.
(d) No claim or Legal Proceeding is pending or, to the best knowledge of
Parent, has been threatened against or with respect to Parent in respect of
any material Tax. There are no unsatisfied liabilities for material Taxes
(including liabilities for interest, additions to tax and penalties thereon
and related expenses) with respect to any notice of deficiency or similar
document received by Parent with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by Parent and with respect to
which adequate reserves for payment have been established). There are no liens
for material Taxes upon any of the assets of the Company except liens for
current Taxes not yet due and payable. Parent has not entered into or become
bound by any agreement or consent pursuant to Section 341(f) of the Code.
Parent has not been, nor will be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions or events occurring, or accounting methods
employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent
contractor of Parent that, considered individually or considered collectively
with any other such Contracts, will, or could reasonably be expected to, give
rise directly or indirectly to the payment of any amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code. Parent is not,
nor has ever been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
3.16 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 3.16(a) of the Parent Disclosure Schedule identifies each salary,
bonus, vacation, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, death or disability
benefits, hospitalization, medical, life or other insurance, flexible
benefits, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement and each other employee benefit plan or
arrangement maintained within the United States (collectively, the "Parent
Plans") sponsored, maintained, contributed to or required to be contributed to
by Parent or any ERISA Affiliate for the benefit of any current or former
employee of Parent or any ERISA Affiliate.
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(b) Except as set forth in Part 3.16(a) of the Parent Disclosure Schedule,
neither Parent nor any ERISA Affiliate maintains, sponsors or contributes to,
or has at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of ERISA, whether or
not excluded from coverage under specific Titles or Subtitles of ERISA) that
is maintained within the United States for the benefit of employees or former
employees of Parent or any ERISA Affiliate (a "Parent Pension Plan"). None of
the Parent Pension Plans identified in the Parent Disclosure Schedule is a
multiemployer plan (within the meaning of Section 3(37) of ERISA) or is
subject to Section 412 of the Code, Part 3 of Subtitle B of Title I of ERISA
or Title IV of ERISA.
(c) Except as set forth in Part 3.16(a) of the Parent Disclosure Schedule,
neither Parent nor any ERISA Affiliate maintains, sponsors or contributes to
any: employee welfare benefit plan (as defined in Section 3(1) of ERISA,
whether or not excluded from coverage under specific Titles or Subtitles of
ERISA) that is maintained within the United States for the benefit of any
employees or former employees of Parent or any ERISA Affiliate (a "Parent
Welfare Plan"). None of the Parent Welfare Plans identified in the Parent
Disclosure Schedule is a multiemployer plan (within the meaning of Section
3(37) of ERISA).
(d) With respect to each Parent Plan, Parent has delivered to the Company:
(i) an accurate and complete copy of such Parent Plan (including all
amendments thereto); (ii) an accurate and complete copy of the annual report,
if required under ERISA, with respect to such Parent Plan for the last two
years; (iii) an accurate and complete copy of the most recent summary plan
description, together with each summary of material modifications, if required
under ERISA, with respect to such Parent Plan, (iv) if such Parent Plan is
funded through a trust or any third party funding vehicle, an accurate and
complete copy of the trust or other funding agreement (including all
amendments thereto) and accurate and complete copies the most recent financial
statements thereof; (v) accurate and complete copies of all Contracts relating
to such Parent Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and (vi) an accurate and complete copy of the most
recent determination letter received from the Internal Revenue Service with
respect to such Parent Plan (if such Parent Plan is intended to be qualified
under Section 401(a) of the Code).
(e) Parent is not and has never been required to be treated as a single
employer with any ERISA Affiliate. Parent has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code
with any other Person within the United States. Neither Parent nor any ERISA
Affiliate has ever made a complete or partial withdrawal from a multiemployer
plan, as such term is defined in Section 3(37) of ERISA, that is maintained
within the United States, resulting in "withdrawal liability," as such term is
defined in Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA).
(f) Neither Parent nor any ERISA Affiliate has any plan or commitment to
create any additional Parent Welfare Plans or Parent Pension Plans, or to
modify or change any existing Parent Welfare Plan or Parent Pension Plan
(other than to comply with applicable law) in a manner that would affect any
employee of Parent or any ERISA Affiliate.
(g) Except as set forth in Part 3.16(k) of the Parent Disclosure Schedule,
no Parent Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former employee of Parent or any ERISA
Affiliate after any such employee's termination of service (other than benefit
coverage mandated by applicable law, including coverage provided pursuant to
COBRA).
(h) With respect to any Parent Plan constituting a group health plan within
the meaning of Section 4980B(g)(2) of the Code or Section 607(1) of ERISA, the
provisions of COBRA have been complied with in all material respects.
(i) Each of the Parent Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
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(j) Each of the Parent Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination as to its qualification
from the Internal Revenue Service, and nothing has occurred that would
adversely affect such qualification.
(k) Except as set forth in Part 3.16(k) of the Parent Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former employee or director
of Parent (whether or not under any Parent Plan), or materially increase the
benefits payable under any Parent Plan, or result in any acceleration of the
time of payment or vesting of any such benefits.
(l) Part 3.16(l) of the Parent Disclosure Schedule contains a list of all
salaried employees of Parent located in the United States or any ERISA
Affiliate as of the date of this Agreement whose salaries are in excess of
$150,000 per year, and correctly reflects, in all material respects, their
salaries, any other compensation payable to them (including compensation
payable pursuant to bonus, deferred compensation or commission arrangements),
their dates of employment and their positions. Neither Parent nor any ERISA
Affiliate is a party to any collective bargaining agreement or other Contract
with a labor union involving any of its employees located in the United
States. There has not been, is not now pending, and no Person has threatened
to commence any slowdown, work stoppage, labor or dispute or union organizing
activity or any similar activity or dispute in the United States affecting
Parent or any ERISA Affiliates or their employees. All of the employees of
Parent and any ERISA Affiliates are "at will" employees.
(m) Part 3.16(m) of the Parent Disclosure Schedule identifies each employee
of Parent or any ERISA Affiliate who is not fully available to perform work
because of disability or other leave and sets forth the basis of such leave
and the anticipated date of return to full service.
(n) Parent and each ERISA Affiliate are in compliance in all material
respects with all applicable Legal Requirements and Contracts relating to
employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.
(o) Parent has good labor relations, and Parent has no knowledge of any
facts indicating that (i) the consummation of the Merger or any of the other
transactions contemplated by this Agreement will have a material adverse
effect on the labor relations of Parent, or that (ii) any of the key employees
of Parent intends to terminate his or her employment with Parent.
3.17 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Part 3.17(a) of the Parent Disclosure Schedule,
Parent is, and at all times has been, in compliance in all material respects
with all applicable Environmental Laws, which compliance includes (i) the
possession by Parent of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and (ii) compliance with the
terms and conditions thereof (and the violation of which would have a Material
Adverse Effect).
(b) Except as set forth in Part 3.17(b) of the Parent Disclosure Schedule,
Parent has not received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that Parent is not in compliance with any
Environmental Law or is or may be required to undertake or bear any
Environmental Liabilities. To the best knowledge of Parent, there are no
circumstances that may prevent or interfere with the compliance by Parent with
any Environmental Law or that may require Parent to undertake or bear any
Environmental Liabilities in the future (other than routine Environmental
Liabilities incurred in the ordinary course of business consistent with past
practices) with respect to any Parent Property, any other property or
otherwise. To the best knowledge of Parent, no current or prior owner of any
Parent Property has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or Parent
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has not been or is not in compliance with any Environmental Law or is or may
be required to undertake or bear any Environmental Liabilities.
(c) (i) To the best knowledge of Parent all Parent Property and all surface
water, groundwater and soil associated with such Parent Property and (ii) to
the knowledge of Parent without independent investigation, all Property to
which Parent has sent any Material of Environmental Concern are free of any
material environmental contamination by any Material of Environmental Concern
in any concentration that may require any costs of investigation, response,
removal or remedial action.
(d) Parent has delivered to the Company true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by Parent pertaining to Materials of Environmental Concern in, on, or under
any Parent Property, or concerning compliance by Parent, or any other Person
for whose conduct it is or may be held responsible, with Environmental Laws.
(e) For purposes of this Section 3.17, "Parent Property" shall include any
property, parcel or facility now or heretofore owned, leased, used or
controlled by Parent or geologically or hydrologically adjoining any such
property, parcel or facility.
3.18 INSURANCE. Parent has delivered to the Company a copy of each material
insurance policy and each material self insurance program relating to the
business, assets or operations of Parent in the United States. Each such
insurance policy is in full force and effect. Since December 31, 1994, Parent
has not received any notice or other communication regarding any actual or
possible (a) cancellation or invalidation of any insurance policy, (b) refusal
of any coverage or rejection of any material claim under any insurance policy,
or (c) material adjustment in the amount of the premiums payable with respect
to any insurance policy. Except as set forth in Part 3.18 of the Parent
Disclosure Schedule, there is no pending claim (including any workers'
compensation claim) under or based upon any insurance policy applicable to the
business, assets or operations of Parent.
3.19 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Parent SEC
Reports, since the date of Parent's last proxy statement filed with the SEC,
no event has occurred that would be required to be reported by Parent pursuant
to Item 404 of Regulation S-K promulgated by the SEC. Part 3.19 of the Parent
Disclosure Schedule identifies each person who is an "affiliate" (as that term
is used in Rule 145 under the Securities Act) of Parent as of the date of this
Agreement.
3.20 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 3.20 of the Parent Disclosure Schedule,
there is no pending Legal Proceeding, and (to the best knowledge of Parent) no
Person has threatened to commence any Legal Proceeding: (i) that involves
Parent or any of the assets owned or used by Parent; or (ii) that challenges,
or that may have the effect of preventing, delaying, making illegal or
otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best knowledge of Parent, no event has
occurred, and no claim, dispute or other condition or circumstance exists,
that will, or that could reasonably be expected to, give rise to or serve as a
basis for the commencement of any such Legal Proceeding.
(b) There is no material order, writ, injunction, judgment or decree to
which Parent, or any of the assets owned or used by Parent, is subject. To the
best knowledge of Parent, no officer or key employee of Parent is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other employee from engaging in or continuing any conduct, activity or
practice relating to the business of Parent.
3.21 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to enter into and to
perform their obligations under this Agreement. The Board of Directors of
Parent (at a meeting duly called and held) has (a) unanimously determined that
the Merger is advisable and fair and in the best interests of the Company and
its stockholders, (b) unanimously authorized and approved the execution,
delivery and performance of this Agreement by Parent and has unanimously
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approved the Merger and the creation and issue of a sufficient amount of
authorized Parent Common Stock, and (c) unanimously recommended the adoption
of this Agreement by the holders of Parent Common Stock and directed that this
Agreement be submitted for consideration by Parent's stockholders at the
Parent Stockholders' Meeting (as defined in Section 6.3(a)). This Agreement
constitutes the legal, valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
3.22 SECTION 203 OF THE DGCL NOT APPLICABLE. As of the date hereof and at
all times on or prior to the Effective Time, Section 203 of the DGCL is, and
will be, inapplicable to the execution, delivery and performance of this
Agreement and to the consummation of the Merger and the other transactions
contemplated by this Agreement.
3.23 NO EXISTING DISCUSSIONS. Neither Parent, nor any Representative of
Parent, is engaged, directly or indirectly, in any discussions or negotiations
with any other Person relating to any Acquisition Proposal.
3.24 VOTE REQUIRED. The affirmative vote of the holders of a majority of the
outstanding shares of capital stock of Parent to adopt the Agreement, the
Parent Preferred Stock Conversion, the Reverse Stock Split, the Increased
Authorization and the Name Change at the duly convened Parent Stockholders'
Meeting (the "Parent Required Vote") is the only vote of the holders of any
class or series of Parent's capital stock necessary to consummate the
transactions contemplated by this Agreement.
3.25 NON CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of the
provisions of the certificate of incorporation, bylaws or other charter or
organizational documents of Parent or Merger Sub, or (ii) any resolution
adopted by the stockholders, the board of directors or any committee of the
board of directors of Parent or Merger Sub;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction, judgment or decree to which Parent or Merger Sub, or any
of the assets owned or used by Parent or Merger Sub, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Parent or Merger Sub or that otherwise
relates to the business of Parent or Merger Sub or to any of the assets
owned or used by Parent or Merger Sub;
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Parent Contract that is or
would constitute a Material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Parent Contract,
(ii) a rebate, chargeback, penalty or change in delivery schedule under any
such Parent Contract, (iii) accelerate the maturity or performance of any
such Parent Contract, or (iv) cancel, terminate or modify any term of such
Parent Contract;
(e) result in the imposition or creation of any Encumbrance upon or with
respect to any asset owned or used by Parent (except for minor liens that
will not, in any case or in the aggregate, materially detract from the
value of the assets subject thereto or materially impair the operations of
Parent); or
(f) result in, or increase the likelihood of, the disclosure, delivery or
transfer of any material asset of Parent to any Person.
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Except as may be required by the Securities Act, the Exchange Act, the DGCL,
the HSR Act and the rules of the National Association of Securities Dealers,
Inc. (the "NASD Rules") (as they relate to the Form S-4 Registration Statement
and the Joint Proxy Statement/Prospectus), neither Parent nor Merger Sub was,
is nor will be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
3.26 FAIRNESS OPINION. Parent's Board of Directors has received the written
opinion of Alliant Partners, financial advisor to Parent, dated the date of
this Agreement, to the effect that the Merger is fair to the stockholders of
Parent from a financial point of view. Parent has furnished an accurate and
complete copy of said written opinion to the Company.
3.27 FINANCIAL ADVISOR. Except for Alliant Partners, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent. The total of all fees, commissions and other amounts that have been
paid by Parent to Alliant Partners in connection with the Merger and all fees,
commissions and other amounts that may become payable to Alliant Partners by
Parent in connection with the Merger if the Merger is consummated will not
exceed $325,000. Parent has furnished to the Company accurate and complete
copies of all agreements under which any such fees, commissions or other
amounts have been paid or may become payable and all indemnification and other
agreements related to the engagement of Alliant Partners.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre Closing Period"), the Company
shall: (a) provide Parent and Parent's Representatives with reasonable access
to the Company, the Company's Representatives, personnel and assets and to all
existing books, records, Tax Returns, work papers and other documents and
information relating to the Company; and (b) provide Parent and Parent's
Representatives, as Parent may reasonably request, with such copies of the
existing books, records, Tax Returns, work papers and other documents and
information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company.
4.2 OPERATION OF THE COMPANY'S BUSINESS.
(a) During the Pre-Closing Period, the Company shall not (without the prior
written consent of Parent):
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities except as the Company deems appropriate to consummate the
Merger;
(ii) amend or permit the adoption of any amendment to its certificate of
incorporation or bylaws or other charter or organizational documents,
except as the Company deems appropriate to consummate the Merger; or
(iii) change any of its methods of accounting or accounting practices in
any respect.
(b) During the Pre Closing Period, the Company shall promptly notify Parent
in writing of: (i) the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in any
representation or warranty made by the Company in this Agreement; (ii) any
event, condition, fact or circumstance that occurs, arises or exists after the
date of this Agreement and that would cause or constitute a material
inaccuracy in any representation or warranty made by the Company in this
Agreement if (A) such representation or warranty had been made as of the time
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement;
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(iii) any material breach of any covenant or obligation of the Company; and
(iv) any event, condition, fact or circumstance that would make the timely
satisfaction of any of the conditions set forth in Sections 7 or 8 impossible
or unlikely or that has had or could reasonably be expected to have a Material
Adverse Effect on the Company. No notification given to Parent pursuant to
this Section 4.2(b) shall limit or otherwise affect any of the
representations, warranties, covenants or obligations of Parent contained in
this Agreement.
4.3 NO SOLICITATION.
(a) The Company shall not directly or indirectly, and shall not authorize or
permit any Representative of the Company directly or indirectly to, (i)
solicit, initiate, encourage or induce the making, submission or announcement
of any Acquisition Proposal or take any action that could reasonably be
expected to lead to an Acquisition Proposal, (ii) furnish any information
regarding the Company to any Person in connection with or in response to an
Acquisition Proposal, (iii) engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction; provided, however, that, prior to the approval of
this Agreement by the Company Required Vote, this Section 4.3(a) shall not
prohibit the Company from furnishing nonpublic information regarding the
Company to, or entering into discussions with, any Person in response to a
Superior Offer that is submitted by such Person (and not withdrawn) if (1)
neither the Company nor any Representative of the Company shall have violated
any of the restrictions set forth in this Section 4.3(a), (2) the Board of
Directors of the Company concludes in good faith, based upon the advice of its
outside legal counsel, that failure to do so would create a substantial risk
of liability for breach of its fiduciary obligations to the Company's
stockholders under applicable law, (3) prior to furnishing any such nonpublic
information to, or entering into discussions with, such Person, the Company
gives Parent written notice of the identity of such Person and of the
Company's intention to furnish nonpublic information to, or enter into
discussions with, such Person, and the Company receives from such Person an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
Person by or on behalf of the Company, and (4) prior to furnishing any such
nonpublic information to such Person, the Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by
any Representative of the Company, whether or not such Representative is
purporting to act on behalf of the Company, shall be deemed to constitute a
breach of this Section 4.3 by the Company.
(b) The Company shall promptly advise Parent orally and in writing of any
Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the terms thereof) that is made or
submitted by any Person during the Pre-Closing Period. The Company shall keep
Parent fully informed with respect to the status of any such Acquisition
Proposal and any modification or proposed modification thereto.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal.
(d) Notwithstanding anything in this Agreement to the contrary, the Company
shall not be bound, obligated or otherwise restricted under this Section 4.3
or otherwise under this Agreement with respect to any potential, proposed or
actual merger, consolidation, share exchange, business combination, issuance
of securities, acquisition of securities, tender offer, exchange offer or
similar transaction that does not involve a change in the ownership of the
equity securities of the Company sufficient to result in the stockholders of
the Company as of the date hereof not holding a majority of the voting power
of the outstanding securities of the Company.
4.4 DISCLOSURE. None of the information supplied or to be supplied by or on
behalf of the Company for inclusion or incorporation by reference in the Form
S-4 Registration Statement to be filed with the SEC by Parent in connection
with the issuance of Parent Common Stock in the Merger will, at the time the
Form S-4 Registration Statement is filed with the SEC or at the time it
becomes effective under the Securities Act, contain
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any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by or on behalf
of the Company for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will, at the time the Joint Proxy Statement/Prospectus is
mailed to the stockholders of Parent and the Company or at the time of the
Parent Stockholders' Meeting or the Company Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
SECTION 5. CERTAIN COVENANTS OF PARENT
5.1 ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent shall:
(a) provide the Company and the Company's Representatives with reasonable
access to Parent, Parent's Representatives, personnel and assets and to all
existing books, records, Tax Returns, work papers and other documents and
information relating to Parent; and (b) provide the Company and the Company's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to Parent, and with
such additional financial, operating and other data and information regarding
Parent, as the Company may reasonably request. Without limiting the generality
of the foregoing, during the Pre-Closing Period, Parent shall promptly provide
the Company with copies of:
(i) all material operating and financial reports prepared by Parent for
its senior management, including (A) copies of the unaudited monthly
balance sheets of Parent and the related unaudited monthly income
statements of operations, statements of stockholders' equity and statements
of cash flows and (B) copies of any sales forecasts, marketing plans,
development plans, discount reports, write-off reports, hiring reports and
capital expenditure reports prepared for Parent's senior management;
(ii) any written materials or communications sent by or on behalf of
Parent to its stockholders;
(iii) any material notice, document or other communication sent by or on
behalf of Parent to any party to any Parent Contract or sent to Parent by
any party to any Parent Contract (other than any communication that relates
solely to commercial transactions between Parent and the other party to any
such Parent Contract and that is of the type sent in the ordinary course of
business and consistent with past practices);
(iv) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Merger or any of the other
transactions contemplated by this Agreement; and
(v) any material notice, report or other document received by Parent from
any Governmental Body.
5.2 OPERATION OF PARENT'S BUSINESS.
(a) During the Pre-Closing Period: (i) Parent shall conduct its business and
operations (A) in the ordinary course and in accordance with past practices
and (B) in compliance with all applicable Legal Requirements and the
requirements of all Parent Contracts that constitute Parent Material
Contracts; (ii) Parent shall use all reasonable efforts to preserve intact its
current business organization, keeps available the services of its current
officers and employees and maintains its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, employees
and other Persons having business relationships with Parent; (iii) Parent
shall keep in full force all insurance policies referred to in Section 3.18;
(iv) Parent shall provide all notices, assurances and support required by any
Parent Contract relating to any Proprietary Asset in order to ensure that no
condition under such Parent Contract occurs which could result in, or could
increase the likelihood of, any transfer, disclosure or release by Parent of
any Proprietary Asset; and (v) Parent shall (to the extent requested by the
Company) cause its officers to report regularly to the Company concerning the
status of Parent's business.
(b) During the Pre-Closing Period, Parent shall not (without the prior
written consent of the Company):
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities;
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(ii) except in connection with a Preferred Sale, sell, issue, grant or
authorize the issuance or grant of (A) any capital stock or other security,
(B) any option, call, warrant or right to acquire any capital stock or
other security, or (C) any instrument convertible into or exchangeable for
any capital stock or other security (except that Parent may issue Parent
Common Stock upon the valid exercise of Parent Options outstanding as of
the date of this Agreement and except that Parent may reprice outstanding
stock options or grant stock awards in exchange for cancellation of
existing stock options, if any awards so granted correspond in number of
shares to the stock options so cancelled and if the aggregate number of
shares so repriced or granted, when combined with the number of shares
subject to options that are not repriced or cancelled, does not exceed
1,039,764);
(iii) except for the full vesting of Parent stock options that may occur
on the Effective Date as a result of the Merger or any repricing of stock
options, amend or waive any of its rights under, or accelerate the vesting
under, any provision of Parent's stock option plans, any provision of any
agreement evidencing any outstanding stock option or any restricted stock
purchase agreement, or otherwise modify any of the terms of any outstanding
option, warrant or other security or any related Contract;
(iv) other than as contemplated by this Agreement and except in
connection with a Preferred Sale, amend or permit the adoption of any
amendment to its certificate of incorporation or bylaws or other charter or
organizational documents, or effect or become a party to any merger,
consolidation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(v) form any subsidiary or acquire any equity interest or other interest
in any other Entity;
(vi) make any capital expenditure (except that Parent may make capital
expenditures that, when added to all other capital expenditures made on
behalf of Parent during the Pre Closing Period, do not exceed $50,000 in
the aggregate);
(vii) enter into or become bound by, or permit any of the assets owned or
used by it to become bound by, any Parent Contract that constitutes or
would constitute a Parent Material Contract other than in the ordinary
course of business, or amend or terminate, or waive or exercise any
material right or remedy (including any right to repurchase shares of
Parent Common Stock) under, any Parent Contract that constitutes a Parent
Material Contract;
(viii) acquire, lease or license any right or other asset from any other
Person or sell or otherwise dispose of, or lease or license, any right or
other asset to any other Person (except in each case for assets acquired,
leased, licensed or disposed of by Parent in the ordinary course of
business and consistent with past practices), or waive or relinquish any
material right;
(ix) write off as uncollectable, or establish any extraordinary reserve
with respect to, any accounts receivable or other indebtedness, other than
in the ordinary course of business;
(x) make any pledge of any of its assets or otherwise permit any of its
assets to become subject to any encumbrance, except for pledges of
immaterial assets made in the ordinary course of business and consistent
with past practices;
(xi) except pursuant to lines of credit and subject to credit limits in
effect prior to the date of this Agreement and except for up to an
additional $1,000,000 in indebtedness for borrowed money which may be
incurred by Parent, lend money to any Person or incur or guarantee any
indebtedness;
(xii) except for severance and fully vested deferred compensation that is
payable upon termination of employment from Parent without cause on or
after the Effective Date, establish, adopt or amend any employee benefit
plan, pay any bonus or make any profit sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors,
officers or employees;
(xiii) hire any new employee or engage any consultant or independent
contractor;
(xiv) change any of its methods of accounting or accounting practices in
any respect;
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(xv) make any Tax election;
(xvi) commence or settle any Legal Proceeding, except to enforce its
rights under this Agreement;
(xvii) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices;
(xviii) enter into any material transaction or take any other material
action that could reasonably be expected to have a Material Adverse Effect
on Parent; or
(xix) agree or commit to take any of the actions described in clauses
"(i)" through "(xviii)" of this Section 5.2(b).
(c) During the Pre Closing Period, Parent shall promptly notify the Company
in writing of: (i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in any
representation or warranty made by Parent in this Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date
of this Agreement and that would cause or constitute a material inaccuracy in
any representation or warranty made by Parent in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement; (iii) any material breach of any
covenant or obligation of Parent; and (iv) any event, condition, fact or
circumstance that would make the timely satisfaction of any of the conditions
set forth in Sections 7 or 8 impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on Parent. No
notification given to the Company pursuant to this Section 5.2(c) shall limit
or otherwise affect any of the representations, warranties, covenants or
obligations of Parent contained in this Agreement.
5.3 NO SOLICITATION.
(a) Parent shall not directly or indirectly, and shall not authorize or
permit any Representative of Parent directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) furnish any information regarding Parent
to any Person in connection with or in response to an Acquisition Proposal,
(iii) engage in discussions or negotiations with any Person with respect to
any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that, prior to the approval of this Agreement by the Parent
Required Vote, this Section 5.3(a) shall not prohibit Parent from furnishing
nonpublic information regarding Parent to, or entering into discussions with,
any Person in response to a Superior Offer that is submitted by such Person
(and not withdrawn) if (1) neither Parent nor any Representative of Parent
shall have violated any of the restrictions set forth in this Section 5.3(a),
(2) the Board of Directors of Parent concludes in good faith, based upon the
advice of its outside legal counsel, that failure to do so would create a
substantial risk of liability for breach of its fiduciary obligations to
Parent's stockholders under applicable law, (3) prior to furnishing any such
nonpublic information to, or entering into discussions with, such Person,
Parent gives the Company written notice of the identity of such Person and of
Parent's intention to furnish nonpublic information to, or enter into
discussions with, such Person, and Parent receives from such Person an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
Person by or on behalf of Parent, and (4) prior to furnishing any such
nonpublic information to such Person, Parent furnishes such nonpublic
information to the Company (to the extent such nonpublic information has not
been previously furnished by Parent to the Company). Without limiting the
generality of the foregoing, Parent acknowledges and agrees that any violation
of any of the restrictions set forth in the preceding sentence by any
Representative of Parent, whether or not such Representative is purporting to
act on behalf of Parent, shall be deemed to constitute a breach of this
Section 5.3 by Parent.
(b) Parent shall promptly advise the Company orally and in writing of any
Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the terms thereof) that is made or
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submitted by any Person during the Pre-Closing Period. Parent shall keep the
Company fully informed with respect to the status of any such Acquisition
Proposal and any modification or proposed modification thereto.
(c) Parent shall immediately cease and cause to be terminated any existing
discussions with any Person that relate to any Acquisition Proposal.
5.4 PARENT CAPITALIZATION; NAME CHANGE. Prior to the Closing, Parent shall
(a) cause all of its outstanding preferred stock to be converted into Parent
Common Stock in accordance with the provisions of Parent's Certificate of
Incorporation (the "Parent Preferred Stock Conversion"), (b) cause the Parent
Common Stock to be combined on a sixty (60) for one (1) basis (the "Reverse
Stock Split Ratio"), such that, in one or more steps, each sixty (60)
outstanding shares of Parent Common Stock shall be combined into one (1) share
of Parent Common Stock (the "Reverse Stock Split") (c) increase the number of
authorized shares of Parent Common Stock to 40,000,000 (the "Increased
Authorization") and (d) take all requisite corporate action necessary
(including board and stockholder approval) to approve the change of Parent's
name to a name designated by the Company prior to the filing of the Form S-4
Registration Statement (the "Name Change").
5.5 DISCLOSURES. None of the information supplied or to be supplied by or on
behalf of Parent for inclusion or incorporation by reference in the Form S-4
Registration Statement will, at the time the Form S-4 Registration Statement
is filed with the SEC or at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. None of the information supplied or to be supplied by or
on behalf of Parent for inclusion or incorporation by reference in the Joint
Proxy Statement/Prospectus will, at the time the Joint Proxy
Statement/Prospectus is mailed to the stockholders of Parent and the Company
or at the time of the Parent Stockholders' Meeting or the Company
Stockholders' Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. The Joint Proxy Statement/Prospectus will
comply as to form in all material respects with the provisions of the Exchange
Act and the Securities Act and the rules and regulations promulgated by the
SEC thereunder.
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS.
(a) As promptly as practicable after the date of this Agreement, Parent and
the Company shall prepare and cause to be filed with the SEC the Form S-4
Registration Statement and the Joint Proxy Statement/Prospectus. Each of
Parent and the Company shall use all reasonable efforts to cause the Form S-4
Registration Statement (including the Joint Proxy Statement/Prospectus) to
comply with the rules and regulations promulgated by the SEC, to respond
promptly to any comments of the SEC or its staff and to have the Form S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC. Each of Parent and the Company
shall use all reasonable efforts to cause the Joint Proxy Statement/Prospectus
to be mailed to the parties' stockholders, as promptly as practicable after
the Form S-4 Registration Statement is declared effective under the Securities
Act. The Company shall promptly furnish to Parent all information concerning
the Company and the Company's stockholders that may be required or reasonably
requested in connection with any action contemplated by this Section 6.1. If
any event relating to the Company occurs, or if the Company becomes aware of
any information that should be disclosed in an amendment or supplement to the
Form S-4 Registration Statement or the Joint Proxy Statement/Prospectus, then
the Company shall promptly inform Parent thereof and shall cooperate with
Parent in filing such amendment or supplement with the SEC and, if
appropriate, in mailing such amendment or supplement to the stockholders of
the Company.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock
to be issued in the Merger will be registered or qualified under the
securities law of every jurisdiction of the United States in which any
registered holder of Company Common
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Stock has an address of record on the record date for determining the
stockholders entitled to notice of and to vote at the Company Stockholders'
Meeting.
6.2 COMPANY STOCKHOLDERS' MEETING.
(a) The Company shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the
holders of Company Common Stock to consider, act upon and vote upon the
adoption of this Agreement (the "Company Stockholders' Meeting"). The Company
Stockholders' Meeting will be held as promptly as practicable and in any event
within 45 days after the Form S-4 Registration Statement is declared effective
by the SEC. The Company shall ensure that the Company Stockholders' Meeting is
called, noticed, convened, held and conducted, and that all proxies solicited
in connection with the Company Stockholders' Meeting are solicited, in
compliance with all applicable Legal Requirements. The Company's obligation to
call, give notice of, convene and hold the Company Stockholders' Meeting in
accordance with this Section 6.2(a) shall not be limited or otherwise affected
by the commencement, disclosure, announcement or submission of any Superior
Offer or other Acquisition Proposal, or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of the Company
with respect to the Merger.
(b) Subject to Section 6.2(c): (i) the Board of Directors of the Company
shall unanimously recommend that the Company's stockholders vote in favor of
the adoption of this Agreement at the Company Stockholders' Meeting; (ii) the
Joint Proxy Statement/Prospectus shall include a statement to the effect that
the Board of Directors of the Company has unanimously recommended that the
Company's stockholders vote in favor of the adoption of this Agreement at the
Company Stockholders' Meeting; and (iii) neither the Board of Directors of the
Company nor any committee thereof shall withdraw, amend or modify, or propose
or resolve to withdraw, amend or modify, in a manner adverse to Parent, the
unanimous recommendations of the Board of Directors of the Company that the
Company's stockholders vote in favor of the adoption of this Agreement. For
purposes of this Agreement, said recommendations of the Board of Directors
shall be deemed to have been modified in a manner adverse to Parent if said
recommendations shall no longer be unanimous.
(c) Nothing in Section 6.2(b) shall prevent the Board of Directors of the
Company from withdrawing, amending or modifying its unanimous recommendations
in favor of the adoption of this Agreement at any time prior to the adoption
of this Agreement by the Company Required Vote if (i) a Superior Offer is made
to the Company and is not withdrawn, and (ii) the Board of Directors of the
Company concludes in good faith, in light of such offer, based upon the advice
of its outside counsel, that the failure to withdraw, amend or modify such
recommendation would create a substantial risk of liability for breach of its
fiduciary obligations to the Company's stockholders under applicable law.
Nothing contained in this Section 6.2 shall limit the Company's obligation to
call, give notice of, convene and hold the Company Stockholders' Meeting
(regardless of whether the unanimous recommendation of the Board of Directors
of the Company shall have been withdrawn, amended or modified).
6.3 PARENT STOCKHOLDERS' MEETING.
(a) Parent shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the
holders of Parent Common Stock to consider, act upon and vote upon (i) the
adoption of this Agreement, (ii) the Parent Preferred Stock Conversion, (iii)
the Reverse Stock Split, (iv) the Increased Authorization and (v) the Name
Change (the "Parent Stockholders' Meeting"). The Parent Stockholders' Meeting
will be held as promptly as practicable and in any event within 45 days after
the Form S-4 Registration Statement is declared effective by the SEC. Parent
shall ensure that the Parent Stockholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited in connection
with the Parent Stockholders' Meeting are solicited, in compliance with all
applicable Legal Requirements. Parent's obligation to call, give notice of,
convene and hold the Parent Stockholders' Meeting in accordance with this
Section 6.3(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission of any Superior Offer or other
Acquisition Proposal, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Parent with respect to the Merger.
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(b) Subject to Section 6.3(c): (i) the Board of Directors of Parent shall
unanimously recommend that Parent's stockholders vote in favor of (A) the
adoption of this Agreement, (B) the Parent Preferred Stock Conversion, (C) the
Reverse Stock Split (D) the Increased Authorization, and (E) the Name Change
at the Parent Stockholders' Meeting; (ii) the Joint Proxy Statement/Prospectus
shall include a statement to the effect that the Board of Directors of Parent
has unanimously recommended that Parent's stockholders vote in favor of (A)
the adoption of this Agreement, (B) the Parent Preferred Stock Conversion, (C)
the Reverse Stock Split, (D) the Increased Authorization and (E) the Name
Change at the Parent Stockholders' Meeting; and (iii) neither the Board of
Directors of Parent nor any committee thereof shall withdraw, amend or modify,
or propose or resolve to withdraw, amend or modify, in a manner adverse to the
Company, the unanimous recommendation of the Board of Directors of Parent that
Parent's stockholders vote in favor of (A) the adoption of this Agreement, (B)
the Parent Preferred Stock Conversion, (C) the Reverse Stock Split, (D) the
Increased Authorization and (E) the Name Change. For purposes of this
Agreement, said recommendation of the Board of Directors shall be deemed to
have been modified in a manner adverse to the Company if said recommendation
shall no longer be unanimous.
(c) Nothing in Section 6.3(b) shall prevent the Board of Directors of Parent
from withdrawing, amending or modifying its unanimous recommendation in favor
of the adoption of this Agreement and amending the Form S-4 Registration
Statement (provided that Parent shall use its best efforts not to delay the
Parent Stockholders' Meeting if it amends the Form S-4 Registration Statement)
at any time prior to the adoption of this Agreement by the Parent Required
Vote if (i) a Superior Offer is made to Parent and is not withdrawn, (ii)
neither Parent nor any of its Representatives shall have violated any of the
restrictions set forth in Section 5.3, and (iii) the Board of Directors of
Parent concludes in good faith, in light of such offer, based upon the advice
of its outside counsel, that failure to withdraw, amend or modify such
recommendation would create a substantial risk of liability for breach of its
fiduciary obligations to Parent's stockholders under applicable law. Nothing
contained in this Section 6.3 shall limit Parent's obligation to call, give
notice of, convene and hold the Parent Stockholders' Meeting (regardless of
whether the unanimous recommendation of the Board of Directors of Parent shall
have been withdrawn, amended or modified).
6.4 REGULATORY APPROVALS. The Company and Parent shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed with any
Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body. Without limiting the
generality of the foregoing, Parent shall, and the Company shall use
reasonable efforts to cause Asea Brown Boveri AG ("ABB") to, prepare and file
the notifications required under the HSR Act in connection with the Merger.
The Company and Parent shall respond as promptly as practicable to (a) any
inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation and (b) any
inquiries or requests received from any state attorney general or other
Governmental Body in connection with antitrust or related matters. The Company
and Parent shall (1) give each other prompt notice of the commencement of any
Legal Proceeding by or before any Governmental Body with respect to the Merger
or any of the other transactions contemplated by this Agreement, (2) keep the
other party informed as to the status of any such Legal Proceeding, and (3)
promptly inform the other party of any communication to or from the Federal
Trade Commission, the Department of Justice or any other Governmental Body
regarding the Merger. To the extent within their control, the Company and
Parent will consult and cooperate with one another, and will consider in good
faith the views of one another, in connection with any analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal made or
submitted in connection with any Legal Proceeding under or relating to the HSR
Act or any other federal or state antitrust or fair trade law. In addition,
except as may be prohibited by any Governmental Body or by any Legal
Requirement, to the extent permitted by ABB, in connection with any Legal
Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law or any other similar Legal Proceeding, each of the
Company and Parent agrees to permit authorized Representatives of the other
party to be present at each meeting or conference relating to any such Legal
Proceeding and to have access to and be consulted in connection with any
document, opinion or proposal made or submitted to any Governmental Body in
connection with any such Legal Proceeding.
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6.5 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the
Company pursuant to (i) each indemnification agreement currently in effect
between Parent and each person who is or was a director or officer of Parent
at or prior to the Effective Time and (ii) any indemnification provision under
the Company's Certificate of Incorporation or By-Laws and any indemnification
provision under Parent's Certificate of Incorporation or By-Laws, all as is in
effect on the date hereof (the persons to be indemnified pursuant to the
agreements or provisions referred to in this Section 6.5(a) shall be referred
to as, collectively, the "Indemnified Parties"). The Certificate of
Incorporation and By-Laws of the Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation from liability set
forth in the Company's Certificate of Incorporation and By-Laws on the date of
this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of any Indemnified Party.
(b) Without limiting the provisions of Section 6.5(a), during the period
ending six years after the Effective Time, Parent will indemnify and hold
harmless each Indemnified Party against and from any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, to the extent such claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, to the extent such claim, action, suit, proceeding or
investigation arises out of or pertains to (1) any action or omission or
alleged action or omission in his or her capacity as a director or officer of
the Company, Parent or any of their subsidiaries (regardless of whether such
action or omission, or alleged action or omission, occurred prior to, on or
after the Closing Date) or (2) any of the transactions contemplated by this
Agreement, in each case to the full extent a corporation is permitted under
the DGCL to indemnify its own directors and officers, as the case may be;
provided, however, that if, at any time prior to the sixth anniversary of the
Effective Time, any Indemnified Party delivers to Parent a written notice
asserting a claim for indemnification under this Section 6.5(b), then the
claim asserted in such notice shall survive the sixth anniversary of the
Effective Time until such time as such claim is fully and finally resolved. In
the event of any such claim, action, suit, proceeding or investigation, (i)
Parent will have the right to control the defense thereof after the Effective
Time (it being understood that, by electing to control the defense thereof,
Parent will be deemed to have waived any right to object to the indemnified
Parties' entitlements to indemnification hereunder with respect thereto), (ii)
any counsel retained by the Indemnified Parties with respect to the defense
thereof for any period after the Effective Time must be reasonably
satisfactory to Parent, and (iii) after the Effective Time, Parent will pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received (provided that in the event that any Indemnified Party
is not entitled to indemnification hereunder, any amounts advanced on his or
her behalf shall be remitted to the Surviving Corporation); provided, however,
that neither Parent nor the Surviving Corporation nor any Indemnified Party,
will be liable for any settlement effected without its express written
consent. The Indemnified Parties as a group may retain only one law firm (in
addition to local counsel) to represent them with respect to any single action
unless counsel for any Indemnified Party determines in good faith that, under
applicable standards of professional conduct, a conflict exists or is
reasonably likely to arise on any material issue between the positions of any
two or more Indemnified Parties. Notwithstanding anything to the contrary
contained in this Section 6.5(b) or elsewhere in this Agreement, Parent agrees
that it will not settle or compromise or consent to the entry of any judgment
or otherwise seek termination with respect to any claim, action, suit,
proceeding or investigation for which indemnification may be sought under this
Agreement unless such settlement, compromise, consent or termination includes
an unconditional release of all Indemnified Parties from all liability arising
out of such claim, action, suit, proceeding or investigation. Without limiting
the foregoing, in any case in which approval of or a determination by the
Surviving Corporation is required to effectuate any indemnification, the
Indemnified Parties will conclusively be deemed to have met the applicable
standards for indemnification with respect to any actions or omissions of such
Indemnified Parties as an officer or director of the Company or Parent on or
prior to the Effective Time relating to any of the transactions contemplated
by this Agreement.
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(c) Parent and the Surviving Corporation jointly and severally agree to pay
all expenses, including attorneys' fees, that may be incurred by the
Indemnified Parties in enforcing the indemnity and other obligations provided
for in this Section 6.5.
(d) Parent shall maintain in effect for a period of three years after the
Effective Time the policy of officers' and directors' liability insurance
maintained by Parent on the date of this Agreement, with coverage in amount
and scope at least as favorable as the Parent's existing directors' and
officers' liability insurance coverage, provided that such policy shall not be
required to be maintained if equivalent coverage is provided to such Persons
under another policy of officers' and directors' liability insurance; and
provided further that in no event shall Parent be required to expend in any
one year an amount in excess of 150% of the annual premium currently paid by
Parent for such insurance; and provided further, that if the annual premiums
of such insurance coverage exceed such amount, Parent shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
(e) This Section 6.5 shall survive the consummation of the Merger and the
Effective Time, is intended to benefit and may be enforced by the Company,
Parent, the Surviving Corporation and the Indemnified Parties, and shall be
binding on all successors and assigns of Parent and the Surviving Corporation.
6.6 ADDITIONAL AGREEMENTS.
(a) Subject to Section 6.6(b), Parent and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, but subject to
Section 6.6(b), each party to this Agreement (i) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, (ii) shall use all reasonable efforts to obtain each Consent (if
any) required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party in connection with the Merger or any of
the other transactions contemplated by this Agreement, and (iii) shall use all
reasonable efforts to lift any restraint, injunction or other legal bar to the
Merger. Each party shall promptly deliver to the other party a copy of each
such filing made, each such notice given and each such Consent obtained by
such party during the Pre-Closing Period.
(b) Notwithstanding anything to the contrary contained in this Agreement,
neither Parent nor the Company shall have any obligation under this Agreement
(i) to dispose of any assets; (ii) to discontinue offering any product; (iii)
to license or otherwise make available to any Person any technology, software
or other Proprietary Asset; (iv) to hold separate any assets or operations
(either before or after the Closing Date); or (v) to make any commitment (to
any Governmental Body or otherwise) regarding its future operations.
6.7 DISCLOSURE. Parent and the Company shall consult with each other before
issuing any press release or otherwise making any public statement with
respect to the Merger or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, neither party
shall, nor shall permit any of its Representatives to, make any disclosure
regarding the Merger or any of the other transactions contemplated by this
Agreement unless (a) the other party shall have approved such disclosure or
(b) the party making such disclosure shall have been advised in writing by its
outside legal counsel that such disclosure is required by applicable law.
6.8 AFFILIATE AGREEMENTS. The Company shall use all reasonable efforts to
cause each Person identified in Part 2.19 of the Acquired Corporation
Disclosure Schedule and each other Person who is or becomes an "affiliate" (as
that term is used in Rule 145 under the Securities Act) of the Company to
execute and deliver to Parent, prior to the date of the mailing of the Joint
Proxy Statement/Prospectus to the Company's stockholders, an Affiliate
Agreement in the form of Exhibit D.
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6.9 TAX MATTERS.
(a) At or prior to the filing of the Form S-4 Registration Statement, Parent
and Merger Sub and the Company shall execute and deliver to Cooley Godward LLP
and to Pillsbury Madison & Sutro LLP tax representation letters in the forms
attached hereto as Exhibits E and F, respectively.
(b) Parent, Merger Sub and the Company shall each confirm to Cooley Godward
LLP and to Pillsbury Madison & Sutro LLP the accuracy and completeness as of
the Effective Time of the tax representation letters delivered pursuant to
Section 6.9(a).
(c) Parent and the Company shall use all reasonable efforts prior to the
Effective Time to cause the Merger to qualify as a tax free reorganization
under Section 368(a) of the Code.
(d) Following delivery of the tax representation letters pursuant to Section
6.9(a), each of Parent and the Company shall use its reasonable efforts to
cause Pillsbury Madison & Sutro LLP and Cooley Godward LLP, respectively, to
deliver promptly to it a legal opinion satisfying the requirements of Item 601
of Regulation S-K promulgated under the Securities Act. In rendering such
opinions, each of such counsel shall be entitled to rely on the tax
representation letters delivered pursuant to Section 6.9(a).
6.10 CORPORATE GOVERNANCE.
(a) Parent shall obtain and deliver to the Company at the Closing the
resignation of each officer and director of Parent, other than the resignation
of James Kochman as a director of Parent.
(b) Parent shall take all necessary action to reconstitute the Board of
Directors of Parent to consist as of the Effective Time of the individuals
identified in Exhibit H.
6.11 RESIGNATIONS. The parties agree that any written resignation that is
entered into by an employee of Parent, and which is delivered by such employee
at the request of the Company, shall be considered for all purposes a
termination of such employee without cause. A resignation by an individual as
a director or officer of Parent shall not, in and of itself, constitute a
resignation as an employee as described in this Section 6.11.
6.12 REGISTRATION RIGHTS AGREEMENT. Parent shall execute and enter into a
Registration and Stockholder Rights Agreement, in the form of Exhibit G, with
ABB and its affiliates.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of each
of the Acquired Corporations contained in this Agreement shall have been
accurate in all material respects as of the date of this Agreement and shall
be accurate in all material respects as of the Closing Date as if made on and
as of the Closing Date (it being understood that, for purposes of determining
the accuracy of such representations and warranties, any update of or
modification to the Acquired Corporation Disclosure Schedule made or purported
to have been made after the date of this Agreement shall be disregarded).
7.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the Company
is required to comply with or to perform at or prior to the Closing shall have
been complied with and performed in all material respects.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with
respect to the Form S-4 Registration Statement.
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7.4 PARENT STOCKHOLDER APPROVAL. This Agreement, the Parent Preferred Stock
Conversion, Reverse Stock Split, the Increased Authorization and the Name
Change shall have been duly adopted by the Parent Required Vote.
7.5 COMPANY STOCKHOLDER APPROVAL. This Agreement shall have been duly
adopted by the Company Required Vote.
7.6 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing Date,
in the form of Exhibit I; and
(b) a certificate executed on behalf of the Company by its Chief
Executive Officer confirming that the conditions set forth in Sections 7.1,
7.2, 7.5 and 7.7 have been duly satisfied.
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the business, condition, capitalization, assets, liabilities,
operations or financial performance of the Company since the date of this
Agreement.
7.8 HSR ACT. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
7.9 ADDITIONAL SHARES. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for trading (subject to notice of issuance) on
the Nasdaq Small Cap Market.
7.10 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
7.11 CONSENTS. All material Consents required to be obtained by the Company
in connection with the Merger and the other transactions contemplated by this
Agreement (including the Consents identified in Part 7.11 of the Acquired
Corporation Schedule) shall have been obtained and shall be in full force and
effect.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall have been accurate in
all material respects as of the date of this Agreement and shall be accurate
in all material respects as of the Closing Date as if made on and as of the
Closing Date (it being understood that, for purposes of determining the
accuracy of such representations and warranties, any update of or modification
to the Parent Disclosure Schedule made or purported to have been made after
the date of this Agreement shall be disregarded).
8.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that Parent or
Merger Sub is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
8.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with
respect to the Form S-4 Registration Statement.
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8.4 PARENT STOCKHOLDER APPROVAL. This Agreement, the Preferred Stock
Conversion, the Reverse Stock Split, the Increased Authorization and the Name
Change shall have been duly adopted by the Parent Required Vote.
8.5 COMPANY STOCKHOLDER APPROVAL. This Agreement shall have been duly
adopted and approved by the Company Required Vote.
8.6 PARENT CAPITALIZATION. The Parent Preferred Stock Conversion, the
Reverse Stock Split and the Increased Authorization shall have been duly
effected.
8.7 CONSENTS. All material Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in Part 8.7 of the Parent Disclosure
Schedule) shall have been obtained and shall be in full force and effect.
8.8 AGREEMENTS AND DOCUMENTS. The Company shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) Affiliate Agreements in the form of Exhibit D, executed by each
Person who could reasonably be deemed to be an "affiliate" of the Company
(as that term is used in Rule 145 under the Securities Act);
(b) a legal opinion of Pillsbury Madison & Sutro LLP dated as of the
Closing Date, in the form of Exhibit J;
(c) a legal opinion of Cooley Godward LLP dated as of the Closing Date
and addressed to the Company, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, Cooley Godward LLP may rely
upon the tax representation letters referred to in Section 6.9); provided,
however, that if Cooley Godward LLP does not render such opinion or
withdraws or modifies such opinion, this condition shall nonetheless be
deemed to be satisfied if counsel to Parent renders such opinion to the
Company. In rendering such opinion, such firm may rely on the tax
representation letters referred to in Section 6.9;
(d) a certificate executed on behalf of Parent by its Chief Executive
Officer confirming that the conditions set forth in Sections 8.1, 8.2, 8.4,
8.6, 8.7 (insofar as it relates to the Consents identified in Part 8.7 of
the Parent Disclosure Schedule), 8.9, 8.10 and 8.18 have been duly
satisfied;
(e) the written resignations of all officers and directors of Parent
(except for the resignation of James Kochman as a director of Parent),
effective as of the Effective Time;
(f) evidence of Parent's compliance with Section 6.10(b); and
(g) a Registration and Stockholder Rights Agreement in the form of
Exhibit G, executed by Parent and ABB.
8.9 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the business, condition, capitalization, assets, liabilities,
operations or financial performance of Parent since the date of this
Agreement.
8.10 MARKET FOR PARENT COMMON STOCK. Parent Common Stock shall be traded on
the Nasdaq SmallCap Market and the Company shall be reasonably satisfied that
Parent has complied with NASD Manual Rule 4330 (f).
8.11 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
8.12 ADDITIONAL SHARES. The shares of Parent Common Stock to be issued in
the Merger shall have been approved for trading (subject to notice of
issuance) in the Nasdaq SmallCap Market.
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8.13 APPRAISAL RIGHTS. Not more than one percent (1%) of the outstanding
shares of Company Common Stock and not more than one percent (1%) of the
outstanding shares of Company Preferred Stock shall have appraisal rights
available under Section 262 of the DGCL.
8.14 BLUE SKY LAW. Parent shall have received all permits and other
authorizations required under applicable state securities laws for the
issuance of shares of Parent Common Stock pursuant to the Merger.
8.15 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
8.16 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to
become a party or is otherwise involved: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement; (b) relating to the Merger and
seeking to obtain from Parent, the Company or any of its subsidiaries any
damages that may be material to the combined company after the Effective Time;
(c) seeking to prohibit or limit in any material respect Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving Corporation; or (d) which would
materially and adversely affect the right of Parent, the Surviving Corporation
or any subsidiary of Parent to own the assets or operate the business of
Parent or of the Company.
8.17 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding in
which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on the Company or on Parent: (a) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement; (b) relating to the Merger
and seeking to obtain from Parent, the Company or any of its subsidiaries any
damages that may be material to the combined company after the Effective Time;
(c) seeking to prohibit or limit in any material respect Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving Corporation; or (d) which would
materially and adversely affect the right of Parent, the Surviving Corporation
or any subsidiary of Parent to own the assets or operate the business of
Parent or of the Company.
8.18 TAXES. All Parent Returns due to be filed on or before the Closing Date
(a) shall have been filed and (b) shall have been prepared in all material
respects in compliance with all applicable Legal Requirements.
SECTION 9. TERMINATION
9.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time (whether before or after adoption of this Agreement by the stockholders
of Parent or the Company):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by August 14, 1998 (unless the failure to consummate the Merger
is attributable to a failure on the part of the party seeking to terminate
this Agreement to perform any material obligation required to be performed
by such party at or prior to the Effective Time);
(c) by either Parent or the Company if a court of competent jurisdiction
or other Governmental Body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action, having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(d) by either Parent or the Company if (i) the Company Stockholders'
Meeting shall have been held and (ii) this Agreement shall not have been
adopted at such meeting by the Company Required Vote;
(e) by either Parent or the Company if (i) the Parent Stockholders'
Meeting shall have been held and (ii) this Agreement, the Reverse Stock
Split, the Parent Preferred Stock Conversion, the Increased
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Authorization or the Name Change shall not have been adopted at such
meeting by the Parent Required Vote;
(f) by the Company (at any time prior to the adoption of this Agreement
by the Parent Required Vote) if a Triggering Event shall have occurred;
(g) by Parent if any of the Company's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the Company's covenants contained in this
Agreement shall have been breached in any material respect; provided,
however, that if an inaccuracy in the Company's representations and
warranties or a breach of a covenant by the Company is curable by the
Company and the Company is continuing to exercise all reasonable efforts to
cure such inaccuracy or breach, then Parent may not terminate this
Agreement under this Section 9.1(g) on account of such inaccuracy or
breach; or
(h) by the Company if any of Parent's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of Parent's covenants contained in this Agreement
shall have been breached in any material respect; provided, however, that
if an inaccuracy in Parent's representations and warranties or a breach of
a covenant by Parent is curable by Parent and Parent is continuing to
exercise all reasonable efforts to cure such inaccuracy or breach, then the
Company may not terminate this Agreement under this Section 9.1(h) on
account of such inaccuracy or breach.
9.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement
as provided in Section 9.1, this Agreement shall be of no further force or
effect; provided, however, that (a) this Section 9.2, Section 9.3 and Section
10 shall survive the termination of this Agreement and shall remain in full
force and effect, and (b) the termination of this Agreement shall not relieve
any party from any liability for any breach of any representation, warranty or
covenant contained in this Agreement.
9.3 EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 9.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses, whether or not
the Merger is consummated;
(b) (i) If this Agreement is terminated by Parent or the Company pursuant to
Section 9.1(e), or if this Agreement is terminated by the Company pursuant to
Section 9.1(f), and (ii) if prior to the date six months after the date of
such termination, (A) Parent enters into any agreement involving an
Acquisition Transaction, (B) a tender offer, an exchange offer, or a share
exchange is commenced that would constitute an Acquisition Transaction if
completed or (C) an Acquisition Transaction is otherwise consummated (each,
the "Alternate Transaction") then, upon consummation of such Alternate
Transaction, Parent shall pay to the Company, in cash, a nonrefundable fee in
the amount of $500,000.
(c) The fee referred to in Section 9.3(b) shall be paid by Parent within two
(2) business days after becoming payable pursuant to Section 9.3(b).
(d) If this Agreement is terminated by Parent or the Company pursuant to
Section 9.1(d), then the Company shall pay to Parent within two (2) business
days of the date of the termination a nonrefundable fee in the amount of
$500,000 to cover Parent's expenses in connection with the proposed
transaction.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 AMENDMENT. This Agreement may be amended with the approval of the
respective Boards of Directors of the Company and Parent at any time before or
after adoption of this Agreement by the stockholders of the Company or the
stockholders of Parent; provided, however, that after any such adoption of
this Agreement by Parent's stockholders or the Company's stockholders, no
amendment shall be made which (a) by law requires further approval of the
stockholders of the Company without the further approval of such stockholders
or (b)
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requires further approval of the stockholders of Parent without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
10.2 WAIVER.
(a) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any
party in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No party shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such party; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
10.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any
certificate delivered pursuant to this Agreement shall survive the Merger.
10.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the
other agreements referred to herein constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
among or between any of the parties with respect to the subject matter hereof
and thereof. This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which shall constitute one and
the same instrument, and shall be governed in all respects by the laws of the
State of Delaware as applied to contracts entered into and to be performed
entirely within Delaware.
10.5 DISCLOSURE SCHEDULE. The Acquired Corporation Disclosure Schedule shall
be arranged in separate parts corresponding to the numbered and lettered
sections contained in Section 2, and the information disclosed in any numbered
or lettered part shall be deemed to relate to and to qualify only the
particular representation or warranty set forth in the corresponding numbered
or lettered section in Section 2, and shall not be deemed to relate to or to
qualify any other representation or warranty. The Parent Disclosure Schedule
shall be arranged in separate parts corresponding to the numbered and lettered
sections contained in Section 3, and the information disclosed in any numbered
or lettered part shall be deemed to relate to and to qualify only the
particular representation or warranty set forth in the corresponding numbered
or lettered section in Section 3, and shall not be deemed to relate to or to
qualify any other representation or warranty.
10.6 ATTORNEYS' FEES. In any action at law or suit in equity to enforce this
Agreement or the rights of any of the parties hereunder, the prevailing party
in such action or suit shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
10.7 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and
their respective successors and assigns; provided, however, that neither this
Agreement nor the Company's rights hereunder may be assigned by the Company
without the prior written consent of Parent, and any attempted assignment of
this Agreement or any of such rights by the Company without such consent shall
be void and of no effect. Except as set forth in Section 6.5 with respect to
the current directors and officers of the Company and Parent, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
any right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
10.8 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other parties
hereto):
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IF TO PARENT:
Paradigm Technology, Inc.
694 Tasman Drive
Milpitas, CA 95035
Attn: Michael Gulett
Phone: (408) 954-0500
Fax: (408) 954-1046
WITH A COPY TO:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304-1115
Attn: Allison M. Leopold Tilley
Phone: (650) 233-4518
Fax: (650) 233-4545
IF TO MERGER SUB:
same information as Parent
IF TO THE COMPANY:
IXYS Corporation
3540 Bassett Street
Santa Clara, CA 95054-2704
Attn: Dr. Nathan Zommer
Phone: (408 982-0700
Fax: (408) 496-6104
WITH A COPY TO:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: James R. Jones
Phone: (650) 843-5063
Fax: (650) 857-0663
10.9 COOPERATION. The Company agrees to cooperate fully with Parent and to
execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
Parent to evidence or reflect the transactions contemplated by this Agreement
and to carry out the intent and purposes of this Agreement.
10.10 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
Paradigm Technology, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
Paradigm Enterprises, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
IXYS Corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
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EXHIBIT A
CERTAIN DEFINITIONS
FOR PURPOSES OF THE AGREEMENT (INCLUDING THIS EXHIBIT A):
ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" shall mean
any Contract: (a) to which any Acquired Corporation is a party; (b) by which
any Acquired Corporation or any asset of any Acquired Corporation is or may
become bound or under which any Acquired Corporation has, or may become
subject to, any obligation; or (c) under which any Acquired Corporation has or
may acquire any right or interest.
ACQUIRED CORPORATION DISCLOSURE SCHEDULE. "Acquired Corporation Disclosure
Schedule" shall mean the disclosure schedule that has been prepared by the
Company in accordance with the requirements of Section 10.5 and that has been
delivered by the Company to Parent on the date of this Agreement and signed by
the President of the Company.
ACQUIRED CORPORATION PROPRIETARY ASSET. "Acquired Corporation Proprietary
Asset" shall mean any Proprietary Asset owned by or licensed to any Acquired
Corporation or otherwise used by any Acquired Corporation.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer, proposal
or inquiry (other than offers, proposals or inquiries exchanged between Parent
and the Company) contemplating or otherwise relating to any Acquisition
Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction or series of related transactions (other than a Preferred Sale)
involving:
(a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction (i) in which the Subject Corporation is
a constituent corporation, (ii) in which a Person or "group" (as defined in
the Exchange Act and the rules promulgated thereunder) of Persons directly
or indirectly acquires the Subject Corporation or more than 50% of the
Subject Corporation's business or directly or indirectly acquires
beneficial or record ownership of securities representing more than 20% of
the outstanding securities of any class of voting securities of the Subject
Corporation or (iii) in which the Subject Corporation issues securities
representing more than 20% of the outstanding securities of any class of
voting securities of the Subject Corporation;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 50% of the assets of the Subject Corporation; or
(c) any liquidation or dissolution of the Subject Corporation.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
ABB. "ABB" shall have the meaning assigned to it in Section 6.4 of the
Agreement.
COMPANY CAPITAL STOCK. "Company Capital Stock" shall mean the Company Common
Stock and Company Preferred Stock, collectively.
COMPANY OPTION. "Company Option" shall have the meaning ascribed to it in
Section 2.3(b) of the Agreement.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common Stock,
$0.001 par value per share, of the Company.
COMPANY PLANS. "Company Plans" shall have the meaning ascribed to it in
Section 2.3(b) of the Agreement.
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COMPANY PREFERRED STOCK. "Company Preferred Stock" shall mean the Series A
Preferred Stock, $0.001 par value per share, of the Company and the Series B
Preferred Stock, $0.001 par value per share, of the Company, collectively.
COMPANY WARRANT. "Company Warrant" shall have the meaning ascribed to it in
Section 2.3(c) of the Agreement.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on
the voting of any security, any restriction on the transfer of any security or
other asset, any restriction on the receipt of any income derived from any
asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" shall
mean the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of Parent Common Stock in the Merger, as said
registration statement may be amended prior to the time it is declared
effective by the SEC.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any: (a)
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
INCREASED AUTHORIZATION. "Increased Authorization" shall have the meaning
ascribed to it in Section 5.4 of the Agreement.
JOINT PROXY STATEMENT/PROSPECTUS. "Joint Proxy Statement/Prospectus" shall
mean the joint proxy statement/prospectus to be sent to (i) the Parent's
stockholders in connection with the Parent Stockholders' Meeting and (ii) the
Company's stockholders in connection with the Company Stockholders' Meeting.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry,
audit,
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examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common
law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance or
other matter will be deemed to have a "Material Adverse Effect" on:
(a) Parent if such event, violation, inaccuracy, circumstance or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement
but for the presence of "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) would have a material adverse effect on (i) the business,
condition, capitalization, assets, liabilities, operations or financial
performance of Parent; (ii) the ability of Parent to consummate the Merger
or any of the other transactions contemplated by this Agreement or to
perform obligations under this Agreement; or (iii) Parent's ability to
vote, receive dividends with respect to or otherwise exercise ownership
rights with respect to the stock of the Surviving Corporation. An event,
violation, inaccuracy, circumstance or other matter will be deemed to have
a "Material Adverse Effect" on Parent if such event, violation, inaccuracy,
circumstance or other matter (considered together with all other matters
that would constitute exceptions to the representations and warranties set
forth in the Agreement but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on the
business, condition, assets, liabilities, operations or financial
performance of Parent and its subsidiaries, taken as a whole.
(b) The Acquired Corporations if such event, violation, inaccuracy,
circumstance or other matter (considered together with all other matters
that would constitute exceptions to the representations and warranties set
forth in the Agreement but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on (i)
the business, condition, capitalization, assets, liabilities, operations or
financial performance of the Acquired Corporations, taken as a whole; or
(ii) the ability of the Acquired Corporations to consummate the Merger or
any of the other transactions contemplated by this Agreement or to perform
obligations under this Agreement. An event, violation, inaccuracy,
circumstance or other matter will be deemed to have a "Material Adverse
Effect" on the Acquired Corporations if such event, violation, inaccuracy,
circumstance or other matter (considered together with all other matters
that would constitute exceptions to the representations and warranties set
forth in the Agreement but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on the
business, condition, assets, liabilities, operations or financial
performance of the Acquired Corporations, taken as a whole.
NAME CHANGE. "Name Change" shall have the meaning ascribed to it in Section
5.4 of the Agreement.
PARENT AUDITED BALANCE SHEET. "Parent Audited Balance Sheet" shall have the
meaning ascribed to it in Section 3.4(c).
PARENT CONTRACT. "Parent Contract" shall mean any Contract: (a) to which
Parent is a party; (b) by which Parent or any asset of Parent is or may become
bound or under which Parent has, or may become subject to, any obligation; or
(c) under which Parent has or may acquire any right or interest.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by Parent in accordance with the
requirements of Section 10.5 and that has been delivered by Parent to the
Company on the date of this Agreement and signed by the President of Parent.
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PARENT PREFERRED STOCK CONVERSION. "Parent Preferred Stock Conversion" shall
have the meaning ascribed to it in Section 5.4 of the Agreement.
PARENT PROPRIETARY ASSET. "Parent Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to Parent or otherwise used by Parent.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PREFERRED SALE. "Preferred Sale" shall have the meaning ascribed to it in
Section 3.5(d).
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system,
computer software, computer program, source code, algorithm, invention,
design, blueprint, engineering drawing, proprietary product, technology,
proprietary right or other intellectual property right or intangible asset; or
(b) right to use or exploit any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
REVERSE STOCK SPLIT. "Reverse Stock Split" shall have the meaning ascribed
to it in Section 5.4 of the Agreement.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SUBJECT CORPORATION. "Subject Corporation" shall mean Parent when the
context of the Agreement so indicates, or the Company when the context of the
Agreement so indicates.
SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to purchase more than 50% of outstanding
capital stock of the Subject Corporation on terms that the board of directors
of the Subject Corporation determines in its reasonable judgment, based upon
the written advice of its financial advisor, to be more favorable to the
stockholders of the Subject Corporation than the terms of the Merger;
provided, however, that any such offer shall not be deemed to be a "Superior
Offer" if any financing required to consummate the transaction contemplated by
such offer is not committed and is not reasonably capable of being obtained by
such third party.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, withholding tax or payroll tax), levy, assessment, tariff, duty
(including any customs duty), deficiency or fee, and any related charge or
amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any
Tax.
TRIGGERING EVENT. A "Triggering Event" shall be deemed to have occurred if:
(i) the Board of Directors of Parent shall have failed to recommend, or shall
for any reason have withdrawn or shall have amended or modified in a manner
adverse to the Company its unanimous recommendation in favor of adoption of
each of
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this Agreement, the Parent Preferred Stock Conversion and the Reverse Stock
Split; (ii) Parent shall have failed to include in the Joint Proxy
Statement/Prospectus the unanimous recommendation of the Board of Directors of
Parent in favor of adoption of each of this Agreement, the Parent Preferred
Stock Conversion and the Reverse Stock Split; (iii) the Board of Directors of
Parent fails to reaffirm its unanimous recommendation in favor of adoption of
each of this Agreement, the Parent Preferred Stock Conversion and the Reverse
Stock Split within five business days after the Company requests in writing
that such recommendation be reaffirmed; (iv) the Board of Directors of Parent
shall have approved, endorsed or recommended any Acquisition Proposal; (v)
Parent shall have entered into any letter of intent or similar document or any
Contract relating to any Acquisition Proposal; (vi) Parent shall have failed
to hold the Parent Stockholders' Meeting as promptly as practicable and in any
event within 45 days after the Form S-4 Registration Statement is declared
effective under the Securities Act; (vii) a tender or exchange offer relating
to securities of Parent shall have been commenced and Parent shall not have
sent to its securityholders, within five business days after the commencement
of such tender or exchange offer, a statement disclosing that Parent
recommends rejection of such tender or exchange offer; or (viii) an
Acquisition Proposal is publicly announced, and Parent (A) fails to issue a
press release announcing its opposition to such Acquisition Proposal within
five business days after such Acquisition Proposal is announced or (B)
otherwise fails to actively oppose such Acquisition Proposal.
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EXHIBIT G
REGISTRATION AND STOCKHOLDER RIGHTS AGREEMENT
THIS REGISTRATION AND STOCKHOLDER RIGHTS AGREEMENT (the "Agreement") is made
as of the day of , 1998, by and between Paradigm Technology, Inc., a
Delaware corporation (the "Company"), and Asea Brown Boveri A.G., a
corporation formed under the laws of Germany and Asea Brown Boveri, Inc., a
Delaware corporation (collectively, the "Stockholder").
RECITALS
WHEREAS, the Company, IXYS Corporation, a Delaware corporation ("IXYS") and
Paradigm Enterprises, Inc., a Delaware corporation and wholly owned subsidiary
of the Company ("Merger Sub"), have entered into an Agreement and Plan of
Merger and Reorganization dated as of March 6, 1998 (the "Merger Agreement"),
pursuant to which Merger Sub will be merged with and into IXYS with IXYS as
the surviving corporation (the "Merger");
WHEREAS, pursuant to the terms of the Merger, the Stockholder's shares of
common stock of IXYS, par value $0.001 per share, will be exchanged for the
right to receive shares of the common stock of the Company, par value $0.01;
(the "Common Stock"); and
WHEREAS, in connection with the Merger and pursuant to the Merger Agreement,
the Company has agreed to provide the Stockholder with certain registration
rights as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
I. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
(c) The term "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
(d) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) all or any shares of
Common Stock received by the Stockholder in connection with the Merger (all
such Shares, the "Merger Shares"), (ii) any shares of Common Stock issued
as a dividend or distribution with respect to, or in exchange for, or in
replacement of, the Merger Shares, and (iii) any shares of Common Stock
issuable upon the conversion or exercise of any warrant or right.
(f) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 DEMAND REGISTRATION
(a) If at any time after the date hereof, the Company shall receive a
written request from the Stockholder that the Company file a registration
statement under the Act covering the registration of at least twenty five
percent (25%) of the Registrable Securities then outstanding (or a lesser
percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $5,000,000), then the Company shall:
(i) effect as soon as practicable, and in any event within 90 days after
receipt of such request, the registration under the Act of all Registrable
Securities which the Stockholder request to be registered.
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(b) If the Stockholder intends to distribute the Registrable Securities
covered by its request by means of an underwriting, it shall so advise the
Company as a part of its request made pursuant to subsection 1.2(a). The
underwriter or underwriters will be selected by the Stockholder and shall be
reasonably acceptable to the Company. The Stockholder (together with the
Company as provided in subsection 1.4(e)) shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting.
(c) The Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 1.2:
(i) if more than one registration has been effected pursuant to this
Section 1.2 in any preceding twelve (12) month period and such registration
has been declared or ordered effective, or more than two such registrations
have been declared or ordered effective overall;
(ii) During the period starting with the date thirty (30) days prior to
the Company's good faith estimate of the date of filing of, and ending on a
date ninety (90) days after the effective date of, a registration subject
to Section 1.3 hereof; provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective;
(iii) If the Stockholder proposes to dispose of shares of Registrable
Securities that may be immediately registered on Form S-3 pursuant to a
request made pursuant to Section 1.10 below; or
(iv) if the Company shall furnish to the Stockholder a certificate signed
by the Chairman of the Board 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 stockholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
request of the Stockholder; provided that such right to delay a request,
whether pursuant to this Section 1.2 or Section 1.10, shall be exercised by
the Company not more than once in any twelve (12) month period.
1.3 COMPANY REGISTRATION
(a) If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company
for stockholders other than the Stockholder) any of its stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company employee benefit plan, a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give the Stockholder written notice of such registration. Upon
the written request of the Stockholder given within twenty (20) days after
mailing of such notice by the Company in accordance with Section 3.5, the
Company shall, subject to the provisions of Section 1.7, cause to be
registered under the Act all of the Registrable Securities that the
Stockholder has requested to be registered.
(b) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 1.3 prior to the effectiveness
of such registration whether or not the Stockholder has elected to include
securities in such registration. The Registration Expenses of such withdrawn
registration shall be borne by the Company in accordance with Section 1.6
hereof.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its reasonable best efforts to cause
such registration statement to become effective, and, upon the request of
the Stockholder, keep such registration statement effective for a period of
up to one hundred twenty (120) days or until the distribution contemplated
in the Registration Statement has been completed;
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provided, however, that such 120-day period shall be extended for a period
of time equal to the period the Stockholder refrains from selling any
securities included in such registration at the request of an underwriter
of Common Stock (or other securities) of the Company.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration statement; provided that, except as to a registration
statement and prospectus pursuant to Section 1.3 hereof, the Company shall
not file any amendment or supplement to such registration statement or
prospectus to which the Stockholder shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Act, having been furnished with a
copy thereof at the earliest practicable date.
(c) Furnish to the Stockholder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as the Stockholder may reasonably request
in order to facilitate the disposition of Registrable Securities owned by
the Stockholder.
(d) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Stockholder; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general Consent to service of process in any such
states or jurisdictions, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. The
Stockholder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify the Stockholder at any time when a prospectus relating to the
registration of Registrable Securities is required to be delivered under
the Act of the happening of any event as a result of which the prospectus
included in such 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
not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued
by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant hereunder and a CUSIP number for all such Registrable
securities, in each case not later than the effective date of such
registration.
(i) Use its reasonable best efforts to furnish, at the request of the
Stockholder, on the date that such Registrable Securities are delivered to
the underwriters for sale in connection with a registration pursuant to
this Section 1, if such securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on the date
that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Stockholder and (ii) a
letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and, if permitted
by applicable accounting standards, to the Stockholder (or if delivery of
such letter is not permitted by applicable accounting standards, deliver to
the Stockholder a copy of such letter addressed to the underwriters, if
any).
1.5 EXPENSES OF DEMAND REGISTRATION AND S-3 REGISTRATION. All expenses,
other than underwriting discounts and commissions, incurred in connection with
the first registration pursuant to this Agreement (other
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than pursuant to Section 1.3) and related filings or qualifications, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, and the reasonable fees and disbursements of
counsel for the Company (collectively, the "Registration Expenses") shall be
borne as follows: (i) the Company shall pay the lesser of (A) fifty percent
(50%) of the Registration Expenses or (B) $100,000, and (ii) the Stockholder
shall pay the remaining Registration Expenses. The Stockholder shall pay (i)
one hundred percent (100%) of all Registration Expenses incurred following the
first such registration, (ii) the fees and disbursements of any counsel
retained by it in connection with any such registrations, and (iii) any
underwriting discounts or commissions payable with respect to any Registrable
Securities sold by it.
1.6 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to
Section 1.3 for the Stockholder (which right may be assigned as provided in
Section 1.11), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto but excluding underwriting discounts and commissions relating to
Registrable Securities. The fees and disbursements of any counsel retained by
the Stockholder in connection with any such registrations shall be paid by the
Stockholder.
1.7 UNDERWRITING REQUIREMENTS. In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.3 to include any of the Stockholder's securities
in such underwriting unless the Stockholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will
not, jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
stockholders according to the total amount of securities entitled to be
included therein owned by each selling stockholder or in such other
proportions as shall mutually be agreed to by such selling stockholders) but,
except with respect to any one offering pursuant to Section 1.3 following the
first such offering pursuant to Section 1.3 to occur after the closing date of
the Merger, in no event shall the amount of securities of the Stockholder
included in the offering be reduced below twenty five percent (25%) of the
total amount of securities included in such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a Stockholder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and stockholders of such
Stockholder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing
persons shall be deemed to be a single "selling stockholder", and any pro-rata
reduction with respect to such "selling stockholder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling stockholder", as defined in this
sentence.
1.8 INDEMNIFICATION. In the event any Registrable Securities are included in
a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Stockholder, any underwriter (as defined in the Act) for the
Stockholder and each person, if any, who controls the Stockholder or
underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained
in such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material
fact
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required to be stated therein, or necessary to make the statements therein
not misleading, or (iii) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act or the 1934 Act or any state
securities law; and the Company will reimburse the Stockholder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by such
Stockholder, underwriter or controlling person.
(b) To the extent permitted by law, each Stockholder will indemnify and
hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls
the Company within the meaning of the Act, any underwriter, any other
selling stockholder in such registration statement and any controlling
person of any such underwriter or other selling stockholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Act, or the 1934 Act or
other federal or state-law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Stockholder expressly for use in connection
with such registration; and such Stockholder will reimburse, as incurred,
any legal or other expenses reasonably incurred by any person intended to
be indemnified pursuant to this subsection 1.8(b), in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.8(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Stockholder (which consent shall not be
unreasonably withheld); provided, that, in no event shall any indemnity
under this subsection 1.8(b) exceed the gross proceeds from the offering
received by the Stockholder.
(c) Promptly after receipt by an indemnified party under this Section 1.8
of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this Section 1.8, 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 the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability
to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.8, but the omission
so to deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than
under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall, to the extent permitted by law,
contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the
other in
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connection with the Violation(s) that resulted in such loss, liability,
claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and the Stockholder under this Section
1.8 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Section 1, and the termination of
this Agreement.
1.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Stockholder the benefits of Rule 145 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Stockholder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) take such action as is necessary to enable the Stockholder to utilize
Form S-3 for the sale of its Registrable Securities;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(d) furnish to the Stockholder, so long as the Stockholder owns any
Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC
Rule 144, the Act and the 1934 Act, or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time when it so
qualifies), (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 reasonably requested in availing
the Stockholder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such
form.
1.10 FORM S-3 REGISTRATION. In case the Company shall receive from the
Stockholder a written request that the Company effect a registration on Form
S-3 and any related qualification or compliance with respect to all or a part
of the Registrable Securities owned by the Stockholder, the Company will:
(a) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of the
Stockholder's Registrable Securities as are specified in such request;
provided, however, that the Company shall not be obligated to effect any
such registration, qualification or compliance, pursuant to this section
1.10: (A) if Form S-3 is not available for such offering by the
Stockholder; (B) if the Stockholder proposes to sell Registrable Securities
and such other securities (if any) at an aggregate price to the public (net
of any underwriters' discounts or commissions) of less than $500,000; (C)
if the Company has, within the twelve (12) month period preceding the date
of such request, already effected two (2) registrations on Form S-3 for the
Stockholder pursuant to this Section 1.10 or has already effected four (4)
registrations under this Agreement for the Stockholder (exclusive of
registrations pursuant to Section 1.3), (D) if the Company shall furnish to
the Stockholder a certificate signed by the Chairman of the Board of
Directors 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 stockholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than
ninety (90) days after receipt of the request of the Stockholder under this
Section 1.10; provided, however, that such right to delay a request,
whether pursuant to this Section 1.10 or
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Section 1.2, shall be exercised by the Company not more than once in any
twelve (12) month period, or (D) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(b) Subject to the foregoing, (i) the Company shall file a registration
statement covering the Registrable Securities and other securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Stockholder; and (ii) if requested by the
Stockholder, in a transaction constituting (1) a private placement under
Section 3(b) or 4(2) of the Act, or (2) under Rule 144A under the Act, the
Company shall undertake to register such shares after the conclusion of
such placement to permit such shares freely to be tradeable by the
purchasers thereof.
(c) The Company shall use its reasonable best efforts to keep any such
registration described in Section 1.10(b) above , as the case may be,
continuously effective for the period beginning on the date on which such
registration is declared effective and ending on the first to occur of (A)
one hundred twenty (120) days thereafter and (B) on the first date that all
such Registrable Securities have been sold. During the period during which
any such registration is effective, the Company shall supplement or make
amendments to such registration, if required by the Act or if reasonably
requested by the Stockholder or an underwriter of Registrable Securities,
including to reflect any specific plan of distribution or method of sale,
and shall use its reasonable best efforts to have such supplements and
amendments declared effective as soon as practicable after filing.
(d) Registrations effected pursuant to this Section 1.10 shall not be
counted as registrations effected pursuant to Sections 1.2 or 1.3 herein.
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by the Stockholder to one or more
transferees or assignees of such securities who hold, pursuant to such
assignment(s), a number of Registrable Securities constituting in excess of
five percent (5%) of the outstanding shares of the Common Stock of the
Company, provided: (a) the Company is, within ten (10) days after any such
transfer, furnished with written notice of the name and address of such
transferees or assignees and the securities with respect to which such
registration rights are being assigned; (b) such transferees or assignees
agrees in writing to be bound by and subject to the terms and conditions of
this Agreement, including without limitation the provisions of Section 1.13
below; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferees or assignees is restricted under the Act. In the event of any
assignment by the Stockholder pursuant to this Section 1.11, any right of the
Stockholder hereunder may only be exercised by written instrument executed by
the holders of at least thirty percent (30%) of the Registrable Securities
then outstanding (the "Written Instrument") and the Company may rely on the
Written Instrument in effecting such right or rights to register Registrable
Securities pursuant to Section 1. Upon any proper assignment of registration
rights in accordance with this Section 1.11, any reduction (pursuant to
Section 1.7) in the participation among holders of Registrable Securities in
any registration subject to Section 1.7 shall, unless the Stockholder and such
other holders of Registrable Securities notify the Company of their agreement
otherwise, be allocated among such holders pro rata in accordance with their
respective holdings of Registrable Securities.
1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date
of this Agreement, the Company shall not, without the prior written consent of
the Stockholder, enter into any agreement with any stockholder or prospective
stockholder of any securities of the Company which would allow such
stockholder or prospective stockholder (a) to include such securities in any
registration filed under Section 1.2 hereof, unless under the terms of such
agreement, such stockholder or prospective stockholder may include such
securities in any such registration only to the extent that the inclusion of
his securities will not reduce the amount of the Registrable Securities of the
Stockholder which is included or (b) to make a demand registration which could
result in such registration statement being declared effective within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.13 TERMINATION OF REGISTRATION RIGHTS. The rights to registration set
forth in this Section 1 shall terminate as to any particular Registrable
Securities when (i) such Registrable Securities shall have been
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effectively registered under the Act and sold by the Stockholder in accordance
with such registration, (ii) such Registrable Securities shall have been sold
in compliance with Rule 145 promulgated under the Act, or (iii) the date which
is four years after the earliest to occur of, after the Closing date of the
Merger, the date of initial listing of the Common Stock of the Company on (1)
the Nasdaq National Market System, (2) the American Stock Exchange, or (3) the
New York Stock Exchange.
1.14 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to Section 1.2, 1.3 or 1.10 that the Stockholder
shall furnish to the Company such information regarding itself, the
Registrable Securities held by the Stockholder and the intended method of
disposition of such securities as shall be required to effect the registration
of the Stockholder's Registrable Securities.
II. COVENANTS
2.1 BOARD OF DIRECTOR MEETINGS. As long as the Stockholder owns not less
than ten percent (10%) of the total number of outstanding shares of Common
Stock of the Company, (A) the Company shall, to the extent that the
Stockholder does not then have a representative as a member of the Board of
Directors of the Company, invite a representative of the Stockholder to attend
all meetings of its Board of Directors in a nonvoting observer capacity and,
in this respect, shall give such representative copies of all notices,
minutes, consents, and other materials that it provides to its directors at
the same time as provided to its directors; provided, however, that such
representative and the Stockholder shall agree to hold in confidence and trust
and to act in a fiduciary manner for the benefit of the stockholders of the
Company with respect to all information so provided, and (B) upon receipt of
the agenda for a meeting of the Board of Directors of the Company or at any
other time, the Stockholder may submit to the Company for discussion and
consideration at the next subsequent meeting of the Board of Directors such
matters as the Stockholder in its sole discretion shall determine.
Notwithstanding the foregoing, the Company may exclude the Stockholder or its
representatives from any deliberation of the Board of Directors if the
Chairman of the Board of Directors delivers, prior to the date of such
deliberation, a letter to the Stockholder stating that legal counsel to the
Company has advised the Board of Directors that such exclusion is necessary to
preserve attorney client privilege.
2.2 INSPECTION AND COOPERATION. As long as the Stockholder owns not less
than ten percent (10%) of the total number of outstanding shares of Common
Stock of the Company, the Company shall permit the Stockholder and its
representatives (including but not limited to accounting, legal and financial
advisors) to visit and inspect the Company's properties, to examine its books
of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested
by the Stockholder for the purpose of evaluating its investment in the
Company. In addition, in connection with any attempt by the Stockholder to
sell some or all of the shares of Common Stock it owns in the Company to a
potential purchaser (a "Potential Purchaser"), in a private transaction, the
Company shall permit the Potential Purchaser and its representatives
(including but not limited to accounting, legal and financial advisors) to
visit and inspect the Company's properties, to examine its books of account
and records and to discuss the Company's affairs, finances and accounts with
its officers, all at such reasonable times as may be requested by the
Stockholder and Potential Purchaser, provided that such Potential Purchaser
enters into a confidentiality agreement containing customary terms and
conditions for an agreement of that type; provided, that the Company shall not
be obligated under this Section 2.2 with respect to a direct competitor of the
Company.
2.3 CONFIDENTIALITY. The Stockholder agrees to use, and to use its
reasonable best efforts to cause its employees and its authorized
representatives to use the same degree of care as the Stockholder uses to
protect its own confidential information and to keep confidential any
information furnished to it which the Company reasonably identifies as being
confidential or proprietary (so long as such information is not in the public
domain). The Stockholder further agrees not to use, and to cause its
representatives and employees not to use any such confidential information for
any purpose other than to evaluate the Stockholder's investment in the
Company.
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2.4 NO ASSIGNMENT. The rights of the Stockholder under Sections 2.1 and 2.2
may not be assigned by the Stockholder without the consent of the Company.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Stockholder as follows:
3.1 REQUISITE CONSENTS; NONVIOLATION.
(a) The Company has obtained all consents, approvals or authorizations of
any third party that would be required as a result of the execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated by this Agreement (the "Obtained Consents").
(b) The Company further represents and warrants that the execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated by this Agreement will not (a) require the consent,
approval or authorization of any third party, other than the Obtained
Consents, or (b) constitute a default under, violate or conflict with or
permit any third party to modify, terminate, accelerate or rescind any term or
provision of, any contract, agreement, arrangement or understanding to which
the Company is a party or by which the Company is bound or to which the
Company is subject.
3.2 AUTHORITY FOR AGREEMENT. All corporate and other proceedings required to
be taken by or on behalf of the Company to authorize the Company to enter into
and carry out this Agreement have been duly and properly taken. This Agreement
has been duly executed and delivered by the Company and is valid and binding
upon the Company, subject as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
IV. MISCELLANEOUS
4.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
4.2 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California.
4.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
4.5 NOTICES. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given (a) upon personal delivery to the party to be notified, (b) upon deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address indicated for
such party on the signature page hereof, or at such other address as such
party may designate by ten (10) days' advance written notice to the other
parties, (c) upon being sent by confirmed telex or facsimile if sent during
normal business hours of the recipient; if not, then on the next business day,
or (d) one day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
4.6 EXPENSES. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition
to any other relief to which such party may be entitled.
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4.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Stockholder. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon the
Stockholder, each person who becomes a transferee or assignee of the
Stockholder after such amendment or waiver, and the Company.
4.8 SEVERABILITY. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
4.9 AGGREGATION OF STOCK. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this
Agreement.
4.10 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Paradigm Technology, Inc.
By: _________________________________
Title: ______________________________
Asea Brown Boveri A.G.
By: _________________________________
Title: ______________________________
Asea Brown Boveri, Inc.
By: _________________________________
Title: ______________________________
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ANNEX B
March 5, 1998
Board of Directors
Paradigm Technology, Inc.
694 Tasman Drive
Milpitas, CA 95035
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Paradigm Technology ("Paradigm"), Inc., for the
acquisition of IXYS, Inc., as of March 5, 1998 through the issuance of
405,059,347 new common shares of Paradigm.
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
private placements, mergers and acquisitions, and corporate partnering
transactions. Alliant Partners has received fees from Paradigm for previous
engagements.
In arriving at our opinion, we have reviewed financial and other information
that was publicly available or furnished to us by Paradigm and IXYS. We also
have reviewed certain internal financial reports and forecasts for Paradigm
and IXYS prepared by their respective managements and have held discussions
with members of the senior management of Paradigm and IXYS regarding the
historic and current business operations and future prospects, including their
expectations for certain strategic benefits of the transaction. We have also
noted that the Going Concern issues raised by Paradigm's auditors. In
addition, we have compared certain financial data of IXYS with those of
various other companies engaged in businesses we considered comparable and
whose securities are traded in public markets, reviewed the overall risks
presented by the business plan, reviewed prices paid in certain other similar
business transactions and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
We have assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial and other information
regarding IXYS and Paradigm that has been provided to us by them and their
representatives. We did not make any independent evaluation of IXYS' or
Paradigm's businesses nor did we review any of their corporate records.
Based on the foregoing and such other factors as we deem relevant, we are of
the opinion as of the date hereof, that the IXYS company valuation of 95% of
the post transaction combined company shares through the issuance of
405,059,347 new common shares of Paradigm using an exchange ratio of 1.956020
is fair, from a financial point of view, to the Paradigm shareholders.
Sincerely Yours,
Alliant Partners
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ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to sec. 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be a available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
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incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that is such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of
C-3
<PAGE>
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 299, L.
'96, eff. 2-1-96 and Ch. 349, L. '96, eff. 7-1-96.)
C-4
<PAGE>
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ANNEX D
PARADIGM TECHNOLOGY, INC.
1994 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1.ESTABLISHMENT AND PURPOSE....................................... D-1
SECTION 2.DEFINITIONS..................................................... D-1
(a) "Board of Directors"............................................ D-1
(b) "Change in Control"............................................. D-1
(c) "Code".......................................................... D-1
(d) "Committee"..................................................... D-1
(e) "Company"....................................................... D-1
(f) "Employee"...................................................... D-1
(g) "Exchange Act".................................................. D-2
(h) "Exercise Price"................................................ D-2
(i) "Fair Market Value"............................................. D-2
(j) "ISO"........................................................... D-2
(k) "Nonstatutory Option"........................................... D-2
(l) "Option"........................................................ D-2
(m) "Optionee"...................................................... D-2
(n) "Outside Director".............................................. D-2
(o) "Plan".......................................................... D-2
(p) "Service"....................................................... D-2
(q) "Share"......................................................... D-2
(r) "Stock"......................................................... D-2
(s) "Stock Option Agreement"........................................ D-2
(t) "Subsidiary".................................................... D-2
(u) "Total and Permanent Disability"................................ D-2
SECTION 3.ADMINISTRATION.................................................. D-2
(a) Committee Procedures............................................ D-2
(b) Committee Responsibilities...................................... D-2
SECTION 4.ELIGIBILITY..................................................... D-3
(a) General Rule.................................................... D-3
(b) Outside Directors............................................... D-3
(c) Limitation On Grants............................................ D-4
(d) Ten Percent Shareholders........................................ D-4
(e) Attribution Rules............................................... D-4
(f) Outstanding Stock............................................... D-4
SECTION 5.STOCK SUBJECT TO PLAN........................................... D-4
(a) Basic Limitation................................................ D-4
(b) Additional Shares............................................... D-5
SECTION 6.TERMS AND CONDITIONS OF OPTIONS................................. D-5
(a) Stock Option Agreement.......................................... D-5
(b) Number of Shares................................................ D-5
(c) Exercise Price.................................................. D-5
(d) Withholding Taxes............................................... D-5
(e) Exercisability and Term......................................... D-5
(f) Nontransferability.............................................. D-5
(g) Exercise of Options Upon Termination of Service................. D-5
(h) No Rights as a Stockholder...................................... D-6
(i) Modification, Extension and Renewal of Options.................. D-6
(j) Restrictions on Transfer of Shares.............................. D-6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
SECTION 7.PAYMENT FOR SHARES.............................................. D-6
(a) General Rule.................................................... D-6
(b) Surrender of Stock.............................................. D-6
(c) Cashless Exercise............................................... D-6
SECTION 8.ADJUSTMENT OF SHARES............................................ D-6
(a) General......................................................... D-6
(b) Reorganizations................................................. D-6
(c) Reservation of Rights........................................... D-7
SECTION 9.LEGAL AND REGULATORY REQUIREMENTS............................... D-7
SECTION 10.NO EMPLOYMENT RIGHTS........................................... D-7
SECTION 11.DURATION AND AMENDMENTS........................................ D-7
(a) Term of the Plan................................................ D-7
(b) Right to Amend or Terminate the Plan............................ D-7
(c) Effect of Amendment or Termination.............................. D-7
SECTION 12.EXECUTION...................................................... D-8
</TABLE>
ii
<PAGE>
PARADIGM TECHNOLOGY, INC.
1994 STOCK OPTION PLAN
1. ESTABLISHMENT AND PURPOSE.
The Plan was established in 1994 to offer selected employees and consultants
an opportunity to acquire a proprietary interest in the success of the
Company, or to increase such interest, by purchasing Shares of the Company's
Common Stock. The Plan provides for the grant of Options to purchase Shares.
Options granted under the Plan may include Nonstatutory Options as well as
ISOs intended to qualify under Code section 422.
The Plan is being amended and restated effective as of the merger of
Paradigm Enterprises, Inc. with and into IXYS Corporation (the "Merger") to
reserve an additional 210,000 Shares (35,000 Shares after the reverse stock
splits occurring prior to and at the time of the Merger) for the grant of
options to Outside Directors and an additional 1,500,000 Shares (250,000
Shares after the reverse stock splits occurring prior to and at the time of
the Merger) for the grant of options to persons other than Outside Directors
and to increase the number of shares that can be made subject to options in
any fiscal year to 200,000 (after the reverse stock splits occurring prior to
and at the time of the Merger).
2. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "Change in Control" means the occurrence of either of the following
events:
(i) A change in the composition of the Board of Directors, as a result of
which fewer than one-half of the incumbent directors are directors who
either:
(1) Had been directors of the Company 24 months prior to such change;
or
Were elected, or nominated for election, to the Board of Directors with the
affirmative votes of at least a majority of the directors who had been
directors of the Company 24 months prior to such change and who were still in
office at the time of the election or nomination; or
(ii) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at elections
of directors (the "Base Capital Stock"); except that any change in the
relative beneficial ownership of the Company's securities by any person
resulting solely from a reduction in the aggregate number of outstanding
shares of Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person increases
in any manner, directly or indirectly, such person's beneficial ownership
of any securities of the Company. For purposes of this Subsection (ii), the
term "person" shall not include an employee benefit plan maintained by the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee designated by the Board of
Directors, which is authorized to administer the Plan under Section 3 hereof.
The Committee shall have membership composition which enables the Plan to
qualify under Rule 16b-3 with regard to the grant of Options or other rights
under the Plan to persons who are subject to Section 16 of the Exchange Act.
(e) "Company" shall mean Paradigm Technology, Inc., a Delaware corporation.
(f) "Employee" shall mean (i) any individual who is a common law employee of
the Company or of a Subsidiary, (ii) a member of the Board of Directors and
(iii) an independent contractor or advisor who performs services for the
Company or a Subsidiary. Service as a member of the Board of Directors or as
an independent contractor or advisor shall be considered employment for all
purposes of the Plan except the second sentence of Section 4(a).
D-1
<PAGE>
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(i) "Fair Market Value" shall mean (i) the closing price of a Share on the
principal exchange which the Shares are trading, on the first trading day
immediately preceding the date on which the Fair Market Value is determined,
or (ii) if the Shares are not traded on an exchange but are quoted on the
Nasdaq National Market or a successor quotation system, the closing price on
the first trading day immediately preceding the date on which the Fair Market
Value is determined, or (iii) if the Shares are not traded on an exchange or
quoted on the Nasdaq National Market or a successor quotation system, the fair
market value of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(j) "ISO" shall mean an employee incentive stock option described in Code
section 422.
(k) "Nonstatutory Option" shall mean an employee stock option that is not an
ISO.
(l) "Option" shall mean an ISO or Nonstatutory Option granted under the Plan
and entitling the holder to purchase Shares.
(m) "Optionee" shall mean an individual who holds an Option.
(n) "Outside Director" shall mean a member of the Board of Directors who is
not a common-law employee of the Company or of a Subsidiary and who is not an
employee of an owner of five percent (5%) or more of the Common Stock of the
Company.
(o) "Plan" shall mean this Paradigm Technology, Inc. 1994 Stock Plan, as
amended from time to time.
(p) "Service" shall mean service as an Employee.
(q) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(r) "Stock" shall mean the Common Stock of the Company.
(s) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions
pertaining to his Option.
(t) "Subsidiary" shall mean any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
(u) "Total and Permanent Disability" shall mean that the Optionee is unable
to work. Total and Permanent Disability shall be determined by the Company in
accordance with its Long Term Disability Plan.
3. ADMINISTRATION.
(a) Committee Procedures. The Board of Directors shall designate one of the
members of the Committee as chairman. The Committee may hold meetings at such
times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Committee members, shall be valid
acts of the Committee.
(b) Committee Responsibilities. Subject to the provisions of the Plan, the
Committee shall have full authority and discretion to take the following
actions:
D-2
<PAGE>
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating to
the Plan;
(iii) To authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each Option;
(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, the vesting or duration of the
Option (including accelerating the vesting of the Option), to determine
whether such Option is to be classified as an ISO or as a Nonstatutory
Option, and to specify the provisions of the Stock Option Agreement
relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement;
(ix) To prescribe the consideration for the grant of each Option under
the Plan and to determine the sufficiency of such consideration;
(x) To determine the disposition of each Option under the Plan in the
event of an Optionee's divorce or dissolution of marriage;
(xi) To determine whether Options under the Plan will be granted in
replacement of other grants under an incentive or other compensation plan
of an acquired business;
(xii) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Stock Option Agreement; and
(xiii) To take any other actions deemed necessary or advisable for the
administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding
on all Optionees and all persons deriving their rights from an Optionee. No
member of the Committee shall be liable for any action that he has taken or
has failed to take in good faith with respect to the Plan or any Option to
acquire Shares under the Plan.
4. ELIGIBILITY.
(a) General Rule. Only Employees shall be eligible for designation as
Optionees by the Committee. In addition, only individuals who are employed as
common-law employees by the Company or a Subsidiary shall be eligible for the
grant of ISOs.
(b) Outside Directors. Any other provision of the Plan notwithstanding, the
participation of Outside Directors in the Plan shall be subject to the
following restrictions:
(i) Outside Directors shall only be eligible for the grant of
Nonstatutory Options as described in this Section 4(b).
(ii) Upon the conclusion of each regular annual meeting of the Company's
shareholders following the initial public offering, each Outside Director
who will continue serving as a member of the Board thereafter shall receive
a Nonstatutory Option to purchase 3,125 Shares (after the reverse stock
split occurring at the time of the Merger) (subject to adjustment under
Section 8). All such Nonstatutory Options shall vest and become exercisable
at the rate of 25% upon each one-year anniversary of the date the option is
granted to the Outside Director.
D-3
<PAGE>
(iii) Each Outside Director who is appointed an Outside Director
following the initial public offering shall automatically be granted a
Nonstatutory Option to purchase 12,500 Shares (after the reverse stock
split occurring at the time of the Merger) (subject to adjustment under
Section 8) as a result of their appointment as an Outside Director. Upon
the conclusion of each regular annual meeting of the Company's shareholders
following the annual meeting at which they were appointed, each Outside
Director who will continue serving as a member of the Board thereafter
shall receive a Nonstatutory Option to purchase 3,125 Shares (after the
reverse stock split occurring at the time of the Merger) (subject to
adjustment under Section 8). All such Nonstatutory Options shall vest and
become exercisable at the rate of 25% upon each one-year anniversary of the
date the option is granted to the Outside Director.
(iv) All Nonstatutory Options granted to an Outside Director under this
Section 4(b) shall also become exercisable in full in the event of (A) the
termination of such Outside Director's service because of death or Total
and Permanent Disability or (B) a Change in Control of the Company.
(v) Subject to (ii) above, the Exercise Price of all Nonstatutory Options
granted to an Outside Director under this Section 4(b) shall be equal to
100% of the Fair Market Value of a Share on the date of grant, payable in
one of the forms described in Sections 7(a), (b) and (c).
(vi) All Nonstatutory Options granted to an Outside Director under this
Section 4(b) shall terminate on the earliest of (A) the 10th anniversary of
the date of grant of such Nonstatutory Options, (B) the date 90 days after
the termination of such Outside Director's service for any reason other
than death, Total and Permanent Disability or voluntary retirement as an
Outside Director at or after the age of 60, or (C) the date 12 months after
the termination of such Outside Director's service because of death, Total
and Permanent Disability or voluntary retirement as an Outside Director at
or after the age of 60.
(c) Limitation On Grants. No Employee shall be granted Options to purchase
in excess of 200,000 Shares during any fiscal year (after the reverse stock
splits occurring prior to and at the time of the Merger).
(d) Ten Percent Shareholders. An Employee who owns more than 10 percent of
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless such grant satisfies the requirements of Code section 422(c)(5).
(e) Attribution Rules. For purposes of Subsection (d) above, in determining
stock ownership, an Employee shall be deemed to own the stock owned, directly
or indirectly, by or for his brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries.
(f) Outstanding Stock. For purposes of Subsection (d) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant. "Outstanding stock" shall not include shares authorized for
issuance under outstanding options held by the Employee or by any other
person.
5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares which may
be issued under the Plan upon exercise of Options shall not exceed 234,800
Shares, of which 149,800 Shares are reserved for issuance prior to the Merger
and prior to the reverse stock splits occurring prior to and at the time of
the Merger (24,967 post-split Shares) and 250,000 additional post-split Shares
are reserved for issuance effective as of the Merger, for a total of 274,967
Shares after the reverse stock splits occurring prior to and at the time of
the Merger. Of that, an aggregate of 250,000 Shares are reserved for issuance
exclusively for grants to Outside Directors, as hereinafter defined, (the
"Director Shares"), of which 15,000 Shares are reserved for issuance prior to
the Merger and prior to the reverse stock splits occurring prior to and at the
time of the Merger (2,500 post-split Shares) and 35,000 additional post-split
Shares are reserved for issuance effective as of the Merger, for a total of
37,500 shares after the reverse stock splits occurring prior to and at the
time of the Merger. The Director Shares shall be reserved exclusively for
grants of Options to Outside Directors described in Section 4(b), and such
Option grants to Outside Directors
D-4
<PAGE>
described in Section 4(b) shall be limited to such Shares. On each January 1
for the remaining term of the Plan, and as of the closing of the Merger, the
aggregate number of Shares which may be issued under the Plan to individuals
other than Outside Directors shall be increased by a number of Shares equal to
3.0 percent of the total number of Shares of the Common Stock of the Company
outstanding at the end of the most recently effected increase in the number of
Shares available for issuance under the Plan. Any Shares that have been
reserved but not issued as Shares or Options during any calendar year shall
remain available for grant during any subsequent calendar year.
Notwithstanding the foregoing, no more than 234,800 Shares (39,134 Shares
after the reverse stock split occurring at the time of the Merger) shall be
available for the grant of ISOs for the remaining term of the Plan. The
aggregate number of Shares which may be issued under the Plan shall at all
times be subject to adjustment pursuant to Section 8. The number of Shares
which are subject to Options outstanding at any time under the Plan shall not
exceed the number of Shares which then remain available for issuance under the
Plan. The Company, during the term of the Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the
purposes of the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the
Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment
of such number in accordance with Section 8. The Stock Option Agreement shall
also specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant, except as otherwise
provided in Section 4(d). Subject to the preceding sentence, the Exercise
Price under any Option shall be determined by the Committee at its sole
discretion. The Exercise Price shall be payable in one of the forms described
in Sections 7(a), (b) and (c).
(d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that
may arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with
the disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The term
shall not exceed 10 years from the date of grant, except as otherwise provided
in Section 4(d). Subject to the preceding three sentences, the Committee at
its sole discretion shall determine when all or any installment of an Option
is to become exercisable and when an Option is to expire.
(f) Nontransferability. During an Optionee's lifetime, his Option(s) shall
be exercisable only by him and shall not be transferable, unless the Option
agreement otherwise provides. In the event of an Optionee's death, his
Option(s) shall not be transferable other than by will, beneficiary
designation or by the laws of descent and distribution.
(g) Exercise of Options Upon Termination of Service. Each Stock Option
Agreement shall set forth the extent to which the Optionee shall have the
right to exercise the Option following termination of the Optionee's Service
with the Company and its Subsidiaries, and the right to exercise the Option of
any executors or
D-5
<PAGE>
administrators of the Optionee's estate or any person who has acquired such
Option(s) directly from the Optionee by beneficiary designation, bequest or
inheritance. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of Service.
(h) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee,
shall have no rights as a stockholder with respect to any Shares covered by
his Option until the date of the issuance of a stock certificate for such
Shares. No adjustments shall be made, except as provided in Section 8.
(i) Modification, Extension and Renewal of Options. Within the limitations
of the Plan, the Committee may cancel, modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent
not previously exercised) in return for the grant of new Options at the same
or a different price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair his rights or
increase his obligations under such Option.
(j) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares.
7. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under the Plan
shall be payable in lawful money of the United States of America at the time
when such options are exercised, except as provided in Subsections (b) and (c)
below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares which have already
been owned by the Optionee or his representative for more than the maximum
number of months required by the Committee and which are surrendered to the
Company in good form for transfer. Such Shares shall be valued at their Fair
Market Value on the date when the new Shares are purchased under the Plan.
(c) Cashless Exercise. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in
payment of the aggregate Exercise Price.
8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend
payable in a form other than Shares in an amount that has a material effect on
the value of Shares, a combination or consolidation of the outstanding Stock
(by reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
grants under Section 5, (ii) the number of Shares covered by each outstanding
Option or (iii) the Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger or
other reorganization, outstanding Options shall be subject to the agreement of
merger or reorganization. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is a surviving corporation);
provided, however, that if assumption or continuation of the outstanding
Options is not provided by such agreement then the Committee shall have the
option of offering the payment of a cash settlement equal to the difference
between the amount to be paid for one Share under such agreement and the
Exercise Price, in all cases without the Optionees' consent.
D-6
<PAGE>
(c) Reservation of Rights. Except as provided in this Section 8, an Optionee
shall have no rights by reason of any subdivision or consolidation of shares
of stock of any class, the payment of any dividend or any other increase or
decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject
to an Option. The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
9. LEGAL AND REGULATORY REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements
of law, including (without limitation) the Securities Act of 1933, as amended,
the rules and regulations promulgated thereunder, state securities laws and
regulations and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.
10. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted under the Plan, shall be
construed to give any person any right to become, to be treated as, or to
remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.
11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The amended and restated Plan, as set forth herein,
shall become effective as of the date first set forth above, subject to the
approval of the Company's stockholders. In the event that the stockholders
fail to approve this amended and restated Plan within 12 months of its
adoption by the Board of Directors, the Plan as in effect prior to this
amendment and restatement shall continue in effect, and any additional Option
grants shall be deemed made pursuant to the terms of the Plan as in effect
prior to this amendment and restatement. The Plan shall terminate
automatically 10 years after its original adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may amend
the Plan at any time and from time to time except that the provisions of
Section 4(b) relating to the amount, price and timing of the Option grants to
Outside Directors shall not be amended more than once in any six-month period
after the Plan becomes effective, except as may be required by the Code or
ERISA. Rights and obligations under any Option granted before amendment of the
Plan shall not be materially altered, or impaired adversely, by such
amendment, except with consent of the person to whom the Option was granted.
An amendment of the Plan shall be subject to the approval of the Company's
stockholders only to the extent required by applicable laws, regulations or
rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
D-7
<PAGE>
12. EXECUTION.
To record the adoption of the amended and restated Plan by the Board of
Directors effective as of the date first set forth above, the Company has
caused its authorized officer to execute the same.
Paradigm Technology, Inc.
By __________________________________
Its _________________________________
D-8
<PAGE>
ANNEX E
REQUEST FOR CONVERSION OF
SHARES OF 5% SERIES CONVERTIBLE PREFERRED STOCK OF
PARADIGM TECHNOLOGY, INC.
The undersigned, being the holder of the shares of 5% Series
Convertible Preferred Stock (the "Shares") of Paradigm Technology, Inc. (the
"Company") indicated below, hereby requests of the Company that the Shares be
converted into shares of the Company's Common Stock.
No. of Shares: ______________________
Dated: ______________________________ -------------------------------------
(Signature)
-------------------------------------
Print name exactly as it appears on
certificate
E-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 ("Section 145") of the DGCL provides generally and in pertinent
part that a Delaware corporation may indemnify its directors, officers,
employees and agents against expenses (including attorneys' fees), judgments,
fines and settlements actually and reasonably incurred by them in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding (except actions by or in the right of the corporation), if, they
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal suit or proceeding, they had no reasonable cause to believe their
conduct was unlawful. Section 145 further provides that, in connection with
the defense or settlement of any action by or in the right of the corporation,
a Delaware corporation may indemnify its directors, officers, employees and
agents against expenses actually and reasonably incurred by them if they acted
in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
absent a determination by a court that such indemnity is proper. Section 145
further permits a Delaware corporation to grant its directors, officers,
employees and agents additional rights of indemnification through bylaw
provisions and otherwise.
Section 145 further permits a Delaware corporation to purchase and maintain
insurance on behalf of any persons who are or were directors, officers,
employees or agents of the corporation, or are or were serving at the request
of the corporation as directors, officers, employees or agents of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against them and incurred by them in any such capacity, or
arising out of their status as such, whether or not the corporation would have
the power to indemnify them against such liability under the other provisions
of Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Restated Certificate of Incorporation of Paradigm provides for the
indemnification of its directors and officers to the fullest extent provided
by the DGCL.
In addition, Article VII of Paradigm's Restated Certificate of Incorporation
provides, in part, as follows:
"To the fullest extent permitted by the Delaware General Corporation Law, a
director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for beach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization, dated as of March 6, 1998
and amended April 10, 1998 and May 29, 1998, among Paradigm Technology,
Inc., Paradigm Enterprises, Inc. and IXYS Corporation.(1)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(2)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.2 Bylaws of the Registrant, as amended.(3)
5.1 Opinion of Pillsbury Madison & Sutro LLP regarding the legality of the
securities being registered.(4)
8.1 Opinion of Pillsbury Madison & Sutro LLP as to federal tax matters.
8.2 Opinion of Cooley Godward LLP as to federal tax matters.
8.3 Opinion of Pillsbury & Sutro LLP as to federal tax matters with respect
to the Reverse Stock Split.
10.1 First Amended Executive Employment Agreement, dated as of June 26, 1998,
by and between IXYS and Nathan Zommer.
10.2 First Amended Executive Employment Agreement, dated as of June 26, 1998,
by and between IXYS and Arnold Agbayani.
10.3 Wafer Foundry Agreement, dated as of June 21, 1995, as amended on March
28, 1996 and March 13, 1998, by and between IXYS and Samsung Electronics
Co.
10.4 Lampertheim Contractual Purchase Deed and Conveyance, dated as of
February 26, 1997.
10.5 Loan Agreement, dated as of February 27, 1997, by and between IXYS and
Commerzbank, Aktiengesellschaft, Mannheim Branch.
10.6 Loan and Security Agreement, dated as of December 24, 1997, by and
between IXYS and Bank of the West.
23.1 Consent of Pillsbury Madison & Sutro LLP (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1 to this Registration Statement).
23.2 Consent of Cooley Godward LLP (included in its opinion filed as Exhibit
8.2 to this Registration Statement).
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney.(4)
99.1 Consent of Alliant Partners.
99.2 Form of Proxy Card of Paradigm.(4)
99.3 Form of Proxy Card of IXYS.(4)
99.4 Consent of Nathan Zommer.(4)
99.5 Consent of Arnold Agbayani.(4)
99.6 Consent of Rolf Karg.(4)
99.7 Voting Agreement by and between Registrant and Nathan Zommer dated March
6, 1998.
</TABLE>
- --------
(1) Filed as an Annex to the Joint Proxy Statement/Prospectus forming part of
this Registration Statement and incorporated herein by reference.
(2) Incorporated by reference to Exhibit 3.1 filed with the Registrant's Form
10-K for the year ended December 31, 1997.
(3) Incorporated by reference to Exhibit 3.3 filed with the Registrant's Form
10-K for the year ended December 31, 1997.
(4) Previously filed.
(b) Financial Statement Schedules.
Financial Statement Schedules are omitted because they are not applicable or
are not required or because the requested information is immaterial or the
required information is included in the financial statements or notes thereto.
(c) 4(b) Information.
The opinion of Alliant Partners is included as Annex B, to the Joint Proxy
Statement/Prospectus included in Part I of this Registration Statement.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
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
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the 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 the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MILPITAS, STATE OF
CALIFORNIA, ON THE 26TH DAY OF JUNE, 1998.
Paradigm Technology, Inc.
/s/ Richard M. Morley
By: _________________________________
RICHARD M. MORLEY
ACTING PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard M. Morley Acting President and June 26, 1998
- ------------------------------------- Chief Executive
RICHARD M. MORLEY Officer (Principal
Executive Officer)
/s/ David Campbell Chief Financial June 26, 1998
- ------------------------------------- Officer and
DAVID CAMPBELL Secretary and
(Principal
Financial and
Accounting Officer)
/s/ Michael R. Gulett Director June 26, 1998
- -------------------------------------
MICHAEL R. GULETT
* /s/ James L. Kochman Director June 26, 1998
- -------------------------------------
JAMES L. KOCHMAN
* /s/ George J. Collins Director June 26, 1998
- -------------------------------------
GEORGE J. COLLINS
</TABLE>
*Power of Attorney.
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization, dated as of March 6,
1998 and amended April 10, 1998 and May 29, 1998, among Paradigm
Technology, Inc., Paradigm Enterprises, Inc. and IXYS Corporation.(1)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(2)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant.
4.2 Bylaws of the Registrant, as amended.(3)
5.1 Opinion of Pillsbury Madison & Sutro LLP regarding the legality of the
securities being registered.(4)
8.1 Opinion of Pillsbury Madison & Sutro LLP as to federal tax matters.
8.2 Opinion of Cooley Godward LLP as to federal tax matters.
8.3 Opinion of Pillsbury & Sutro LLP as to federal tax matters with respect
to the Reverse Stock Split.
10.1 First Amended Executive Employment Agreement, dated as of June 26, 1998,
by and between IXYS and Nathan Zommer.
10.2 First Amended Executive Employment Agreement, dated as of June 26, 1998,
by and between IXYS and Arnold Agbayani.
10.3 Wafer Foundry Agreement, dated as of June 21, 1995, as amended on March
28, 1996 and March 13, 1998, by and between IXYS and Samsung Electronics
Co.
10.4 Lampertheim Contractual Purchase Deed and Conveyance, dated as of
February 26, 1997.
10.5 Loan Agreement, dated as of February 27, 1997, by and between IXYS and
Commerzbank, Aktiengesellschaft, Mannheim Branch.
10.6 Loan and Security Agreement, dated as of December 24, 1997, by and
between IXYS and Bank of the West.
23.1 Consent of Pillsbury Madison & Sutro LLP (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1 to this Registration Statement).
23.2 Consent of Cooley Godward LLP (included in its opinion filed as Exhibit
8.2 to this Registration Statement).
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney.(4)
99.1 Consent of Alliant Partners.
99.2 Form of Proxy Card of Paradigm.(4)
99.3 Form of Proxy Card of IXYS.(4)
99.4 Consent of Nathan Zommer.(4)
99.5 Consent of Arnold Agbayani.(4)
99.6 Consent of Rolf Karg.(4)
99.7 Voting Agreement by and between Registrant and Nathan Zommer dated March
6, 1998.
</TABLE>
- --------
(1) Filed as an Annex to the Joint Proxy Statement/Prospectus forming part of
this Registration Statement and incorporated herein by reference.
(2) Incorporated by reference to Exhibit 3.1 filed with the Registrant's Form
10-K for the year ended December 31, 1997.
(3) Incorporated by reference to Exhibit 3.3 filed with the Registrant's Form
10-K for the year ended December 31, 1997.
(4) Previously filed.
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PARADIGM TECHNOLOGY, INC.
PARADIGM TECHNOLOGY, INC., a corporation duly organized and existing
under the General Corporation Law of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:
That the amendment to the Corporation's Amended and Restated Certificate
of Incorporation set forth in the following resolution was approved by the
Corporation's Board of Directors and stockholders, and was duly adopted in
accordance with provisions of Sections 228 and 242 of the General Corporation
Law of the State of Delaware:
RESOLVED, that Article IV, Section (B) of the Amended and Restated
Certificate of Incorporation of the Corporation be amended and restated
to read in its entirety as follow:
(B) The total number of shares of Common Stock which
this Corporation is authorized to issue is 25,000,000. The total
number of shares of Preferred Stock which this Corporation is
authorized to issue is 5,000,000. All of the shares of Common
Stock and Preferred Stock shall have a par value of $.01 per
share. Each ten (10) shares of the Common Stock of the
Corporation issued as of the date and time immediately preceding
May 1, 1998, the effective date of the reverse stock split (the
"Split Effective Date") shall be automatically changed and
reclassified, as of the Split Effective Date and, without
further action, into one (1) fully paid and nonassessable share
of Common Stock of the Corporation; provided, however, that any
fractional interest resulting from such change and
reclassification shall be rounded upward to the nearest whole
share.
IN WITNESS WHEREOF, Paradigm Technology, Inc. has caused this
certificate to be signed by its duly authorized President and Chief Executive
Officer this 1st day of May 1998.
PARADIGM TECHNOLOGY, INC.
By: /s/ MICHAEL R. GULETT
---------------------------------
Michael R. Gulett
President
Attest:
By: /s/ DAVID G. CAMPBELL
--------------------------
David G. Campbell
Secretary
<PAGE>
EXHIBIT 8.1
[PILLSBURY MADISON & SUTRO LLP LETTERHEAD]
June 26, 1998
Paradigm Technology, Inc.
694 Tasman Drive
Milpitas, CA 95035
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing with
the Securities and Exchange Commission of a Registration Statement on Form S-4
(the "Registration Statement") through which Paradigm Technology, Inc.
("Paradigm"), a Delaware corporation, is registering under the Securities Act
of 1933, as amended, shares of its common stock, par value $0.01 (the
"Paradigm Common Stock") and in which is described the proposed (i) plan of
reorganization that would result in the merger (the "Merger") of Paradigm
Enterprises, Inc. ("Merger Subsidiary"), a Delaware corporation and a wholly
owned subsidiary of Paradigm, with and into IXYS Corporation, a Delaware
corporation ("IXYS"), and (ii) subsequent change by Paradigm of its name to
IXYS Corporation. The proposed plan (the "Plan") is set forth in the Agreement
and Plan of Merger and Reorganization (the "Merger Agreement") dated as of
March 6, 1998, as amended on April 10, 1998 and May 29, 1998, among Paradigm,
Merger Subsidiary and IXYS. We understand, and the opinions rendered herein
assume, that the facts surrounding the Merger are and will be as follows:
Paradigm designs and markets high speed, high density static random access
memory semiconductor devices to meet the needs of advanced telecommunications
devices, networks, workstations, high performance PCs, advanced modems and
complex military and aerospace applications. The authorized capital stock of
Paradigm consists of 25 million shares of Paradigm Common Stock and 5 million
shares of preferred stock, $0.01 par value (the "Preferred Stock"); as of the
date of the Merger Agreement, there were issued and outstanding 14,881,039
shares of Paradigm Common Stock, 30 shares of Preferred Stock designated
Series A, 68 shares of Preferred Stock designated Series B and 85 shares of
Preferred Stock designated Series C. Paradigm Common Stock is listed on the
Nasdaq SmallCap Market.
The authorized capital stock of Merger Subsidiary consists of 1,000 shares
of common stock, par value $0.01, 100 of which are issued and outstanding and
owned by Paradigm.
IXYS designs, develops and markets a broad spectrum of power semiconductors
used primarily in controlling energy in motor drives, power conversion
(including uninterruptible power supplies and switch mode power supplies) and
medical devices. The authorized capital stock of IXYS consists of 250 million
shares of IXYS Common Stock and 116 million shares of preferred stock, $0.001
par value (41.2 million of which have been designated "Series A Preferred
Stock" and 74,382,633 of which have been designated "Series B Preferred
Stock"); the IXYS Common Stock, Series A Preferred Stock and Series B
Preferred Stock are referred to herein collectively as the "IXYS Capital
Stock." As of the date of the Merger Agreement, there were issued and
outstanding 72,557,485 shares of Paradigm Common Stock, 37,026,730 shares of
Series A Preferred Stock and 74,382,633 shares of Series B Preferred Stock.
The managements of Paradigm and IXYS have determined that the proposed
Merger will be in the best interests of their companies and stockholders.
Paradigm management believes that Paradigm will benefit from the potential to
develop with IXYS new products based on the two companies' existing
technologies, from increased insulation from adverse market conditions for
Paradigm's existing products and from access to current
<PAGE>
IXYS customers not already Paradigm customers. IXYS management believes IXYS
will benefit from the combination of the two companies' technologies by being
able to respond more effectively to technological change in and continuing
emergence of power management control products and from an expanded customer
base.
Under the Plan, prior to the Merger (i) there will be a six-for-one reverse
stock split of the Paradigm Common Stock, (ii) the number of authorized shares
of Paradigm Common Stock will be increased, (iii) the Preferred Stock will be
converted into shares of Paradigm Common Stock and (iv) the Paradigm
stockholders will approve the change of Paradigm's name to IXYS Corporation.
Also under the Plan, Merger Subsidiary will merge with and into IXYS in
accordance with Delaware law. Upon the effectiveness of the Merger (the
"Effective Time"), the following will occur:
1. IXYS will be the surviving corporation, and the separate existence of
Merger Subsidiary will cease.
2. Each issued and outstanding share of capital stock of Merger
Subsidiary will be converted into one share of common stock of IXYS, the
corporation surviving the Merger.
3. Each share of IXYS Capital Stock which is outstanding immediately
prior to the Merger, except for shares held by dissenters perfecting their
appraisal rights, will be converted into shares of Paradigm Common Stock at
the "Exchange Ratio." The Exchange Ratio will be established such that the
former holders of IXYS Capital Stock will hold Paradigm Common Stock
representing the greater of (i) 95 percent of the outstanding Paradigm
Common Stock on a fully diluted basis or (ii) a valuation of $150 million.
4. No fractional shares will be issued to holders of IXYS Capital Stock;
each holder of IXYS Capital Stock otherwise entitled to a fractional
interest in a share of Paradigm Common Stock will receive an amount of cash
equal to the product obtained by multiplying such fractional share interest
by the closing price of Paradigm Common Stock as reported by the Nasdaq
SmallCap Market on the day of the Effective Time.
5. Holders of shares of IXYS Capital Stock perfecting their dissenters'
rights will be entitled to receive cash.
6. Each outstanding option or warrant to acquire IXYS Capital Stock which
has not been exercised by its holder prior to the Merger will be converted
into an option or warrant to acquire, at a price per share equal to the
exercise price specified in such option or warrant divided by the Exchange
Ratio (with the resulting exercise price rounded up to the nearest
hundredth of a cent), that number of shares of Paradigm Common Stock equal
to the product of the number of shares of IXYS Capital Stock formerly
subject to the option or warrant and the Exchange Ratio (with the resulting
number of shares rounded down to the nearest whole share).
For purposes of rendering this opinion we have examined and are relying upon
(without any independent investigation or review) the truth, correctness and
completeness at all relevant times of the statements, covenants,
representations and warranties contained in the Merger Agreement, letters
dated June 26, 1998 delivered to us by Paradigm, Merger Subsidiary and IXYS
containing their respective tax-related representations (the "Tax
Representation Letters") and such other instruments and documents as we have
deemed necessary.
Further, for purposes of rendering this opinion we have made the following
assumptions (without any independent investigation or review):
(a) Original documents submitted to us (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents and all such documents either have been or will be by the
Effective Time duly and validly executed and delivered where such
execution and delivery are prerequisites to effectiveness;
(b) All representations, warranties and statements made or agreed to
by Paradigm, Merger Subsidiary and IXYS and by their respective
managements, officers and directors in connection with the Merger,
including but not limited to those set forth in the Merger Agreement
and the Tax Representation Letters are true, correct and complete at
all relevant time;
2
<PAGE>
(c) All covenants contained in the Merger Agreement and Tax
Representation Letters will be performed without waiver or breach of
any material provision; and
(d) Any representation or statement made "to the best knowledge" or
similarly qualified is correct without such qualification.
Based solely on the information, understandings and assumptions and subject
to the limitations contained herein, we are of the opinion that the Merger
will constitute a reorganization within the meaning of Internal Revenue Code
section 368(a)(1). Accordingly, and again based solely on the information,
understandings and assumptions and subject to the limitations contained
herein, we are further of the opinion that, for federal income tax purposes:
(i) no gain or loss will be recognized by holders of IXYS Capital Stock
who exchange their IXYS Capital Stock for Paradigm Common Stock pursuant to
the Merger, except with respect to cash received in lieu of fractional
shares;
(ii) the aggregate tax basis of Paradigm Common Stock received as a
result of the Merger will be the same as the stockholder's aggregate tax
basis in the IXYS Capital Stock surrendered in the exchange (reduced by any
basis allocable to fractional shares for which cash is received);
(iii) the holding period of Paradigm Common Stock received in exchange
for IXYS Capital Stock in the Merger will include the holding period of
such IXYS Capital Stock, provided the shares of IXYS Capital Stock are
capital assets in the hands of the holder thereof at the Effective Time;
(iv) a holder of IXYS Capital Stock receiving cash in the Merger in lieu
of a fractional interest in Paradigm Common Stock will be treated as if
such holder actually received such fractional share interest which was
subsequently redeemed by Paradigm, resulting in the recognition of gain or
loss (capital gain or loss if the IXYS Capital Stock giving rise to such
fractional interest is held as a capital asset within the meaning of
Section 1221 of the Code), measured by the difference between the amount of
cash received and the basis of the IXYS Capital Stock allocable to such
fractional interest; and
(v) a holder of IXYS Capital Stock exercising appraisal rights and
receiving a cash payment therefor will generally recognize gain or loss
(capital gain or loss if such IXYS Capital Stock is held as a capital asset
within the meaning of Section 1221 of the Code) measured by the difference
between the amount of cash received and the basis of such IXYS Capital
Stock, as long as such payment neither is "essentially equivalent to a
dividend" within the meaning of Section 302 of the Code nor has the effect
of distribution of a dividend within the meaning of Section 356(a)(2) of
the Code.
In addition, in our opinion the discussion under the caption "The Merger
Proposal and the Issuance Proposal--Material Federal Income Tax Consequences"
in the Registration Statement,insofar as it relates to statements of law and
legal conclusions, is correct in all material respects.
The opinions expressed herein are based upon laws, judicial decisions and
administrative regulations, rulings and practice, all as in effect on the date
hereof and all of which are subject to change, either on a prospective or
retroactive basis. New developments in any such administrative matters, court
decisions, legislative changes, or changes in the facts, assumptions or other
information upon which our opinions are based may have an adverse effect on
the legal or tax consequences described herein, and we do not accept any
responsibility for updating or revising our opinions in consequence of any
such new development or changes. No opinion is expressed about the federal tax
treatment of the proposed Merger under other provisions of the Internal
Revenue Code, about the federal income tax treatment of any conditions
existing at the time of, or effects resulting from, the proposed Merger that
are not specifically covered by the above opinions, nor about tax effects of
the proposed Merger other than the federal income tax treatment thereof. In
particular, but not by way of limitation, we express no opinion regarding the
tax consequences of the proposed Merger (including the opinions set forth
above) that may be applicable to a particular stockholder or securityholder of
IXYS in light of personal circumstances or to certain types of stockholders or
securityholders subject to special treatment under the federal income tax laws
such as life insurance companies, dealers in securities, taxpayers subject to
the alternative minimum tax, banks, tax-exempt organizations, non-United
States persons and stockholders who acquired their IXYS shares pursuant to the
exercise of options or otherwise as compensation or who hold their IXYS shares
as part of a straddle or risk reduction transaction.
3
<PAGE>
This opinion is intended solely for the purpose of including this opinion as
an exhibit to the Registration Statement. It may not be relied upon for any
other purpose by any person or entity, other than Paradigm and the Paradigm
stockholders, and may not be made available to any other person or entity
without our written consent. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and further consent to the use of
our name under the captions "The Merger Proprosal and the Issuance Proposal--
Material Federal Income Tax Consequences" and "Legal Opinions" in the
Registration Statement.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
4
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF COOLEY GODWARD LLP]
June 26, 1998
IXYS Corporation
3540 Bassett Street
Santa Clara, CA 95054-2704
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Merger and Reorganization dated as of March 6, 1998, as
amended on April 10, 1998 and May 29, 1998 (the "Reorganization Agreement") by
and among Paradigm Technology, Inc., a Delaware corporation ("Parent"),
Paradigm Enterprises, Inc., a Delaware corporation and wholly owned subsidiary
of Parent ("Merger Sub"), and IXYS Corporation, a Delaware corporation (the
"Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in, the following documents
(including all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated June 26, 1998
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax
Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and
related to the consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or
<PAGE>
will be by the Effective Time) duly and validly executed and delivered
where due execution and delivery are a prerequisite to the effectiveness
thereof;
(b) All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers
and directors in connection with the Merger, including, but not limited to,
those set forth in the Reorganization Agreement (including the exhibits
thereto) and the Tax Representation Letters are true and accurate at all
relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof; and
(d) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are
of the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Section 368(a)(1) of the Code and the
following federal income tax consequences will result:
. No gain or loss will be recognized for federal income tax purposes by the
holders of Company Capital Stock upon the receipt of Parent Common Stock
solely in exchange for such Company Capital Stock in the Merger (except
to the extent, if any, that cash is received in lieu of fractional
shares).
. The aggregate tax basis of the Parent Common Stock so received by Company
stockholders in the Merger (including any fractional shares of Parent
Common Stock not actually received) will be the same as the aggregate tax
basis of the Company Capital Stock surrendered in exchange therefor.
. The holding period of the Parent Common Stock so received by each Company
stockholder in the Merger will include the holding period of the shares
of Company Capital Stock surrendered in exchange therefor.
. Cash payments received by holders of Company Capital Stock in lieu of
fractional shares of Parent Common Stock will be treated as if such
fractional shares had been issued in the Merger and then redeemed by
Parent. A Company stockholder receiving such cash will recognize gain or
loss upon such payment, measured by the difference (if any) between the
amount of cash received and the basis allocated to such fractional share.
The gain or loss should be capital gain or loss, provided that each such
fractional share of Parent Common Stock was held as a capital asset at
the Effective Time of the Merger.
. A holder of Company Capital Stock who exercises appraisal rights with
respect to a share of Company Capital Stock and receives a cash payment
for such share generally should recognize capital gain or loss (if such
share was held as a capital asset at the Effective Time of the Merger)
measured by the difference between the stockholder's basis in such share
and the amount of cash received, provided that such payment is not
"essentially equivalent to a dividend" within the meaning of Section 302
of the Code nor has the effect of a distribution of a dividend within the
meaning of Section 356(a)(2) of the Code after giving effect to the
constructive ownership rules of the Code (collectively, a "Dividend
Equivalent Transaction"). A sale of shares pursuant to an exercise of
appraisal rights generally will not be a Dividend Equivalent Transaction
if, as a result of such exercise, the stockholder exercising the
appraisal rights owns no shares of capital stock of Parent (either
actually or constructively within the meaning of Section 318 of the Code)
immediately after the Merger.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed
the discussion entitled "Material Federal Income Tax Consequences" contained
in the Registration Statement and believe that, insofar as it relates to
statements of law and legal conclusions, is correct in all material respects.
We consent to the reference to our firm under the captions "Material Federal
Income Tax Consequences" and "Legal Opinions" in the Proxy Statement included
in the Registration Statement and to the filing of this opinion as an exhibit
to the Proxy Statement and to the Registration Statement.
2
<PAGE>
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein. No opinion is
expressed as to the federal income tax treatment that may be relevant to a
particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the federal income tax laws (for
example, life insurance companies, dealers in securities, taxpayers subject to
the alternative minimum tax, banks, tax-exempt organizations, non-United
States persons, and stockholders who acquired their shares of Company Capital
Stock pursuant to the exercise of options or otherwise as compensation or who
hold their Company Capital Stock as part of a straddle or risk reduction
transaction).
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of
the Reorganization Agreement and without waiver of any material provision
thereof. To the extent that any of the representations, warranties, statements
and assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service
or any court of law, tribunal, administrative agency or other governmental
body. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered in connection with the Registration
Statement. It is intended for the benefit of the Company and the stockholders
of the Company and may not be relied upon or utilized for any other purpose or
by any other person and may not be made available to any other person without
our prior written consent.
Sincerely,
/s/ Webb B. Morrow III
3
<PAGE>
[PILLSBURY MADISON & SUTRO LLP LETTERHEAD]
EXHIBIT 8.3
June 26, 1998
Paradigm Technology, Inc.
694 Tasman Drive
Milpitas, CA 95035
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing with
the Securities and Exchange Commission of a Registration Statement on Form S-4
(the "Registration Statement") through which Paradigm Technology, Inc.
("Paradigm"), a Delaware corporation, is, among other things, soliciting the
approval of its stockholders of a proposed six-for-one reverse stock split
(the "Reverse Stock Split") of its common stock, par value $0.01 (the
"Paradigm Common Stock"). If so approved, the Reverse Stock Split, which is
described in more detail under the caption "The Reverse Stock Split Proposal"
in the Registration Statement, will result in every six shares of Paradigm
Common Stock being converted into one share of Paradigm Common Stock with any
fractional share interest being rounded up to the nearest whole share.
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Registration Statement.
Assuming that the Reverse Stock Split is carried out in accordance with its
description in the Registration Statement under the caption "The Reverse Stock
Split Proposal," we are of the opinion that the Reverse Stock Split will
constitute a reorganization within the meaning of Internal Revenue Code
section 368(a)(1) and that, accordingly, for federal income tax purposes:
(i) neither Paradigm nor the holders of Paradigm Common Stock will
recognize any gain or loss upon the exchange of Paradigm Common Stock for a
reduced number of shares of Paradigm Common Stock;
(ii) holders of Paradigm Preferred Stock will recognize no income, gain
or loss as a result of the changes to the conversion ratios for such stock
incident to the Reverse Stock Split;
(iii) the aggregate tax basis for computing gain or loss of Paradigm
Common Stock to be issued as a result of the Reverse Stock Split will be
the same as the stockholder's aggregate tax basis in the Paradigm Common
Stock surrendered in exchange therefor; and
(iv) the holding period of Paradigm Common stock to be issued as a result
of the Reverse Stock Split will include the holding period of the Paradigm
Common Stock surrendered in exchange therefor, provided the shares of
Paradigm Common Stock are capital assets in the hands of the holder thereof
on the Split Effective Date.
In addition, in our opinion the discussion under the caption "The Reverse
Stock Split Proposal--Material Federal Income Tax Consequences" in the
Registration Statement, insofar as it relates to statements of law and legal
conclusions, is correct in all material respects.
The opinions expressed herein are based upon laws, judicial decisions and
administrative regulations, rulings and practice, all as in effect on the date
hereof and all of which are subject to change, either on a prospective or
retroactive basis. New developments in any such administrative matters, court
decisions, legislative changes, or changes in the facts, assumptions or other
information upon which our opinions are based may have an adverse effect on
the legal or tax consequences described herein, and we do not accept any
responsibility for updating or revising our opinions in consequence of any
such new development or changes.
<PAGE>
Paradigm Technology, Inc.
June 26, 1998
Page 2
No opinion is expressed about the federal tax treatment of the proposed
Reverse Stock Split under other provisions of the Internal Revenue Code, about
the federal income tax treatment of any conditions existing at the time of, or
effects resulting from, the proposed Reverse Stock Split that are not
specifically covered by the above opinions, nor about tax effects of the
proposed Reverse Stock Split other than the federal income tax treatment
thereof. In particular, but not by way of limitation, we express no opinion
regarding the tax consequences of the proposed Reverse Stock Split (including
the opinions set forth above) that may be applicable to a particular
stockholder or securityholder of Paradigm in light of personal circumstances
or to certain types of stockholders or securityholders subject to special
treatment under the federal income tax laws such as life insurance companies,
dealers in securities, taxpayers subject to the alternative minimum tax,
banks, tax-exempt organizations, non-United States persons and stockholders
who acquired their Paradigm shares pursuant to the exercise of options or
otherwise as compensation or who hold their Paradigm shares as part of a
straddle or risk reduction transaction.
This opinion is intended solely for the purpose of including this opinion as
an exhibit to the Registration Statement. It may not be relied upon for any
other purpose by any person or entity, other than Paradigm and the Paradigm
stockholders, and may not be made available to any other person or entity
without our written consent. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and further consent to the use of
our name under the caption "The Reverse Stock Split Proposal--Material Federal
Income Tax Consequences" in the Registration Statement.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE>
EXHIBIT 10.1
FIRST AMENDED
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This First Amended Executive Employment Agreement (the "Agreement") is entered
into by and between IXYS Corporation (the "Company"), a Delaware corporation,
and Nathan Zommer ("Executive"), effective as of June 26, 1998 (the
-------------
"Effective Date").
W I T N E S S E T H
WHEREAS, the Company and Executive are parties to that certain Executive
Employment Agreement effective as of January 1, 1995, which is modified and
superseded by this First Amended Executive Employment Agreement; and
WHEREAS, the Company intends to conclude a merger of Paradigm Enterprises, Inc.,
a wholly owned subsidiary of Paradigm Technology, Inc., with and into the
Company (the "Merger"), and desires thereafter to continue and extend the
employment of Executive under mutually satisfactory terms and conditions, and
the Executive desires to be employed by the Company, under the terms and
conditions herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT BY THE COMPANY. The Company hereby employs Executive to render
full-time services to the Company as its Chief Executive Officer. Executive
shall have responsibilities, duties and authorities that are customarily
associated with such position, and such duties that are assigned by the
Company's Board of Directors (the "Board").
2. COMPENSATION, VACATION AND BENEFITS.
2.1 The Company agrees to pay Executive an annual base salary in the
amount of $285,000, payable every two weeks. In addition, the Company agrees
to pay Executive an annual bonus equal to forty percent (40%) of Executive's
annual base salary. The executive's performance, and his base salary and
bonus arrangement will be reviewed by the Board from time to time.
2.2 Executive's paychecks will be distributed pursuant to ordinary business
practice, and shall be subject to ordinary payroll deductions and tax
withholdings. The Company also agrees to provide Executive with benefits
consistent with Company policy for senior executives. Details about these
benefits are set forth in the employee handbook and summary plan
descriptions, copies of which have been provided to Executive.
2.3 In addition to the benefits provided to Executive pursuant to
subsections 2.1 and 2.2 hereof, the Company shall:
(a) pay, or reimburse Executive, for all reasonable costs of a yearly
medical exam of Executive by a physician of his choice;
1.
<PAGE>
(b) maintain term life insurance (without a buildup of equity) in the
amount of $1,000,000 on the life of the Executive payable to such
beneficiary or beneficiaries as Executive may designate from time to
time;
(c) pay, or reimburse Executive, for the services of a personal tax
and/or investment advisor, not to exceed $1,000 per year; and
(d) provide Executive with a car of such make and model as Executive
and Board shall agree is commensurate with Executive's position with
the Company, including insurance for such car and reasonable
maintenance thereof; provided, however, that Executive shall at all
times (i) comply with all policies of the Company from time to time in
effect with respect to the maintenance and operation of motor vehicles,
and (ii) maintain a valid driver's license.
3. EMPLOYEE HANDBOOK. By signing this Agreement, Executive acknowledges that
he has received and read the Company's employee handbook. Executive agrees to
abide by all company policies and procedures. Notwithstanding the foregoing, if
there shall be any conflict between this Agreement and such employee handbook,
the terms of this Agreement shall govern.
4. INCENTIVE BONUS.
4.1 CHANGE OF CONTROL. For purposes of this Agreement, a Change of Control
shall mean:
(a) any reorganization, consolidation or merger of the Company in
which the Company is not the surviving corporation or pursuant to which
shares of the Company's voting stock would be converted into cash,
securities or other property, in either case other than a merger of the
Company in which the holders of the Company's voting stock immediately
prior to the merger have the same proportionate ownership of voting
stock of the surviving corporation immediately after the merger;
(b) the sale, exchange or other transfer (in one transaction
or a series of related transactions) to a third party not affiliated
with the Company of at least twenty percent (20%) of the voting stock
of the Company within a one-year period; or
(c) the sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of
the assets of the Company.
4.2 BONUS. In the event of an Acquisition or a Change in Control, other
than the Merger, during Executive's active employment hereunder, he shall be
entitled to receive a cash bonus equal to three times his then annual base
salary, payable immediately after the closing of the transaction or the
series of transactions effecting the Change of Control.
2.
<PAGE>
5. TERMINATION OF EMPLOYMENT.
5.1 TERM. The initial term of this Agreement is from the date hereof until
January 31, 2004.
5.2 COMPANY INITIATED TERMINATION.
(a) In the event the Company terminates Executive's employment
without cause, Executive shall receive as severance a one-time payment
equal to one month of his then annual salary multiplied by the number
of calendar years (a fraction of a year shall be paid on a prorated
basis), but not to exceed a total of twelve months, of Executive's
service with the Company, payable within fifteen (15) days of such
termination. No other benefits or payments shall be provided, except as
expressly provided herein.
(b) In the event Executive's employment is terminated at any time
with cause, all of Executive's compensation and benefits will cease
immediately, and Executive shall not be entitled to any severance
benefits and all other benefits provided hereunder shall cease as of
such termination. For purposes of this Agreement, "cause" shall mean
(i) conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against
the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; or (v) breach of this
Agreement, the Proprietary Information Agreement, or any other
agreements with the Company including, but not limited to agreements
regarding confidentiality or proprietary information. Physical or
mental disability shall not constitute "cause". Failure to accomplish
corporate financial and management goals shall not constitute "cause".
(c) For purposes of this Agreement, "good reason" for voluntary
termination shall mean: (i) reduction of Executive's rate of salary
compensation as in effect immediately prior to the Change of Control;
(ii) failure to provide a package of welfare benefit plans which, taken
as a whole, provide substantially similar benefits to those in which
Executive is entitled to participate immediately prior to the Change of
Control (except that employee contributions may be raised to the extent
of any cost increases imposed by third parties) or any action by the
Company which would adversely affect Executive's participation or
reduce Executive's benefits under any of such plans; (iii) change in
Executive's responsibilities, authority, titles or offices resulting in
diminution of position, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith which is
remedied by the Company promptly after notice thereof is given by
Executive; (iv) request that Executive relocate to a worksite that is
more than 35 miles from his prior worksite, unless Executive accepts
such relocation opportunity; (v) material reduction in duties; (vi)
failure or refusal of the successor company to assume the Company's
obligations under this Agreement; or (vii) material breach by the
Company or any successor company of any of the material provisions of
this Agreement.
(d) In the event Executive suffers and continues to suffer a
disability that renders him unable to perform the essential functions
of his position, for three months within any six-month period
("Disability"), the Company shall, for
3.
<PAGE>
twelve months commencing at the conclusion of such three-month period
of disability, (i) continue to pay Executive his annual base salary and
(ii) maintain life insurance in the manner and in the amount set forth
in Section 2(c) (ii) hereof. If upon the conclusion of the twelve-month
period, Executive remains unable to perform the essential functions of
the job, or the Company has no suitable vacant position for him,
Executive's employment shall be terminated.
(e) In the event of Executive's termination of employment hereunder
either by the Company without cause, or by Executive for good reason,
but not for reasons of Disability or death, within one year following a
Change of Control other than the Merger, he shall be entitled to
receive a cash payment equal to three times his average total annual
cash compensation, including base salary and bonus, of the prior three
years. The average of the prior three years ("Average") shall be
computed by dividing by three the sum of all cash compensation he
received from the Company during the three years prior to the
termination.
(f) In the event of Executive's termination of employment hereunder
either by the Company without cause, or by Executive for good reason,
but not for reasons of Disability or death, within one year following a
Change of Control other than the Merger, Executive shall continue to
receive all employment benefits as defined in Sections 2.2 and 2.3
above, or their equivalent where benefit plan participation by
Executive is not available, for eighteen (18) months following the
termination.
(g) In the event of Executive's termination of employment hereunder
either by the Company without cause, or by Executive for good reason,
but not for reasons of Disability or death, within one year following a
Change of Control other than the Merger, the vesting of all shares of
Company stock covered by options granted to Executive to purchase such
Company shares, shall be accelerated such that all unvested such shares
shall become vested as of the termination date.
(h) The incentive bonus in Section 4.2, and the severance pay in
Section 5.2(a), and the Change of Control severance pay in Section
5.2(e) are intended to be cumulative. Executive may become entitled to
receive more than one such benefit based on the same or related events.
(i) Except as expressly provided herein, Executive will not be
entitled to any other compensation, severance, pay-in-lieu of notice or
any such compensation.
5.3 EXECUTIVE INITIATED TERMINATION. Executive may voluntarily terminate
his employment with the Company at any time by giving the Board 30 days
written notice. In the event Executive voluntarily terminates his employment
with the Company, all of Executive's compensation and benefits will cease as
of such termination date. Executive acknowledges that he will not receive
any severance pay or benefits, except as defined in the Employee Handbook,
and except as specified in this Agreement at Section 5.2(e) if applicable,
upon such voluntary termination.
4.
<PAGE>
6. NOTICES. All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered or delivered by registered or
certified mail (return receipt requested), or private overnight mail (delivery
confirmed by such service, to the address listed below, or to such other address
as either party shall designate by notice in writing to the other in accordance
herein):
If to the Company:
IXYS Corporation
3540 Bassett Street
Santa Clara, CA 95054
Attention: President
If to Executive:
Nathan Zommer
989 Covington Road
Los Altos, California 94024
7. ARBITRATION. To ensure rapid and economical resolution of any and all
disputes which may arise under this Agreement, the Company and Executive each
agree that any and all disputes or controversies, whether of law or fact of any
nature whatsoever (including, but not limited to, all state and federal
statutory and discrimination claims), arising from or regarding the
interpretation, performance, enforcement or breach of this Agreement shall be
resolved by final and binding arbitration under the procedures set forth in
Exhibit A to this Agreement and the then existing Judicial Arbitration and
Mediation Services Rules of Practice and Procedure (except insofar as they are
inconsistent with the procedures set forth in Exhibit A).
8. CERTAIN REDUCTIONS IN PAYMENTS OR BENEFITS. EXECUTIVE AND THE COMPANY HEREBY
AGREE AS FOLLOWS:
8.1 Anything in this Agreement to the contrary notwithstanding, in the
event that any payment, distribution or other benefit provided by the
Company to or for the benefit of Executive (whether paid or payable or
provided or to be provided pursuant to the terms of this Agreement or
otherwise) ("Payments") would (i) constitute a "parachute payment" within
the meaning of Section 280G of the Internal Revenue Code (the "Code"), and
(ii) but for this Section 8, be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then, in accordance with this Section
8, such Payments shall be reduced to the maximum amount that would result in
no portion of the payments being subject to the Excise Tax, but only if and
to the extent that such a reduction would result in Executive's receipt of
Payments that are greater than the net amount Executive would receive (after
application of the Excise Tax) if no reduction is made. The amount of
required reduction, if any, shall be the smallest amount so that Executive's
net proceeds with respect to the Payments (after taking into account payment
of any Excise Tax and all federal, state and local income, employment or
other taxes) shall be maximized. If, notwithstanding any reduction described
in this Section 8 (or in the absence of any such reduction), the IRS
determines that a Payment is subject to the Excise Tax (or subject to a
different amount of the Excise Tax than determined by the Company or
Executive), then Section 8.3 shall apply. If the Excise Tax is not
eliminated pursuant to this Section 8, Executive shall pay the Excise Tax.
8.2 All determinations required to be made under this Section 8 shall be
made by the Company's independent auditors. Such auditors shall provide
detailed supporting
5.
<PAGE>
calculations both to the Company and Executive. Any such determination by
the Company's independent auditors shall be binding upon the Company and
Executive. Executive shall determine which and how much of the Payments,
including without limitation any option acceleration benefits provided under
this Agreement or otherwise ("Option Benefits"), shall be eliminated or
reduced consistent with the requirements of this Section 8, provided that,
if Executive does not make such determination within ten business days of
the receipt of the calculations made by the Company's independent auditors,
the Company shall elect which and how much of the Option Benefits or other
Payments, as the case may be, shall be eliminated or reduced consistent with
the requirements of this Section 8 and shall notify Executive promptly of
such election. Within five business days thereafter, the Company shall pay
to or distribute to or for the benefit of Executive such amounts as are then
due to Executive under this Agreement.
8.3 As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Company's
independent auditors hereunder, it is possible that Option Benefits or other
Payments, as the case may be, will have been made by the Company which
should not have been made ("Overpayment") or that additional Option Benefits
or other Payments, as the case may be, which will not have been made by the
Company could have been made ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event that the
Company's independent auditors, based upon the assertion of a deficiency by
the IRS against Executive or the Company which the Company's independent
auditors believe has a high probability of success, determine that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of Executive shall be treated for all purposes
as a loan ab initio to Executive which Executive shall repay to the Company
together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code; provided, however, that no such loan shall
be deemed to have been made and no amount shall be payable by Executive to
the Company if and to the extent such deemed loan and payment would not
either reduce the amount on which Executive is subject to tax under Section
1 and Section 4999 of the Code or generate a refund of such taxes. In the
event that the Company's independent auditors, based upon controlling
precedent or other substantial authority, determine that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
9. CERTAIN DEFERRAL OF PAYMENTS. Notwithstanding the other provisions of this
Agreement, to the extent that any amounts payable to Executive pursuant to this
Agreement would not be deductible by the Company for federal income tax purposes
on account of the limitations of Section 162(m) of the Code, the Company may
defer payment of such amounts to the earliest one or more subsequent calendar
years in which the payment of such amounts would be deductible by the Company.
10. GENERAL.
10.1 ENTIRE AGREEMENT. This Agreement sets forth the complete, final and
exclusive embodiment of the entire agreement between Executive and the
Company with respect to the subject matter hereof. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it
supersedes any other such promises, warranties, representations or
agreements.
6.
<PAGE>
10.2 SEVERABILITY. If any provision of this Agreement shall be held by
a court of competent jurisdiction to be excessively broad as to duration,
activity or subject, it shall be deemed to extend only over the maximum
duration, activity and/or subject as to which such provision shall be
valid and enforceable under applicable law. If any provisions shall, for
any reason, be held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability
shall not affect any other provision of this agreement, but this agreement
shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein.
10.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, assigns, executors and administrators of each
party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique and personal nature of Executive's
duties under this Agreement, Executive agrees not to delegate the
performance of his duties under this Agreement without the prior consent
of the Board.
10.4 APPLICABLE LAW. This Agreement shall be deemed to have been
entered into and shall be construed in accordance with the laws of the
state of California as applied to contracts made and to be performed
entirely within California.
10.5 HEADINGS. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
10.6 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly authorized and caused this Executive
Employment Agreement to be executed as follows:
NATHAN ZOMMER, IXYS CORPORATION,
An individual a Delaware Corporation
/s/ Nathan Zommer By: /s/ Arnold P. Agbayani
- -------------------------------- --------------------------------
Arnold P. Agbayani,
Vice President and
Chief Financial Officer
Date: June 26, 1998 Date: June 26, 1998
--------------------------- -----------------------------
7.
<PAGE>
Exhibit A
ARBITRATION PROCEDURE
1. The parties agree that any dispute that arises in connection with this
Agreement or the termination of this Agreement shall be resolved by binding
arbitration in the manner described below.
2. A party intending to seek resolution of any dispute under the Agreement by
arbitration shall provide a written demand for arbitration to the other party,
which demand shall contain a brief statement of the issues to be resolved.
3. The arbitration shall be conducted by a mutually acceptable retired judge
from the panel of Judicial Arbitration and Mediation Services, Inc. ("JAMS"). At
the request of either party, arbitration proceedings will be conducted in the
utmost secrecy and, in such case, all documents, testimony and records shall be
received, heard and maintained by the arbitrator in secrecy under seal,
available for inspection only by the parties t the arbitration, their respective
attorneys, and their respective expert consultants or witnesses who shall agree,
in advance and in writing, to receive all such information confidentially and to
maintain such information in secrecy, and make no use of such information except
for the purposes of arbitration, unless compelled by legal process.
4. The arbitrator is required to disclose any circumstances that might
preclude the arbitrator from rendering an objective and impartial determination.
In the event the parties cannot mutually agree upon the selection of a JAMS
ARBITRATOR, THE President and vice president of JAMS shall designate the
arbitrator.
5. The party demanding arbitration shall promptly request that JAMS conduct a
scheduling conference within 15 days of the date of the that party's written
demand for arbitration or on the first available date thereafter on the
arbitrator's calendar. The arbitration hearing shall be held within 30 available
date thereafter on the arbitrator's calendar. Nothing in this paragraph shall
prevent a party from seeking temporary equitable relief at any time, from JAMS
or any court of competent jurisdiction, to prevent irreparable harm pending the
resolution of the arbitration.
6. Discovery shall be conducted as follows: (a) prior to the arbitration any
party may make a written demands for lists of the witnesses to be called and the
documents to be introduced at the hearing; (b) the lists must be served within
15 days of the date of receipt of the demand, or one day prior to the
arbitration, whichever is earlier; and (c) each party may take no more than two
dispositions (pursuant to the procedure set forth in the California Code of
Civil Procedure) with a maximum of five hours of examination time per
deposition, and no other form of pre-arbitration discovery shall be permitted.
7. It is the intent of the parties that the Federal Arbitration Act ("FAA")
shall apply to the enforcement of this provision unless it is held inapplicable
by a court with jurisdiction over the dispute, in which event the California
Arbitration Act ("CAA") shall apply.
8. The arbitrator shall apply California law, including the California
Evidence Code, and shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a preliminary injunction, a permanent injunction, or replevin of Company
property. The arbitrator shall also be able to award actual, general or
consequential damages, but shall not award any other form of damage (e.g.,
punitive damages).
8.
<PAGE>
9. Each party shall pay its pro rata share of the arbitrator's fees and
expenses, in addition to other expenses of the arbitration approved by the
arbitrator, pending the resolution of the arbitration. The arbitrator shall
have authority to award the payment of such fees and expenses to the prevailing
party, as appropriate in the discretion of the arbitrator. Each party shall pay
its own attorneys' fees, witness fees and other expenses incurred for its own
benefit.
10. The arbitrator shall render a written award setting forth the reasons for
his or her decision. The decree or judgment of an award by the arbitrator may
be entered and enforced in any court having jurisdiction over the parties. The
award of the arbitrator shall be final and binding upon the parties without
appeal or review except as permitted by the FAA, or if the FAA is not
applicable, as permitted by the CAA.
9.
<PAGE>
EXHIBIT 10.2
FIRST AMENDED
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This First Amended Executive Employment Agreement (the "Agreement") is entered
into by and between IXYS Corporation (the "Company"), a Delaware corporation,
and Arnold P. Agbayani ("Executive"), effective as of June 26, 1998 (the
------------------
"Effective Date").
W I T N E S S E T H
WHEREAS, the Company and Executive are parties to that certain Executive
Employment Agreement effective as of January 1, 1995, which is modified and
superseded by this First Amended Executive Employment Agreement; and
WHEREAS, the Company intends to conclude a merger of Paradigm Enterprises, Inc.,
a wholly owned subsidiary of Paradigm Technology, Inc., with and into the
Company (the "Merger"), and desires thereafter to continue and extend the
employment of Executive under mutually satisfactory terms and conditions, and
the Executive desires to be employed by the Company, under the terms and
conditions herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT BY THE COMPANY. The Company hereby employs Executive to render
full-time services to the Company as its Chief Financial Officer. Executive
shall have responsibilities, duties and authorities that are customarily
associated with such position, and such duties that are assigned by the
Company's Board of Directors (the "Board").
2. COMPENSATION, VACATION AND BENEFITS.
2.1 The Company agrees to pay Executive an annual base salary in the amount
of $160,000, payable every two weeks. In addition, the Company agrees to pay
Executive an annual bonus equal to thirty percent (30%) of Executive's
annual base salary. The executive's performance, and his base salary and
bonus arrangement will be reviewed by the Board from time to time.
2.2 Executive's paychecks will be distributed pursuant to ordinary business
practice, and shall be subject to ordinary payroll deductions and tax
withholdings. The Company also agrees to provide Executive with benefits
consistent with Company policy for senior executives. Details about these
benefits are set forth in the employee handbook and summary plan
descriptions, copies of which have been provided to Executive.
2.3 In addition to the benefits provided to Executive pursuant to
subsections 2.1 and 2.2 hereof, the Company shall:
(a) pay, or reimburse Executive, for all reasonable costs of a yearly
medical exam of Executive by a physician of his choice;
1.
<PAGE>
(b) maintain term life insurance (without a buildup of equity) in the
amount of $1,000,000 on the life of the Executive payable to such
beneficiary or beneficiaries as Executive may designate from time to
time;
(c) pay, or reimburse Executive, for the services of a personal tax
and/or investment advisor, not to exceed $1,000 per year; and
(d) provide Executive with a car of such make and model as Executive
and Board shall agree is commensurate with Executive's position
with the Company, including insurance for such car and reasonable
maintenance thereof; provided, however, that Executive shall at
all times (i) comply with all policies of the Company from time to
time in effect with respect to the maintenance and operation of
motor vehicles, and (ii) maintain a valid driver's license.
3. EMPLOYEE HANDBOOK. By signing this Agreement, Executive acknowledges that
he has received and read the Company's employee handbook. Executive agrees to
abide by all company policies and procedures. Notwithstanding the foregoing, if
there shall be any conflict between this Agreement and such employee handbook,
the terms of this Agreement shall govern.
4. INCENTIVE BONUS.
4.1 CHANGE OF CONTROL. For purposes of this Agreement, a Change of Control
shall mean:
(a) any reorganization, consolidation or merger of the Company in
which the Company is not the surviving corporation or pursuant to which
shares of the Company's voting stock would be converted into cash,
securities or other property, in either case other than a merger of the
Company in which the holders of the Company's voting stock immediately
prior to the merger have the same proportionate ownership of voting
stock of the surviving corporation immediately after the merger; or
(b) the sale, exchange or other transfer (in one transaction or
a series of related transactions) to a third party not affiliated with
the Company of at least twenty percent (20%) of the voting stock of the
Company within a one-year period; or
(c) the sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially all, of the
assets of the Company.
4.2 BONUS. In the event of an Acquisition, or a Change in Control, other
than the Merger, during Executive's active employment hereunder, he shall be
entitled to receive a cash bonus equal to three times his then annual base
salary, payable immediately after the closing of the transaction or the
series of transactions effecting the Change of Control.
2.
<PAGE>
5. TERMINATION OF EMPLOYMENT.
5.1 TERM. The initial term of this Agreement is from the date hereof until
January 31, 2004.
5.2 COMPANY INITIATED TERMINATION.
(a) In the event the Company terminates Executive's employment without
cause, Executive shall receive as severance a one-time payment equal to
one month of his then annual salary multiplied by the number of
calendar years (a fraction of a year shall be paid on a prorated
basis), but not to exceed a total of twelve months, of Executive's
service with the Company, payable within fifteen (15) days of such
termination. No other benefits or payments shall be provided, except as
expressly provided herein.
(b) In the event Executive's employment is terminated at any time with
cause, all of Executive's compensation and benefits will cease
immediately, and Executive shall not be entitled to any severance
benefits and all other benefits provided hereunder shall cease as of
such termination. For purposes of this Agreement, "cause" shall mean
(i) conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against
the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; or (v) breach of this
Agreement, the Proprietary Information Agreement, or any other
agreements with the Company including, but not limited to agreements
regarding confidentiality or proprietary information. Physical or
mental disability shall not constitute "cause". Failure to accomplish
corporate financial and management goals shall not constitute "cause".
(c) For purposes of this Agreement, "good reason" for voluntary
termination shall mean: (i) reduction of Executive's rate of salary
compensation as in effect immediately prior to the Change of Control;
(ii) failure to provide a package of welfare benefit plans which, taken
as a whole, provide substantially similar benefits to those in which
Executive is entitled to participate immediately prior to the Change of
Control (except that employee contributions may be raised to the extent
of any cost increases imposed by third parties) or any action by the
Company which would adversely affect Executive's participation or
reduce Executive's benefits under any of such plans; (iii) change in
Executive's responsibilities, authority, titles or offices resulting in
diminution of position, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith which is
remedied by the Company promptly after notice thereof is given by
Executive; (iv) request that Executive relocate to a worksite that is
more than 35 miles from his prior worksite, unless Executive accepts
such relocation opportunity; (v) material reduction in duties; (vi)
failure or refusal of the successor company to assume the Company's
obligations under this Agreement; or (vii) material breach by the
Company or any successor company of any of the material provisions of
this Agreement.
(d) In the event Executive suffers and continues to suffer a
disability that renders him unable to perform the essential functions
of his position, for three months within any six-month period
("Disability"), the Company shall, for
3.
<PAGE>
twelve months commencing at the conclusion of such three-month period
of disability, (i) continue to pay Executive his annual base salary and
(ii) maintain life insurance in the manner and in the amount set forth
in Section 2(c) (ii) hereof. If upon the conclusion of the twelve-month
period, Executive remains unable to perform the essential functions of
the job, or the Company has no suitable vacant position for him,
Executive's employment shall be terminated.
(e) In the event of Executive's termination of employment hereunder
either by the Company without cause, or by Executive for good reason,
but not for reasons of Disability or death, within one year following a
Change of Control other than the Merger, he shall be entitled to
receive a cash payment equal to three times his average total annual
cash compensation, including base salary and bonus, of the prior three
years. The average of the prior three years ("Average") shall be
computed by dividing by three the sum of all cash compensation he
received from the Company during the three years prior to the
termination.
(f) In the event of Executive's termination of employment hereunder
either by the Company without cause, or by Executive for good reason,
but not for reasons of Disability or death, within one year following a
Change of Control other than the Merger, Executive shall continue to
receive all employment benefits as defined in Sections 2.2 and 2.3
above, or their equivalent where benefit plan participation by
Executive is not available, for eighteen (18) months following the
termination.
(g) In the event of Executive's termination of employment hereunder
either by the Company without cause, or by Executive for good reason,
but not for reasons of Disability or death, within one year following a
Change of Control other than the Merger, the vesting of all shares of
Company stock covered by options granted to Executive to purchase such
Company shares, shall be accelerated such that all unvested such shares
shall become vested as of the termination date.
(h) The incentive bonus in Section 4.2, and the severance pay in
Section 5.2(a), and the Change of Control severance pay in Section
5.2(e) are intended to be cumulative. Executive may become entitled to
receive more than one such benefit based on the same or related events.
(i) Except as expressly provided herein, Executive will not be
entitled to any other compensation, severance, pay-in-lieu of notice or
any such compensation.
5.3 EXECUTIVE INITIATED TERMINATION. Executive may voluntarily terminate
his employment with the Company at any time by giving the Board 30 days
written notice. In the event Executive voluntarily terminates his employment
with the Company, all of Executive's compensation and benefits will cease as
of such termination date. Executive acknowledges that he will not receive
any severance pay or benefits, except as defined in the Employee Handbook,
and except as specified in this Agreement at Section 5.2(e) if applicable,
upon such voluntary termination.
4.
<PAGE>
6. NOTICES. All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered or delivered by registered or
certified mail (return receipt requested), or private overnight mail (delivery
confirmed by such service, to the address listed below, or to such other address
as either party shall designate by notice in writing to the other in accordance
herein):
If to the Company:
IXYS Corporation
3540 Bassett Street
Santa Clara, CA 95054
Attention: President
If to Executive:
Arnold P. Agbayani
2435 Country Drive
Gilroy, CA 95020
7. ARBITRATION. To ensure rapid and economical resolution of any and all
disputes which may arise under this Agreement, the Company and Executive each
agree that any and all disputes or controversies, whether of law or fact of any
nature whatsoever (including, but not limited to, all state and federal
statutory and discrimination claims), arising from or regarding the
interpretation, performance, enforcement or breach of this Agreement shall be
resolved by final and binding arbitration under the procedures set forth in
Exhibit A to this Agreement and the then existing Judicial Arbitration and
Mediation Services Rules of Practice and Procedure (except insofar as they are
inconsistent with the procedures set forth in Exhibit A).
8. CERTAIN REDUCTIONS IN PAYMENTS OR BENEFITS. Executive and the Company hereby
agree as follows:
8.1 Anything in this Agreement to the contrary notwithstanding, in the
event that any payment, distribution or other benefit provided by the
Company to or for the benefit of Executive (whether paid or payable or
provided or to be provided pursuant to the terms of this Agreement or
otherwise) ("Payments") would (i) constitute a "parachute payment" within
the meaning of Section 280G of the Internal Revenue Code (the "Code"), and
(ii) but for this Section 8, be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then, in accordance with this Section
8, such Payments shall be reduced to the maximum amount that would result in
no portion of the payments being subject to the Excise Tax, but only if and
to the extent that such a reduction would result in Executive's receipt of
Payments that are greater than the net amount Executive would receive (after
application of the Excise Tax) if no reduction is made. The amount of
required reduction, if any, shall be the smallest amount so that Executive's
net proceeds with respect to the Payments (after taking into account payment
of any Excise Tax and all federal, state and local income, employment or
other taxes) shall be maximized. If, notwithstanding any reduction described
in this Section 8 (or in the absence of any such reduction), the IRS
determines that a Payment is subject to the Excise Tax (or subject to a
different amount of the Excise Tax than determined by the Company or
Executive), then Section ) 8.3 shall apply. If the Excise Tax is not
eliminated pursuant to this Section 8, Executive shall pay the Excise Tax.
8.2 All determinations required to be made under this Section 8 shall be
made by the Company's independent auditors. Such auditors shall provide
detailed supporting
5.
<PAGE>
calculations both to the Company and Executive. Any such determination by
the Company's independent auditors shall be binding upon the Company and
Executive. Executive shall determine which and how much of the Payments,
including without limitation any option acceleration benefits provided under
this Agreement or otherwise ("Option Benefits"), shall be eliminated or
reduced consistent with the requirements of this Section 8, provided that,
if Executive does not make such determination within ten business days of
the receipt of the calculations made by the Company's independent auditors,
the Company shall elect which and how much of the Option Benefits or other
Payments, as the case may be, shall be eliminated or reduced consistent with
the requirements of this Section 8 and shall notify Executive promptly of
such election. Within five business days thereafter, the Company shall pay
to or distribute to or for the benefit of Executive such amounts as are then
due to Executive under this Agreement.
8.3 As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Company's
independent auditors hereunder, it is possible that Option Benefits or other
Payments, as the case may be, will have been made by the Company which
should not have been made ("Overpayment") or that additional Option Benefits
or other Payments, as the case may be, which will not have been made by the
Company could have been made ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event that the
Company's independent auditors, based upon the assertion of a deficiency by
the IRS against Executive or the Company which the Company's independent
auditors believe has a high probability of success, determine that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of Executive shall be treated for all purposes
as a loan ab initio to Executive which Executive shall repay to the Company
together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code; provided, however, that no such loan shall
be deemed to have been made and no amount shall be payable by Executive to
the Company if and to the extent such deemed loan and payment would not
either reduce the amount on which Executive is subject to tax under Section
1 and Section 4999 of the Code or generate a refund of such taxes. In the
event that the Company's independent auditors, based upon controlling
precedent or other substantial authority, determine that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
9. CERTAIN DEFERRAL OF PAYMENTS. Notwithstanding the other provisions of this
Agreement, to the extent that any amounts payable to Executive pursuant to
this Agreement would not be deductible by the Company for federal income tax
purposes on account of the limitations of Section 162(m) of the Code, the
Company may defer payment of such amounts to the earliest one or more
subsequent calendar years in which the payment of such amounts would be
deductible by the Company.
10. GENERAL.
10.1 ENTIRE AGREEMENT. This Agreement sets forth the complete, final and
exclusive embodiment of the entire agreement between Executive and the
Company with respect to the subject matter hereof. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it
supersedes any other such promises, warranties, representations or
agreements.
6.
<PAGE>
10.2 SEVERABILITY. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be excessively broad as to duration,
activity or subject, it shall be deemed to extend only over the maximum
duration, activity and/or subject as to which such provision shall be valid
and enforceable under applicable law. If any provisions shall, for any
reason, be held by a court of competent jurisdiction to be invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability shall not
affect any other provision of this agreement, but this agreement shall be
construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
10.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, assigns, executors and administrators of each
party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique and personal nature of Executive's
duties under this Agreement, Executive agrees not to delegate the
performance of his duties under this Agreement without the prior consent of
the Board.
10.4 APPLICABLE LAW. This Agreement shall be deemed to have been entered
into and shall be construed in accordance with the laws of the state of
California as applied to contracts made and to be performed entirely within
California.
10.5 HEADINGS. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
10.6 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly authorized and caused this Executive
Employment Agreement to be executed as follows:
ARNOLD P. AGBAYANI, IXYS CORPORATION,
An individual a California Corporation
/s/ Arnold P. Agbayani By: /s/ Nathan Zommer
- ------------------------------- --------------------------------------
Nathan Zommer, Chief Executive Officer
Date: June 26, 1998 Date: June 26, 1998
-------------------------- ---------------------------------
7.
<PAGE>
ARBITRATION PROCEDURE
1. The parties agree that any dispute that arises in connection with this
Agreement or the termination of this Agreement shall be resolved by binding
arbitration in the manner described below.
2. A party intending to seek resolution of any dispute under the Agreement by
arbitration shall provide a written demand for arbitration to the other party,
which demand shall contain a brief statement of the issues to be resolved.
3. The arbitration shall be conducted by a mutually acceptable retired judge
from the panel of Judicial Arbitration and Mediation Services, Inc. ("JAMS"). At
the request of either party, arbitration proceedings will be conducted in the
utmost secrecy and, in such case, all documents, testimony and records shall be
received, heard and maintained by the arbitrator in secrecy under seal,
available for inspection only by the parties t the arbitration, their respective
attorneys, and their respective expert consultants or witnesses who shall agree,
in advance and in writing, to receive all such information confidentially and to
maintain such information in secrecy, and make no use of such information except
for the purposes of arbitration, unless compelled by legal process.
4. The arbitrator is required to disclose any circumstances that might
preclude the arbitrator from rendering an objective and impartial determination.
In the event the parties cannot mutually agree upon the selection of a JAMS
ARBITRATOR, THE President and vice president of JAMS shall designate the
arbitrator.
5. The party demanding arbitration shall promptly request that JAMS conduct a
scheduling conference within 15 days of the date of the that party's written
demand for arbitration or on the first available date thereafter on the
arbitrator's calendar. The arbitration hearing shall be held within 30 available
date thereafter on the arbitrator's calendar. Nothing in this paragraph shall
prevent a party from seeking temporary equitable relief at any time, from JAMS
or any court of competent jurisdiction, to prevent irreparable harm pending the
resolution of the arbitration.
6. Discovery shall be conducted as follows: (a) prior to the arbitration any
party may make a written demands for lists of the witnesses to be called and the
documents to be introduced at the hearing; (b) the lists must be served within
15 days of the date of receipt of the demand, or one day prior to the
arbitration, whichever is earlier; and (c) each party may take no more than two
dispositions (pursuant to the procedure set forth in the California Code of
Civil Procedure) with a maximum of five hours of examination time per
deposition, and no other form of pre-arbitration discovery shall be permitted.
7. It is the intent of the parties that the Federal Arbitration Act ("FAA")
shall apply to the enforcement of this provision unless it is held inapplicable
by a court with jurisdiction over the dispute, in which event the California
Arbitration Act ("CAA") shall apply.
8. The arbitrator shall apply California law, including the California
Evidence Code, and shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a preliminary injunction, a permanent injunction, or replevin of Company
property. The arbitrator shall also be able to award actual, general or
consequential damages, but shall not award any other form of damage (e.g.,
punitive damages).
8.
<PAGE>
9. Each party shall pay its pro rata share of the arbitrator's fees and
expenses, in addition to other expenses of the arbitration approved by the
arbitrator, pending the resolution of the arbitration. The arbitrator shall
have authority to award the payment of such fees and expenses to the prevailing
party, as appropriate in the discretion of the arbitrator. Each party shall pay
its own attorneys' fees, witness fees and other expenses incurred for its own
benefit.
10. The arbitrator shall render a written award setting forth the reasons for
his or her decision. The decree or judgment of an award by the arbitrator may
be entered and enforced in any court having jurisdiction over the parties. The
award of the arbitrator shall be final and binding upon the parties without
appeal or review except as permitted by the FAA, or if the FAA is not
applicable, as permitted by the CAA.
9.
<PAGE>
Letterhead of IXYS Corporation appears here.
IXYS
Exhibit 10.3
WAFER FOUNDRY AGREEMENT
-----------------------
This Agreement ("Agreement"), dated June 21, 1995, is entered into by IXYS
Corporation ("IXYS"), a California Corporation having its principal place of
business at 3540 Bassett Street, Santa Clara, California 95054 and Samsung
Electronics Co.,("Samsung") a Korean Corporation having its principal place of
business at Severance Building, 84-11, 5-Ka, Namdaemoon-Ro, Chung-Ku, Seoul,
Korea.
Recitals:
A. IXYS desires to obtain an additional source of fabricated Wafers for certain
of its MOSFET and IGBT products utilizing IXYS' own technology and Samsung's
own technology.
B. Samsung desires to profitably utilize existing wafer fabrication capacity
without the need to commit its own design, marketing and back-end
manufacturing resources.
Now, therefore, the parties agree as follows:
1.0 DEFINITIONS:
1.1 "Manufacturing Package" shall mean the product and process related
information set forth to "Exhibit A".
1.2 "Wafers" shall mean silicon wafers fabricated by Samsung using a Process as
defined based on IXYS' Manufacturing Package.
1.3 "Products" shall mean the IXYS integrated circuits to be manufactured in
wafer form under this Agreement.
1.4 "Production" shall mean the fabrication of Products under this Agreement
after qualification of those Products.
1.5 "Proprietary Information" shall mean any information proprietary to either
party and designated by that party as such, including but not limited to
the Manufacturing Package provided by IXYS, run travelers, process and
device information provided by Samsung, technical data provided in writing,
in machine readable format, orally, or visually, masks, plots and data
bases. In addition, the names and capabilities of each parties' employees
shall be considered "Proprietary Information"
1.6 "Process" shall mean the Wafer fabrication process flow as described in the
Manufacturing Package as implemented in Samsung's run travelers.
1.7 "Lot" shall refer to a group of wafers processed together through the line.
Such a lot will usually consist of 24 wafers.
1.8 "Effective Date" shall mean the signed date of this Agreement by both
parties.
2.0 SCOPE:
Upon IXYS' orders therefore, Samsung agrees to manufacture and sell, and
IXYS agrees to purchase the Product in accordance with the terms and
conditions hereof and purchase orders issued by IXYS. In case of conflict
or difference between this Agreement and IXYS' purchase order, this
1
<PAGE>
Agreement shall control. Samsung shall fabricate the Product to the step of
electrical probe test according to IXYS' specifications and Samsung's
specifications contained in the Manufacturing Package.
3.0 PRODUCTION:
3.1 Mask sets for new product and new process pursuant to IXYS' requirements
shall be provided at IXYS' expense. Repairs and replacement of IXYS masks
at Samsung shall be at Samsungs expense.
3.2 Samsung shall be responsible for electrical die sort test on each mass
production Lot. Any discrepant Wafers against the specified ranges allowed
in the EDS specification provided by IXYS and agreed to by Samsung, may be
accepted by IXYS, scrapped immediately by Samsung before its shipping to
IXYS, or shipped to IXYS and dispositioned after further analysis. IXYS
shall not be charged for the mass production wafers so scrapped. Wafers
scrapped after receipt by IXYS, must be returned to Samsung for credit.
3.3 Samsung shall ship Production Lots to IXYS together with a copy of the
electrical probe summary for each lot.
3.4 Samsung must obtain IXYS' prior approval before changing manufacturing
sites for any of IXYS' Products where Samsung has been qualified, or where
IXYS is in the process of qualifying Samsung.
3.5 Samsung shall maintain seven (7) weeks fab cycle time from wafer input to
dock for production lots.
4.0 PURCHASE QUANTITY:
4.1 IXYS intends to order a minimum of 2000 five-inch equivalent wafers per
month and Samsung shall provide a minimum of 2000 five-inch equivalent wafer
capacity per month, including three (3) device engineering runs.
4.2 The minimum wafer quantities in Section 4.1 may be amended by mutual written
consent.
5.0 VOLUME FORECAST:
5.1 IXYS' Forecast
--------------
On a monthly basis, IXYS shall provide Samsung with a rolling six (6) month
forecast of IXYS' requirements for products from Samsung. IXYS shall submit
its forecast by the twenty-fifth (25th) calendar day of each month. IXYS
will also submit by the tenth (lOth) calendar day of each month, a forecast
for engineering lots. The first two (2) months of the forecast shall be a
firmly binding commitment which IXYS is obligated to purchase from Samsung
and Samsung is obligated to produce.
5.2 Samsungs response to forecast
-----------------------------
Subject to the provisions of Section 4.1, Samsung shall respond to IXYS'
forecast by the twenty-eighth (28th) calendar day of each month with its
commitment to produce the Products
2
<PAGE>
forecasted for the two months. The forecast of month three (3) through six
(6) are provided to assist Samsung in planning for future capacity and may
be adjusted in the next forecast. Samsung will also respond to the
engineering forecast by the seventeenth (17th) calendar day of each month.
6.0 PURCHASE ORDER
The first two (2) months of IXYS' forecast equates to a firmly binding
purchase order.
7.0 SHIPMENT:
7.1 Samsung shall deliver the product bi-weekly to IXYS within the delivery
schedule provided by the response to forecast. In the case of delinquencies,
Samsung shall provide IXYS with a make up plan and make its best efforts to
expedite the shipment for the delinquency. A delinquency is any lot which
has not shipped within eight weeks of the fabrication start date.
7.2 All shipments shall be made CFR San Francisco, California, USA. Samsung
shall select the carrier and shall assume and pay transportation charges
provided that risk of loss of the product shall pass to IXYS upon delivery
of the product by Samsung to the designated carrier.
8.0 WARRANTY:
8.1 For six (6) months after delivery of each Wafer, Samsung warrants that:
a. each wafer has been subjected to and will satisfactorily pass the
electrical probe test programs for such Wafer identified by the parties.
b. each Wafer will be within the applicable test parameters set forth in
the Manufacturing Package for the Wafer for which such Wafer was
produces.
8.2 IXYS shall be entitled to return to Samsung any Wafer which fails these
tests, and to require Samsung to provide, at IXYS' option, either a refund,
a credit, or a replacement Wafer within sixty (60) days.
IN NO EVENT SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES WHETHER IXYS' CLAIM IS FOR BREACH OF CONTRACT, BREACH OF WARRANTY,
NEGLIGENCE OR OTHERWISE. ALSO, SAMSUNG MAKES NO REPRESENTATION OR WARRANTY
OF ANY KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR
PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS,
whether used alone or in combination with other substances, unless otherwise
provided in this Agreement.
9.0 PAYMENT:
Payment for the product shall be made by an irrevocable confirmed letter of
credit payable at 30 days upon Samsungs delivery of the product to the
carrier. The letter of credit shall be opened simultaneously with IXYS'
generation of the purchase order in favor of Samsung through a bank
acceptable to Samsung. If IXYS fails to open the letter of credit in a
timely manner as provided herein, Samsung shall have no obligation to make
delivery of the Product.
3
<PAGE>
10.0 REPORT:
Samsung shall provide to IXYS every Friday, a work in process (WIP) report.
11.0 OWNERSHIP AND RIGHTS:
Each party retains its own ownership and rights on the Proprietary
information provided to the other party. One party shall not use any
Proprietary Information of the other party for purposes other than pursuant
to this Agreement and disclose any Proprietary Information of the other
party to any third party without a prior written consent of the other
party. This Section 11.0 survives termination or expiration of this
Agreement for a period of three (3) years. Proprietary Information does not
include any information, technical data or know-how which:
a. is in the possession of or already known to the receiving party,
b. is disclosed to the receiving party by the third party having no
obligation to the disclosing party to keep the Proprietary
Information in confidence,
c. is independently derived or developed by the receiving party,
d. is or becomes publicly known through no fault of the receiving party,
or
e. is required to be disclosed by governmental authority or law.
12.0 TERM AND TERMINATION:
12.1 The term of this Agreement shall begin on the Effective date and will
continue until March 31, 1998 unless terminated earlier under this Section
12.0 of the Agreement.
12.2 One party may terminate this Agreement with a prior written notice to the
other party in the event the other party hereto shall:
- become insolvent or filed or have been filed a petition against it in
bankruptcy.
- be dissolved or liquidated or have a petition of dissolution or
liquidation entered by or against it.
- be subject to property attachment by court or governmental order
affecting its operation.
12.3 One party may unilaterally terminate this Agreement by giving ninety (90)
days prior written notice of termination if the other party commits a
material breach of this Agreement and if such party does not correct such
breach during the said ninety (90) days period.
12.4 Expiration or termination of this Agreement shall not release any party
from any liability which, at date of expiration or termination, has already
accrued to the other party. In the event of termination for any cause,
Samsung shall have an option to continue to perform and complete all work
in progress for which purchase orders have been accepted and IXYS shall
purchase from Samsung such Product and work in progress.
12.5 At termination or expiration of this Agreement, each party shall return or
destroy all Proprietary Information which is the property of the other
party. Shipment and customs to return such Proprietary Information are the
responsibility of the owning party. Any property which the owning party has
not requested two (2) calendar months after termination or expiration shall
be destroyed by the party possessing the property. The masks provided at
IXYS' expense under this Agreement are the property of IXYS.
4
<PAGE>
13.0 SEMI-ANNUAL MEETING:
Samsung and IXYS management shall meet semi-annually during the second and
the last quarter of each calendar year to review this Agreement with
respects to pricing, volume commitment, applicable Products and Processes,
and the scope of manufacturing. This Agreement may be amended at those
meetings by mutual written consent. If, on or before the commencement of
each year, the parties are unable to agree on prices and minimum orders to
be applied the coming year for Products to be delivered, this Agreement
shall continue for such additional year at the prices and minimum order
volumes of the previous year.
14.0 GOVERNING LAW:
This Agreement shall be construed and governed according to the laws of the
State of California. For the purpose of construction in the subject matter
hereof, the laws of the State of California shall be applied if Samsung
claims or sues against IXYS: the laws of the Republic of Korea shall be
applied if IXYS claims or sues against Samsung.
15.0 ENTIRE AGREEMENT:
The terms and conditions herein contained constitute the entire agreement
between the parties and supersedes all previous agreements and
understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof and no agreement and no understanding
varying or extending the same shall be binding upon either party hereto
unless in a written document signed by the party to be bound thereby.
16.0 FORCE MAJEURE:
Neither party shall be liable in damages to the other or have the right to
cancel, for any delay or default in performing hereunder if such delay or
default is caused by conditions beyond its control, including but not
limited to acts of God, government restrictions, continuing domestic or
international problems such as wars or insurrections, strikes, fires,
floods, work stoppages and embargoes.
17.0 INDEMNIFICATION:
IXYS warrants that Samsung's use of any information or specification
furnished by IXYS or Samsung's Sales of the Products to IXYS will not
infringe any intellectual property right of any third party. In the event
that Samsung is subject to claim or suit on account of manufacturing and
selling the Products to IXYS, IXYS shall take over the defense of such
claim or action at its own expenses, and indemnify and hold Samsung
harmless in connection therewith.
5
<PAGE>
18.0 EXHIBITS:
Exhibits as listed on the Exhibit Index form a part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the Effective date.
IXYS Corporation Samsung Electronics Co., Ltd.
Signature: /s/ Robert P.Kane Signature: /s/ Joon Yang
-------------------------- --------------------
Printed: Robert P.Kane Printed: Deok Joon, Yang
Title: Vice President, Operations Title: Exc. Director
Date: June 21, 1995 Date: Feb 26, 1996
------------------------------- -----------------------------
6
<PAGE>
EXHIBIT B
Prices effective with wafers started January 1, 1996
- ----------------------------------------------------
1. MP/IXYS- Mass production applying IXYS technology:
$240.00 per a wafer.
2. MP/SEC- Mass production applying Samsung technology:
$250.00 per a wafer.
IXYS Corporation Samsung Electronics Co., Ltd.
Signature /s/ Robert P. Kane Signature /s/ Joon Yang
------------------- ---------------------
Printed Name Robert P. Kane Printed Name Deok Joon, Yang
Title Vice President Title Exc. Director
Date June 21, 1995 Date Feb 26, 1996
------------------------ ---------------------------
<PAGE>
AMENDMENT
---------
TO
--
WAFER FOUNDRY AMENDMENT
-----------------------
This Ammendment, dated March 28, 1996, is entered into by IXYS
Corporation("IXYS"), a California Corporation having its principle place of
business at 3540 Bassett Street, Santa Clara, California 95054 and Samsung
Electronics Co.,("Samsung") a Korean Corporation having its principal place of
business at Severance Building, 84-11, 5-Ka, Namdaemun-Ro, Chung-Ku, Seoul,
Korea dated February 26, 1996.
As defined in paragraph 4.1 and 12.1 of the WAFER FOUNDRY AGREEMENT(the"
Agreement") dated February 26, 1996, IXYS and SEC hereby amend the Purchase
Quantity and the Term in the Agreement.
Paragraph 4.1 is amended as follows:
4.l IXYS intends to order following volume of five-inch equivalent
wafers from SEC:
1996 - 30,000
1997 - 43,000
1998 - 56,000
1999 - 75,000
2000 - 90,000
Samsung intends to provide wafers as requested with a minimum of 5,000 five-inch
equivalent wafers per month to IXYS.
Both parties shall enter into discussion during the second quarter of every year
for the Agreement on the volume requirement for the following year. Thus next
discussion will be in the second quarter of 1997. The volume of the order from
IXYS and the volume supply from Samsung shall be reasonably even by month during
the year. The monthly volume shall include three(3) device engineering runs
Paragraph 12.1 is amended as follows:
12.1 The term of this Agreement shall begin on the Effective date and
will continue until December 3l, 2000 unless terminated earlier under the
Section 12.0 of the Agreement.
IXYS Corporation Samsung Electronics Co., Ltd.
Signature: /s/ Robert P. Kane Signature: /s/ Joon Yang
------------------------- -------------------------
Printed: ROBERT P. KANE Printed: Deok Joon Yang
---------------------------- ----------------------------
Title: VICE PRESIDENT OF OPERATIONS Title: Executive Director
------------------------------ ------------------------------
Date: MAR 28, 1996 Date: MAR 27, 1996
------------------------------- -------------------------------
<PAGE>
AMENDMENT
---------
TO
--
WAFER FOUNDRY AGREEMENT
-----------------------
The WAFER FOUNDRY AGREEMENT (the "Agreement") dated June 21, 1995 is amended to
change IXYS from a California Corporation to a Delaware Corporation. Also,
SAMSUNG Semiconductor Incorporate ("SSI"), a USA corporation having its
principal place of business at 3655 North First Street, San Jose, California is
included with SAMSUNG, Korea in the Agreement with IXYS.
Paragraph 4.1 is amended as follows:
4.1 IXYS intends to order following volume of five-inch equivalent
wafer from SSI.
1998 - 72,000
1999 - 80,000
2000 - 100,000
2001 - 120,000
2002 - 150,000
SSI will provide wafers as requested by IXYS to the above forecast
Both parties shall enter into discusson during the second quarter of every year
for the Agreement on the volume requirement for the following year. Thus next
discussion will be in the second quarter of 1998. The volume of the order from
----
IXYS and the volume supply from SSI shall be reasonably even by month during the
year. The monthly volume shall include eight (8) device-engineering runs.
Paragraph 5.1 and 5.2 is amended and 5.3 is added as follows:
5.1 On a monthly basis,IXYS shall provide SAMSUNG with a rolling six
(6) month forecast of IXYS requirements for products from SAMSUNG.
IXYS shall submit its forecast by the twentieth (20th) calendar day
of each month. IXYS will also submit by the tenth (10th) calendar
day of each month, a forecast for engineering lots. The first two
(2) months of the forecast shall be a firmly binding commitment
which IXYS is obligated to purchase from SSI, and SSI is obligated
to produce.
5.2 Subject to the provisions of Section 4.1, SAMSUNG shall respond to
IXYS' forecast by the twenty-fifth (25th) calendar day of each
month with its commitment to produce the Products forecasted for
the two months. The forecast of month three (3) through six (6) is
provided to assist SAMSUNG in planning for future capacity and may
be adjusted in the next forecast. SAMSUNG will also respond to the
engineering forecast by the seventeenth (17th) calendar day of each
month.
5.3 Forecast of Engineering Run (ER) follows the same rule as the
Forecast of Product described in 5.1 and 5.2.
Paragraph 6.0 is amended as follows:
6.0 The first two (2) months of IXYS' forecast of Product and ER equate
to a firmly binding purchase order.
(continued on the next page)
<PAGE>
AMENDMENT
---------
TO
--
WAFER FOUNDRY AGREEMENT
-----------------------
(CONTINUED)
Paragraph 12.1 is amended as follows:
12.1 The term of this Agreement shall begin on the Effective date and
will continue until December 31, 2002 unless terminated earlier
under the Section 12.0 of the Agreement.
IXYS CORPORATION SAMSUNG SEMICONDUCTOR, INC.
- ---------------- ---------------------------
BY: /s/ Robert P. Kane BY: /s/ NOEL PARK
---------------------------------- --------------------------------
TITLE: Vice President Of Operations TITLE: Vice President
------------------------------- -----------------------------
DATE: March 11, 1998 DATE: March 13, 98
-------------------------------- ------------------------------
<PAGE>
AMENDMENT
---------
TO
--
EXHIBIT B
----------
PRICING
<TABLE>
<CAPTION>
PRODUCTION DEVICE UNIT PRICE
- ---------------------------------------------------------------------------------------
<S> <C>
MP/IXYS (Mass Production applying IXYS technology) $203.00
MP/SEC (Mass Production applying SEC technology) $213.00
Engineering Wafer $270.00
</TABLE>
Mass production lead-time will be at least seven (7) weeks.
END OF LIFE
- -----------
If there are no mass production orders for a period of 6 months, SSI will issue
a last-time buy notification.
Customer will have 30 days to respond, after which time SSI will not be
responsible to accept additional orders.
IXYS CORPORATION SAMSUNG SEMICONDUCTOR, INC.
- ---------------- ---------------------------
BY: /s/ Robert P. Kane BY: /s/ NOEL PARK
---------------------------------- --------------------------------
TITLE: Vice President Of Operations TITLE: Vice President
------------------------------- -----------------------------
DATE: March 11, 1998 DATE: March 13, 1998
-------------------------------- ------------------------------
<PAGE>
AMENDMENT
---------
EXHIBIT C
---------
EIN PROCEDURE
To define our procedure for the new product and new process, IXYS and SAMSUNG
set up the EIN procedure and both parties shall follow this procedure. The basic
concept is that both engineering group shall be qualifying in advance to
evaluate and verify its production efficiency according to this procedure before
coming to a decision mass production (MP) release.
(Procedure Flow Chart for ER, MP)
SEC IXYS ACTION REQUESTED
----------
EIN 1. EIN Release from IXYS
Release
---------- 2. Confirmation in Engineering Site of SEC
3. Forecast and P/O (Purchase Order) release
- ------------ from IXYS
Engi-
neering 4. RTF (Return to Forecast) Release from SEC
Evalu
- ------------ 5. EDS Evaluation:
* In case ER: according to the rule for
---------- normal ER EDS test.
P/O
Release * In case Product: according to the rule
---------- for normal Product EDS test.
- ------------
RTF
Release
- ------------
IXYS CORPORATION SAMSUNG SEMICONDUCTOR, INC.
- ---------------- ---------------------------
BY: /s/ Robert P. Kane BY: /s/ NOEL PARK
---------------------------------- --------------------------------
TITLE: Vice President Of Operations TITLE: Vice President
------------------------------- -----------------------------
DATE: March 11, 1998 DATE: March 13, 1998
-------------------------------- ------------------------------
<PAGE>
1
EXHIBIT 10.4
Certified translation from the German language
- ----------------------------------------------
Register of Deeds no. 60/1997 (K)
CONTRACTUAL PURCHASE DEED AND CONVEYANCE
Negotiated in Lampertheim on 26 February 1997
Before the undersigned notary
ROBERT K A R I
location of office 68623 Lampertheim, Kaiserstr. 1, appear today:
1. Dr Nathan Zommer, date of birth February 21, 1948
business address: IXYS Corporation, 3540 Bassett Street
Santa Clara, CA 95054, USA
US citizen
identified by: US passport
in this deed not acting in his own name but in his capacity as President
and Chief Executive Officer of IXYS Corporation of 3540 Bassett Street,
Santa Clara, CA 95054, USA and on the basis of the power of attorney
conferred to him on Feb 5, 1997, presenting to the acting notary the
original power of attorney in English language, dated Feb 5, 1997, which to
his own statement is not revoked and which the notary accepts as annex la
to this deed;
- mailing address: IXYS GmbH, Edisonstr. 15, 68623
Lampertheim -
<PAGE>
2
2. Mr Gunter Labmann, civil engineer, born on 25 Feb 1950,
business address: 69115 Heidelberg, Speyerer Strabe 6,
identified by: ID card,
3. Mr Klaus Bohmann, attorney-at-law, born on 9 Oct 1962,
business address: 69115 Heidelberg, Speyerer Strabe 6,
identified by: ID card,
in this deed not acting in their own names, but being authorized to
represent Dr. Stefan Beretitsch, business address: 69115 Heidelberg,
Speyerer Str. 6, he, for his part, not acting in his own name, but in his
capacity as representative managing director of ABB real property
administration corporation mbH in Mannheim, registered in the register of
companies at the Amtsgericht Mannheim, HRB 4927, the above for its part
acting as the representative corporate member of ABB real property GmbH &
Co. OHG, registered in the register of companies at the Amtsgericht
Mannheim, HRA 3737; presenting to the notary original power of attorney
dated 19 Feb 1997, which to their own statements is not revoked and which
the acting notary accepts as annex lb to this deed;
4. Mrs Luise Stach, born on 30 May 1941,
resident Volkerstr. 1, 68623 Lampertheim;
identified by her ID card.
The deponent re no. 1 is a US citizen and does not understand the German
language.
The notary therefore invited the appearer re no. 4 to act as interpreter. A
cause acc. to (S)(S) 3, 6 or 7 attestation law to exclude the interpreter
from participation does not exist. The interpreter was duly sworn at the
Landgericht Darmstadt on 18 August 1978.
<PAGE>
3
The deponent re no. 1 was advised that he can request a written
translation. The deponent requested a written translation for the party he
represents.
A translation of this deed into the English language will be performed by
the interpreter upon request of the deponent re no. 1. After the
notarization the acting notary will give one copy to the interpeter to do
the requested translation. When the acting notary has received the
translation to be done by the interpreter, this translation will be added
to this deed. In case of ambiguities or contradictions between the German
and English versions the German version will be preferred, i.e. only the
German version will be authoritative for the interpretation and execution
of this contract; re this contract exclusively German law will be
effective -.
Hereinafter ABB real property GmbH & Co. OHG in Mannheim will be called
"vendor" and IXYS Corporation of 3540 Bassett Street, Santa Clara, CA
95054, USA will be called "purchaser".
The deponents requested notarization of the below purchase deed
<PAGE>
4
(S) 1 Preliminary Remark and Register of Deeds Data
The vendor is the owner of the real property registered on page 9357 of the
Lampertheim register of deeds at the Amtsgericht Lampertheim:
bounds of Lampertheim
serial number 33 of the register
field lO
plot 1
open-space and built-up area, Boveristrabe 1,
size 116 sqm,
serial no.34 of the register
field lO
plot 2/2
open-space and built-up area, Boveristrabe 1,
size 35390 sqm,
serial number 30 of the register
field 10
plot 190/17
transport area, Boveristrabe
size 1232 sqm,
serial no. 46 of the register
field 10
plot 38/3
open-space and built-up area, Edisonstr. 15
<PAGE>
5
size 1200 sgm,
serial no. 18 of the register
field 10
plot 37/1
operational area, Boveristr. 1
size 568 sqm
serial no. 45 of the register
field 10
plot 36/1, Edisonstr. 15,
size 1189 sqm,
serial no. 44 of the register
field 10
plot 15/1
built-up and open-space area, Edisonstr. 15,
size 999 sqm
serial no. 43 of the register
field 10
plot 34/1
built-up and open-space area, Edisonstr. 15,
size 953 sqm,
serial no. 22 of the register
field 10
plot 33/1
operational area,Boveristr. 1,
<PAGE>
6
size 1649 sqm,
serial no. 42 of the register,
field 10
plot 32/1
built-up and open-space area, Edisonstr. 15,
size 254 sqm,
serial no. 41 of the register
field 10
plot 31/1
built-up and open-space area, Edisonstr. 15,
size 1121 sqm,
serial no. 40 of the register
field 10
plot 30/1
built-up and open-space area, Edisonstr. 15,
size 3460 sqm,
serial no. 39 of the register
field 10
plot 29/1
built-up and open-space area, Edisonstr. 15,
size 3489 sqm.
According to examination of the register of deeds on 21 Jan 1997 the real
property is charged as follows:
Sec. II:
serial no. 4:
<PAGE>
7
Limited personal servitude for Elektrizitatswerk Rheinhessen AG in Worms,
consisting of the right to use and to enter the property for the
construction, the operation and the maintenance of electrical cable lines,
connected is a limitation of construction and growth; consent dated 8 Sep
71, registered on 23 Mar 1972. Property serial no. 46 of register is
charged.
Sec. III: no charges.
Charges and limitations other than the above listed are not entered in the
register of deeds.
For the time being the following charges are taken over for further real
sufferance: sec. II/4.
Should the party entitled approve of releasing this right in the register
of deeds, because this right does not affect the section of the area sold
here, the release of the right is applied for already today.
In case of grant of the release of above charges the parties to the
contract file the following application for release with the application
for execution in the register of deeds the parties to the contract consent
to all releases, rescission of rankings and release of collaterals
presented by the acting notary. Here it is of no importance if these
declarations are presented to the registry of deeds before or after the
trasfer of the property.
(S) 2 SALE
The vendor, ABB real property GmbH & Co. OHG in Mannheim sells to the
purchaser, IXYS Corporation of 3540 Bassett Street, Santa Clara, CA 95054
USA
<PAGE>
8
for exclusive ownership
an area of appr. ll,OOO sqm still to be surveyed from the real property
described in particular in (S) 1 of this deed. Sold as well are all
essential parts plus legal equipment.
The area still to be surveyed is edged in red color in the site plan encl.
1c, annexed to this deed as essential part, and it is marked with the
letters A, B, C, D, E, F, G, H, I, J, K, L, M and N. The site plan was
available for inspection during the notarization of this contract and was
approved of by the parties to the contract.
The vendor will apply for the survey at his own expense. He will as well
apply for the necessary approvals for partition.
THE VENDOR WILL IMMEDIATELY UPON RECEIPT SUBMIT TO THE ACTING NOTARY THE
EVIDENCE OF ALTERATION (STILL TO BE DRAWN UP) AND THE TWO APPROVALS OF
PARTITION IN ACCORDANCE WITH (S) 19 BAUGB AND (S) 8 HBO.
Today already the parties to the contract acknowledge the proof of
alteration still to be drawn up, and they approve of and apply for its
protection in the register of deeds as well as the partition of estate.
(S) 3 PURCHASE PRICE
The purchase price is:
1. for the real property and building
DM 9,142,500.00 net (in words: deutschmarks
nine million one hundred and forty-two thousand
five hundred.)
This includes DM 1,480,900.00
for the appertaining real estate.
<PAGE>
9
In accordance with (S) 9 UStG the vendor waives exemption from
taxation acc. to (S) 4 no. 9a UStG, so the payment (= purchase
price + half of realty transfer tax being 0.5 x 3.5%) is subject to
VAT; this amounts to presently 15% equivalent to DM 1,395,374.06.
The total purchase price for real property and building amounts
therefore to DM 10,537,874.00 (in words: deutschmarks ten million
five hundred and thirty-seven thousand eight hundred and seventy-
four)
2. For plant and equipment DM 4,107,500.00 plus 15% turnover tax in
the amount of DM 616,125.00 totalling DM 4,723,625.00 (in words:
deutschmarks four million seven hundred and twenty-three thousand
six hundred and twenty-five).
The total purchase price therefore amounts to DM 13,250,000.00 (in words:
deutschmarks thirteen million two hundred and fifty thousand).
With regards to the turnover tax that is to be paid in addition to the net
purchase price the parties agree as follows:
The purchaser herewith in fulfilment assigns to the vendor his claims on
the responsible revenue office to pre-tax repayment re the above transfer
contracts. Both parties are aware of the fact that this assignment becomes
valid only when the responsible revenue office is, on an officially
stipulated form, informed of the assignment including the names of the
assignor and assignee as well as the reason of the assignment (see (S) 46
sec. 2 and sec. 3, phrase 1 AO).
<PAGE>
10
For this reason both parties are obliged to meet this formal requirement and to
sign the official notice of assignment immediately upon conclusion of this
transfer and purchase contract.
The vendor assures that there are no requests by the tax administration that
might be charged up against him. Both parties know that the subject of
assignment of the pre-tax repayment claim is only the liability to pay turnover
tax or the respective claim to repayment with regards to the relevant period of
previous announcement re turnover tax. For this reason the purchaser is obliged
to immediately pay in cash to the vendor the difference in amount, if the amount
of the assigned claim to pre-tax repayment is lower than the turnover tax amount
which the vendor is liable to pay out of the transfer of property of the objects
listed in this contract.
Should the vendor, without his own fault, have to pay default fees or other
costs of financing within the frame of the turnover tax announcement in
connection with this purchase contract, the purchaser has to reimburse the
amount in question to the vendor immediately upon request.
Payment is due as detailed in the payment plan; this plan is enclosed to the
deed as enclosure 1 and it is part of this contract.
As far as the requirements re the settlement date (detailed in payment plan
encl. 1) do not exist prior to 1 May 97, the purchaser will have to pay an
annual interest of 2.5% on the net purchase price beginning on the above date up
to the settlement date. The vendor is entitled to the interest which is,
together with the purchase price, payable to the vendor's bank account stated in
the payment plan.
If the purchaser defaults in payment of the purchase price
<PAGE>
11
plus interest, an annual interest of 3% above the respective Deutsche Bundesbank
rate of discount will have to be paid on the remaining amount, from the date of
settlement till payment and including the day of payment.
Due to the liability to pay which the purchaser complied with, he subjects
himself, on the basis of this deed, to immediate execution on his complete
property. The acting notary is authorized at any time to give to the vendor a
special execution of this deed without needing to prove the facts that justify
the settlement.
(S) 4 CONVEYANCE, PRE-EMPTION ENTRY OF CONVEYANCE, REGISTER OF DEEDS
INFORMATION
The parties to the contract are in agreement that acc. to (S) 2 the property of
the newly formed estate is to be passed to the purchaser and agree to and
request the entry of the property change into the register of deeds.
The property is to be entered as being exclusively the purchaser's property.
Re the sections of area of the above named land the parties to the contract
will, upon presentation of the proof of alteration, declare that the separate
real estate shown therein and to be the purchaser's property with an area of
11,000 sqm for the time being is identical with the subject of the contract.
POWER OF ATTORNEY
-----------------
1. The parties herewith authorize irrevocably and with deregulation of (S) 181
BGB
<PAGE>
12
Mrs Karin Fischer nee Appel, business address with the undersigned notary,
for the purpose of execution of this contract, to make necessary
declarations, file and revoke petitions as well as perform corrections to
this deed and to make all declarations that are else necessary to execute the
parties' intention, to the office of the register of deeds and to all
authorities.
The authorized person is also entitled to determine the real estate, to
acknowledge the official survey result, upon presentation of the officially
verified proof of alteration to indicate in register-of-deeds-like form the
sold area and the areas remaining with the vendor, to file petition for entry
of new survey into the register of deeds and, if necessary, to repeat the
conveyance in an altered form as well as to submit a declaration of identity
and to grant and request the partition of the real estate and the
consolidation resp. the merger on the basis of the proofs of alteration, and,
in case of possible objections by the office of register of deeds or the
building supervising authority, to make all declarations and file all
petitions necessary.
To secure the purchaser's claim to the conveyance of property of the section
of area sold in (S) 2 of this deed the parties to the contract consent to and
petition to enter into the register of deeds:
a) for the time being a pre-emption entry acc. to (S) 883 BGB of the respective
complete basic areas,
<PAGE>
13
b) the limitation of this pre-emption entry to the sold section of the area and
so its release re the remaining parts of the basic areas upon execution of
the proof of alteration in the register of deeds,
c) the release of the pre-emption entry re the contract area itself concurrently
with the entry of the alteration of right in the register of deeds provided
no derogatory intermediate entries were made or requested which the purchaser
did not agree to.
The pre-emption entry of conveyance is to be made in the name of the purchaser
as sole party entitled.
Official register of deeds information is filed for with the responsible office
of register of deeds for the parties and the notary.
(S) 5 VENDOR'S RIGHT OF RESCISSION
The vendor reserves the right of rescission of this contract if
a) the purchaser does not keep up his payment within the period stipulated and
the vendor by registered letter granted a respite of two weeks pointing out
that he would rescind the contract after expiration of the deadline.
b) the purchaser is in a state of insolvency, discontinues his payments or he is
judicially declared bankrupt or reorganization proceedings were initiated to
avoid bankruptcy proceedings.
<PAGE>
14
This right of rescission expires the moment the property is transferred to the
purchaser.
Should the vendor make use of his right of rescission, the purchaser already
today gives the vendor power of attorney with deregulation of (S) 181 BGB to
grant the purchaser the release of the pre-emption entry of conveyance entered
in his favor, however on condition that this petition be filed by the acting
notary only. The costs of a rescission of contract and the release of the pre-
emption entry of conveyance will be on the purchaser.
The notary has to be notified of the rescission.
(S) 454 BGb (exclusion of right of rescission) is waived.
(S) 6 FURTHER PROVISIONS:
Furthermore, the following provisions will be valid for this contract:
1.
Transfer, property, use and charges of the sold real property together with the
duty (connected to real property) to maintain safety in operation will pass on
the purchaser regardless of the payment of the purchase price acc. to encl. 1
payment plan of this deed.
The property is transferred to the purchaser with the entry into the register of
deeds.
<PAGE>
15
Beginning at the end of the month during which the notarization of the contract
was performed, the vendor is under the obligation not to derive any more right
and not to raise any claim from the lease contract with IXYS Semiconductor GmbH
Lampertheim. Simultaneously the purchaser releases the vendor from claims by
IXYS Semiconductor GmbH Lampertheim re this lease contract in internal
relationship, beginning at that time.
Should the case arise that, for whatever reason, the execution of this contract
and the transfer of property of the object of purchase to the purchaser are not
performed, the vendor's rights and claims from the lease contract with IXYS
Semiconductor GmbH Lampertheim will be fully maintained.
2.
The vendor is held liable for the unhindered transfer of ownership and property.
The purchaser has full knowledge of the object of contract. It is sold as it is
today, and any guarantee for size, quality and condition is excluded, unless
further agreements are made below.
a) In accordance with the expertises presented and known to the purchaser (as
listed in encl. 2 - the parties to the contract waive the right to have the
expertises included) the ground water all over the industrial area was
polluted with volatile chlorinated hydrocarbons, the defects were remedied by
the vendor. According to the expertises presented the origin of the ground
water pollution was not on the object of contract. On the basis of the
current concentration of harmful substances the responsible authorities do
not consider further remedial measures to be necessary. Necessary control
measures to record the pollution of ground water all over the real estate
known so far, including the object of contract, will be performed at the
vendor's expense.
<PAGE>
16
The vendor has to immediately submit to the purchaser one each copy of the
annual analysis reports which are to be set up due to authority requests,
this, however, only prior to 31 December 2002.
Should in the future pollutions originating on the vendor's unsold real
estate result in a ground water pollution on the object of contract which
requires major remedial measures, the vendor is obliged to perform at his own
expense remedial measures, ordered by the authorities, re the ground water
and to release the purchaser in internal relationship from the costs for such
authority-imposed measures re the object of contract. This obligation is
unlimited.
b) Should there, after completion of purchase, be proof of a contamination of
the soil and/or a pollution of the ground water resulting therefrom and/or
other damage to the environment due to so-called earlier contaminations
originating on the object of purchase and the disposal of which is ordered by
provisionally enforceable or legally valid authority decrees or court
judgments, the vendor is obliged towards the purchaser - save as provided
letter c below - to pay, against proof, the costs for the remedial measures
up to a maximum amount of DM l,000,000.00 (in words: deutschmarks one
million). The costs for remedial measures exceeding DM one million up to a
total expense of DM 2,000,000.00 (in words deutschmarks two million) will be
equally divided between the parties. Costs exceeding deutschmarks
2,000,000.00 will be paid by the purchaser only. The above obligation, as
listed in b), for the vendor to pay for remedial measures will end on 31 Dec
2002. If, prior to the end of this period (31 Dec 2002), the authorities
present directions, decrees etc. because of existing soil contaminations, the
above period will be extended up to the legally valid termi-
<PAGE>
17
nation of these proceedings. If the proceedings end with the determination of
actually existing contaminations, the vendor will have to take his share of
the costs for remedial expenses as they are agreed upon up to 31 Dec 2002
above.
c) The purchaser has no recourse against the vendor re the above costs for
remedial measures, if the contaminations were caused by IXYS Semiconductor
GmbH, Lampertheim and if they were produced after 1 April 1989.
Onus of proof that the earlier pollutions resp. contaminations were caused by
the purchaser resp. IXYS Semiconductor GmbH,, is with the vendor during the
first three years after transfer of property. After these three years the
vendor has to prove that earlier pollutions resp. contaminations were not
caused by the purchaser, resp. IXYS Semiconductor GmbH. This onus of proof
is valid in the parties' internal relationship, regardless of who is the
addressee of a decree ordering remedial measures acc. to above letter b).
The vendor is obliged to perform, at his expense, a ground water test on the
existing water levels, esp. level P3, six months before expiry of the three-
year onus of proof being with the vendor and detailed above, and he has to
inform the purchaser of the result of this expert's test before expiry of the
three-year period. If this test is not performed resp. the purchaser is not
advised of it before expiry of the three-year period, the onus of proof will
continue to be on the vendor until the required test results are submitted.
d) The purchaser is obliged to settle measures to be taken for the disposal of
earlier pollutions resp. contaminations together with the vendor, if need be
by consulting an expert.
<PAGE>
18
e) The vendor is held liable for the unhindered transfer of estate and property
and for exoneration of the object of purchase from public and private
charges, unless they were explicitly taken over by the purchaser. The vendor
is, however, not held liable for old legal easements and charges which are
not apparent from the register of deeds. He affirms that to his knowledge
there are none, neither any entries in the register of building charges
(translator's note: here meaning the procurement of parking areas) at the
building control office; the parties refrain from having the notary take a
look at above register.
3.
The vendor affirms that, on the day of transfer, re the section of area sold
here, there are no arrears of due charges for the maintenance of community
roads, sewage etc., for the development of real estate, real estate tax or other
public taxes and charges.
Costs for any kind of real estate development, especially taxes for real estate
development acc. to the book of building regulations and taxes acc. to the
community tax regulations for development measures executed on the sold section
of area will be paid by the vendor until transfer of property, and the costs for
development measures executed on the sold section of area will be paid by the
purchaser after transfer of property. It is of no importance when the costs for
development are settled and due and who the notice is addressed to.
The purchaser was advised of the estate owner's personal liability at the moment
of service of the tax notice and the material liability of the estate for taxes
acc. to the BauGB and the community tax regulations.
<PAGE>
19
4.
The acting notary is requested to obtain the declaration of the responsible
town or community re non-execution or non-existence of an option of purchase
acc. to (S)(S) 24 ff. BauGB.
5.
Should a correction or supplement to this deed in formal respect become
necessary, the parties to the contract order and authorize Mrs Karin Fischer
nee Appel, business address with the acting notary, to perform this for them,
released from the limitations of (S) 181 BGB and having the right to grant
substitute power. The power of attorney especially authorizes to file any
kind of applications and consents with the registry of deeds as may be deemed
necessary to clear objections by the registry of deeds.
This authorization expires upon protection of the contract in the register of
deeds.
6.
The vendor authorizes the purchaser to encumber the object of purchase up to
the amount of the total purchase price including VAT on purchase price plus
interest up to 20% and non-recurrent secondary obligations up to 10%, to
finance the purchase price, to file and withdraw petitions with the registry
of deeds, make declarations of any kind re rankings as well as to submit to
the immediate execution of the object of purchase (material) in which case
the authorized person has the right to submit the vendor materially to
execution ((S) 800 ZPO) without the vendor accepting personal liability. This
power of attorney may only be executed on record with the acting notary or
his deputy in office.
Already now the vendor will irrevocably assign his claim to payment of the
loan value in the amount of the
<PAGE>
20
purchase price to the vendor and advises the financing bank or banks equally
irrevocably to pay the loan value up to the amount of the purchase price owed
only directly in accordance with the payment plan of this purchase contract. As
far as an assignment is excluded, the above given irrevocable order to pay will
remain in effect.
The purchaser will present to the responsible registry of deeds the encumbrances
to be created plus interest and secondary obligations only when the creditor or
creditors have confirmed that they will pay the value of the encumbrances to be
created up to the amount of the purchase price only in accordance with the
payment plan of the purchase contract. The acting notary will be ordered to
obtain the written declaration of the creditors and to inform the parties to the
contract of it.
Further, the parties to the contract authorize the acting notary, re the
encumbrances to be created to finance the purchase price, to make requests for
entries separately and in a restricted form, to change, withdraw or supplement
them with the responsible registry of deeds.
The acting notary advises the parties to the contract that encumbrances to
finance the purchase price can be entered in the register of deeds only after
the estate to be surveyed is formed in the register of deeds, i.e. upon
presentation of the proofs of alteration, the two approvals of partition and
upon protection of the declaration of identity.
<PAGE>
21
(S) 7 EASEMENT OF ACCESS, OF MAINS, SEWER SYSTEM ETC.
The parties to the contract know that the object of the contract with regards to
its supply and waste management as well as all of the infrastructure is
integrated in the vendor's total industrial area. In this respect they
unanimously assume that the purchaser shall, in the same scope as up to now,
make use of the object of purchase as well as of the rest estate remaining with
the vendor. Both parties to the contract take obligation to obtain servitudes,
as listed in encl. 3, chargeable to their respective estate and order the
authorized person of (S) 6 no. 5 to grant and to file for this deed in their
names, as soon as the object of contract is sufficiently known. Should it prove
necessary that for the use of the purchased area in its present proportions
further servitudes or other rights must be obtained the vendor is obliged to
obtain corresponding material rights respectively take care they are obtained.
On the other hand the purchaser is obliged to obtain such rights of the vendor
in favor of the section of area that remains with the vendor.
Insofar as the above provisions cannot be entered with material contents, they
are, contractually, considered to be agreed on between the parties to the
contract. In this case the parties to the contract are obliged to impose this
obligation on their successors and to guarantee that they will impose the same
obligations to their respective successors.
Furthermore the parties to the contract agree on the usufructuary rights to
jointly used installations and equipments as listed in encl. 4, and this to the
extent as described in the enclosure; a materia1 security of these rights is
waived expressly, except for item encl. 4 I no. 2. The parties to the contract
agree insofar as, in favor of the purchaser, a real servitude is to be created.
<PAGE>
22
(S) 8 SURVEYING
The vendor will initiate the surveying of the estate at his own expense. The
costs for the continuation of the register of real estate are on the purchaser.
Due to partition of the estate buildings that were constructed on the purchased
area and on the section of area remaining with the vendor, are very close to the
boundaries of the property. The parties to the contract are under obligation to
tolerate the buildings in the boundary area in their present dimensions.
To secure these claims the vendor and the purchaser will obtain real servitudes
with these contents re their respective estates for the respectively opposite
party to the contract. The parties order the authorized person acc. to (S) 6 no.
5 of this deed to grant and file petition in their names as soon as the object
of contract can sufficiently be indicated.
The parties to the contract commit themselves contractually, if need be, to take
over building charges which, as regards content, correspond to the real
servitudes.
The parties to the contract basically start from the assumption that the
partition of the area acc. to (S) 19 Baugesetzbuch and (S) 8 HBO will be
authorized in accordance with the sale performed in this deed. Should, contrary
to expectations, there be reasons not to grant authorization or should the
authorities grant authorization only with charges or on conditions, the parties
to the contract will, to the best of their abilities, do everything to remove
obstacles resp. fulfil the charges or conditions. If the measures to be taken,
while being reasonable acc. to the contents of the contract, will result in
legal or economic disadvantages to one of the parties to the contract, which
<PAGE>
23
go beyond the obligations ensuing from this deed, the parties to the contract
are obliged to adequately compensate for these disadvantages. Should the charges
imposed by the authorities concern changes to parts of buildings or to the real
estate of the object of contract, these charges will be met by the vendor at his
expense if the necessary amount exceeds DM 10,000.00. Necessary changes to parts
of buildings required by authority decrees up to DM 10,000.00 will be paid by
the purchaser.
If the charges imposed by the authorities include a possible extension or
reduction of the contract estate, then the extended or reduced areas will be
compensated between the parties at a sqm price of DM 116.00. In this case the
surveyor who determines the area extensions or reductions will be simultaneously
given order to determine the real estate area, as marked in the enclosed site
map, in square meters and, on this basis, to determine the differences of areas
of the contract estate that may arise due to authority requests.
Buildings or parts of buildings on possibly extended areas are to be evaluated
by the parties to the contract, and an adequate additional payment has to be set
for this. If the parties to the contract do not agree re the amount of the
value, a certified construction expert will be engaged. If the parties cannot
agree on one expert, the Chamber of Commerce and Trade in Darmstadt will appoint
an expert, and the parties to the contract will consider themselves subject to
his evaluation. The costs for the expert will be divided between the parties. In
this case the purchase price will then be raised by this building value, if
necessary plus legal VAT, and payment conditions are valid according to payment
plan.
<PAGE>
24
(S) 9 COSTS, FEES, TAXES
The purchaser will bear the costs ensuing from the notarization costs for this
contract, costs of execution of contract including realty transfer tax. The
purchaser commits himself to the vendor to pay the realty transfer tax
immediately upon request. The costs for the real servitudes to be created are
divided between the parties.
The costs of cancellation (court) of the right renounced acc. to this contract
will be on the vendor.
Any costs connected to surveying and costs for grant of approvals of partition
acc. to (S) 19 BauGB and (S) 9 HBO, for the production of the proof of
alteration and the declaration of identity still to be declared will be paid by
the VENDOR.
The purchaser will bear the costs for the continuation of the register of deeds.
The interpreter's fees will be paid by the purchaser. Values re the real
servitudes yet to be created:
a) Acc. to encl. 3 the value of the real servitude to be created by the vendor
in favor of the purchaser is DM 5,000.00.
b) Acc. to encl. 3 the value of the real servitudes to be created by the
purchaser in favor of the vendor is DM 5,000.00.
(S) 10 EXECUTIVES ORDERS
The parties to the contract advise the acting notary to file petition, in their
names, for the approvals needed for
<PAGE>
25
this contract, especially the release approvals/release of collaterals of the
charges not taken over acc. to this contract, to receive them with all legal
effects and to execute the contract. The parties to the contract authorize the
acting notary to present petitions re this contract completely, partly or in a
limited form to the registry of deeds, or to withdraw them completely or partly.
The parties authorize the notary to represent them in the register of deeds
proceedings without restriction.
The parties authorize the notary, as far as necessary, to change, supplement or
newly file for approvals and petitions to the registry of deeds, i.e. to do
anything that is procedurally necessary for the execution of the contract.
(S) 11 EXECUTIONS AND COPIES
This deed will be handed out to:
a)
upon notarization:
<PAGE>
26
vendor and purchaser 2 instruments each, the registry of deeds 1 instrument for
entry of the preemption entry of conveyance,
b)
certified copies:
1. the tax revenue office (realty transfer tax office),
2. the appropriate town resp. community,
3. the experts' committee.
(S) 12 INITIATIVE
The parties to the contract herewith waive their right to separately file for
transfer and conveyance re this contract, they rather agree that authorization
to do this will be only with the acting notary, his deputy or successor in
office, and they are authorized to petition for transfer only upon complete
payment of the purchase price. The notary is advised to present this deed to the
registry of deeds for the purpose of entry of conveyance only upon proof of
payment of the complete purchase price without possible interest.
The parties to the contract herewith waive their right to separately file
petitions re this contract they rather agree that authorization to do this will
be only with the acting notary, his deputy or successor in office.
The vendor commits himself to immediately confirm to the acting notary receipt
of the payment of the purchase price.
<PAGE>
27
(S) 13 ADVICE AND INSTRUCTIONS OF THE NOTARY
The notary advised the parties of
1.
the legal and statutory pre-emption right of town or community according to
(S)(S) 24-28 ff BauGB and the necessity to submit a waiver,
2.
the obligation to inform the tax revenue office of this contract and the
necessity to submit a clearance certificate of the realty transfer tax office;
3.
the legal sequence that property is transferred only upon entry of the purchaser
in the register of deeds,
4.
the parties' joint and several liability for costs and taxes, (regardless of
the agreements in this contract) as well as of the liability of real property
for public taxesa and charges.
The notary further advised that
5.
all the agreements must be notarized and that upon violation of this regulation
((S) 313 BGB) the contract will become void in its entirety,
<PAGE>
28
6.
all payments prior to transfer of property are at the parties' risks, unless
payment is performed to a notary's trust account of the acting notary,
7.
the contract is void as long as it is pending, the parties, however, are bound
by it upon its conclusion.
The tax effects of today's deed were not examined by the acting notary. The
acting notary advises the parties to the contract that it might be useful to
have a tax consultant separately examine the tax effects of this agreement.
The parties to the contract declare that their respective tax consultants have
already examined today's legal transaction with regard to taxes.
The parties to the contract release the acting notary of any liability with
regards to possibly due taxes.
Salvatorische Klausel (was explained)
Should a provision of this deed, completely or partly, not be or become valid,
then this will not affect the validity of the other contract provisions. This
also holds true if it should turn out that the deed has a loophole re a
regulation. To replace the ineffective provision or to fill the loophole an
appropriate regulation will come into effect that, as far as legally feasible,
will come closest to what the parties intended or might have intended according
to
<PAGE>
29
the aim and object of the agreement, if they had considered this item during
negotiation of the agreements.
Enclosures nos. 1c to 4.6 were available for inspection during the time of
notarization and were approved of and signed by the parties to the contract.
The above enclosures are essential parts of this deed.
The minutes, the payment plan and enclosures nos. 2-4 were read out, translated
by the interpreter to the deponent re no. 1 into his mother language and then
approved of by each of the deponents and, together with the site plan, signed by
them and the notary in their own hands, as follows:
signatures:
Klaus Bohmann
Gunter LaBmann
Nathan Zommer
Luise Stach Kari, Notary
<PAGE>
30
Enclosure 1 to purchase of contract deed of notary
Robert Kari, Lampertheim
Payment plan
The total net purchase price in the amount of DM 13,250,000.00 is due and to be
paid directly to the vendor into his account with Dresdner Bank AG, Mannheim,
bank code no. 670 800 50, account no. 68 66 49 900, within 10 bank workdays upon
written notification to the purchaser from the acting notary that he is in
receipt of:
1.
confirmation by registry of deeds re performed entry, according to contract,
of pre-emption entry as in (S) 4 of this deed requested in favor of the
purchaser,
2.
the declaration of the responsible town or community re the non-execution or the
non-existence of option of purchase acc. to (S)(S) 24-28 ff BauGB,
3.
the two approvals of partition acc. to (S) 19 BauGB and (S) 8 HBO by the
responsible authority,
4.
the proof of alteration of the responsible land registry which determines the
sold real estate according to description and size.
<PAGE>
31
Further maturity requirements are: the transfer of property to the purchaser in
accordance with the contract is guaranteed, not regarding the tax clearance
certificate which has to be submitted by the purchaser.
<PAGE>
annex 1b
POWER OF ATTORNEY
-----------------
ABB Real Property GmbH & Co. OHG, Mannheim
represented by
ABB Real Property Administration GmbH in Mannheim
being represented by
Dr Stefan Beretitsch, business address Speyerer Strabe 6,
69115 Heidelberg
herewith authorize
1. Mr Gunter LaBmann, civil engineer, business address
Speyerer Strabe 6, Heidelberg
2. Mr Klaus Bohmann, attorney at law, business address
Speyerer Strabe 6, Heidelberg
to jointly represent them during the sale of the real estate areas in the bounds
of Lampertheim, field 10, plots 1: 2/2; 190/17; 38/3; 37/1; 36/1; 35/1; 34/1;
33/1; 32/1; 30/1; 29/1; registered on page 9357 of the Lampertheim register of
deeds,
and to make all the necessary and/or useful declarations connected to the sale
and to take actions as well as to grant substitute powers.
signature:
Dr. Beretitsch
Dr. Beretitsch
stamp:
certification overleaf!
<PAGE>
ATTESTATION OF SIGNATURE
------------------------
This is to certify the above signature, attested before me, of
Dr. Stefan Beretitsch, engineer, personally known to me, business address ABB
Real Property GmbH & Co. OHG in Manaheim, Speyererstr. 6, 69115 Heidelberg.
The notary confirms, after having made requisitions as to title at the
Amtsgericht -Registergericht- Mannheim, HRA 3737 and HRB 4927, that ABB Real
Property GmbH & Co. OHG is represented by ABB Real Property Administration GmbH
as the esclusively representing corporate member, and the before named GmbH for
its part is represented by the managing director Dr. Stefan Beretitsch as the
exclusive representative.
Gorxheimertal, 19 Feb 1997
REGISTER OF DEEDS NO. 284/1997 signature: illegible
- ------------------------------
Dr. Wolfgang Goldmann
(Commissioned Notary's Representative)
stamp:
DR. ROLF FEHRENBACH
(emblem)
NOTARY IN GORXHEIMERTAL
Translator's notes:
Amtsgericht - Local Court
Registergericht - Registry
GmbH +/- Limited Liability Company
OHG +/- General Partnership
<PAGE>
Enclosure 3
to notarial deed 60 /1997
Real Servitudes
I. The parties to the contract are obliged to mutually create real servitudes
charging their respective real estate to the effects that both parties to the
contract are entitled to
1. allow pedestrians and drivers to use the roads of the site as long as they
run through the estate of the respectively other party. The course of the
roads of the site is found on the annexed site map (encl. 3.1), red-hatched,
marked.
The parties to the contract take obligation to keep the jointly used site
roads free of buildings, parked vehicles and goods. The parties will take
care of safety of traffic and maintenance of site roads in the proportion of
65% (vendor) and 35% (purchaser).
2. use the existing circuits for medium voltage supply, as far as they run
through the site of the respectively other party. The course of the lines is
shown on the annexed site map (enclosure 3.2), red and black broken line. The
circuits are jointly operated and maintained by both parties. Costs that may
arise will, as far as they concern cables used exclusively by the vendor, be
paid by the vendor, and they will be paid by the purchaser if they are used
exclusively by the purchaser. If arising costs concern cables used jointly by
both parties, they will be paid by the parties in proportion of the use of
current. The purchaser is entitled to set up and operate her own transformer
station near building 40.
3. to use the existing underground circuits for low voltage supply as far as
they run through the estate of the respectively other party. The course of
the lines is shown on the annexed site map (enclosure 3.3) black and yellow
broken line.
The circuits are operated and maintained by the party to the contract that
takes current from the respective line.
4. use the existing water mains as far as they run through the estate of the
respectively other party. The course of the mains is shown on the annexed
site map (enclosure 3.4), marked in blue color.
The water mains are jointly operated and maintained by the parties. Arising
costs will be born by the vendor if they concern water mains that are
exclusively used by the vendor, and they will be born by the purchaser if
the mains are exclusively used by the purchaser. If the arising
<PAGE>
2
costs concern water mains used jointly by the parties to the contract, the
parties will pay them in proportion of the amount of water used.
5. use the existing water system for fire fighting as far as it runs through
the estate of the respectively other party. The course of the system is
shown on the annexed site map (enclosure 3.5), marked in blue color.
The water system for fire fighting is jointly operated and maintained by
the parties.
6. to use the existing sewer system as far as it runs through the estate of the
respectively other party. The course of the system is shown on the annexed
site map (enclosure 3.6), marked in red color.
The sewer system is jointly operated and maintained by the parties.
II. The purchaser is obliged to charge the object of purchase with real
servitudes in favor of the estate remaining with the vendor, to the effect
that the vendor is entitle to
1. use and maintain the existing heating system. The course of the system is
shown on the annexed site map (enclosure 3.7), marked in yellow color.
2. use and maintain the existing natural-gas system. The course of the system
is shown on the annexed site map (enclosure 3.8), black and yellow broken
line.
<PAGE>
Enclosure 4
to notarial deed 60 /1997
Easements
I. The vendor grants the purchaser the below-listed rights:
1. Easement of access
The purchaser is entitled to use, on the vendor's estate, access to the exit
(revolving gate) BoveristraBe, to the bicycle stand, to the canteen (bulding
16) and to the scrap yard. Easement of access expires if and insofar these
facilities are no longer maintained by ABB.
2. Parking areas
The vendor will arrange for the parking area, in the form of building
charges requested by the authorities within the approval of partition, on
lot no. 236 and, as far as necessary on lot no. 235 and will allow the
purchaser to use it free of charge. Safety of traffic, maintenance of and
repair work on the provided parking area is with the purchaser.
3. The parties to the contract are in agreement that also IXYS GmbH and their
subtenants and sublessees are entitled to the above listed rights (I.1. and
I.2.).
II The purchaser grants the vendor the below-listed rights:
1. Low voltage supply
1.1 Easement of circuit and of use of the existing low-voltage cable (4x185
sqmm) from station III (building 04 via hall 05 to the low-voltage main
distribution in building 10, to the supply of buildings 20 and 25 (gate) as
well as to users in building 10 that are operated by ABB (telephone
installations, server, etc.)
1.2 The vendor is entitled to set up and operate a new low-voltage main
distribution in basement no. 117 of building 10.
Easement of circuit and use from low-voltage main distribution in building
10, via cable channels in the hall (KG) to room no. 116, to the supply of
rooms 20 and 25 (gate).
1.3 Easement of circuit and use from low-voltage main distribution in building
10, to supply of rooms no. 117 (fire alarm center), no. 219 (server room),
no. 217 (telephone switchboard) and no. 515 (attic story above sanitary
facilities).
<PAGE>
2
1.4 The circuits will remain the property of ABB. If required, ABB is entitled
to lay additional cables or substitute cables with different cross sections
on the existing cable channels or to remove existing cables. This must not
affect the existing power supply on the sold object.
1.5 The course of the cables is shown on the annexed site map (enclosure 4.1)
2. Heating system
2.1 Easement of system and use re heat distribution in building 10, KG, room
115
2.2 Easement of system and use re heat distribution in building 10, via hall
(KG) to room 116, there building 20 is supplied from, and the amount of
heat of building 20 is recorded here as well.
2.3 Easement of system and use re existing hot water pipes from hall 06 to hall
08
2.4 ABB intends to take waste heat from IXYS operation. There is, however, no
obligation to do this. If ABB does not take waste heat, IXYS has to be
informed of this 6 months in advance. Should IXYS no longer be able to
supply ABB with waste heat, also IXYS GmbH is obliged to announce this 6
months in advance.
2.5 The course of the system is shown on the annexed site map (enclosure 4.2).
3. Compressed-air supply
3.1 Right so set up and operate air compressors, connected is easement of
access to bui1ding 30
3.2 Easement of system from building 30 to building 27,32 via supply channel as
well as through Hall 05 and 06 to hall 08.
3.3 Easement of system from building 30 to hall 04, as far as the compressed-
air line runs through IXYS area.
3.4 Easement of access to compressed-air store (20 sqm) next to building 30;
the compressed-air plant will remain the property of ABB.
3.5 The course of the system is shown on the annexed site map (enclosure 4.3)
<PAGE>
3
4. Telephone system, search and monitoring system, clock installation
4.1 Easement of system and use re telephone lines (cable channels) in halls 05
and 06 to halls 04, 07 and 08 plus buildings 31 and 32.
4.3 Easement of use re telephone switchboard in building 10; easement of system
re telephone cables via cable channels in hall (KG) to room 118 for supply
of building 20, building 25 (gate) and rented object "Franz" as well as
via cable channels in the shaft to the technical center in the attic story.
Above telephone lines will remain the property of ABB. If required, ABB is
entitled to lay additional cables or substitute cables with different cross
sections.
4.4 Right to set up and operate telephone system, search and monitoring system
as well as clock installation in room 217 (telephone switchboard)
The existing telephone system, search and monitoring system and the clock
installation will remain the property of ABB.
4.5 Easement of system and use re connection by Telecom to telephone
switchboard in building 10.
4.6 The course of the system is shown on the annexed site map (enclosure 4.4).
5. Data network
5.1 Easement of system and use re data lines (cable channels) in basement of
building 10.
5.2 Easement of system and use re data lines (cable channels) in halls 05 and
06 to halls 04, 07 and 08.
5.3 Easement of system and use re data lines from data center in building 10,
via cable channels in hall (KG) to room 116 to supply building 20 and
rented object "Franz".
5.4 The data lines remain the property of ABB. If required, ABB is entitled to
lay additional or substitute cables with different cross sections.
5.5 Right to set up and operate a server in room 219.
5.6 The course of the system is shown on the annexed site map (enclosure 4.5).
<PAGE>
4
6. Fire alarm system
6.1 Easement of use re fire alarm channels (cable channels) in basement of
building 10 and in halls 05 and 06 to halls 04, 07 and 08.
6.2 Easement of system and use re fire alarm center in building 10, via cable
channels in hall (KG) to room 116, to supply buildings 20 and 25 (gate) and
rented object "Franz".
6.3 Above fire alarm lines will remain the property of ABB. If required, ABB is
entitled to lay additional or substitute lines with different cross
sections. The necessary existing lines on the sold object must not be
affected by that.
6.4 Right to install and operate an emergency power supply for the telephone
system in the elevator room on the first floor of building 10 plus easement
of access.
6.5 The course of the system is shown on the annexed site map (enclosure 4.6).
7. Other rights
7.1 Easement of use re the technical room in the attic story of building 10,
especially re installation of antennas, sensors and a weather station.
7.2 ABB is granted the right to install a data collection system for the
calculation of consumption-dependent means (e.g. energy, compressed air,
water. The data system is laid on the existing cable lines.
8. Other
8.1 ABB will offer supply with means (e.g. energy, compressed air, water)
within the frame of a service contract. There will be no obligation of
supply for ABB beyond the service contract.
8.2 As far as (in section II) the vendor is granted easements of system and use
re plants and installations on the object of purchase, she is also granted
access to these plants and installations for the purpose of examinations or
maintenance and repair work at any time.
8.3 Easements in sections I and II respectively are granted free of charge.
<PAGE>
_______________________________________________________________________________
This is to certify that the foregoing text is a true and correct translation of
the certified photocopied original text in German language.
Lampertheim, 10 March 1997
[SIGNATURE ILLEGIBLE]
<PAGE>
Vorstehende Fotokopie ist eine genaue Wiedergabe der hier
vorliegenden Urschrift, was ich beglaubige und wird hiermit
a u s g e f e r t i g t
-----------------------
und der Firma
IXYS Corporation
3540 Bassett Street, Santa Clara,
CA 95054, USA
erteilt.
Lampertheim, den 18. Marz 1997
(R. Kari, Notar)
<PAGE>
EXHIBIT 10.5
Certified translation from the German language
- ----------------------------------------------
COMMERZBANK (logo)
Mannheim Branch
Ixys Corporation
3540 Bassett St. Mailing address
------------------
Santa Clara, California 95054 Postfach 10 06 62
USA 68006 Mannheim
Office:
-------
P3, 1-3 Cable: COMMERZBANK
IXYS Semiconductor GmbH 68161 mannheim S.W.I.F.T.-Code
Edisonstr. 15 COBADEFF670
68623 Lampertheim Phone (0621)171-0 Landeszentralbank
Fax (0621)171-490 Giro Bank Code no.
Telex 463259 670 400 31
Your ref. Our ref. Phone (ext.) Date
AFK Kredit 0621/171-213 27 Feb 97
Worner/ms
Real Estate Financing
Gentlemen,
According to agreement and with reference to our "Standard-form Contract
Conditions" we grant you as the joint and separate debtor an annuity loan in the
amount of
DM 13,250,000.00
(in words: deutschmarks thirteen million two hundred and fifty thousand)
which is taken up by Ixys Corporation, Santa Clara, California.
We will hold you, as the joint and separate debtor, liable for any use of this
loan by Ixys Corporation, Santa Clara, California, and we are not obliged to
announce to you overdrafts and the state of account. Upon your request, however,
we are prepared to inform you of the state of the loan account at any time.
As agreed upon, we grant the loan on the conditions as listed
below:
period of loan: 12 years, however not later than 31 Oct 2009
interest rate: 5.40% annually, fixed till 30 Aug 2001
<PAGE>
COMMERZBANK (logo)
Mannheim Branch
page -2- of letter dated 27 Feb 1997 to IXYS Corporation Santa Clara,
California, USA
- --------------------------------------------------------------------------------
Payment: 100%
Repayment: At the beginning repayment will be appr. 4.95% plus saved
interest. The sum of repayment of loan and interest (annuity) is
to be paid in monthly constant instalments of DM 125,226.33 up
to the end of the period of validity of the interest amount, for
the first time on the last day of the month following the loan
payment.
Premature For interest rate adjustment on 30 Aug 2001 acc.
maturity: to no. 2 of the "General Conditions for Commercial Loans".
As per agreement we will charge your account 431/3600988/00 with
the annuity instalments upon maturity.
Single service 0.5% of the loan amount, due upon payment of
charge: loan.
Commitment 0.125% annually beginning 8 weeks upon counter-
commission: signature of the loan contract.
We take as a security for the above loan and all other claims ensuing from our
business relations with you:
- - land charges of DM 13,250,000.00, to be registered on the company area of Ixys
Semiconductor GmbH in Lampertheim.
Further details, especially with regards to the purpose of security, will resp.
were agreed on during conclusion of the security contracts.
Creation of the register of deeds and entry of our land charges in first ranking
resp. the conforming ranking attestation of the acting notary are prerequisites
for payment of the loan. We have therefore prepared the certificates for land
charge registration, the declaration re the purpose of the land charge and the
ranking attestation, please have a notary of your choice supplement the
documents and send them, with affixed signatures, back to us.
During the loan period it is agreed that
- - in the annual balance of Ixys Semiconductor GmbH a minimum net worth quota
(net worth x 100 : balance-sheet total) of 20% of the balance-sheet total has
to be met. Net worth is defined as the total of subscribed capital, capital
reserves, debt balance carried over and annual balance minus the claims on the
owner.
<PAGE>
COMMERZBANK (logo)
Mannheim Branch
page -3- of letter dated 27 Feb 1997 to IXYS Corporation Santa Clara,
California, USA
- --------------------------------------------------------------------------------
-that the status re the owners of Ixys Semiconductor GmbH is not changed.
Should the net worth quota be under 20%, the part under 20% has to be provided
with a full collateral which is acceptable to us, or the owner will
alternatively make a cash deposit, so that the net worth quota of 20% is at
least maintained.
If the above stipulated figure resp. obligation is not reached resp. kept, the
bank will set a time limit to redeem this contract violation, if the redemption
seems to be feasible for the short term. Else and upon unsuccessful expiry of
the set time limit, the bank is entitled to call in the loan and to declare the
existing balance due even without setting a time limit.
Any payment to be effected by the debtor under this contract has to be made to
the bank without any deductions of taxes and duties ("taxes"). If the debtor,
due to legal regulations in his home country, is obliged or committed to deduct
taxes, he will have to bear the additional amounts, i.e. to put the bank in a
condition as it would be in, if no tax deduction had been required.
As soon as possible, however not later than after 30 days, upon payment of taxes
on the payments to be made under this contract, the debtor will prove to the
bank, by submitting a bill of taxes, that he duly paid the taxes to the
competent authority.
With reference to the regulations of the law re loan business you are requested
to keep us informed about the respective economic situation and especially
forward your annual balance upon its completion as well as quarterly business
evaluations on the respectively last day of each quarter. Subject to regulations
of the Federal Credit Control Board we have to reserve the right to call in
loans if the debtor does not comply with his duty to disclose. This does not
affect the bank's rights to call in loans which are derived from the "Standard-
form Contract Conditions" or other agreements.
Enclosed you find our "Standard-form Contract Conditions" as well as our
"General Conditions for Commercial Loans" which form an essential part of the
loan contract and which are in force complementarily.
Please confirm your consent to the contents of this letter and receipt of the
"Standard-form Contract Conditions" as well as the "General Conditions for
Commercial Loans" by legally binding signature(s) and return of enclosed copy.
<PAGE>
COMMERZBANK (logo)
Mannheim Branch
page -4- of letter dated 27 Feb 1997 to IXYS Corporation Santa Clara,
California, USA
- --------------------------------------------------------------------------------
We are pleased to be able to support you in your financial arrangements, and we
hope to transact business appreciated by both parties.
Sincerely,
C O M M E R Z B A N K
Aktiengesellschaft
Mannheim Branch
signature: illegible
We express our agreement to all parts of the above letter. Simultaneously we
confirm receipt of your "Standard-form Contract Conditions" as well as the
"General Conditions for Commercial Loans".
....................... ...........................
place/date stamp/signature(s)
Ixys Corporation
We have taken note of the letter of confirmation of loan to Ixys Corporation
Santa Clara, California, dated 27 Feb 1997, which was forwarded to us.
We accept joint and separate liability for your claims for the loan, also if
they exceed the amount of the loan.
We declare our agreement that any of your legal actions with respect to the
debtor re the account, especially letters of reminder and of terminations, also
to us, will be valid without further explanation.
We waive the right to being forwarded bank statements of the joint and separate
debtor's account.
....................... ...........................
place/date stamp/signature(s)
Ixys Semiconductor GmbH
Translator's note:
On page 2 part of a sentence of the original text was deleted and initialed.
________________________________________________________________________________
This is to certify that the above is a true and correct translation of the
uncertified photocopied original text in German language.
Lampertheim, 10 March 1997
[SIGNATURE ILLEGIBLE]
Allgem. vereidigte Dolm. u. Ubersetzerin
der engl. Sprache f. Gerichte u. Notare
im Lande Hessen
<PAGE>
COMMERZBANK
GENERAL
BUSINESS CONDITIONS
THE PRESENT TRANSLATION IS FURNISHED FOR THE CUSTOMER'S CONVENIENCE ONLY.
THE ORIGINAL GERMAN TEXT OF THE GENERAL BUSINESS CONDITIONS IS BINDING IN
ALL RESPECTS. IN THE EVENT OF ANY DIVERGENCE BETWEEN THE ENGLISH AND THE
GERMAN TEXTS, CONSTRUCTIONS, MEANINGS, OR INTERPRETATIONS, THE GERMAN TEXT,
CONSTRUCTION, MEANING OR INTERPRETATION SHALL GOVERN EXCLUSIVELY.
- ---------------------------------------
BASIC RULES GOVERNING THE RELATIONSHIP
BETWEEN THE CUSTOMER AND THE BANK
- ---------------------------------------
1. SCOPE OF APPLICATION AND AMENDMENTS OF THESE BUSINESS CONDITIONS AND THE
SPECIAL CONDITIONS FOR PARTICULAR BUSINESS RELATIONS
(1) SCOPE OF APPLICATION
The General Business Conditions govern the entire business relationship
between the customer and the bank's domestic offices (hereinafter referred
to as the "Bank"). In addition, particular business relations (such as
securities transactions, query service, use of cheques, savings accounts)
are governed by Special Conditions, which contain deviations from, or
complements to, these General Business Conditions; they are agreed with the
customer when the account is opened or an order is given. If the customer
also maintains business relations with foreign offices, the Bank's lien
(No. 14 of these Business Conditions) also secures the claims of such
foreign offices.
(2) AMENDMENTS
Any amendments of these Business Conditions and the Special Conditions will
be notified to the customer in writing. They shall be deemed to have been
approved unless the customer objects thereto in writing. Upon notification
of such amendments, the Bank shall expressly draw the customer's attention
to this consequence. The customer's objection must be dispatched to the
Bank within one month from the notification of the amendments.
2. BANKING SECRECY AND DISCLOSURE OF BANKING AFFAIRS
(1) BANKING SECRECY
The Bank has the duty to maintain secrecy about any customer-related facts
and evaluations of which it may have knowledge (banking secrecy). The Bank
may only disclose information concerning the customer if it is legally
required to do so or if the customer has consented thereto or if the Bank
is authorized to disclose banking affairs.
(2) DISCLOSURE OF BANKING AFFAIRS
Any disclosure of details of banking affairs comprises statements and
comments of a general nature concerning the economic status, the
creditworthiness and solvency of the customer; no information will be
disclosed as to amounts of balances of accounts, of savings deposits, of
securities deposits or of other assets entrusted to the Bank or as to
amounts drawn under a credit facility.
(3) PREREQUISITES FOR THE DISCLOSURE OF BANKING AFFAIRS
The Bank is entitled to disclose banking affairs concerning legal entities
and on businesspersons registered in the Commercial Register, provided that
the inquiry relates to their business activities. The Bank does not,
however, disclose any information if it has received instructions to the
contrary from the customer. Details of banking affairs concerning other
persons, in particular private customers and associations, are disclosed by
the Bank only if such persons have expressly agreed thereto, either
generally or in an individual case, Details of banking affairs are
disclosed only if the requesting party has substantiated its justified
interest in the information requested and there is no reason to assume that
the disclosure of such information would be contrary to the customer's
legitimate concerns.
(4) RECIPIENTS OF DISCLOSED BANKING AFFAIRS
The Bank discloses details of banking affairs only to its own customers as
well as to other credit institutions for their own purposes or those of
their customers.
3. LIABILITY OF THE BANK; CONTRIBUTORY NEGLIGENCE OF THE CUSTOMER
(1) PRINCIPLES OF LIABILITY
In performing its obligations, the Bank shall be liable for any negligence
on the part of its staff and of those persons whom it may call in for the
performance of its obligations. If the Special Conditions for particular
business relations or other agreements contain provisions inconsistent
herewith such provisions shall prevail. In the event that the customer has
contributed to the occurrence of the loss of any own fault (e.g. by
violating the duties to cooperate as mentioned in No. 11 of these Business
Conditions), the principles of contributory negligence shall determine the
extent to which the Bank and the customer shall have to bear the loss.
(2) ORDERS PASSED ON TO THIRD PARTIES
If the contents of an order are such that the Bank typically entrusts a
third party with its further execution, the Bank performs the order by
passing it on to the third party in its own name (order passed on to a
third party). This applies, for example, to obtaining information on
banking affairs from other credit institutions or to the custody and
administration of securities in other countries. In such cases the
liability of the Bank shall be limited to the careful selection and
instruction of the third party.
(3) DISTURBANCE OF BUSINESS
The Bank shall not be liable for any losses caused by force majeure, riot,
war or natural events or due to other occurrences for which the Bank is not
responsible (e.g. strike, lock-out, traffic hold-ups, administrative acts
of domestic or foreign high authorities).
4. SET-OFF LIMITATIONS ON THE PART OF THE CUSTOMER
The customer may only set off claims against those of the Bank if the
customer's claims are undisputed or have been confirmed by a final court
decision.
5. RIGHT OF DISPOSAL UPON THE DEATH OF THE CUSTOMER
Upon the death of the customer, the Bank may, in order to clarify the right
of disposal, demand the production of a certificate of inheritance, a
1
<PAGE>
certificate of executorship or further documents required for such purpose;
any documents in a foreign language must, if the Bank so requests, be
submitted in a German translation. The Bank may waive the production of a
certificate of inheritance or a certificate of executorship if an official
or certified copy of the testamentary disposition (last will or contract of
inheritance) together with the relevant record of probate proceedings is
presented. The Bank may consider any person designated therein as heir or
executor as the entitled person, allow this person to dispose of any assets
and, in particular, make payment or delivery to this person, thereby
discharging its obligations. This shall not apply if the Bank is aware that
the person designated therein is not entitled to dispose (e.g. following
challenge or invalidity of the will) or if this has not come to the
knowledge of the Bank due to its own negligence.
6. APPLICABLE LAW AND PLACE OF JURISDICTION FOR CUSTOMERS WHO ARE
BUSINESSPERSONS OR PUBLIC-LAW ENTITIES
(1) APPLICABILITY OF GERMAN LAW
German law shall apply to the business relationship between the customer
and the Bank.
(2) PLACE OF JURISDICTION FOR DOMESTIC CUSTOMERS
If the customer is a businessperson other than a "Minderkaufmann" (small
trader) and if the business relation in dispute is attributable to the
conducting of such businessperson's trade, the Bank may sue such customer
before the court having jurisdiction for the bank office keeping the
account or before any other competent court; the same applies to legal
entities under public law and separate funds under public law. The Bank
itself may be sued by such customers only before the court having
jurisdiction for the bank office keeping the account.
(3) PLACE OF JURISDICTION FOR FOREIGN CUSTOMERS
The agreement upon the place of jurisdiction shall also apply to customers
who conduct a comparable trade or business abroad and to foreign
institutions which are comparable with domestic legal entities under public
law or a domestic separate fund under public law.
KEEPING OF ACCOUNTS
7. PERIODIC BALANCE STATEMENTS
(1) ISSUE OF PERIODIC BALANCE STATEMENTS
Unless otherwise agreed upon, the Bank Issues a periodic balance statement
for a current account at the end of each calendar quarter, thereby clearing
the claims accrued by both parties during this period (including interest
and charges imposed by the Bank). The Bank may charge interest on the
balance arising therefrom in accordance with No. 12 of these Business
Conditions or any other agreements entered into with the customer.
(2) TIME ALLOWED FOR OBJECTIONS; APPROVAL BY SILENCE
Any objections a customer may have concerning the incorrectness or
incompleteness of a periodic balance statement must be raised not later
than within one month following its receipt; if the objections are made in
writing, it is sufficient to dispatch these within the period of one month.
Failure to make objections in due time will be considered approval. When
issuing the periodic balance statement, the Bank will expressly draw the
customer's attention to this consequence. The customer may demand a
correction of the periodic balance statement even after expiry of this
period, but must then prove that the account was either wrongly debited or
mistakenly not credited.
8. REVERSE ENTRIES AND CORRECTION ENTRIES MADE BY THE BANK
(1) PRIOR TO ISSUING A PERIODIC BALANCE STATEMENT
Incorrect credit entries on current accounts (e.g. due to a wrong account
number) may be reversed by the Bank through a debit entry prior to the
issue of the next periodic balance statement to the extent that the Bank
has a repayment claim against the customer; in this case, the customer may
not object to the debit entry on the grounds that a disposal of an amount
equivalent to the credit entry had already been made (reverse entry).
(2) AFTER ISSUING A PERIODIC BALANCE STATEMENT
If the Bank ascertains an incorrect credit entry after a periodic balance
statement has been issued and if the Bank has a repayment claim against the
customer, it will debit the account of the customer with the amount of its
claim (correction entry). If the customer objects to the correction entry,
the Bank will re-credit the account with the amount in dispute and assert
its repayment claim separately.
(3) NOTIFICATION TO THE CUSTOMER; CALCULATION OF INTEREST
The Bank will immediately notify the customer of any reverse entries and
correction entries made. With respect to the calculation of interest, the
Bank shall effect the entries retroactively as of the day on which the
incorrect entry was made.
9. COLLECTION ORDERS
(1) CONDITIONAL CREDIT ENTRIES EFFECTED UPON PRESENTATION OF DOCUMENTS
If the Bank credits the countervalue of cheques and direct debits prior to
their payment, this is done on condition of payment, even if these items
are payable at the Bank itself. If the customer surrenders other items,
instructing the Bank to collect an amount due from a debtor (e.g. interest
coupons), and if the Bank effects a credit entry for such amount, this is
done under the reserve that the Bank will obtain the amount. This reserve
shall also apply if the items are payable at the Bank itself. If cheques or
direct debits are not paid or if the Bank does not obtain the amount under
the collection order, the Bank will cancel the conditional credit entry
regardless of whether or not a periodic balance statement has been issued
in the meantime.
(2) PAYMENT OF DIRECT DEBITS AND OF CHEQUES MADE OUT BY THE CUSTOMER
Direct debits and cheques are paid if the debit entry has not been
cancelled prior to the end of the second bank working day after it was
made. Cheques payable in cash are deemed to have been paid once their
amount has been paid to the presenting party. Cheques are also deemed to
have been paid as soon as the Bank dispatches an advice of payment. Direct
debits and cheques presented through the clearing office of a
"Landeszentralbank" are paid if they are not returned to the clearing
office by the time stipulated by the Landeszentralbank.
10. RISKS INHERENT IN FOREIGN CURRENCY ACCOUNTS AND TRANSACTIONS
(1) EXECUTION OF ORDERS RELATING TO FOREIGN CURRENCY ACCOUNTS
Foreign currency accounts of the customer serve to effect the cashless
settlement of payments to and disposals by the customer in foreign
currency. Disposals of credit balances on foreign currency accounts (e.g.
by means of transfer orders to the debit of the foreign currency credit
balance) are settled through or by banks in the home country of the
currency unless the Bank executes them entirely within its own
organisation.
(2) CREDIT ENTRIES FOR FOREIGN CURRENCY TRANSACTIONS WITH THE CUSTOMER
If the Bank concludes a transaction with the customer (e.g. a forward
exchange transaction) under which it owes the provision of an amount in a
foreign currency, it will discharge its foreign currency obligation by
crediting the account of the customer in the respective currency, unless
otherwise agreed upon.
(3) TEMPORARY LIMITATION OF PERFORMANCE BY THE BANK
The Bank's duty to execute a disposal order to the debit of a foreign
currency credit balance (paragraph 1) or to discharge a foreign currency
obligation (paragraph 2) shall be suspended to the extent that and for as
long as the Bank cannot or can only restrictedly dispose of the currency in
which the foreign currency credit balance or the obligation is
denominated, due to political measures or events in the country of the
respective currency. To the extent that and for as long as such measures
or events persist, the Bank is not obligated either to perform at some
other place outside the country of the respective currency, in some other
currency (including Deutsche Mark) or by providing cash. However, the
Bank's duty to execute a disposal order to the debit of a foreign currency
credit balance shall not be suspended if the Bank can execute it entirely
within its own organisation. The right of the customer and of the Bank to
set off mutual claims due in the same currency against each other shall not
be affected by the above provisions.
DUTIES OF THE CUSTOMER TO COOPERATE
11. DUTIES OF THE CUSTOMER TO COOPERATE
(1) CHANGE IN THE CUSTOMER'S NAME, ADDRESS OR POWERS OF REPRESENTATION
TOWARDS THE BANK
A proper settlement of business requires that the customer notify the Bank
without delay of any changes in the customer's name and address, as well as
the termination of, or amendment to, any powers of representation towards
the Bank conferred to any person (in particular, a power of attorney). This
notification duty also exists where the powers of representation are
recorded in a public register (e.g. the Commercial
2
<PAGE>
Register) and any termination thereof or any amendments thereto are entered
in that register.
(2) CLARITY OF ORDERS
Orders of any kind must unequivocally show their contents. Orders that are
not clearly worded may lead to queries, which may result in delays. In
particular, when giving orders to credit an account (e.g. transfer orders),
the customer must ensure the correctness and completeness of the name of
the payee, as well as of the account number and the bank code number
stated. Amendments, confirmations or repetitions of orders must be
designated as such.
(3) SPECIAL REFERENCE TO URGENCY IN CONNECTION WITH THE EXECUTION OF AN
ORDER
If the customer feels that an order requires particularly prompt execution
(e.g. because a money transfer must be credited to the payees's account by
a certain date), the customer shall notify the Bank of this fact
separately. For orders given on a printed form, this must be done
separately from the form.
(4) EXAMINATION OF, AND OBJECTIONS TO, NOTIFICATION RECEIVED FROM THE BANK
The customer must immediately examine statements of account, security
transaction statements, statements of securities and of investment income,
other statements, advices of execution of orders, as well as information on
expected payments and consignments (advices) as to their correctness and
completeness and immediately raise any objections relating thereto.
(5) NOTICE TO THE BANK IN CASE OF NON-RECEIPT OF STATEMENTS
The customer must notify the Bank immediately if periodic balance
statements and securities statements are not received. The duty to notify
the Bank also exists if other advices expected by the customer (e.g.
security transaction statements, statements of account after execution of
customer orders or payments expected by the customer) are not received.
COST OF BANK SERVICES
12. INTEREST, CHARGES AND OUT-OF-POCKET EXPENSES
(1) INTEREST AND CHARGES IN PRIVATE BANKING
Interest and charges for loans and services customary in private banking
are set out in the "Price Display - Standard rates for private banking"
(Preisaushang) and, in addition, in the "Price List" (Preisverzeichnis). If
a customer makes use of a loan or service listed therein and unless
otherwise agreed between the Bank and the customer, the interest and
charges stated in the then valid Price Display or Price List are
applicable. For any services not stated therein which are provided
following the instructions of the customer, or which are believed to be in
the interests of the customer and which can, in the given circumstances,
only be expected to be provided against remuneration, the Bank may at its
reasonable discretion determine the charges (Section 315 of the German
Civil Code - Burgerliches Gesetzbuch).
(2) INTEREST AND CHARGES OTHER THAN FOR PRIVATE BANKING
The amount of interest and charges other than for private banking shall in
the absence of any other agreement, be determined by the Bank at its
reasonable discretion (Section 315 of the German Civil Code).
(3) CHANGES IN INTEREST AND CHARGES
In the case of variable interest rate loans, the interest rate will be
adjusted in accordance with the terms of the respective loan agreement.
(4) CUSTOMER'S RIGHT OF TERMINATION IN CASE OF CHANGES IN INTEREST AND
CHARGES
Interest adjustments and changes in charges according to paragraph 3 will
be notified to the customer by the Bank. If charges are increased, the
customer may, unless otherwise agreed, terminate with immediate effect the
business relationship affected thereby within one month from the
notification of the change. If the customer terminates the business
relationship, any such increased interest and charges shall not be applied
to the terminated business relationship. The Bank will allow an adequate
period of time for the settlement.
(5) OUT-OF-POCKET EXPENSES
The customer shall bear all out-of-pocket expenses which are incurred when
the Bank carries out the instructions or acts in the presumed interests of
the customer (in particular, telephone costs, postage) or when credit
security is furnished, administered, released or realised (in particular,
notarial fees, storage charges, cost of guarding items serving as
collateral).
(6) PECULIARITIES RELATING TO CONSUMER LOANS
The interest and costs (charges, out-of-pocket expenses) for those loan
agreements which require the written form pursuant to Section 4 of the
Consumer Credit Act (Verbraucherkreditgesetz) are determined by the
provisions of such contract documentation. If an interest rate is not
stated therein, the legal interest rate shall apply; costs not stated
therein are not owed (Section 6 (2) of the Consumer Credit Act). For
overdraft credits pursuant to Section 5 of the Consumer Credit Act, the
interest rate shall be determined by the Price Display and the information
provided by the Bank to the customer.
SECURITY FOR THE BANK'S CLAIMS AGAINST THE CUSTOMER
13. PROVIDING OR INCREASING OF SECURITY
(1) RIGHT OF THE BANK TO REQUEST SECURITY
The Bank may demand that the customer provide the usual forms of security
for any claims that may arise from the banking relationship, even if such
claims are conditional (e.g. indemnity for amounts paid under a guarantee
issued on behalf of the customer). If the customer has assumed a liability
for another customer's obligations towards the Bank (e.g. as a surety), the
Bank is, however, not entitled to demand that security be provided or
increased for the debt resulting from such liability incurred before the
maturity of the debt.
(2) CHANGES IN THE RISK
If the Bank, upon the creation of claims against the customer, has
initially dispensed wholly or partly with demanding that security be
provided or increased, it may nonetheless make such a demand at a later
time, provided, however, that circumstances occur or become known which
justify a higher risk assessment of the claims against the customer. This
may, in particular, be the case if
- the economic status of the customer has changed or threatens to change in
a negative manner or
- the value of the existing security has deteriorated or threatens to
deteriorate.
The Bank has no right to demand security if it has been expressly agreed
that the customer either does not have to provide any security or must only
provide that security which has been specified. For loans subject to the
Consumer Credit Act, the Bank is entitled to demand that security be
provided or increased only to the extent that such security is mentioned in
the loan agreement; when, however, the net loan amount exceeds DM
100,000,__, the Bank may demand that security be provided or increased even
if the loan agreement does not contain any or any exhaustive indications as
to security.
(3) SETTING A TIME PERIOD FOR PROVIDING OR INCREASING SECURITY
The Bank will allow adequate time to provide or increase security. If the
Bank intends to make use of its right of termination without notice
according to No. 19 (3) of these Business Conditions, should the customer
fail to comply with the obligation to provide or increase security within
such time period, it will draw the customer's attention to this consequence
before doing so.
14. LIEN IN FAVOUR OF THE BANK
(1) AGREEMENT ON THE LIEN
The customer and the Bank agree that the Bank acquires a lien on the
securities and chattels which, within the scope of banking business, have
come or may come into the possession of a domestic office of the Bank. The
Bank also acquires a lien on any claims which the customer has or may in
future have against the Bank arising from the banking relationship (e.g.
credit balances).
(2) SECURED CLAIMS
The lien serves to secure all existing, future and contingent claims
arising from the banking relationship which the Bank with all its domestic
and foreign offices is entitled to against the customer. If the customer
has assumed a liability for another customer's obligation towards the Bank
(e.g. as a surety), the lien shall not secure the debt resulting from the
liability incurred before the maturity of the debt.
(3) EXEMPTIONS FROM THE LIEN
If funds or other assets come into the power of disposal of the Bank under
the reserve that they may only be used for a specified purpose (e.g.
deposit of cash for payment of a bill of exchange), the Bank's lien does
not extend to these assets. The same applies to shares issued by the Bank
itself (own shares) and to securities which the Bank keeps in safe custody
abroad for the customer's account. Moreover, the lien extends neither to
the profit-participation rights/profit-participation certificates
(GenuBrechte/GenuBscheine) issued by the Bank itself nor to the Bank's
subordinated obligations confirmed by document or unconfirmed.
3
<PAGE>
(4) INTEREST AND DIVIDEND COUPONS
If securities are subject to the Bank's lien, the customer is not entitled
to demand the delivery of the interest and dividend coupons pertaining to
such securities.
15. SECURITY INTERESTS IN ITEMS FOR COLLECTION AND DISCOUNTED BILLS OF EXCHANGE
(1) TRANSFER OF OWNERSHIP BY WAY OF SECURITY
The Bank acquires ownership by way of security of any cheques and bills of
exchange deposited for collection at the time such items are deposited. The
Bank acquires absolute ownership of discounted bills of exchange at the
time of the purchase of such items; if it re-debits discounted bills of
exchange to the account, it retains the ownership by way of security in
such bills of exchange.
(2) ASSIGNMENT BY WAY OF SECURITY
The claims underlying the cheques and bills of exchange shall pass to the
Bank simultaneously with the acquisition of ownership in the cheques and
bills of exchange; the claims also pass to the Bank if other items are
deposited for collection (e.g. direct debits, documents of commercial
trading).
(3) SPECIAL-PURPOSE ITEMS FOR COLLECTION
If items for collection are deposited with the Bank under the reserve that
their countervalue may only be used for a specified purpose, the transfer
or assignment of ownership by way of security does not extend to these
items.
(4) SECURED CLAIMS OF THE BANK
The ownership transferred or assigned by way of security serves to secure
any claims which the Bank may be entitled to against the customer arising
from the customer's current account when items are deposited for collection
or arising as a consequence of the re-debiting of unpaid items for
collection or discounted bills of exchange. Upon request of the customer,
the Bank retransfers to the customer the ownership by way of security of
such items and of the claims that have passed to it if it does not, at the
time of such request, have any claims against the customer that need to be
secured or if it does not permit the customer to dispose of the
countervalue of such items prior to their final payment.
16. LIMITATION OF THE CLAIM TO SECURITY AND OBLIGATION TO RELEASE
(1) COVER LIMIT
The Bank may demand that security be provided or increased until the
realisable value of all security corresponds to the total amount of all
claims arising from the banking business relationship (cover limit).
(2) RELEASE
If the realisable value of all security exceeds the cover limit on a more
than temporary basis, the Bank shall, at the customer's request, release
security items as it may choose in the amount exceeding the cover limit;
when selecting the security items to be released, the Bank will take into
account the legitimate concerns of the customer or of any third party
having provided security for the customer's obligations. To this extent,
the Bank is also obliged to execute orders of the customer relating to the
items subject to the lien (e.g. sale of securities, repayment of savings
deposits).
(3) SPECIAL AGREEMENTS
If for a specific security item assessment criteria other than the
realisable value, another cover limit or another limit for the release of
security have been agreed, these other criteria or limits shall apply.
17. REALISATION OF SECURITY
(1) OPTION OF THE BANK
In case of realisation, the Bank may choose between several security items.
When realising security and selecting the items to be realised, the Bank
will take into account the legitimate concerns of the customer and any
third party who may have provided security for the obligations of the
customer.
(2) CREDIT ENTRY FOR PROCEEDS UNDER TURNOVER TAX LAW
If the transaction of realisation is subject to turnover tax, the Bank will
provide the customer with a credit entry for the proceeds, such entry being
deemed to serve as invoice for the supply of the item given as security and
meeting the requirements of turnover tax law (Umsatzsteuerrecht).
TERMINATION
18. TERMINATION RIGHTS OF THE CUSTOMER
(1) RIGHT OF TERMINATION AT ANY TIME
Unless the Bank and the customer have otherwise agreed to a term of a
termination provision, the customer may at any time, without notice,
terminate the business relationship as a whole or particular business
relationship (e.g. the use of cheques).
(2) TERMINATION FOR REASONABLE CAUSE
If the Bank and the customer have agreed on a term or a contrary
termination provision for a particular business relationship, such
relationship may only be terminated without notice if there is reasonable
cause therefor which makes it unacceptable to the customer to continue the
business relationship, after having given due consideration to the
legitimate concerns of the Bank.
19. TERMINATION RIGHTS OF THE BANK
(1) TERMINATION UPON NOTICE
Upon observing an adequate notice period, the Bank may at any time
terminate the business relationship as a whole or particular relationships
for which neither a term nor a diverging termination provision has been
agreed (e.g. the chequing agreement authorizing the use of the cheque card
and cheque forms). In determining the notice period, the Bank will take
into account the legitimate concerns of the customer. The minimum
termination notice for the keeping of current accounts and securities
accounts is one month.
(2) TERMINATION OF LOANS WITH NO FIXED TERM
Loans and loan commitments for which neither a fixed term nor a diverging
termination provision has been agreed may be terminated at any time by the
Bank without notice. When exercising this right of termination, the Bank
will give due consideration to the legitimate concerns of the customer.
(3) TERMINATION FOR REASONABLE CAUSE WITHOUT NOTICE
Termination of the business relationship as a whole or of particular
relationships without notice is permitted if there is reasonable cause
which makes it unacceptable to the Bank to continue the business
relationship, after having given due consideration to the legitimate
concerns of the customer. Such cause is given in particular if the customer
has made incorrect statements as to the customer's financial status,
provided such statements were of significant importance for the Bank's
decision concerning the granting of credit or other operations involving
risks for the Bank (e.g. the delivery of the cheque card), or if a
substantial deterioration occurs or threatens to occur in the customer's
financial status, jeopardizing the discharge of obligations towards the
Bank. The Bank may also terminate the business relationship without notice
if the customer fails to comply, within the required time period allowed by
the Bank, with the obligation to provide or increase security according to
No. 13(2) of these Business Conditions or to the provisions of some other
agreement.
(4) TERMINATION OF CONSUMER LOANS IN THE EVENT OF DEFAULT
Where the Consumer Credit Act contains specific provisions for the
termination of a consumer loan subsequent to a payment default, the Bank
may only terminate the business relationship as provided therein.
(5) SETTLEMENT FOLLOWING TERMINATION
The Bank shall allow the customer a reasonable time period for the
settlement, in particular for the repayment of a loan, unless it is
necessary to attend immediately thereto (e.g. the return of the cheque
forms in the event of termination of a chequing agreement).
PROTECTION OF DEPOSITS
20. DEPOSIT PROTECTION FUND
The Bank is a member of the Deposit Protection Fund of the Association of
German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken
e.V.) (hereinafter referred to as "Deposit Protection Fund"). To the extent
that the Deposit Protection Fund or its mandatory makes payments to a
customer, the respective amount of the customer's claims against the Bank
is transferred simultaneously to the Deposit Protection Fund. The same
applies if in the absence of instructions from the customer the Deposit
Protection Fund makes payments into an account which is opened in favour of
the customer at another bank. The Bank shall be entitled to disclose to the
Deposit Protection Fund or to its mandatory all relevant information and to
place necessary documents of their disposal.
We hereby declare our consent with your General Business Conditions.
March 7, 1997 /s/ ARNOLD P. AGBAYANI ARNOLD P. AGBAYANI
IXYS CORPORATION
3540 BASSETT ST.
SANTA CLARA, CA 95054
<PAGE>
EXHIBIT 10.6
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of December 24, 1997, is entered into between IXYS
CORPORATION, a corporation (hereinafter called "Borrower"), whose sole place of
business (if Borrower has only one), chief executive office (if Borrower has
more than one place of business), or residence (if a sole proprietorship) is at
the address set forth in Section 1.5 hereinbelow, and BANK OF THE WEST, a
California banking corporation whose address is set forth in Section 1.3.
The parties agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
definitions:
1.1 ACCOUNTS. The term "Account(s)" means all presently existing and
--------
hereafter arising accounts, contract rights, instruments, documents, chattel
paper, and all other forms of obligations owing to Borrower arising out of the
sale or lease of goods or the rendition of services by Borrower whether or not
earned by performance, and any and all credit insurance, guaranties and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower.
1.2 AGREEMENT. The term "this Agreement" means this Loan and Security
---------
Agreement, any concurrent or subsequent rider to this Loan and Security
Agreement and any extensions, supplements, amendments or modifications to this
Loan and Security Agreement and or to any such rider.
1.3 BANK. The term "Bank" shall mean and refer to BANK OF THE WEST, a
----
California banking corporation, with a place of business located at 50 West San
Fernando Street, 2nd Floor, South Bay Business Banking Group, San Jose,
California 95113.
1.4 BANK EXPENSES. The term "Bank Expenses" means all costs and expenses
-------------
incurred by Bank in connection with this Agreement or the transactions
contemplated hereby, including, without limitation, all costs or expenses
required to be paid by Borrower under this Agreement which are paid or advanced
by Bank; taxes and insurance premiums of every nature and kind of Borrower paid
by Bank; filing, recording, publication, search fees, appraiser fees, auditor
fees, title insurance premiums paid or incurred by Bank in connection with
Bank's transactions with Borrower; costs and expenses incurred by Bank in
collecting or realizing upon the Collateral (with or without suit), to correct
any default or enforce any provision of this Agreement, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale and/or advertising to sell the Collateral, whether or not a sale is
consummated; costs and expenses of suit incurred by Bank in enforcing or
defending this Agreement or any portion hereof; and reasonable attorneys' fees
and expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, any
portion hereof, any agreement related hereto, or any of the transactions
contemplated hereby, whether or not suit is brought, and including, but not
limited to, any expenses incurred in relation to opposing or seeking to obtain
relief from any stay or restraining order prohibiting Bank from exercising its
rights as a secured creditor, foreclosing upon or disposing of Collateral, or
such related matters.
1.5 BORROWER. The term "Borrower" shall mean and refer to the party first
--------
named above, whose address is 3540 Bassett Street, Santa Clara, CA 95054.
1.6 BORROWER'S BOOKS. The term "Borrower's Books" means all of Borrower's
----------------
books and records including, but not limited to: minute books; ledgers, records
indicating, summarizing or evidencing Borrower's assets, liabilities, the
Collateral, the Obligations, and all information relating thereto; records
indicating, summarizing or evidencing Borrower's business operations or
financial condition; and all computer programs, disc or tape files, printouts,
runs, and other computer prepared information and the equipment containing such
information.
1.7 BORROWING BASE. The term "Borrowing Base" means the sum of: (a) eighty
--------------
percent (80%) of the net amount of Eligible Accounts, after deducting therefrom
all payments, adjustments and credits applicable thereto, and (b) the amount of
the advances agreed to be made pursuant to any rider, amendment or modification
to this Agreement that may now or hereafter be entered into by Bank and
Borrower.
1.8 CODE. The term "the Code" means the California Uniform Commercial Code,
----
and any and all terms used in this Agreement which are defined in the Code and
not specifically defined herein shall be construed and defined in accordance
with the meaning and definition ascribed to such terms under the Code.
1.9 COLLATERAL. The term "Collateral" means each and all of the following:
----------
the Accounts, the General Intangibles; the Negotiable Collateral; the Inventory;
the Equipment; any money or deposit accounts; any other assets of Borrower in
which Bank receives a security interest, or which hereafter come into the
possession, custody or control of Bank; and the Proceeds of any of the
foregoing, and Borrower's Books. Notwithstanding anything to the contrary
contained herein, Collateral shall not include any materials designated by Bank
as toxic or hazardous waste materials.
1.10 CREDIT. The term "Credit" means all Obligations in respect of amounts
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actually paid or advanced by Bank under this Agreement.
1.11 DAILY BALANCE. The term "Daily Balance" shall mean the amount
-------------
determined by taking the amount of the Credit owed at the beginning of a given
day, adding any new Credit advanced to or incurred by Borrower on such date, and
subtracting any payments or collections which are deemed to be paid and are
applied by Bank in reduction of the Credit on that date under the provisions of
this Agreement.
1.12 ELIGIBLE ACCOUNTS. The term "Eligible Accounts" means and includes
-----------------
Eligible Domestic Accounts and Eligible Foreign Accounts; provided, however,
that in no event shall the amount of Eligible Foreign Accounts exceed the lesser
of One Million Dollars ($1,000,000.00) or twenty-five percent of the Borrowing
Base.
1.12.1 ELIGIBLE DOMESTIC ACCOUNTS. The term "Eligible Domestic
--------------------------
Accounts" means and includes those accounts of Borrower which are due and
payable within thirty (30) days (or less) from the date of invoice, have been
validly assigned to Bank and strictly comply with all of Borrower's warranties
and representations to Bank; but Eligible Domestic Accounts shall not include
the following: (a) accounts with respect to which the account debtor is an
officer, employee, partner, joint venturer or agent of Borrower; (b) accounts
with respect to which goods are placed on consignment, guarantied sale or other
terms by reason of which the payment by the account debtor may be conditional;
(c) accounts with respect to which the account debtor is not a resident of the
United States of America; (d) accounts with respect to which the account debtor
is the United States of America or any department, agency or instrumentality
thereof; (e) accounts with respect to which the account debtor is a subsidiary
of, related to, affiliated or has common shareholders, officers or directors
with Borrower; (f) accounts with respect to which Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower; (g) accounts not paid by an account debtor within ninety
(90) days from the date of the invoice; (h) accounts with respect to which
account debtors dispute liability or make any claim, or have any defense,
crossclaim, counterclaim or offset; (i) accounts with respect to which any
Insolvency Proceeding is filed by or against the account debtor, or if an
account debtor becomes insolvent, fails or goes out of business; (j) all
accounts owed by an account debtor when fifty percent (50%) or more of all
outstanding accounts owed by the account debtor to Borrower have not been paid
within ninety (90) days after the date of invoice; and (k) accounts owed by any
single account debtor which exceed twenty percent (20%) of all of the Eligible
Domestic Accounts.
1.12.2 ELIGIBLE FOREIGN ACCOUNTS. The term "Eligible Foreign Accounts"
-------------------------
means and includes those accounts of Borrower which have been pre-approved by
Bank in writing, are due and payable within thirty (30) days, or less, from the
date of invoice, have been validly assigned to Bank, are due from account
debtors that are not residents of the United States of America, are insured or
guaranteed by insurers or guarantors satisfactory to Bank, and strictly comply
with all of Borrower's warranties and representations to Bank; but Eligible
Foreign Accounts shall not include the following: (a) accounts with respect to
which the account debtor is an officer, employee, partner, joint venturer or
agent of Borrower; (b) accounts with respect to which goods are placed on
consignment, guarantied sale or other terms by reason of which the payment by
the account debtor may be conditional; (c) accounts with respect to which the
account debtor is a subsidiary of, related to, affiliated or has common
shareholders, officers or directors with Borrower; (d) accounts with respect to
which Borrower is or may become liable to the account debtor for goods sold or
services rendered by the account debtor to Borrower; (e) accounts not paid by an
account debtor within ninety (90) days from the date of the invoice; (f)
accounts with respect to which account debtors dispute liability, or make any
claim, or have any defense, crossclaim, counterclaim or offset; (g) accounts
with respect to which any Insolvency Proceeding is filed by or against the
account debtor, or if an account debtor becomes insolvent, fails or goes out of
business; (h) all accounts owed by an account debtor when fifty percent (50%) or
more of all outstanding accounts owed by the account debtor to Borrower have not
been paid within ninety (90) days after the date of invoice; and (i) accounts
owed by any single account debtor which exceed twenty percent (20%)of all of the
Eligible Foreign Accounts.
1.13 EQUIPMENT. The term "Equipment" means all of Borrower's present and
---------
hereafter acquired equipment, wherever located, including without limitation,
machinery, machine tools, motors, controls, attachments, parts, tools, and
accessories incidental thereto, computer and office equipment, furniture,
furnishings, fixtures, motor vehicles, trailers and rolling stock; and all
substitutions, replacements, accessories, additions, attachments, improvements,
accessions, Proceeds and products of the foregoing.
1
<PAGE>
1.14 EVENT OF DEFAULT. The term "Event of Default" shall have the meaning
----------------
set forth in Article 11 of this Agreement.
1.15 GENERAL INTANGIBLES. The term "General Intangibles" means and includes
-------------------
all of Borrower's present and future general intangibles and other personal
property (including, without limitation, any and all choses or things in action,
goodwill, patents, copyrights, trade names, trademarks, trade secrets,
blueprints, drawings, purchase orders, computer programs, software, computer
discs, computer tapes, literature, reports, catalogs, deposit accounts and tax
refunds) other than goods and accounts.
1.16 INSOLVENCY PROCEEDING. The term "Insolvency Proceeding" means any
---------------------
proceeding commenced by or against any person or entity, including Borrower,
under any provision of the federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, including, but not limited to, assignments
for the benefit of creditors, formal or informal moratoriums, compositions or
extensions with some or all creditors.
1.17 INVENTORY. The term "Inventory" means all present and hereafter
---------
acquired inventory in which Borrower has any interest, wherever located,
including, but not limited to, goods held by Borrower for sale or lease or to be
furnished under a contract of service, new or raw product and materials,
components, work-in-process, finished goods, labels and other package dress,
advertising material and packing and shipping materials, any documents of title
representing any of the above, and any equipment, fixtures, or other property
used in the storing, moving, preserving, identifying, accounting for and
shipping or preparing for the shipping of Inventory.
1.18 JUDICIAL OFFICER OR ASSIGNEE. The term "Judicial Officer or Assignee"
----------------------------
means any trustee, receiver, controller, custodian, assignee for the benefit of
creditors or any other person or entity having powers or duties like or similar
to the powers and duties of a trustee, receiver, controller, custodian or
assignee for the benefit of creditors.
1.19 NEGOTIABLE COLLATERAL. The term "Negotiable Collateral" shall have the
---------------------
meaning set forth in Section 5.1 of this Agreement.
1.20 OBLIGATIONS. The term "Obligations" means any and all obligations,
-----------
loans, advances, overdrafts, debts, liabilities (including, without limitation,
any and all amounts charged to Borrower's account pursuant to any agreement
authorizing Bank to charge Borrower's account), lease and other contractual
obligations, guaranties, covenants, promises and duties owing by Borrower to
Bank of any kind and description (whether advanced pursuant to or evidenced by
this Agreement; by any note or other instrument; or by any other agreement
between Bank and Borrower and whether or not for the payment of money), whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, operation of law, or otherwise, and further
including, without limitation, all interest not paid when due and all Bank
Expenses.
1.21 OVER ADVANCE. The term "Over Advance" shall have the meaning set forth
------------
in Section 2.1 of this Agreement.
1.22 OVERLINE. The term "Overline" shall have the meaning set forth in
--------
section 3.1 of this Agreement.
1.23 PRIME RATE. The term "Prime Rate" means the variable rate of interest,
----------
per annum, most recently announced by Bank at its headquarters office in San
Francisco, California as its "prime rate", with the understanding the Bank's
"prime rate" is only one of Bank's base rates and serves as a basis upon which
effective rates of interest are calculated for loans making reference thereto
and may not be the lowest of Bank's base rates.
1.24 PROCEEDS. The term "Proceeds" means whatever is received upon the
--------
sale, lease, exchange, collection or other disposition of Collateral or
proceeds, including, without limitation, proceeds of insurance covering
Collateral, tax refunds, and any and all Accounts, General Intangibles,
Negotiable Collateral, Inventory, Equipment, money, deposit accounts, goods, or
other tangible and intangible property of Borrower resulting from the sale or
other disposition of the Collateral, and the proceeds thereof.
1.25 RATE. The term "Rate" shall have the meaning set forth in Section 2.3
----
of this Agreement.
1.26 TANGIBLE NET WORTH. The term "Tangible Net Worth" means net worth as
------------------
determined in accordance with generally accepted accounting principles
consistently applied, increased by debt subordinated to Bank and decreased by
the following: patents, licenses, goodwill, capitalized research and development
costs, subscription lists, organization expenses and monies due from affiliates
(including officers, directors, shareholders, parents, partners, joint
venturers, subsidiaries and commonly held companies). For the purpose of this
Agreement, the term "debt subordinated to Bank" shall mean any loans, debts, or
other obligations ("Third Party Debts") owing by Borrower to any third parties
(including, without limitation, any shareholders or affiliates of Borrower)
and/or security interests ("Third Party Security Interests") in the assets of
Borrower (including, without limitation, the Collateral) in favor of any third
parties (including, without limitation, any shareholders or affiliates of
Borrower), which has been subordinated to Borrower's Obligations to Bank under
this Agreement and to Bank's security interest in the Collateral. Such
subordination shall be on terms and conditions acceptable to Bank in its sole
and absolute discretion. With respect to Third Party Debt, such subordination
shall include (at a minimum) an agreement by the holder of the Third Party Debt
to suspend payments by Borrower of any principal, interest or other amount under
the Third Party Debt until this Agreement has been terminated and all of
Borrower's Obligations to Bank have been paid off and satisfied. With respect to
Third Party Security Interests, such subordination shall include (at a minimum)
an agreement by the beneficiary of the Third Party Security Interest to (i)
subordinate the priority of its lien to the lien in favor of Bank and (ii)
refrain from exercising any rights or remedies with respect to the property
encumbered and hypothecated by such Third Party Security Interest until all
Obligations owing by Borrower to Bank have been paid, performed and satisfied.
1.27 ACCOUNTING TERMS. All accounting terms and computations shall be based
----------------
upon generally accepted accounting principles consistently applied.
2. LOANS AND TERMS OF PAYMENT
2.1 REVOLVING LOANS. UPON the request of Borrower, made at any time and
---------------
from time to time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing Base;
provided, however, that in no event shall Bank be obligated to make advances to
Borrower under this Section 2.1 whenever the Daily Balance, when added to the
total of Borrower's Obligations in respect of all letters of credit outstanding
under Section 3.1 of this Agreement, exceeds, at any time, either the Borrowing
Base or the sum of Five Million Dollars ($5,000,000.00).
All loans made pursuant to this Section 2.1 shall be added to and
deemed part of the Credit when made. If, at any time and for any reason, the
Daily Balance exceeds the amount of the loans and advances for which Borrower is
eligible based upon the above limitations, or if the advances made pursuant to
any rider to this Agreement exceed the percentage or dollar limitations
contained in such rider (an "Over Advance"), then Borrower shall immediately pay
to Bank, in cash, the amount of such Over Advance.
2.2 NOTICE AND METHOD OF BORROWING. Bank is hereby authorized to make the
------------------------------
loans and the extensions of credit provided for in this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
authorized representative of Borrower or, at the discretion of Bank, if said
loans are necessary to satisfy any Obligation of Borrower to Bank. Bank shall
have no duty to make inquiry or verify the authority of any such party and
Borrower shall hold Bank harmless from any damages, claims, or liability by
reason of Bank's honor of, or failure to honor, any such instructions. Bank
reserves the right to withhold advancing any loan and/or issuing any letter of
credit under this Agreement pending: (a) presentation by Borrower to Bank of a
certificate of borrowing base, in form and content satisfactory to Bank, and the
verification of the contents thereof by Bank; and (b) receipt of such additional
information as Bank may, from time to time, request. Bank reserves the right to
recompute the Eligible Accounts, and any other elements of the base upon which
Borrower computes the loans and letters of credit to which Borrower is eligible,
based upon such information and verification as Bank, in its discretion, deems
relevant.
2.3 REVOLVING LOANS INTEREST RATE. Except as hereinbelow provided, all
-----------------------------
Credit shall bear interest, on the Daily Balance owing, at a per annum rate
equal to the Prime Rate (the "Rate"). The Rate as of the date of this Agreement
is eight and one-half percent (8.50%) per annum. In the event that the Prime
Rate announced is, from time to time hereafter, changed, adjustment in the rate
of interest payable by Borrower shall be made on the effective date of the
change in the Prime Rate. The rate of interest, as adjusted, shall apply to all
Credit until the Prime Rate is adjusted again. All interest chargeable under
this Agreement on a per annum basis shall be computed on a basis on a 360-day
year for actual days elapsed.
Interest payable by Borrower under this Section 2.3 shall be due and
payable on the fifth (5th) day of each calendar month during the term of this
Agreement, and Bank may, at its option, elect to treat any due but unpaid
interest and Bank Expenses as advances under the Credit, and all such advances
shall bear interest on the daily balance thereof, at a per annum rate applicable
to the Credit under the terms of this Agreement. The receipt of any check or
other item of payment by Bank shall not be considered a payment until such check
or other item of payment is honored when presented for payment, in which event,
said check or other item of payment shall be deemed to have been paid to Bank in
accordance with Bank's rules and regulations relating to credits to deposit
accounts or, in Bank's discretion, two (2) calendar days after the date Bank
actually receives possession of such check or other item of payment.
2
<PAGE>
2.4 OVER ADVANCE INTEREST RATE. Without affecting Borrower's obligations
--------------------------
to repay immediately any Over Advance in accordance with Section 2. I hereof,
all Over Advances shall bear additional interest on the amount thereof at the
rate of two percent (2%) per month payable from the date incurred and for each
month thereafter, until repaid in full.
2.5 DEFAULT INTEREST RATE. Notwithstanding anything to the contrary
---------------------
contained in Article 2 of this Agreement, the Credit shall bear interest, from
and after any Event of Default and without constituting a waiver of any such
Event of Default, on the Daily Balance owing, at a per annum rate five (5)
percentage points above the Rate.
2.6 ACCOUNT STATED. Bank shall render monthly statements of the Credit
--------------
owing by Borrower to Bank, including statements of all principal, interest and
Bank Expenses owing, and such statement shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower and Bank
unless, within thirty (30) days after receipt thereof by Borrower, Borrower
shall deliver to Bank, by registered or certified mail, at Bank's place of
business indicated above, written objection thereto specifying the error or
errors, if any, contained in any such statement.
2.7 FEES. Once every twelve (12) months during the term of this Agreement,
----
Borrower shall pay to Bank, on demand, an annual fee in an amount equal to
twenty-five one-hundredths of one percent (0.25 %) of the maximum dollar
limitation on the credit available to Borrower specified in the first paragraph
of Section 2.1 above, which fee shall represent an unconditional and non-
refundable payment to Bank in consideration of Bank's agreement to enter into
this Agreement.
3. COMMERCIAL LETTER OF CREDIT FACILITY
3.1 REVOLVING LETTERS OF CREDIT. Upon the request of Borrower, made at any
---------------------------
time and from time to time during the term hereof, and so long as no Event of
Default has occurred, Bank, on a revolving basis, will, subject to the
limitations set forth below, issue commercial letters of credit for Borrower's
account to facilitate the importation of merchandise by Borrower for resale by
Borrower and issue standby letters of credit for Borrower's account for purposes
acceptable to Bank; provided, however, that in no event shall Bank be obligated
to issue any letters of credit under this Section 3.1, whenever the total of
Borrower's Obligations in respect of all letters of credit outstanding under
this Section 3.1, when added to the Daily Balance, exceeds, at any time, either
the Borrowing Base or the sum of Five Million Dollars ($5,000,000.00); provided
further, however, that the total of Borrower's Obligations in respect to all
letters of credit outstanding may not exceed at any one time Three Million Five
Hundred Thousand Dollars ($3,500,000.00).
If, at any time and for any reason, the total of Borrower's
Obligations in respect to all letters of credit outstanding under this Section
3.1, when added to the Daily Balance, exceeds either the Borrowing Base or the
sum of Five Million Dollars ($5,000,000.00) (an "Overline") or if, at any time
and for any reason, the total of Borrower's Obligations in respect to all
commercial and standby letters of credit outstanding hereunder exceeds Three
Million Five Hundred Thousand Dollars ($3,500,000.00)(an "L/C Overline"), then
Borrower shall immediately pay to Bank, in cash, the amount of such Overline
and/or L/C Overline. Bank may, in its sole discretion, elect to treat an L/C
Overline as an advance under the Credit. Notwithstanding the foregoing, Borrower
shall be able to obtain standby and commercial letters of credit in excess of
the Three Million Five Hundred Thousand Dollar ($3,500,000.00) sublimit set
forth above if and only if Borrower delivers to Bank cash or some other
collateral approved by Bank in its sole and absolute discretion in the amount of
the requested letter of credit (the "L/C Overline Collateral"). Such L/C
Overline Collateral shall constitute a part of the Collateral, shall be
encumbered by the security interest granted in Section 5.1 of this Agreement,
and shall secure all of Borrower's Obligations (and not just those under the L/C
Overline). Borrower shall execute and deliver, or cause to be executed and
delivered, to Bank, concurrent with Borrower's request for an L/C Overline, and
at any time or times hereafter at the request of Bank, all financing statements,
continuation financing statements, fixture filings, letters of authority and all
other documents that Bank may reasonably request, in form satisfactory to Bank,
to perfect and maintain perfected Bank's security interests in the L/C Overline
Collateral and Bank shall have all rights in connection therewith as are
specified elsewhere in this Agreement (including, without limitation, those
under Section 5.2 of this Agreement).
3.2 ADVANCES RE: LETTERS OF CREDIT. All amounts actually paid or advanced
------------------------------
by Bank to or for the benefit of Borrower under or in respect to letters of
credit issued under Section 3.1 above shall, when made, constitute advances
under the Credit and shall be payable and bear interest as provided in this
Agreement, and shall otherwise be subject to all terms and conditions hereof,
3.3 APPLICATION AND AGREEMENT RE: COMMERCIAL LETTERS OF CREDIT. Each
----------------------------------------------------------
commercial letter of credit issued under Section 3.1 above shall be issued
pursuant to the terms and conditions hereof and of a Bank standard form
Application For Commercial Letter of Credit and Agreement (Commercial Letter of
Credit) executed by Borrower and shall:
(a) Expire on or before one hundred eighty (180) days after the date
such letter of credit is issued;
(b) Require drafts payable at sight [or up to thirty (30) days after
sight]; and
(c) Be otherwise in form and substance and in favor of beneficiaries
satisfactory to Bank.
Borrower shall pay Bank issuance fees, negotiation fees and such other
fees at the times and in the amounts Bank advises Borrower from time to time as
being applicable to commercial letters of credit. In the event of any
inconsistency between the terms of this Agreement and the terms of such
Application For Commercial Letter of Credit and Agreement (Commercial Letter of
Credit), the terms of such Application for Commercial Letter of Credit and
Agreement (Commercial Letter of Credit) shall control.
3.4 APPLICATION AND AGREEMENT RE: STANDBY LETTERS OF CREDIT. Each standby
-------------------------------------------------------
letter of credit issued under Section 3.1 above shall be issued pursuant to the
terms and conditions hereof and of a Bank standard form Application For Standby
Letter of Credit and Agreement (Standby Letter of Credit) executed by Borrower
and shall:
(a) Expire on or before one hundred eighty (180) days after the date
such standby letter of credit is issued; and
(b) Be otherwise in form and substance and in favor of beneficiaries
satisfactory to Bank.
Borrower shall pay to Bank issuance fees and other fees at the times
and in the amounts Bank advises Borrower from time to time as being applicable
to standby letters of credit. In the event of any inconsistency between the
terms of this Agreement and the terms of such Application For Standby Letter of
Credit and Agreement (Standby Letter of Credit), the terms of such Application
For Standby Letter of Credit and Agreement (Standby Letter of Credit) shall
control.
3.5 OBLIGATIONS RE: LETTERS OF CREDIT. All advances made, letters of
---------------------------------
credit issued and other financial accommodations extended by Bank to or for the
account or benefit of Borrower under Article 3 of this Agreement shall be added
to and deemed part of the Obligations when made, issued, created and/or
extended.
4. TERM
4.1 TERM AND TERMINATION. This Agreement shall commence on the date
--------------------
hereof, shall (with respect to the revolving credit facility under Article 2 of
this Agreement, the letter of credit Facility under Article 3 of this Agreement,
and the F/X Subfacility under Article 14 of this Agreement) remain in full force
and effect until August 5, 1990 and shall continue on a month-to-month basis
thereafter until terminated by either party by thirty (30) days written notice.
With respect to Equipment Purchase Line A. the term of this Agreement shall be
set forth in Article 15. Notice of such termination shall be effectuated by the
mailing of a registered or certified letter of notice. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, Bank may terminate its
obligations under this Agreement without notice.
On the date of termination, all Obligations owed by Borrower to Bank
under that portion of the total facility hereunder with respect to which
Borrower's rights have expired or terminated shall become immediately due and
payable without notice or demand and shall be repaid to Bank in cash or by a
wire transfer of immediately available funds. Notwithstanding termination, until
all Obligations have been fully repaid and permitted, Bank shall retain its
security interest in all existing Collateral and Collateral arising thereafter,
and Borrower shall continue to perform all Obligations.
4.2 TERMINATION OF SECURITY INTEREST. After termination and when Bank has
--------------------------------
received payment and performance in full of all Obligations, and upon the
execution by Borrower and delivery to Bank of a general release in favor of
Bank, Bank shall execute a termination of all security agreements and security
interests given by Borrower to Bank.
5. CREATION OF SECURITY INTEREST
3
<PAGE>
5.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Bank a
--------------------------
continuing security interest in the Collateral in order to secure prompt
repayment and performance of all Obligations. Bank's security interest in the
Collateral shall attach to the Collateral without further act on the part of
Bank or Borrower. In the event that any Collateral is evidenced by or consists
of a letter of credit, advice of credit, instrument, money, document, negotiable
document, chattel paper or any similar property (collectively the "Negotiable
Collateral"), Borrower shall, immediately upon receipt thereof, endorse and
assign such Negotiable Collateral over to Bank, and deliver actual physical
possession of the Negotiable Collateral to Bank.
5.2 SECURITY DOCUMENTS; ATTORNEY-IN-FACT. Borrower shall execute and
-----------------------------------
deliver, or cause to be executed and delivered, to Bank, concurrent with
Borrower's execution of this Agreement, and at any time or times hereafter at
the request of Bank, all financing statements, continuation financing
statements, fixture filings, landlord waivers, security agreements, chattel
mortgages, assignments, deeds of trust, assignments of leases, endorsements of
certificates of title, affidavits, reports, notices, schedules of Accounts,
schedules of Inventory, and letters of authority and all other documents that
Bank may reasonably request, in form satisfactory to Bank, to perfect and
maintain perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated trader this Agreement.
Borrower hereby irrevocably makes, constitutes and appoints Bank (and any of
Bank's officers, employees or agents designated by Bank to act on Bank's behalf)
as Borrower's true and lawful attorney with power to sign the name of Borrower
on any of the above-described documents or on any other similar documents which
need to be executed, recorded, and/or filed in order to perfect or continue
perfected Bank's security interest in the Collateral. In addition, following the
occurrence of an Event of Default, Borrower hereby appoints Bank (and any of
Bank's officers, employees, or agents designated by Bank) as Borrower's
attorney, with power: to endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Bank's possession; to sign Borrower's name on any invoice or bill of
lading relating to any Accounts, on drafts against account debtors, on schedules
and assignments of Accounts, on verifications of accounts, and on notices to
account debtors; to establish a lock box arrangement and/or to notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Bank, to receive and open all mail addressed to Borrower,
and to retain all mail relating to the Collateral and forward all other mail to
Borrower; to send, whether in writing or by telephone, requests for verification
of Accounts; and to do all things necessary to carry out this Agreement.
Borrower ratifies and approves all acts of the attorney, and neither Bank nor
its attorney will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law made in good faith. The appointment of Bank
as Borrower's attorney, and each and every one of Bank's rights and powers,
being coupled with an interest, are irrevocable so long as any Obligations
remain unpaid or unperformed.
To protect or perfect any security interest granted to Bank hereunder,
Bank may, in its sole discretion, discharge any lien or encumbrance or bond the
same, pay any insurance, fees or charges, maintain guards, warehousemen or any
personnel to protect the Collateral, pay any service bureau or obtain any
records, and all costs for the same shall be Bank Expenses.
6. CONDITIONS PRECEDENT
As conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute and deliver or
cause to be executed and delivered, to Bank, in form and substance satisfactory
to Bank and its counsel, each of the following:
6.1 AGREEMENT. This Agreement, together with supplemental security
---------
agreements, chattel mortgages, riders and other documents required by Bank;
6.2 FINANCING STATEMENT. Financing statements (Form UCC-1) in form
-------------------
acceptable for filing and recording with the appropriate governmental
authorities;
6.3 RESOLUTIONS. If Borrower is a corporation, certified extracts from the
-----------
minutes of the meetings of Borrower's board of directors, authorizing the
borrowings and the granting of the security interests provided for herein and
authorizing specific officers to execute and deliver the agreements provided for
herein;
6.4 CERTIFICATES. If Borrower is a corporation, a certificate of good
------------
standing showing that Borrower is in good standing under the laws of the state
of its incorporation, and certificates indicating that Borrower has qualified to
transact business and is in good standing in any other state in which Borrower
conducts business;
6.5 PARTNERSHIP AGREEMENT. if Borrower is a partnership, then a copy of
---------------------
Borrower's partnership agreement certified by each general partner of Borrower;
6.6 SEARCH RESULTS. UCC, tax lien, litigation, judgment and other
--------------
searches, title reports, fictitious business name statement filings, insurance
certificates, notices or other similar documents which Bank may require and in
such form as Bank may require, in order to reflect Bank's first priority
security interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement;
6.7 WAIVERS. Waivers executed by landlords and mortgagees of any real
-------
property on which the Collateral is located;
6.8 OFFICERS' WARRANTIES AND REPRESENTATIONS. An executed form warranties
----------------------------------------
and representations of officers; and
6.9 INSURANCE. Evidence satisfactory to Bank that Borrower has obtained
---------
insurance policies or binders, in such amounts as may be acceptable to Bank,
respecting the tangible assets of Borrower which are to serve as Collateral and
naming Bank as a loss payee on a 438-BFU endorsement and/or additional insured
(at Bank's discretion). At Bank's option Borrower shall also provide evidence of
sufficient insurance coverage respecting worker's compensation liability,
products liability claims and other liability claims and naming Bank as an
additional insured in connection therewith
6.10 AUDITOR'S CERTIFICATION. A letter, certification or other written
-----------------------
approval from any independent certified public accountant or other independent
third party auditor authorizing Bank to rely on (and acknowledging Bank's actual
reliance upon) all audits, income statements, balance sheets, profit and loss
statements and other financial statements and reports prepared by such
accountant or auditor and in Bank's possession.
6.11 SECURED LENDING AUDIT. If requested by Bank, an audit, inspection or
---------------------
other report prepared by auditors or consultants acceptable to Bank confirming
(i) the location, quantity, quality, and value of all equipment and inventory,
(ii) the accuracy, authenticity, amount, aging, payment history, obligors, and
status of all Accounts, and (iii) such other attributes, locations, quantities,
qualities, and values of the Collateral as Bank deems necessary or appropriate.
7. MANAGEMENT AND STATUS OF COLLATERAL
7.1 MANAGEMENT OF ACCOUNTS.
----------------------
(a) ASSIGNMENTS OF ACCOUNTS. From time to time, and at Bank's request,
-----------------------
Borrower shall provide Bank with schedules describing all Accounts created or
acquired by Borrower and shall execute and deliver written assignments of such
Accounts to Bank, whether or not Bank makes advances against such Accounts;
provided, however, that Borrower's failure to execute and deliver such schedules
and/or assignments shall not impair or limit Bank's security interest and other
rights in and to the Accounts. At Bank's request, Borrower shall furnish Bank
with copies of Borrower's sales journals or invoices, and, if requested by Bank,
copies of customers' purchase orders, or the equivalent, delivery receipts,
shipping instructions, bills of lading and other evidence of shipping
arrangements, and Borrower warrants the genuineness thereof. Absent a request,
Borrower shall maintain all such documents as custodian for Bank.
(b) COLLECTION OF ACCOUNTS. At any time (with or without the
----------------------
occurrence or an Event of Default), Bank or Bank's designee may notify customers
or account debtors of Borrower that the Accounts have been assigned to Bank and
that Bank has a security interest therein. Following the occurrence of an Event
of Default, Bank (or its designee) may also notify all account debtors to pay
their Accounts directly to Bank, may take whatever other steps Bank deems
necessary to collect the Accounts directly, may exercise any other remedies
provided or authorized by this Agreement, and may charge the collection costs
and expenses to Borrower as part of the Obligations. Unless and until an Event
of Default occurs hereunder, Borrower may collect all Accounts directly. Any
Accounts directly collected by Borrower shall be received in trust by Borrower
as Bank's trustee and, immediately upon the occurrence of any Event of Default,
Borrower shall deliver said payments to Bank in their original form as received
from the account debtor and, if any sale of Collateral is made for cash,
Borrower shall concurrently deliver such cash to Bank. Bank shall be entitled,
in its discretion, to apply all payments and collections to the Obligations.
(c) WARRANTIES AND DISPUTES RE: ACCOUNTS. If any warranty, promise or
------------------------------------
covenant is breached as to any account, or if any part of the amount of the
accounts owing by an account debtor shall be other than Eligible Accounts, then
Bank may deem ineligible any or all accounts owing by that account debtor, and
reduce the amount of Eligible Accounts by the amount thereof. Bank shall retain
its security interest in all Accounts, whether they are Eligible Accounts or
not. until all Obligations have been fully repaid and performed.
(d) RETURNS AND ALLOWANCES. Returns and allowances, if any, as between
----------------------
Borrower and Borrower's customers, will be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at this time.
Immediately upon written request by Bank, and continuing thereafter until such
time as Bank may indicate,
4
<PAGE>
(a) any goods which are returned by an account debtor, or any account debtor
which Bank may indicate, or which is otherwise recovered by Borrower from such
account debtor shall be set aside and marked with Bank's name, and Bank shall
retain a security interest therein, (b) Borrower shall promptly notify Bank of
all prior returns and recoveries by such account debtor to the extent indicated
by Bank, and all such returns and recoveries thereafter, (c) Borrower shall
promptly deliver any such returned or recovered goods to Bank to the extent Bank
shall indicate, and (d) Borrower shall promptly notify Bank of any dispute or
claim which is then pending and shall not settle or adjust any such dispute or
claim without Bank's prior written approval. After an Event of Default, no
discount, credit or allowance shall be granted by Borrower to any account debtor
and no return of merchandise shall be accepted by Borrower without Bank's
written consent. Bank may, after an Event of Default, settle or adjust disputes
and claims directly with account debtors for amounts and upon terms which Bank
considers advisable and, in such cases, Bank will credit Borrower's account with
only the net amounts received by Bank in payment of such disputed Accounts after
deducting all Bank Expenses incurred or expended in connection therewith.
7.2 MANAGEMENT OF EQUIPMENT.
-----------------------
(a) EQUIPMENT RECORDS. Borrower shall maintain a comprehensive and up-
-----------------
to-date list of all Equipment, showing the date of purchase, any identifying
descriptions and numbers, and records of maintenance. Borrower shall deliver a
copy of such list to Bank upon execution of this Agreement, and at such time or
times thereafter as Bank may request.
(b) CONDITION OF EQUIPMENT. Borrower shall keep and maintain the
----------------------
Equipment in good operating condition and repair and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any items of
Equipment to become a fixture to real estate or an accession to other property,
and the Equipment is now and shall at all times remain and be personal property.
(c) CERTIFICATE OF TITLE. Upon Bank's request, Borrower shall
--------------------
immediately deliver to Bank, properly endorsed, any and all evidences of
ownership, certificates of title or applications for titles to any or all items
of Equipment.
(d) INSPECTION OF EQUIPMENT. Bank shall have the right, now and at all
-----------------------
times hereafter, during Borrower's usual business hours, or at the regular
business hours of any third party in possession of Equipment, to inspect and
examine the Equipment and to check and test the same as to quality, quantity,
value and condition, and Borrower agrees to reimburse Bank for its reasonable
costs and expenses in so doing; provided, however, that prior to the occurrence
of an Event of Default Borrower shall be obligated to reimburse for more than
one (1) such inspection and examination during any twelve (12) month period.
7.3 MANAGEMENT OF INVENTORY.
-----------------------
(a) INVENTORY RECORDS. Borrower does now keep and hereafter at all
-----------------
times shall keep correct and accurate records itemizing and describing the
kind, type, quality and quantity of the Inventory, Borrower's cost therefor
and selling price thereof, and the daily withdrawals therefrom and additions
thereto, all of which records shall be available upon demand to any of Bank's
officers, agents and employees for inspection and copying.
(b) INVENTORY DESIGNATIONS. Borrower, immediately upon demand by Bank
----------------------
therefor, shall now and from time to time hereafter, at such intervals as are
requested by Bank, deliver to Bank designations of Inventory specifying
Borrower's cost of Inventory, the wholesale market value thereof and such other
matters and information relating to the Inventory as Bank may request.
(c) STORAGE OF INVENTORY. Inventory is not now and shall not at any
----------------
time or times hereafter be located or stored with a bailee, warehouseman or
other third party without Bank's prior written consent, and, in such event,
Borrower will concurrently therewith cause any such bailee, warehouseman or
other third party to issue and deliver to Bank, in a form acceptable to Bank,
warehouse receipts in Bank's name evidencing the storage of Inventory or other
evidence of Bank's prior rights in the Inventory. In any event, Borrower shall
instruct any third party to hold all such Inventory for Bank's account subject
to Bank's security interest and its instructions.
(d) DELIVERY OF INVENTORY TO BANK. Upon the occurrence of an event of
-----------------------------
default, Borrower will, at Bank's request and at Borrower's expense, pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account; or store the same in a
warehouse in Bank's name; or deliver to Bank documents of title representing
said Inventory or evidencing Bank's security interest in some other manner
acceptable to Bank.
(e) INVENTORY INSPECTION. Bank shall have the right, at all times,
--------------------
during Borrower's normal business hours, or at the regular business hours of any
third party having custody of or control over Inventory, to inspect and examine
the Inventory and to check and test the same as to quality, quantity, value and
condition, and Borrower agrees to reimburse Bank for its reasonable costs and
expenses in so doing; provided, however, that prior to the occurrence of an
Event of Default Borrower shall be obligated to reimburse for more than one (1)
such inspection and examination during any twelve (12) month period.
(f) SALES IN ORDINARY COURSE. Until the occurrence of an Event of
------------------------
Default, Borrower may, subject to the provisions hereof and consistent herewith,
sell the Inventory, but only in the ordinary course of Borrower's business and
for full and fair consideration. A sale of Inventory in Borrower's ordinary
course of business does not include an exchange or a transfer in partial or
total satisfaction of a debt owing by Borrower. After an Event of Default,
Borrower shall not sell any Inventory without Bank's written consent.
7.4 BORROWER'S BOOKS. Bank shall have the right, at all times and at least
----------------
annually, during Borrower's normal business hours, or at the regular business
hours of any third party having custody of or control over Borrower's Books, to
inspect, review, examine, and audit Borrower's Books and to make summaries and
photocopies thereof. Borrower agrees to reimburse Bank for its reasonable costs
and expenses in performing such inspection, review, examination, audit and
photocopying.
8. WARRANTIES AND REPRESENTATIONS
In order to induce Bank to enter into this Agreement and to make the
loans and/or issue the letters of credit contemplated hereby, Borrower warrants,
represents and agrees that, until all Obligations are fully paid and performed:
8.1 TITLE TO PROPERTIES. Borrower has and at all times will have good,
-------------------
marketable and indefeasible title to the Collateral; the Collateral is and at
all times shall remain free and clear of all liens, claims, encumbrances, and
purchase money or other security interests (except as held by Bank or as may be
consented to, in writing, by Bank), and the Collateral is and shall, at all
times, remain of good and of merchantable quality, free from defects.
8.2 VALIDITY OF ACCOUNTS. The accounts are and will, at all times
--------------------
pertinent hereto, be bona fide existing obligations created by the sale or lease
of goods or the rendition of services to account debtors in the ordinary course
of Borrower's business, and are and will be unconditionally owed to Borrower
without rights of return or cancellation. At the time each account is generated
and/or assigned to Bank: (a) all accounts will be due and payable in accordance
with the terms set forth in Section 1.12 of this Agreement, or on such other
terms approved in writing by Bank in advance of the creation of accounts, and
such terms shall be expressly set forth on the face of all invoices; (b) all
property giving rise to accounts shall have been delivered to the account debtor
or to the agent of the account debtor for immediate shipment to and
unconditional acceptance by the account debtor; (c) no account will be past due;
(d) all accounts shall be unconditionally owed to Borrower without defense,
offset or counterclaim dispute; and (e) Borrower shall have received no notice
of actual or imminent Insolvency Proceeding of any account debtor.
8.3 PLACE OF BUSINESS. Borrower's sole place of business or chief
-----------------
executive office or residence is located at the address set forth in Section 1.5
hereinabove, and Borrower covenants and agrees that Borrower will not, during
the term of this Agreement, without prior written notification to Bank, relocate
said sole place of business or chief executive office or residence.
8.4 LEGAL STATUS. Borrower, if incorporated, is and shall at all times
------------
hereafter be duly organized and existing and in good standing under the laws
of the state of its incorporation, and qualified or licensed to do business,
and in good standing as a foreign corporation, if applicable, in all
jurisdictions in which such qualification or licensing is required.
8.5 AUTHORIZATION AND VALIDITY. This Agreement and each other document,
--------------------------
contract and instrument required by or at any time delivered to Bank in
connection with this Agreement have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute
legal, valid and binding agreements and obligations of Borrower or the party
which executes the same, enforceable in accordance with their respective terms.
8.6 NO VIOLATION. The execution, delivery and performance by Borrower of
-----------
this Agreement shall not: (a) violate any laws or regulation, (b) constitute a
breach of any provision contained in the Articles of Incorporation, Bylaws or
other organization papers of Borrower, or (c) constitute an event of default
under any agreement to which Borrower is now or hereafter becomes a party or by
which Borrower may be bound.
5
<PAGE>
8.7 PAYMENT OF TAXES. All assessments and taxes, whether real, personal or
----------------
otherwise, due or payable by, or imposed, levied or assessed against Borrower,
or any of Borrower's property, have been paid in full before delinquency.
8.8 NO LITIGATION. There are not presently, nor will there be at any time
-------------
during the term of this Agreement, any actions or proceedings pending by or
against Borrower, any guarantor of the Obligations (or any portion thereof) or
any general partner of Borrower before any court or administrative agency, and
Borrower has no knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower, any such guarantor or general partner, except for ongoing
collection matters and except as heretofore disclosed in writing to Bank. If any
of the foregoing do arise during the term of this Agreement, Borrower shall
immediately notify Bank in writing.
8.9 FINANCIAL STATEMENTS AND CONDITION. All financial statements and
----------------------------------
information relating to Borrower which have been or may hereafter be delivered
by Borrower to Bank are true and correct and have been prepared in accordance
with generally accepted accounting principles consistently applied, and there
has been no material adverse change in the financial condition of Borrower since
the submission of such financial information to Bank.
8.10 PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess,
-------------------
all permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade names, trade name rights, patents, patent rights and
fictitious name rights necessary to enable Borrower to conduct the business in
which Borrower is now engaged without conflict with the rights of others.
8.11 ERISA WARRANTY. Borrower has not withdrawn from (and no termination,
--------------
partial termination or other event has occurred with respect to) any deferred
compensation plan maintained for the benefit of Borrower's employees, and has
not withdrawn from any multi-employer plan described in Section 4001(a)(3) of
ERISA (as defined in Section 8.9 of this Agreement).
8.12 ENVIRONMENTAL MATTERS. Borrower is now and at all times hereafter
---------------------
shall remain in compliance with all federal, state and municipal laws,
regulations and ordinances relating to the handling, treatment and disposal of
toxic substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits. None of the operations of Borrower is now nor shall
hereafter be the subject of any federal, state or municipal investigation
evaluating whether any remedial action is needed to respond to a release of any
toxic or hazardous waste or substance into the environment.
8.13 SOLVENCY. Borrower is now and shall be at all times hereafter solvent
--------
and able to pay Borrower's debts (including trade debts) as they mature.
8.14 LIEN PRIORITY. The liens and security interests of Bank in the
-------------
Collateral are and shall remain first priority, except as expressly agreed to,
in writing, by Bank.
8.15 WARRANTIES AND REPRESENTATIONS CUMULATIVE. Each warranty,
-----------------------------------------
representation and agreement contained in this Agreement shall be automatically
deemed repeated with each loan and/or advance and shall be true, accurate and
correct at each such time and shall be conclusively presumed to have been relied
on by Bank regardless of any investigation made or information possessed by
Bank. The warranties, representations and agreements set forth herein shall be
cumulative and in addition to any and all other warranties, representations and
agreements which Borrower shall give, or cause to be given, to Bank, either now
or hereafter.
9. NEGATIVE COVENANTS
Borrower will not, without Bank's prior written consent, during the
term hereof and so long as any Obligation remains unpaid or unperformed:
9.1 CHANCE IN IDENTITY. Change Borrower's name, business structure, or
------------------
identity, or add any new fictitious name, or relocate Borrower's sole place of
business or chief executive office or residence.
9.2 ACQUISITION AND MERGER. Acquire, merge or consolidate with or into any
----------------------
other business organization or enter into any partnership, joint venture or
other combination.
9.3 ORDINARY COURSE OF BUSINESS. Enter into any transaction not in the
---------------------------
usual course of Borrower's business.
9.4 CHANGE IN FINANCIAL STRUCTURE. Make any change in Borrower's financial
-----------------------------
structure or in any of Borrower's business objectives, purposes, or operations.
9.5 SUSPENSION OF BUSINESS. Suspend or go out of business.
----------------------
9.6 DIVIDENDS AND DISTRIBUTIONS. If Borrower is a corporation, make any
---------------------------
distribution or declare or pay any dividends (in cash or stock) on, or purchase,
acquire, redeem or retire any of its capital stock, of any class, whether now or
hereafter outstanding; provided, however, that notwithstanding the prohibition
in this section 9.6, Borrower may repurchase, reacquire and/or redeem
outstanding capital stock of its former employees in an amount not exceeding Two
Hundred Fifty Thousand Dollars ($250,000.00) per fiscal year.
9.7 LIENS AND ENCUMBRANCES. Grant a security interest in or permit a lien,
----------------------
claim or encumbrance upon all or any portion of Borrower's assets or the
Collateral, except in favor of Bank and except for purchase money liens.
9.8 INVESTMENT IN SECURITIES. Make any investment in securities, other
------------------------
than the securities of the United States of America.
9.9 ERISA/COVENANT. Withdraw from participation in, or permit the
--------------
termination or partial termination of, or permit the occurrence of any other
event with respect to any deferred compensation plan maintained for the benefit
of Borrower's employees under circumstance that could result in liability to the
Pension Benefit Guaranty Corporation, or any of its successors or assigns, or to
any entity which provides funds for such delivered compensation plan, or
withdraw from any multi-employer plan described in Section 4001(a)(3) of the
Employee Retirement Income Security Act ("ERISA") of 1974, as amended, which may
cover Borrower's employees.
9.10 RELOCATION AND SALE OF ASSETS. Other than in the ordinary course of
-----------------------------
Borrower's business, sell, lease, or otherwise dispose of, move, relocate, or
transfer, whether by sale or otherwise, any of Borrower's assets or the
Collateral.
9.11 GUARANTEES. Guaranty or otherwise become in any way liable with
----------
respect to the obligations of any third party, except by endorsement of
instruments or items of payment for deposit to the general account of Borrower
or which are transmitted or turned over to Bank.
9.12 INDEBTEDNESS. Incur any debts outside the ordinary course of
------------
Borrower's business, except for renewals or extensions of existing debts and
except for debts secured solely by purchase-money liens on the asset so acquired
by such indebtedness.
9.13 LOANS. Make any advance or loan to any person or entity.
-----
10. AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that during the term hereof and
until all Obligations are fully paid and performed:
10.1 LOCATION OF EQUIPMENT/INVENTORY. Borrower shall keep the Equipment and
-------------------------------
Inventory only at the address recited in Section 1.5 of this Agreement or at
such other locations as may be approved by Bank in writing. If requested by
Bank, Borrower shall provide Bank with the name and mailing address of the
landlord for each location described above or where any of the Equipment or
Inventory may (from time to time) be kept and/or the mortgagee, beneficiary, or
lender of any mortgage, deed of trust or other lien encumbering each such
location.
10.2 VALUE OF COLLATERAL. Bank shall not in any way or manner be liable or
----------------
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
to the Collateral or occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value of the Collateral or (d) any act or
default by any carrier, warehouseman, bailee, forwarding agency or any other
person or entity whomsoever. All risk of loss, damage, destruction or loss of
value of the Collateral shall be borne by Borrower, whether or not Borrower
shall be in possession or control of the Collateral.
6
<PAGE>
10.3 NOTICE OF LITIGATION, ENVIRONMENTAL INVESTIGATIONS. Promptly after the
--------------------------------------------------
commencement thereof, Borrower shall notify Bank in writing of: (a) any
litigation pending or threatened against Borrower, any guarantor of the
Obligations (or any portion thereof) or any general partner of Borrower, and (b)
any federal, state or municipal investigation evaluating whether any remedial
action is needed by Borrower to respond to a release of any toxic or hazardous
waste or substance into the environment.
10.4 TAXES. Borrower shall make due and timely payment or deposit of all
-----
federal, state and local taxes, assessments or contributions required of
Borrower by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will make
timely payment or deposit of all F.I.C.A. payments and withholding taxes
required of Borrower by applicable laws, and will, upon request, furnish Bank
with proof satisfactory to Bank that Borrower has made such payments or
deposits. If Borrower fails to pay any such assessment, tax, contribution, or
make such deposit, or furnish the required proof, Bank may, in Bank's sole and
absolute discretion and without notice to Borrower: (a) make payment of the same
or any part thereof, or (b) set up such reserves against the Credit, or
otherwise reduce the loans and advances for which Borrower is eligible under
this Agreement, as Bank deems necessary to satisfy the liability therefor, or
both. Bank may conclusively rely on the usual statements of the amount owing or
other official statements issued by the appropriate governmental agency. Each
amount paid or deposited by Bank shall constitute Bank Expenses and an advance
to Borrower. Nothing herein contained shall preclude Borrower from contesting,
diligently, in good faith, and by appropriate proceedings, the imposition or any
assessments and taxes and to withhold payment of such contested amounts pending
the resolution of such proceedings.
10.5 COMPLIANCE. Borrower shall maintain all licenses, permits,
----------
governmental approvals, rights, privileges and franchises necessary for the
conduct of Borrower's business; conduct Borrower's business in an orderly and
regular manner; and comply with the provisions of all documents pursuant to
which Borrower is organized and/or which govern Borrower's continued existence
and with the requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower or Borrower's business.
10.6 INSURANCE.
---------
(a) ACQUISITION AND MAINTENANCE. Borrower, at Borrower's expense,
---------------------------
shall keep and maintain the Collateral insured against loss or damage by fire,
theft, explosion, sprinklers and all other hazards and risks ordinarily insured
against by other owners who use such properties in similar businesses for the
full insurable value thereof. Borrower shall also keep and maintain business
interruption insurance and public liability and property damage insurance
relating to Borrower's ownership and use of the Collateral. All such policies of
insurance shall be in such form, with such companies, and in such amounts and
with such deductibles as may be satisfactory to Bank. Borrower shall deliver to
Bank certified copies of such policies of insurance and evidence of the payments
of all premiums therefor.
(b) LOSS PAYEE ENDORSEMENT AND ADDITIONAL INSURED. All such policies
---------------------------------------------
of insurance (except those of public liability) shall contain an endorsement in
a form satisfactory to Bank showing Bank as a loss payee thereof, with a waiver
of warranties (Form 438-BFU), and all proceeds payable thereunder shall be
payable to Bank and, upon receipt by Bank, shall be applied on account of the
Obligations, in Bank's discretion. To further secure the payment and full
performance of the Obligations, Borrower grants Bank a security interest in and
to all such policies of insurance (except those of public liability) and the
proceeds thereof, and Borrower shall direct all insurers under such policies of
insurance to pay all proceeds thereof directly to Bank. All public liability and
property damage policies of insurance shall name Bank as an additional insured
thereunder.
(c) SETTLEMENT OF CLAIMS. Prior to the occurrence of an Event of
--------------------
Default, Borrower shall have the right to make, settle and adjust any and all
claims under such policies of insurance; provided, however, that Borrower shall
not legally conclude the settlement or adjustment of any claim which in amount
exceeds five percent (5%) of Borrower's total assets without Bank's prior
written consent. Following the occurrence of an Event of Default, Bank (and any
of its employees, officers or designated agents) is and shall be irrevocably
appointed as Borrower's lawful attorney-in-fact with full power to make, settle
and adjust all claims under such policies of insurance, to endorse the name of
Borrower on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance, and to make all determinations and
decisions with respect to such policies of insurance.
(d) NOTICE AND CANCELLATION. Borrower will not cancel any of such
-----------------------
policies without Bank's prior written consent. Each such insurer shall agree by
endorsement upon the policy or Policies of insurance issued by it to Borrower as
required above, or by independent instruments furnished to Bank, that it will
give Bank at least ten (10) days written notice before any such Policy or
policies of insurance shall be altered or canceled, and that no act or default
of Borrower, or any other person, shall affect the right of Bank to recover
under such policy or policies of insurance required above or to pay any premium
in whole or in part relating thereto. Bank, without waiving or releasing any
Obligations or Event of Default, may, but shall have no obligation to do so,
obtain and maintain such policies and pay such premiums and take any other
action with respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, as well as reasonable attorney's fees, court costs, expenses
and other charges relating thereto, shall constitute Bank Expenses, when
disbursed, and shall be payable on demand.
10.7 BANK ACCOUNTS. Except for permitted investments, Borrower shall keep
-------------
all of Borrower's principal bank accounts with Bank and shall open no bank
account, deposit account or other account into which money can be deposited
without the written consent of Bank.
10.8 ERISA/COVENANT. Borrower shall furnish to Bank: (a) as soon as
--------------
possible, but in no event later than thirty (30) days after Borrower knows or
has reason to know that any reportable event with respect to any deferred
compensation plan has occurred, a statement of the chief financial officer of
Borrower setting forth the details concerning such reportable event and the
action which Borrower proposes to take with respect thereto, together with a
copy of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation, if a copy of such notice is available to Borrower; (b)
promptly after the filing thereof with the United States Secretary of Labor or
the Pension Benefit Guaranty Corporation, copies of each annual report with
respect to each deferred compensation plan; (c) promptly after receipt thereof,
a copy of any notice Borrower may receive from the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any deferred
compensation plan; provided, however, this subsection shall not apply to notice
of general application issued by the Pension Benefit Guaranty Corporation or the
Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other forms of
information from time to time disseminated to the participants by the
administrator of the deferred compensation plan.
10.9 REIMBURSEMENTS. Borrower shall immediately and without demand
--------------
reimburse Bank for all sums expended by Bank which constitute Bank Expenses and
Borrower hereby authorizes and approves all advances and payments by Bank for
items constituting Bank Expenses.
10.10 ACCOUNTING METHODS. Borrower shall maintain a standard and modern
------------------
system of accounting in accordance with generally accepted accounting principles
consistently applied with ledger and account cards and/or computer tapes, discs,
printouts, and records pertaining to the collateral which contain information as
may from time to time be requested by Bank. Borrower shall permit Bank and any
of Bank's employees, officers or agents, upon demand, during Borrower's usual
business hours, or the usual business hours of third persons having control
thereof, to have access to and examine all of Borrower's Books relating to the
Collateral, the Obligations, Borrower's financial condition, and the results of
Borrower's operations, and, in connection therewith, permit Bank or any of
Bank's agents, employees or officers to copy and make extracts therefrom, and to
inspect the properties of Borrower.
10.11 FINANCIAL STATEMENTS. Borrower agrees to deliver to Bank the following
--------------------
reports, statements, certificates, or other materials, which materials will be
in a form acceptable to Bank and will be delivered within the time periods
specified in this section 10.11:
(a) within thirty (30) days after the end of each calendar month, a
consolidating and consolidated balance sheet, a profit and loss statement, an
aging of all Accounts, and a certificate setting forth the amount of the
Borrowing Base, each of which shall be in a form and content acceptable to Bank,
prepared by Borrower, certified by an officer or other authorized employee of
Borrower, or to be full, true, complete and accurate and further certified by
such officer or other authorized employee that there exists on the date of
delivery to Bank no condition or event which constitutes a breach of or Event of
Default under this Agreement, and covering Borrower's operations during such
period;
(b) within twenty (20) days after the end of each of Borrower's fiscal
quarters, an aging of all accounts payable, which shall be in a form and content
acceptable to Bank, prepared by Borrower, certified by an officer or other
authorized employee of Borrower to be full, true, complete and accurate and
further certified by such officer or other authorized employee that there exists
on the date of delivery to Bank no condition or event which constitutes a breach
of or Event of Default under this Agreement, and covering Borrower's operations
during such period;
(c) within ninety (90) days after the end of each of Borrower's fiscal
years, a consolidating and consolidated statement of the financial condition of
Borrower for each such fiscal year, including (but not limited to) a long-form
balance sheet and profit and loss statement, prepared or audited by certified
public accountants acceptable to Bank, together with an unqualified opinion
thereon by said accountants, accompanied by a certificate signed by an officer
or other authorized employee of Borrower to be full, true, complete and accurate
and further certified by such officer or other authorized employee that there
exists on the date of delivery to Bank no condition or event which constitutes a
breach of or Event of Default under this Agreement, and covering Borrower's
operations during such period; and
7
<PAGE>
(d) from time to time and on request from Bank, and any other report
requested by Bank relating to the Collateral and the financial condition of
Borrower, accompanied by a certificate signed by an officer or other authorized
employee of Borrower to the effect that all reports, statements, computer disc
or tape files, printouts, runs, or other computer prepared information of any
kind or nature relating to the foregoing, or documents delivered or caused to be
delivered to Bank under this Section 10.11 are full, true, complete, correct,
and thoroughly present the financial condition of Borrower and that there exists
on the date of delivery to Bank no condition or event which constitutes a breach
of or Event of Default under this Agreement.
Each of the foregoing shall be Borrower shall comply with any request
and shall treat any written request as a continuing obligation until expressly
modified or terminated in writing.
10.12 NOTIFICATIONS. Borrower shall promptly supply and cause any guarantor
-------------
of the Obligations (or any portion thereof) and/or any general partner of
Borrower to supply Bank with such other information, including tax returns,
concerning Borrower's, any such guarantor's and/or general partner's affairs as
Bank may request from time to time hereafter. Borrower shall promptly notify
Bank of any material adverse change in Borrower's financial condition and of any
condition or event which constitutes a breach of or Event of Default under this
Agreement.
10.13 FINANCIAL COVENANTS. At all times during the term of this Agreement,
-------------------
Borrower shall:
(a) Maintain working capital in an amount not less than Twelve Million
Dollars ($12,000,000.00);
(b) Maintain a ratio of (i) the sum of cash, cash equivalents, and
accounts receivable to (ii) current liabilities of one (1.0) to
one (1.0) or greater;
(c) Maintain a ratio of total debt (less debt subordinated to Bank) to
Tangible Net Worth of not greater than one and one-quarter (1.25)
to one (1.00);
(d) Maintain a Tangible Net Worth in an amount not less than Twenty
Million Dollars ($20,000,000.00);
(e) Maintain profitable operations on a quarterly basis;
(f) Maintain a ratio of net after-tax profit plus depreciation and
amortization, quarterly and on a rolling four quarter basis, to
current maturities of long term liabilities and capitalized leases
of not less than two (2.0) to one (1.0);
All monies due from affiliates (including officers, directors, shareholders,
parents, partners, joint venturers, subsidiaries and commonly held companies)
shall be excluded from Borrower's assets for all purposes hereunder.
11. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an Event of Default under this Agreement:
11.1 FAILURE TO MAKE PAYMENT. If Borrower fails to pay when due and
-----------------------
payable, or when declared due and payable, all or any portion of the
Obligations.
11.2 BREACH. If Borrower fails or neglects to perform, keep or observe any
------
term, provision, condition, covenant, agreement, warranty or representation
contained in this Agreement or any other present or future agreement between
Borrower and Bank.
11.3 MATERIAL IMPAIRMENT. If there is a material impairment of the prospect
-------------------
of repayment of all or any portion of the Obligations, or a material impairment
of the value of the Collateral or the priority of Bank's security interests
therein.
11.4 SEIZURE OF ASSETS. If all or any of the assets of Borrower, any
-----------------
guarantor of the Obligations (or any portion thereof) or any general partner of
Borrower are attached, seized, subjected to a writ or distress warrant, or are
levied upon, or come into the possession of any Judicial Officer or Assignee.
11.5 VOLUNTARY INSOLVENCY. If an Insolvency Proceeding is commenced by
--------------------
Borrower or any general partner of Borrower.
11.6 INVOLUNTARY INSOLVENCY. If an Insolvency Proceeding is commenced
----------------------
against Borrower or any general partner of Borrower.
11.7 INJUNCTION. If Borrower is enjoined, restrained or in any way
----------
prevented by court order from continuing to conduct all or any material part of
Borrower's business affairs.
11.8 LIEN, LEVY. If a notice of lien, levy or assessment is filed of record
----------
with respect to any or all of the assets of Borrower, any guarantor of the
Obligations (or any portion thereof) or any general partner of Borrower by the
United States Government, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other governmental agency, or if any taxes
or debts owing at any time hereafter to any one or more of such entities becomes
a lien, whether choate or otherwise, upon any or all of the assets of Borrower
or any such guarantor or general partner and the same is not paid on the payment
date thereof.
11.9 JUDGMENT LIEN. If one or more judgments and/or one or more other
-------------
claims becomes liens or encumbrances upon any or all of the assets of Borrower,
any guarantor of the Obligations, or any general partner of Borrower in an
aggregate amount in excess of Twenty-Five Thousand Dollars ($25,000.00).
11.10 THIRD PARTY AGREEMENTS. If there is a default in any material
----------------------
agreement to which Borrower, any guarantor of the Obligations (or any portion
thereof) or any general partner of Borrower is a party with third parties
resulting in a right by such third parties to accelerate the maturity of
Borrower's, any such guarantor's or general partner's indebtedness.
11.11 PAYMENT OF SUBORDINATED DEBT. If Borrower makes any payment on account
----------------------------
of indebtedness which has been subordinated to the Obligations, or any portion
thereof.
11.12 MISREPRESENTATIONS. If any misrepresentation exists in any warranty or
------------------
representation made to Bank by Borrower or any officer, director or partner of
Borrower, or if any warranty or representation is withdrawn by Borrower or any
officer, director or partner of Borrower.
11.13 DEATH, INCAPACITY. If Borrower or any general partner of Borrower is
-----------------
an individual and Borrower or any such general partner dies or becomes
incapacitated.
11.14 WITHDRAWAL, DISSOLUTION OF GENERAL PARTNER. If any general partner of
------------------------------------------
Borrower withdraws from Borrower, dissolves or liquidates, or if the directors,
shareholders or members of any such general partner take action to effect such
general partner's dissolution or liquidation.
11.15 IMPAIRMENT OF GUARANTIES, PLEDGES, SUBORDINATIONS. If any party
-------------------------------------------------
subordinating its claims to those of Bank or pledging collateral to secure any
of the Obligations, or if any guarantor of or indemnitor regarding Borrower's
Obligations (or any portion thereof) dies, terminates that subordination,
pledge, guaranty or indemnity agreement or becomes the subject of an Insolvency
Proceeding, or if any such agreement becomes ineffective or unenforceable for
any reason, or if any such party defaults under any agreement between said party
and Bank.
11.16 CHANGE OF OWNERSHIP. If there is a change of ownership or control
-------------------
of ten percent (10%) or more of the issued and outstanding stock of Borrower (if
Borrower is a corporation), or if any one or more of the general partners of
Borrower with an aggregate ownership interest in Borrower of ten percent (10%)
or more resigns or is expelled.
11.17 ADDITIONAL DEFAULTS. If an event occurs which with the passage of time
-------------------
would constitute an Event of Default.
Notwithstanding anything contained in this Article 11 to the contrary, upon the
occurrence of an Event of Default, Bank, at Bank's discretion, may cease
advancing monies or extending loans or other credit accommodations under this
Agreement or any other agreement between Bank and Borrower provided, however,
that Bank shall refrain from further exercising its rights and remedies and an
Event of Default shall thereafter be deemed not to have occurred by reason of
the occurrence of any of the events set forth in Sections 11.6, 11.8 and 11.9 of
this Agreement if, within ten (10) days from the date of such occurrence, the
subject event or action is released, discharged, dismissed, bonded against or
satisfied.
8
<PAGE>
12. BANK'S RIGHTS AND REMEDIES
12.1 RIGHTS AND POWERS. If an Event of Default shall have occurred and not
-----------------
been cured or waived in accordance with the terms hereof, Bank shall have the
following rights and powers and may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower and Bank;
(c) Terminate this Agreement as to any future liability or obligation
of Bank, but without effecting Bank's rights and security interest in the
Collateral and without effecting the Obligations;
(d) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, take and maintain possession of the Collateral and the
premises, or any part thereof, for so long as is required by Bank, and at no
cost to Bank, and to pay, purchase, contest or compromise any encumbrance,
charge or lien which in the opinion of Bank appears to be prior or superior to
Bank's security interest and to pay all expenses incurred in connection
therewith;
(e) Without constituting a retention of Collateral in satisfaction or
an Obligation within the meaning of Section 9505 of the Code or an action under
California Code of Civil Procedure Section 726, Bank may apply any and all
amounts maintained by Borrower with Bank as deposit accounts (as that term is
defined under Section 9105 of the Code)or other accounts against the
Obligations;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale and sell or dispose of (in the manner provided for
herein) the Collateral;
(g) Sell or dispose of the Collateral at either public or private
sales, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as is
commercially reasonable in the opinion of Bank. It is not necessary that the
Collateral be present at any such sale;
(h) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written request for notice,
a notice in writing of the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public sale is to be made of
the Collateral, the time on or after which the private sale or other disposition
is to be made. The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 13.3 of this Agreement, at least
five (5) calendar days before the date fixed for the sale, or at least live (5)
calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to parties other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to Bank. If the sale is to be a public sale, Bank shall also give
notice of the time and place by publishing a notice one time at least live (5)
calendar days before the date of the sale in a newspaper of general circulation
in the county in which the sale is to be held;
(i) Bank may credit bid and purchase at any public sale;
(j) Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of Bank's rights and remedies as herein
provided, whether or not suit is commenced by Bank;
(k) Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, to
Borrower by Bank, or, in Bank's discretion, to any party who Bank believes, in
good faith, is entitled to such excess;
(l) Bank is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral or any disposition thereof, and
Borrower's rights under all general intangibles, licenses and franchise
agreements shall inure to Bank's benefit, and Bank shall have the right and
power to enter into sublicense agreements with respect to all such rights with
third parties on terms acceptable to Bank.
12.2 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement
-------------------
and all other agreements shall be cumulative. Bank shall have all other rights
and remedies not inconsistent herewith as provided under the Code, by law, or in
equity. No exercise by Bank of one right or remedy shall be deemed an election,
and no waiver by Bank of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election or
acquiescence by Bank.
13. MISCELLANEOUS
13.1 TAXES AND OTHER EXPENSES REGARDING THE COLLATERAL. If Borrower fails
-------------------------------------------------
to pay promptly when due to any person or entity, monies which Borrower is
required to pay by reason of any provision in this Agreement, Bank may, but need
not, pay the same and any such payment shall immediately constitute an advance
under and pursuant to the Credit, and Borrower shall promptly reimburse Bank
therefore. All such sums shall be Bank Expenses hereunder. Any payments made by
Bank shall not constitute: (a) an agreement by Bank to make similar payments in
the future, or (b) a waiver by Bank of any default under this Agreement. Bank
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance or lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
13.2 WAIVERS.
-------
(a) APPLICATION OF PAYMENTS. Borrower waives the right to direct the
-----------------------
application of any and all payments or collections at any time or times
hereafter received by Bank on account of any Obligations, and Borrower agrees
that Bank shall have the continuing exclusive right to apply and reapply such
payments or collections to the Obligations in any manner as Bank may deem
advisable.
(b) NOTICES OF DEMAND, ETC. Borrower waives demand, protest, notice of
----------------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, documents,
instruments, chattel paper, and guaranties at any time held by Bank on which
Borrower may in any way be liable.
(c) CONFIDENTIALITY OF ACCOUNTING. Borrower waives the right to assert
a confidential relationship, if any, Borrower may have with any accounting firm
and/or service bureau in connection with any information requested by Bank
pursuant to or in accordance with this Agreement, and agrees that Bank may
contact directly any such accounting firm and/or service bureau in order to
obtain such information.
13.3 NOTICES. Unless otherwise provided in this Agreement, all notices or
-------
demands by any party relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower at
Borrower's address set forth in Section 1.5 of this Agreement or to Bank at
Bank's address set forth in Section 1.3 hereinabove, or to such other addresses
as Borrower or Bank may from time to time specify to the other in writing.
13.4 DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules,
-----------------------------------
invoices or other papers delivered to Bank may be destroyed or otherwise
disposed of by Bank six (6) months after they are delivered to or received by
Bank unless Borrower does request, in writing, the return of the said documents,
schedules, invoices or other papers and makes arrangements, at Borrower's
expense, for their return.
13.5 CHOICE OF LAW. The validity of this Agreement, its construction,
-------------
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by and construed
in accordance with the laws of the State of California. The parties agree that
all actions or proceedings arising in connection with this Agreement shall be
tried and litigated only in the state courts located in the County of San
Francisco, State of California, or the County of Santa Clara, State of
California, or the federal courts located in the Northern District of
California. Borrower waives any right Borrower may have to assert the doctrine
of forum non conveniens or to object to such venue and hereby consents to any
court-ordered relief.
13.6 ONE LOAN TRANSACTION. The Obligations shall be secured by all other
--------------------
security interests, liens or encumbrances heretofore, now, or at any time
hereafter granted by Borrower to Bank. If more than one person or entity is
signing this Agreement on behalf of Borrower, the Obligations of each party
signing this Agreement on behalf of Borrower shall be joint and several.
9
<PAGE>
13.7 AGREEMENT BINDING; ASSIGNMENT. This Agreement shall be binding and
-----------------------------
deemed effective when executed by Borrower and accepted and executed by Bank.
This Agreement shall bind and inure to the benefit of the respective successors
and assigns of each of the parties; provided, however, that Borrower may not
assign this Agreement or any rights hereunder without Bank's prior written
consent and any prohibited assignment shall be absolutely void. No consent to an
assignment by Bank shall release Borrower or any guarantor from their
obligations to Bank. Bank may assign this Agreement and its rights and duties
hereunder. Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits hereunder. In connection therewith, Bank may disclose all documents and
information which Bank now has or hereafter may have relating to Borrower or
Borrower's business.
13.8 HEADINGS, GENDER AND JOINT AND SEVERAL LIABILITY. Article and section
------------------------------------------------
headings and article and section numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each article and section applies equally to this entire Agreement.
As used in this Lease and when required by the context, each number (singular or
plural) shall include all numbers, and each gender shall include all genders. If
more than one person or entity is signing this Agreement on behalf of Borrower,
the Obligations of each party signing this Agreement on behalf of Borrower shall
be joint and several.
13.9 CONSTRUCTION. Neither this Agreement nor any uncertainty or ambiguity
------------
herein shall be construed or resolved against Bank or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.
13.10 SEVERABILITY. Each provision of this Agreement shall be severable
-------------
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.
13.11 INTEGRATION. This Agreement cannot be changed or terminated orally. No
-----------
modification or amendment to this Agreement shall be effective unless in
writing, executed by Bank. Except as to currently existing obligations of
Borrower to Bank, all prior agreements, understandings, representations,
warranties, and negotiations between the parties, if any, are merged into this
Agreement.
13.12 PRIOR LOAN AND SECURITY AGREEMENT. The total Credit and the total of
---------------------------------
Borrower's Obligations in respect to all letters of credit previously issued by
Bank and outstanding on the date of this Agreement shall, from and after the
date of this Agreement, be deemed to have been incurred pursuant to this
Agreement. Borrower agrees and acknowledges that, as of the date of this
Agreement, there was due and owing under the prior letters of credit issued and
outstanding by Bank Obligations in respect of commercial letters of credit
outstanding in the aggregate amount of __________________ Dollars
($______________________).
13.13 WAIVER OF JURY TRIAL. BANK AND BORROWER HEREBY WAIVE, TO THE EXTENT
--------------------
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE
OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED IN CONNECTION WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER ARISING (INCLUDING TORT AND CLAIMS FOR BREACH OF DUTY), BETWEEN BANK
AND BORROWER.
14. FX SUBFACILITY
14.1 REVOLVING FX SUBFACILITY. At the request of Borrower, made during
------------------------
Bank's normal business hours from time to time during the term of this
Agreement, and so long as no Event of Default has occurred, Bank will create
foreign exchange contracts for Borrower's account (the "FX Subfacility");
provided, however, that in no event shall Bank be obligated to enter into any
Foreign Exchange Contracts whenever either (i) the total of Borrower's
Obligations in respect of all Foreign Exchange Contracts outstanding under this
Section 14.1, when added to the Daily Balance, exceeds at any time the lesser of
the Borrowing Base or Five Million Dollars or (ii) the total of Borrower's
Obligations in to all Foreign Exchange Contracts outstanding at any time exceed
Seven Hundred Fifty Thousand Dollars ($750,000.00) (the "Maximum Exposure").
14.2 TERMS AND CONDITIONS. Except to the extent described by any separate
--------------------
agreement between Borrower and Bank (a "Foreign Exchange Contract"), the terms
and conditions governing any Foreign Exchange Contract entered into under this
FX Subfacility shall be governed by this Agreement and the Bank's standard terms
of business in effect on the Contract Date (as hereinafter defined). Borrower
shall pay Bank such issuance fees, negotiation fees, and other fees at the times
and in the amounts that Bank may from time to time impose in connection with the
provision of foreign exchange services. Borrower agrees to execute and deliver
to Bank such documents as Bank deems necessary in connection with the FX
Subfacility. Subject to the limitations prescribed by this Agreement, any
Foreign Exchange Contract shall obligate the Bank to exchange domestic currency
for foreign currency (or vice versa) and shall obligate Borrower to purchase
such exchanged currency at a price, in the currency and on a date agreed upon by
Borrower and Bank. Bank shall have the right, but not the obligation, to charge
any amounts owing by Borrower to Bank under any Foreign Exchange Contract
against any accounts maintained by Borrower with Bank.
Bank is hereby authorized to enter into any Foreign Exchange Contract
provided in this Agreement based upon telephonic or other instructions received
from anyone purporting to be an authorized representative of Borrower or, at the
discretion of Bank, if said contracts are necessary to satisfy, any Obligation
of Borrower to Bank. Bank shall have no duty to make inquiry or verify the
authority of any such party and Borrower shall hold Bank harmless from any
damages, claims, or liability by reason of Bank's honor of, or failure to honor,
any such instructions.
The date upon which Borrower and Bank shall exchange their currency
shall be referred to as the "Settlement Date." The date upon which Borrower
agrees on (i) the price to be paid, (ii) the currency to be exchanged by the
respective parties, and (iii) the date which shall constitute the Settlement
Date shall be referred to as the "Contract Date." In no event shall the
Settlement Date under any foreign exchange contract exceed twelve (12) months
from the Contract Date. Following the Contract Date, Bank shall have the right,
but not the obligation, to forward a confirmation statement to Borrower
confirming the terms of such Foreign Exchange Contract. If Borrower fails to
object to the information contained in the confirmation within the shorter of
(i) the period sated therein or (ii) ten (10) days after the date of such
notification, then the information contained in such confirmation shall be
binding on Borrower.
On the Contract Date, ten percent (10%) or the amount of such Foreign
Exchange Contract (in United States Dollars) (each, a "FX Advance") shall be
deemed part of the Credit and shall reduce Borrower's availability under Section
2.1 of this Agreement in a like amount. If at any time and for any reason, the
aggregate amount on all F/X Advances outstanding at any time exceeds ten percent
(10%) or the Maximum Exposure (an F/X Overadvance"), Borrower shall immediately
---
pay to Bank, in cash, the amount of such FX Overadvance. If Borrower fails to
satisfy and discharge its obligations under such Foreign Exchange Contract on
the Settlement Date, Bank shall have the right (but not the obligation) to treat
the amount of such unpaid and unsatisfied obligation as part of the Credit.
Notwithstanding the reduction in the Credit authorized by this Section 14.2,
Borrower's duty to satisfy and discharge its obligations under any Foreign
Exchange Contract on the Settlement Date, such failure shall constitute an Event
of Default under this Agreement.
15. EQUIPMENT PURCHASE FACILITY A.
------------------------------
15.1 (a) Upon the request of Borrower made at any time, and from time to
time, during Draw Period A (as hereinafter defined), subject to and upon the
terms and conditions of this Agreement, and so long as no Event of Default has
occurred, Bank agrees to make advances to Borrower for the purpose of purchasing
new equipment for use in connection with Borrower's business (the "Equipment
Purchase Line A"). For the purpose of this Agreement, "Draw Period A" shall mean
the period between the date of this Agreement and the earlier of: (i) March 31,
1998 or (ii) the date on which the aggregate of all advances made pursuant to
this Section 15.1 equals Six Hundred Thousand Dollars ($600,000.00).
(b) Each advance under Equipment Purchase Line A shall be in amount
not exceeding one hundred percent (100%) of the cost, excluding installation
charges, sales tax, freight, and software charges (as determined by Bank), of
items of new equipment approved by Bank and not made specifically for Borrower
on a custom basis. The aggregate of all advances made by Bank under Equipment
Purchase Line A shall not exceed Six Hundred Thousand Dollars ($600,000.00).
(c) Each advance made by Bank under Equipment Purchase Line A, if
approved by Bank, shall be made either to Borrower or to the vendor of any new
equipment financed with the proceeds of such advance (at Bank's option). In no
event shall said proceeds be used by Borrower for any purpose other than the
purchase of new equipment approved by Bank. In the event that Bank opts to
disburse the proceeds of any such advance directly to the vendor(s) of any new
equipment, Borrower shall deliver to Bank an amount equal to the difference
between the cost (including all installation charges, sales tax, freight, and
software charges) and the amount of such advance, which difference shall be
remitted to said vendor(s) with the advance by Bank. Bank shall not be obligated
to make any advance under this Section 15.1 unless and until Bank has received
and approved the following: (1) a copy of Borrower's purchase order, (2) an
original delivery and acceptance certificate executed by Borrower with respect
to any new equipment to be purchased, and (3) such other documentation as Bank
may require (including, without limitation, schedules attached hereto describing
said new equipment and financing statements relative thereto). Amounts once
borrowed and repaid under Equipment Purchase Line A shall not be available for
reborrowing.
10
<PAGE>
15.2 All advances made under Equipment Purchase Line A shall be evidenced
by and subject to the terms of a promissory note executed by Borrower in
substantially the form of Exhibit "A" attached to this Agreement, with
appropriate insertions (the "Equipment Purchase Line Note A"). All loans and
advances made under Equipment Purchase Line A shall be added to and deemed a
part of the Obligations. Except as hereinbelow provided, all advances under
Equipment Purchase Line A shall bear interest, on the Daily Balance owing, at a
per annum rate equal to one-quarter of one percent in excess of the Prime Rate
(the "Equipment Purchase Line A Rate"). In the event that the Prime Rate
announced is, from time to time hereafter, changed, adjustment in the Equipment
Purchase Line A Rate or interest payable by Borrower shall be made on the
effective date of the change in the Prime Rate. The rate of interest, as
adjusted, shall apply to all advances outstanding under this Equipment Purchase
Line A until the Prime Rate is adjusted again. All interest chargeable under
this Equipment Purchase Line A on a per annum basis shall be computed on a basis
of a 360-day year for actual days elapsed.
15.3 (a) Commencing on the fifth day of the month after any advance is
made under this Equipment Purchase Line A, and continuing on the fifth day of
each calendar month during Draw Period A, Borrower shall make monthly payments
of all interest accrued on advances under Equipment Purchase Line A at Equipment
Purchase Line A Rate and all Bank Expenses incurred in connection with Equipment
Purchase Line A.
(b) Commencing on the fifth day of be the month after the end of Draw
Period A, and continuing on the fifth day of each of the next forty-seven (47)
months thereafter, Borrower shall make (i) equal and consecutive monthly
principal payments with each payment being in an amount sufficient to repay the
aggregate amount of advances under the Equipment Purchase Line A outstanding at
the end of Draw Period A over forth-eight (48) months on a straight-line basis,
(ii) monthly interest payments on the outstanding amount of the advances under
the Equipment Purchase Line A, and (iii) all Bank Expenses incurred by Bank in
connection with Equipment Purchase Line A.
(c) Bank may, at its option, elect to treat any due but unpaid
interest and Bank Expenses as advances under the Credit, and all such advances
shall bear interest on the daily balance thereof, at a per annum rate applicable
to the Credit under the terms of this Agreement. The receipt of any check or
other item of payment by Bank shall not be considered a payment until such check
or other item of payment is honored when presented for payment, in which event,
said check or other item of payment shall be deemed to have been paid to Bank in
accordance with Bank's rules and regulations relating to credits to deposit
accounts or, in Bank's discretion, two (2) calendar days after the date Bank
actually receives possession of such check or other item of payment.
Notwithstanding anything to the contrary contained in Article 15 of
this Agreement, all advances under Equipment Purchase Line A shall bear
interest, from and after any Event of Default and without constituting a waiver
of any such Event of Default, on the Daily Balance owing, at a per annum rate
five (5) percentage points above the Equipment Purchase Line A Rate.
15.4 Bank shall render monthly statements of all amounts owing by Borrower
to Bank under Equipment Purchase Line A, including statements of all principal,
interest, and Bank Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account between Borrower
and Bank unless, within thirty (30) days after receipt thereof by Borrower,
Borrower delivers to Bank, by registered or certified mail, at Bank's place of
business, a written objection specifying the error or errors, if any, contained
in any such statement.
IN WITNESS WHEREOF, Borrower has executed and delivered this Agreement
on the date first hereinabove written.
"Borrower"
IXYS CORPORATION,
A corporation
/s/ Nathan Zommer
By:________________________________
Title: PRESIDENT & CEO
/s/ Arnold Agbayani
By: _______________________________
Title: VP OF FINANCE & CFO
____________________________
ATTEST:
By: ___________________________
Title: ________________________
Accepted and effective this 29th day of December, 1997, at Bank's place
of business in the City of San Jose, State of California.
"Bank:
BANK OF THE WEST,
A California banking corporation
By: Betty Mannix
--------------------------
Title: Vice President
-----------------------
11
<PAGE>
Exhibit A
EQUIPMENT PURCHASE LINE A NOTE
$600,000.00 DECEMBER 24, 1997
San Jose, California
1. BORROWING AND INTEREST RATE: In consideration of all loans and advances
---------------------------
("Advances") from time to time made by BANK OF THE WEST (the "Lender") to or for
the benefit of the undersigned (alternatively, collectively, jointly and
severally the "Borrower") pursuant to the Loan Agreement of even date herewith
(collectively the "Loan Agreement"), Borrower promises to pay Lender, or order,
at 50 West San Fernando Street, Second Floor, South Bay Business Banking Group,
San Jose, California on the dates and in the manner hereinafter set forth, all
outstanding Advances, plus any interest thereon then unpaid, at the rate (the
"Equipment Purchase Line A Rate") of one quarter of one percentage point (0.25%)
per year in excess of the Prime Rate (as hereinafter defined), which Equipment
Purchase Line A Rate shall vary concurrently with any change in the Prime Rate.
For the purpose of this Note, the "Prime Rate" shall mean the variable rate of
interest, per annum, most recently announced by Lender at its headquarters
office in San Francisco, California, as its "prime rate." The undersigned
understands that Lender's "prime rate" is one of its base rates with respect to
loans making reference thereto and may not be the lowest of Lender's base rates.
Interest shall be computed on the outstanding principal balance on the basis of
three hundred sixty (360) days per year and actual days elapsed.
2. REPAYMENT OF PRINCIPAL, INTEREST AND EXPENSES. Interest for the partial
---------------------------------------------
calendar month following the Funding Date (as hereinafter defined) shall be due
and payable in advance on the Funding Date. Such interest shall be deemed earned
on the date of funding and shall not constitute a payment of principal. For
purposes of this Note, the "Funding Date" shall be the date that amounts are
first advanced by Lender under this Note, whether such advances are made
directly to Borrower or are made to any escrow holder or other third party
pending the recordation or exchange of any documents or the occurrence or waiver
of any conditions precedent by Lender under this Note, the Loan Agreement, or
otherwise. For the purpose of this Agreement, "Draw Period A" shall mean the
period between the date of this Note and the earlier of: (i) March 31, 1998 or
(ii) the date on which the aggregate of all advances made pursuant to this
Section 15.1 of the Loan Agreement and under this Note equals Six Hundred
Thousand Dollars ($600,000.00).
(a) Commencing on the fifth day of the month after the Funding Date,
and continuing on the fifth day of each calendar month during Draw Period A,
Borrower shall make monthly payments of all interest accrued on advances under
Equipment Purchase Line A at Equipment Purchase Line A Rate and all Lender
Expenses incurred in connection with Equipment Purchase Line A.
(b) Commencing on the fifth day of be the month after the end of Draw
Period A, and continuing on the fifth day of each of the next forty-seven (47)
months thereafter, Borrower shall make (i) equal and consecutive monthly
principal payments with each payment being in an amount sufficient to repay the
aggregate amount of advances under the Equipment Purchase Line A outstanding at
the end of Draw Period A over forty-eight (48) months on a straight-line basis,
(ii) monthly interest payments on the outstanding amount of the advances under
the Equipment Purchase Line A, and (iii) all Lender Expenses incurred by Lender
in connection with Equipment Purchase Line A.
(c) Lender may, at its option, elect to treat any due but unpaid
interest and Lender Expenses as advances of Credit under the Loan Agreement, and
all such advances shall bear interest on the daily balance thereof, at a per
annum rate applicable to the Credit under the terms of the Loan Agreement. The
receipt of any check or other item of payment by Lender shall not be considered
a payment until such check or other item of payment is honored when presented
for payment, in which event, said check or other item of payment shall be deemed
to have been paid to Lender in accordance with Lender's rules and regulations
relating to credits to deposit accounts or, in Lender's discretion, two (2)
calendar days after the date Lender actually receives possession of such check
or other item of payment.
3. LATE FEES. If any payment due hereunder is not received by Lender
---------
within fifteen (15) days after the due date thereof, Borrower shall pay to
Lender without claim, notice or demand a late payment charge equal to six
percent (6%) of the amount of the installment of principal and interest due and
delinquent to defray the administrative costs and expenses suffered by Lender by
reason of such delinquency. Borrower acknowledges and agrees that the actual
amount of damages that would be incurred by Lender as a result of such
delinquency are extremely difficult or impracticable to ascertain and that the
late charge set forth herein represents a reasonable attempt to fix such
damages. Collection of such late charge shall not excuse the performance of the
terms of this Note nor prejudice Lender's right to enforce any right or remedy
which it may have for the collection of principal and interest or otherwise
under the terms of this Note, the Loan Agreements, or applicable law.
4. AUTHORITY FOR ADVANCES. All Advances shall be conclusively presumed to
----------------------
have been made to, for the benefit of, and at the request of Borrower when
deposited or credited to the account of Borrower with Lender or made in
accordance with the terms of the Loan Agreement or the oral or written
instructions of Borrower, or any one signing below for or on behalf of the
undersigned.
5. EVENTS OF DEFAULT AND REMEDIES.
------------------------------
(a) EVENTS OF DEFAULT. Any one of the Following occurrences shall
-----------------
constitute an "event of default" under this Note:
(1) The failure by Borrower to make any payment of principal or
interest upon this Note as and when the same becomes due and payable in
accordance with the terms hereof and the continuation of such failure
for five (5) days after written notice thereof is given Borrower by
Lender;
(2) The occurrence of any default under this Note other than as
described in the preceding clause (1) and the continuation of such
default for ten (10) days after written notice thereof is given
Borrower by Lender; or
(3) The occurrence of any event of default as defined under the
Loan Agreement, or any other document securing the obligations under
this Note. For purposes of Subparagraph 5(a)(3) with respect to any
event or occurrence which constitutes an event of default hereunder
solely by reason of its constituting a default under a document or
instrument other than this Note, to the extent (if any) that such other
document or instrument provides a grace or cure period with respect to
such default, the same grace or cure period, and only such period,
shall apply with respect thereof under this Note.
(b) Remedies. Upon the occurrence of any event of default hereunder:
--------
(i) the entire unpaid principal amount, any and all unpaid interest then accrued
on, and any other amounts owing under or evidenced by this Note, shall (at the
option of the Lender and without notice or demand of any kind to Borrower or any
other person) be and become immediately become due and payable and (ii) Lender
hereof shall have and may exercise any and all rights and remedies available at
law or in equity and also any and all rights and remedies provided in the Loan
Agreement.
Upon the occurrence of an event of default hereunder (which has not
been cured as therein provided or waived by Lender in writing), at the option of
Lender, and in addition to any other remedies available to Lender, interest may
be charged on the Advances outstanding on the date of such event of default at
the rate of five (5) percentage points greater than the Equipment Purchase Line
A Rate (the "Default Rate"). The Default Rate shall commence on the day
following any event of default and shall continue until such event of default
has been cured to the satisfaction of Lender.
6. WAIVERS, MAKER(S) AND ENDORSER(S). Borrower, for itself and for its
---------------------------------
successors, transferees and assigns and all guarantors, endorsers and signers,
hereby waives all valuation and appraisement privileges, presentment and demand
for payment, protest, notice of protest and nonpayment, dishonor and notice of
dishonor, bringing of suit, lack of diligence or delays in collection or
enforcement of this Note and notice of the intention to accelerate, the release
of any party liable, the release of any security for debt, the taking of any
additional security and any other indulgence or forbearance.
7. WAIVER OF STATUTE OF LIMITATIONS. The right to plead any and all
--------------------------------
statutes of limitations as a defense to any demand on this Note, any Loan
Agreement, or on any guaranty hereof, or to any agreement to pay the same, or to
any demand secured by any Loan Agreement, or other instrument securing this
Note, against Borrower, the holder of any property encumbered by any Loan
Agreement or other instrument securing this Note, and any guarantors or
sureties, is expressly waived by each and all said parties.
8. FEES, COSTS AND LENDER EXPENSES.
-------------------------------
1
<PAGE>
(a) ATTORNEYS' FEES AND COSTS. If the holder of this Note refers it to
-------------------------
an attorney for collection or seeks legal advice following a default under this
Note, the Loan Agreement, or other security agreements securing this Note, or if
an action is instituted on this Note or the Loan Agreement, or if any other
judicial or non-judicial action is instituted by the holder hereof or by any
other person, and an attorney is employed by the holder hereof to appear in any
such action or proceeding or to reclaim, sequester, protect, preserve or enforce
the holder's interest in the real property security or any other security for
this Note, including, but not limited to proceedings to foreclose the loan
evidenced hereby, proceedings under the federal bankruptcy laws, or in eminent
domain, or under the probate code, or in connection with any state or federal
tax lien, or to enforce an assignments of rents, or for the appointment of a
receiver, or involving mechanics' liens or stop notices, or in connection with
disputes regarding the proper disbursement of loan funds, Borrower and every
endorser and guarantor hereof and every person who assumes the obligations
evidenced by this Note and the loan documents securing the same, jointly and
severally promise to pay reasonable attorneys' fees and for services performed
by the holder's attorney, and all costs and expenses incurred incident to such
employment.
(b) LENDER EXPENSES. Borrower shall immediately and without demand
---------------
reimburse Lender for all sums expended by Lender which constitute Lender
Expenses and Borrower hereby authorizes and approves all advances and payments
by Lender for items constituting Lender Expenses. The term "Lender Expenses"
means: all costs and expenses incurred by Lender in connection with this Note,
the Loan Agreement, or the transactions contemplated hereby, including, without
limitation, all costs or expenses required to be paid by Borrower under this
Note, the Loan Agreement, or the transactions contemplated hereby which are paid
or advanced by Lender; taxes and insurance premiums of every nature and kind of
Borrower paid by Lender; filing, recording, publication, search fees, appraiser
fees, auditor fees, title insurance premiums paid or incurred by Lender in
connection with Lender's transactions with Borrower; costs and expenses incurred
by Lender (with or without suit) in collecting or realizing upon any collateral
including, without limitation the Property (the "Collateral"), to correct any
default or enforce any provision of this Note, the Loan Agreement, or the
transactions contemplated hereby, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale and/or
advertising to sell the Collateral, whether or not a sale is consummated; costs
and expenses of suit incurred by Lender in enforcing or defending this Note, the
Loan Agreement, or the transactions contemplated hereby or any portion hereof;
and reasonable attorneys' fees and expenses incurred by Lender in advising,
structuring, drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Note, the Loan Agreement, or the transactions contemplated
hereby, any portion hereof, any Agreement related hereto, or any of the
transactions contemplated hereby, whether or not suit is brought, and including,
but not limited to, any expenses incurred in relation to opposing or seeking to
obtain relief from any stay or restraining order prohibiting Lender from
exercising its rights as a secured creditor, foreclosing upon or disposing of
Collateral, or such related matters.
9. DEFINITIONS. The term "Lender," as used herein, shall mean and include
-----------
Lender and any successor or assign of Lender, and any holder of this Note shall,
upon becoming such holder, be included in the term "Lender" wherever the same
appears in this Note.
10. OBLIGATIONS UNDER LOAN AGREEMENT. The obligations arising under this
--------------------------------
Note constitute Obligations under and pursuant to the terms of the Loan
Agreement and are secured under and pursuant to the terms of such Loan
Agreement.
11. MISCELLANEOUS.
-------------
(a) GOVERNING LAW AND TIME OF PERFORMANCE. This Note shall be governed
-------------------------------------
by and construed under the laws of the State of California. Time is of the
essence of this Note and each provision hereof.
(b) SUCCESSORS AND ASSIGNS. This Note shall be binding upon Borrower
----------------------
and its successors and assigns, and shall inure to the benefit of Lender and its
successors and assigns.
(c) HEADINGS; GENDER. The headings of the Paragraphs and Subparagraphs
----------------
of this Note are inserted for convenience only and shall not be deemed to
constitute a part hereof. All words and phrases shall be taken to include the
singular or plural number, and the masculine, feminine or neuter gender, as may
fit the case.
(d) SEVERABILITY. If any provision of this Note or any payments
-------------
pursuant to the terms hereof shall be invalid or unenforceable to any extent,
the remainder of this Note and any other payments hereunder shall not be
affected thereby and shall be enforceable to the greatest extent permitted by
law.
(e) Modification. No waiver of any breach, default or event of default
------------
under this Note or under the Loan Agreement, or any obligations secured thereby,
shall be implied from any failure of Lender to take, or any delay by Lender in
taking, any action with respect to any concurrent or subsequent breach of or
event of default, default or failure of condition or from any previous wavier of
any similar or unrelated breach of or event of default, default, or failure of
condition. A waiver of any term of this Note, the Loan Agreement, or any of the
obligations secured thereby must be made in writing, shall be limited to the
express written terms of such waiver, and shall not be construed as a waiver or
release of any subsequent event or default, default or failure of condition.
(f) Joint Obligations. If this Note is executed by more than one
-----------------
person or entity as Borrower, the obligations of each such person or entity
shall be joint and several, and all said parties are and shall be jointly and
severally, directly and primarily, liable for the amount of all sums owing and
to be owed hereon, and agree that this Note and any or all payments coming due
hereunder may be extended or renewed from time to time without in any way
affecting or diminishing their liability hereunder. No such person shall be a
mere accommodation maker, since each such person shall be primarily and directly
liable hereunder.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as
of the date and year first above written.
IXYS CORPORATION
a corporation
By: /s/ Nathan Zommer
__________________________________
Its: PRESIDENT & CEO
________________________________
2
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of Paradigm
Technology, Inc. of our report dated February 21, 1998, except as to Note 13,
which is as of March 9, 1998, and except as to the first paragraph of Note 2,
which is as of May 1, 1998, relating to the financial statements of Paradigm
Technology, Inc., which appears in such Joint Proxy Statement/Prospectus. We
also consent to the reference to us under the heading "Experts" in such Joint
Proxy Statement/Prospectus.
/s/ Price Waterhouse LLP
San Jose, California
June 25, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated May 1, 1998, on our audits of the consolidated financial
statements of IXYS Corporation and Subsidiary. We also consent to the
references to our firm under the captions "Experts" and "Selected Financial
Data."
/s/ Coopers & Lybrand L.L.P.
San Jose, California
June 26, 1998
<PAGE>
EXHIBIT 99.1
CONSENT OF ALLIANT PARTNERS LLP
We hereby consent to the use of our name in the Registration Statement
and in the Prospectus included therein.
June 26, 1998
/s/ JAMES L. KOCHMAN
------------------------
James L. Kochman
<PAGE>
EXHIBIT 99.7
VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of March 6, 1998, by and between
PARADIGM TECHNOLOGY, INC., a Delaware corporation ("Parent"), and Dr. Nathan
Zommer ("Stockholder").
RECITALS
A. Parent, Paradigm Enterprises, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and IXYS Corporation, a Delaware
corporation (the "Company"), are entering into an Agreement and Plan of Merger
and Reorganization of even date herewith (the "Merger Agreement") which provides
(subject to the conditions set forth therein) for the merger of Merger Sub into
the Company (the "Merger").
B. In order to induce Parent and Merger Sub to enter into the Merger
Agreement, Stockholder is entering into this Voting Agreement.
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound, agree
as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Voting Agreement:
(a) "COMPANY COMMON STOCK" shall mean the common stock, par value
$.001 per share, of the Company.
(b) "EXPIRATION DATE" shall mean the earlier of (i) the date upon
which the Merger Agreement is validly terminated, or (ii) the date upon which
the Merger becomes effective.
(c) Stockholder shall be deemed to "OWN" or to have acquired
"OWNERSHIP" of a security if Stockholder: (i) is the record owner of such
security; or (ii) is the "beneficial owner" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934) of such security.
(d) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental authority.
(e) "SUBJECT SECURITIES" shall mean: (i) all securities of the
Company (including all shares of Company Common Stock and all options, warrants
and other rights to acquire shares of Company Common Stock) Owned by Stockholder
as of the date of this Agreement; and (ii) all additional securities of the
Company (including all additional shares of Company
1.
<PAGE>
Common Stock and all additional options, warrants and other rights to acquire
shares of Company Common Stock) of which Stockholder acquires Ownership during
the period from the date of this Agreement through the Expiration Date.
(f) A Person shall be deemed to have a effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security; or (ii) enters into an agreement or commitment
contemplating the possible sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
SECTION 2. TRANSFER OF SUBJECT SECURITIES
2.1 TRANSFEREE OF SUBJECT SECURITIES TO BE BOUND BY THIS AGREEMENT.
Stockholder agrees that, during the period from the date of this Voting
Agreement through the Expiration Date, Stockholder shall not cause or permit any
Transfer of any of the Subject Securities to be effected unless each Person to
which any of such Subject Securities, or any interest in any of such Subject
Securities, is or may be transferred shall have: (a) executed a counterpart of
this Voting Agreement and a proxy in the form attached hereto as Exhibit A (with
such modifications as Parent may reasonably request); and (b) agreed to hold
such Subject Securities (or interest in such Subject Securities) subject to all
of the terms and provisions of this Voting Agreement.
2.2 TRANSFER OF VOTING RIGHTS. Stockholder agrees that, during the
period from the date of this Voting Agreement through the Expiration Date,
Stockholder shall ensure that: (a) none of the Subject Securities is deposited
into a voting trust; and (b) no proxy is granted, and no voting agreement or
similar agreement is entered into, with respect to any of the Subject
Securities.
SECTION 3. VOTING OF SHARES
3.1 VOTING AGREEMENT. Stockholder agrees that, during the period from
the date of this Voting Agreement through the Expiration Date:
(a) at any meeting of stockholders of the Company or any adjournment
thereof, however called, Stockholder shall (unless otherwise directed in writing
by Parent) cause all outstanding Subject Securities entitled to vote that are
Owned by Stockholder as of the record date fixed for such meeting to be voted in
favor of the approval and adoption of the Merger Agreement and the approval of
the Merger, and in favor of each of the other actions contemplated by the Merger
Agreement; and
(b) in the event written consents are solicited or otherwise sought
from stockholders of the Company with respect to the approval or adoption of the
Merger Agreement, with respect to the approval of the Merger or with respect to
any of the other actions contemplated by the Merger Agreement, Stockholder shall
(unless otherwise directed in writing by Parent) cause to be executed, with
respect to all Subject Securities entitled to vote that are Owned by Stockholder
as of the record date fixed for the consent to the proposed action, a written
consent or written consents to such proposed action.
2.
<PAGE>
3.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Voting Agreement: (i)
Stockholder shall deliver to Parent a proxy in the form attached to this Voting
Agreement as Exhibit A, which shall be irrevocable to the fullest extent
permitted by law, with respect to the shares referred to therein (the "Proxy");
and (ii) Stockholder shall cause to be delivered to Parent an additional proxy
(in the form attached hereto as Exhibit A) executed on behalf of the record
owner of any outstanding shares of Company Common Stock that are owned
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934), but not of record, by Stockholder.
(b) Stockholder shall, at his own expense, perform such further acts
and execute such further documents and instruments as may reasonably be required
to vest in Parent the power to carry out and give effect to the provisions of
this Voting Agreement.
SECTION 4. WAIVER OF APPRAISAL RIGHTS
Stockholder hereby irrevocably and unconditionally waives, and agrees
to cause to be waived and to prevent the exercise of, any rights of appraisal,
any dissenters' rights and any similar rights relating to the Merger or any
related transaction that Stockholder or any other Person may have by virtue of
the ownership of any outstanding shares of Company Common Stock Owned by
Stockholder.
SECTION 5. FURTHER ASSURANCES.
From time to time and without additional consideration, Stockholder
shall (at Stockholder's sole expense) execute and deliver, or cause to be
executed and delivered, such additional transfers, assignments, endorsements,
proxies, consents and other instruments, and shall (at Stockholder's sole
expense) take such further actions, as Parent may request for the purpose of
carrying out and furthering the intent of this Voting Agreement.
SECTION 6. MISCELLANEOUS
6.1 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
6.2 NOTICES. Any notice or other communication required or permitted
to be delivered to either party under this Voting Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
party):
if to Stockholder:
at the address set forth below Stockholder's signature on the
signature page hereof
3.
<PAGE>
if to Parent:
Paradigm Technology, Inc.
694 Tasman Drive
Milpitas, CA 95035
Attn: Michael Gulett
Fax: (408) 954-1046
6.3 SEVERABILITY. If any provision of this Voting Agreement or any
part of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) the
invalidity or unenforceability of such provision or part thereof shall not
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Voting Agreement. Each
provision of this Voting Agreement is separable from every other provision of
this Voting Agreement, and each part of each provision of this Voting Agreement
is separable from every other part of such provision.
6.4 ENTIRE AGREEMENT. This Voting Agreement, the Proxy and any other
documents delivered by the parties in connection herewith constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto. No addition to or modification of any provision of
this Voting Agreement shall be binding upon either party unless made in writing
and signed by both parties.
6.5 ASSIGNMENT; BINDING EFFECT. Except as provided herein, neither
this Voting Agreement nor any of the interests or obligations hereunder may be
assigned or delegated by Stockholder and any attempted or purported assignment
or delegation of any of such interests or obligations shall be void. Subject to
the preceding sentence, this Voting Agreement shall be binding upon Stockholder
and his heirs, estate, executors, personal representatives, successors and
assigns, and shall inure to the benefit of Parent and its successors and
assigns. Without limiting any of the restrictions set forth in Section 2 or
elsewhere in this Voting Agreement, this Voting Agreement shall be binding upon
any Person to whom any Subject Securities are transferred. Nothing in this
Voting Agreement is intended to confer on any Person (other than Parent and its
successors and assigns) any rights or remedies of any nature.
6.6 SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Voting Agreement or
the Proxy was not performed in accordance with its specific terms or was
otherwise breached. Stockholder agrees that, in the event of any breach or
threatened breach by Stockholder of any covenant or obligation contained in this
Voting Agreement or in the Proxy, Parent shall be entitled (in addition to any
other remedy that may be available to it, including monetary damages) to seek
and obtain (a) a decree or order of specific performance to enforce the
observance and performance of such covenant or
4.
<PAGE>
obligation, and (b) an injunction restraining such breach or threatened breach.
Stockholder further agrees that neither Parent nor any other Person shall be
required to obtain, furnish or post any bond or similar instrument in connection
with or as a condition to obtaining any remedy referred to in this Section 6.6,
and Stockholder irrevocably waives any right he may have to require the
obtaining, furnishing or posting of any such bond or similar instrument.
6.7 NON-EXCLUSIVITY. The rights and remedies of Parent under this
Voting Agreement are not exclusive of or limited by any other rights or remedies
which it may have, whether at law, in equity, by contract or otherwise, all of
which shall be cumulative (and not alternative). Without limiting the generality
of the foregoing, the rights and remedies of Parent under this Voting Agreement,
and the obligations and liabilities of Stockholder under this Voting Agreement,
are in addition to their respective rights, remedies, obligations and
liabilities under common law requirements and under all applicable statutes,
rules and regulations. Nothing in this Voting Agreement shall limit any of
Stockholder's obligations, or the rights or remedies of Parent, under any
Affiliate Agreement between Parent and Stockholder; and nothing in any such
Affiliate Agreement shall limit any of Stockholder's obligations, or any of the
rights or remedies of Parent, under this Voting Agreement.
6.8 GOVERNING LAW; VENUE.
(a) This Voting Agreement and the Proxy shall be construed in
accordance with, and governed in all respects by, the laws of the State of
Delaware (without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Voting Agreement or the Proxy or the enforcement of any provision of this Voting
Agreement or the Proxy may be brought or otherwise commenced in any state or
federal court located in the County of Santa Clara, California. Stockholder:
(i) expressly and irrevocably consents and submits
to the jurisdiction of each state and federal court located in the
County of Santa Clara, California (and each appellate court located in
the State of California), in connection with any such legal proceeding;
(ii) agrees that service of any process, summons,
notice or document by U.S. mail addressed to him at the address set
forth in Section 6.2 shall constitute effective service of such process,
summons, notice or document for purposes of any such legal proceeding;
(iii) agrees that each state and federal court located
in the County of Santa Clara, California, shall be deemed to be a
convenient forum; and
(iv) agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any
state or federal court located in the County of Santa Clara, California,
any claim that Stockholder is not subject personally to the jurisdiction
of such court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is improper or
that this Voting
5.
<PAGE>
Agreement or the subject matter of this Voting Agreement may not be
enforced in or by such court.
Nothing contained in this Section 6.8 shall be deemed to limit or otherwise
affect the right of Parent to commence any legal proceeding or otherwise proceed
against Stockholder in any other forum or jurisdiction.
(C) STOCKHOLDER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS VOTING AGREEMENT OR THE
PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS VOTING AGREEMENT OR THE PROXY.
6.9 COUNTERPARTS. This Voting Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
6.10 CAPTIONS. The captions contained in this Voting Agreement are for
convenience of reference only, shall not be deemed to be a part of this Voting
Agreement and shall not be referred to in connection with the construction or
interpretation of this Voting Agreement.
6.11 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to this Voting Agreement or the enforcement of any provision of this
Voting Agreement is brought against Stockholder, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
6.12 WAIVER. No failure on the part of Parent to exercise any power,
right, privilege or remedy under this Voting Agreement, and no delay on the part
of Parent in exercising any power, right, privilege or remedy under this Voting
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. Parent shall not be deemed to have waived any claim
available to Parent arising out of this Voting Agreement, or any power, right,
privilege or remedy of Parent under this Voting Agreement, unless the waiver of
such claim, power, right, privilege or remedy is expressly set forth in a
written instrument duly executed and delivered on behalf of Parent; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
6.13 CONSTRUCTION.
(a) For purposes of this Voting Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(b) The parties agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Voting Agreement.
6.
<PAGE>
(c) As used in this Voting Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this Voting
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Voting Agreement and Exhibits to this Voting Agreement.
IN WITNESS WHEREOF, Parent and Stockholder have caused this Voting
Agreement to be executed as of the date first written above.
PARADIGM TECHNOLOGY, INC.
By: /s/ Michael Gulett
------------------------------
Name: Michael Gulett
----------------------------
Title: President and Chief Executive Officer
--------------------------------------
STOCKHOLDER:
By: /s/ Nathan Zommer
------------------------------
Dr. Nathan Zommer
IXYS Corporation
3540 Bassett Street
Santa Clara, CA 95054-2704
Facsimile: (408) 496-0670
SHARES HELD OF RECORD OPTIONS AND OTHER RIGHTS
- ------------------------------------------------------------------------------
56,742,987 1,994,000
7.
<PAGE>
FORM OF IRREVOCABLE PROXY
The undersigned stockholder of IXYS Corporation, a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Michael Gulett, James Kochman and Paradigm
Technology, Inc., a Delaware corporation ("Parent"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the outstanding shares of capital stock of the Company owned of record by
the undersigned as of the date of this proxy, which shares are specified on the
final page of this proxy, and (ii) any and all other shares of capital stock of
the Company which the undersigned may acquire on or after the date hereof. (The
shares of the capital stock of the Company referred to in clauses "(i)" and
"(ii)" of the immediately preceding sentence are collectively referred to as the
"Shares.") Upon the execution hereof, all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and the
undersigned agrees that no subsequent proxies will be given with respect to any
of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with the Voting Agreement, dated as of the date hereof, between
Parent and the undersigned (the "Voting Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger and
Reorganization, dated as of the date hereof, among Parent, Paradigm Enterprises,
Inc. and the Company (the "Merger Agreement").
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement or the effective time of the
merger contemplated thereby (the "Merger") at any meeting of the stockholders of
the Company, however called, or in connection with any solicitation of written
consents from stockholders of the Company, in favor of the approval and adoption
of the Merger Agreement and the approval of the Merger, and in favor of each of
the other actions contemplated by the Merger Agreement.
The undersigned may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, estate, executors,
personal representatives, successors and assigns of the undersigned (including
any transferee of any of the Shares).
If any provision of this proxy or any part of any such provision is
held under any circumstances to be invalid or unenforceable in any jurisdiction,
then (a) such provision or part thereof shall, with respect to such
circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this
8.
<PAGE>
proxy. Each provision of this proxy is separable from every other provision of
this proxy, and each part of each provision of this proxy is separable from
every other part of such provision.
This proxy shall terminate upon the earlier of the valid termination
of the Merger Agreement or the effective time of the Merger.
Dated: March 6, 1998
/s/ Nathan Zommer
--------------------------------
Dr. Nathan Zommer
Number of shares of common stock of the Company
owned of record as of the date of this proxy:
56,742,987
--------------------------------
9.
