-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SJdU2fCDCyj0UXdoU3VXIPKrbxmTqpk470+EdK5mVwerep0DCvPbdV5q6KLDWRmF RXDCg13Y2698hMbJolicRw== 0000950008-97-000141.txt : 19970513 0000950008-97-000141.hdr.sgml : 19970513 ACCESSION NUMBER: 0000950008-97-000141 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970521 FILED AS OF DATE: 19970512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARADIGM TECHNOLOGY INC /DE/ CENTRAL INDEX KEY: 0000945699 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770140882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26124 FILM NUMBER: 97599987 BUSINESS ADDRESS: STREET 1: 71 VISTA MONTANA CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089540500 MAIL ADDRESS: STREET 1: 71 VISTA MONTANA CITY: SAN JOSE STATE: CA ZIP: 95134 DEF 14A 1 DEFINITIVE PROXY STATEMENT Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12 PARADIGM TECHNOLOGY, INC. - ------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) Not Applicable - ------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): --------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: --------------------------------------------------------------------- 5) Total fee paid: --------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: --------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: --------------------------------------------------------------------- 3) Filing Party: --------------------------------------------------------------------- 4) Date Filed: --------------------------------------------------------------------- PARADIGM TECHNOLOGY, INC. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS Wednesday, June 25, 1997 TO OUR STOCKHOLDERS: The Annual Meeting of Stockholders of Paradigm Technology, Inc. (the "Company") will be held at 694 Tasman Drive, Milpitas, California 95035, on Wednesday, June 25, 1997 at 10:00 a.m. for the purpose of considering and acting upon the following proposals: (1) To elect to the Board of Directors three (3) directors to hold office until the next annual meeting of stockholders or until their respective successors have been elected and qualified; (2) To ratify the appointment of Price Waterhouse LLP as independent accountants of the Company for the period ending December 31, 1997; and (3) To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. These items are discussed in the following pages which are made part of this Notice. Only stockholders of record as of the close of business on March 31, 1997 will be entitled to vote at the Annual Meeting and at any postponements or adjournments thereof. A list of stockholders entitled to vote will be available at 694 Tasman Drive, Milpitas, California 95035 for ten days prior to the Annual Meeting. The Company's December 31, 1996 Annual Report to Stockholders accompanies this Notice of Annual Meeting and Proxy Statement. By Order of the Board of Directors MICHAEL GULETT President, Chief Executive Officer and Secretary Milpitas, California May 8, 1997 YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. PARADIGM TECHNOLOGY, INC. 694 Tasman Drive Milpitas, CA 95035 (408) 954-0500 -------------------- PROXY STATEMENT -------------------- ANNUAL MEETING OF STOCKHOLDERS Wednesday, June 25, 1997 The enclosed proxy is solicited by the Board of Directors (the "Board") of Paradigm Technology, Inc., a Delaware corporation (the "Company") for use at the Annual Meeting of Stockholders of the Company to be held on Wednesday, June 25, 1997 at 10:00 a.m. at the principal executive offices of the Company located at 694 Tasman Drive, Milpitas, California 95035, and at any postponement or adjournment thereof, for the purposes set forth in the attached Notice. This Proxy Statement and the accompanying form of proxy are being mailed to stockholders on or about May 8, 1997. VOTING RIGHTS Each holder of Common Stock is entitled to one vote for each share held as of the record date. Each share of Common Stock is entitled to one vote for as many separate nominees as there are directors to be elected and for or against all other matters presented. For action to be taken at the Annual Meeting, a majority of the shares entitled to vote must be represented at the meeting in person or by proxy. Director nominees receiving the highest number of affirmative votes up to the number of directors to be elected will be elected. Cumulative voting is not available in the election of directors at the Annual Meeting. For the ratification of the Company's independent accountants, the affirmative vote of the majority of the shares represented and voting is the minimum approval necessary. Because abstentions with respect to any matter are treated as shares present or represented and entitled to vote for the purposes of determining whether that matter has been approved by stockholders, abstentions have the same effect as negative votes. Broker non-votes and shares as to which proxy authority has been withheld with respect to any matter are not deemed to be present or represented for purposes of determining whether stockholder approval of that matter has been obtained. PROXIES Stockholders of record of the Company as of the close of business on March 31, 1997 have the right to receive notice of and to vote at the Annual Meeting. As of the close of business on March 31, 1997, the Company had 7,243,698 shares of Common Stock outstanding held by 253 stockholders of record. When proxies are properly dated, executed and returned, the shares they represent will be voted at the Annual Meeting in accordance with the instructions of the stockholder. If no specific instructions are given, the shares will be voted FOR the election of the nominees for director set forth herein and FOR ratification of the independent accountants of the Company. Any person giving a proxy in the form accompanying this Proxy Statement has the power to revoke it at any time before its exercise by (i) filing with the Secretary of the Company a signed written statement revoking his or her proxy or (ii) submitting an executed proxy bearing a date later than that of the proxy being revoked. A proxy may also be revoked by attendance at the Annual Meeting and the election to vote in person. Attendance at the Annual Meeting will not by itself constitute the revocation of a proxy. -1- PROPOSAL NUMBER 1 ELECTION OF DIRECTORS At the Annual Meeting, a Board of three directors will be elected. The term of office of each person elected as a director will continue until the next Annual Meeting of Stockholders or until a successor has been elected and qualified. All of the nominees are presently directors of the Company. It is the intention of the proxy holders named in the enclosed form of proxy to vote such proxies (except those containing contrary instructions) for the nominees named below. Unless otherwise instructed, the proxy holders will vote the proxies received by them for Management's nominees named below. In the event that any Management nominee shall become unavailable, or if other persons are nominated, the proxy holders will vote in their discretion for a substitute nominee. It is not expected that any nominee will be unavailable. THE NAME AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE DIRECTORS NOMINATED BY MANAGEMENT ARE: Michael Gulett, 44, the Company's President and Chief Executive Officer, joined Paradigm in March 1992. Mr. Gulett, was elected President in February 1993, was appointed Chief Executive Officer in July 1993 and was appointed to the board in March 1994. Prior to joining Paradigm, Mr. Gulett was a consultant from May 1989 until March 1992. From July 1987 until May 1989, Mr. Gulett was the Director of ASIC Operations at VLSI Technology, Inc., a semiconductor manufacturer. He has also worked for NCR Microelectronics, California Devices, Intel Corporation and Burroughs Corporation. Mr. Gulett received his B.S. in electrical engineering from the University of Dayton. George J. Collins, 54, has served as a Director of the Company since October 1995. Mr. Collins has been a professor of electrical engineering at Colorado State University since 1973. Mr. Collins is a Fellow with the American Physical Society and the Institute of Electrical Engineers. Mr. Collins is a Director of Quantum Research Corporation. Mr. Collins received his B.S.E.E. from Manhattan University and his M.S. and Ph.D. in engineering from Yale University. James L. Kochman, 47, has served as Director of the Company since June 1994 and has been a partner with the investment banking firm of Bentley, Hall, Von Gehr International since April 1992. He was formerly President and Chief Executive Officer of TEKNA/S-TRON, a consumer products company. Prior to joining TEKNA, he spent six years with FMC Corporation in a variety of corporate staff and operating assignments, including Director of Manufacturing and Director of Technology and Business Development with FMC's Ordinance Division in San Jose. Previously Mr. Kochman worked for International Harvester Company. Mr. Kochman received his B.S. in mechanical engineering from the University of Illinois and an M.B.A. from the University of Chicago. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" MANAGEMENT'S NOMINEES. -2- Board of Directors Meetings and Committees The Board held eleven (11) regular meetings during the last fiscal year. All directors attended at least seventy-five percent (75%) of the Board meetings and the meetings of the committees of the Board on which such director served. The Audit Committee of the Board, which presently consists of Mr. Kochman, met one (1) time during the last fiscal year. The Audit Committee has the responsibility to review the scope of the annual audit, to recommend to the Board the appointment of the independent accountants and to meet with the independent accountants for review and analysis of the Company's systems which include the adequacy of controls and the sufficiency of financial reporting and legal accounting compliance. The members of the Audit Committee during fiscal year 1996 were Messrs. Lam, Kochman and Raza. The Compensation Committee of the Board, which presently consists of Mr. Collins, met one (1) time during the last fiscal year. The Compensation Committee has the responsibility for determining the compensation to be paid to each of the Company's executive officers. Messrs. Kochman and Lam served on the Compensation Committee from January 1996 to June 1996, and Messrs. Collins and Raza served from June 1996 to December 1996. The Stock Option Committee of the Board, which presently consists of Mr. Collins, met one (1) time during the last fiscal year. The Stock Option Committee administers and manages the Company's Amended and Restated Incentive and Non-Incentive Stock Option Plan and the 1994 Stock Option Plan. The members of the Stock Option Committee during fiscal year 1996 were Messrs. Collins and Raza. The Company does not have a standing Nominating Committee. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Atmel Relationship On April 28, 1995, pursuant to certain agreements with certain of the Company's stockholders, Atmel Corporation ("Atmel") acquired 425,000 shares of Common Stock from the Company, 300,000 shares of Common Stock from certain stockholders of the Company, and 128,050 shares of Common Stock from the Company's equipment lessors, all of which shares were purchased at a price of $8.00 per share. Atmel also acquired from ACMA Limited ("ACMA") certain warrants to purchase 175,000 shares of Common Stock of the Company at an exercise price of $1.00 per share, for a purchase price of $7.00 per share subject to the warrants. In connection with these transactions, the Company entered into an agreement with Atmel (the "Stock Purchase Agreement") pursuant to which Atmel agreed to certain transfer restrictions for a period of three years. Atmel also agreed to certain standstill provisions, including an agreement not to increase its beneficial ownership above 19.9% of the voting power of the Company on a fully diluted basis for a period of five years from the date of the Stock Purchase Agreement. The foregoing restrictions terminate on the date on which a person or entity acquires more than 50% of the voting power of the Company. In addition, Atmel agreed that, for a period of ten years from the date of the Stock Purchase Agreement, it will vote its shares of Common Stock of the Company in proportion to the votes cast by the other stockholders of the Company, except with respect to certain material events. The voting and standstill restrictions terminate at such time as Atmel beneficially owns less than 5% of the Common Stock of the Company. In connection with its acquisition of capital stock of the Company, Atmel became a party to the Registration Rights Agreement which provides Atmel with certain rights to register its shares of Common Stock of the Company. On April 28, 1995, Atmel also entered into a Licensing and Manufacturing Agreement with the Company. Bentley, Hall, Von Gehr International James Kochman, a director of the Company, is a partner of Bentley, Hall, Von Gehr International ("Von Gehr"), an investment banking firm which performed investment banking services for the Company during the 12 months ended December 31, 1996. Such services related to, among other things, the Company's acquisition of NewLogic and the sale of the Company's wafer fabrication facility to Orbit Semiconductor. Compensation to Von Gehr during 1996 exceeded 5% of the Von Gehr's consolidated gross revenues for its most recent fiscal year. Von Gehr may also perform investment banking services for the Company from time to time in the future. -3- EXECUTIVE COMPENSATION The following table provides certain summary information concerning compensation paid to the Company's Chief Executive Officer, and each of the other four most highly compensated executive officers, who were serving as executive officers on December 31, 1996 (the "Named Executive Officers") and whose aggregate salary and bonus exceeded $100,000, for the fiscal years ended December 31, 1994, 1995 and 1996. Summary Compensation Table
Long-Term Compensation Annual Compensation(1) Payouts ----------------------------------------------- ------------- Securities Other Annual Underlying Name and Principal Position Year Salary($) Bonus($)(2) Compensation($) Options(#) - --------------------------- ---- --------- ----------- --------------- ---------- Michael Gulett 1996 $249,185 $85,000 -- 25,000(3) President and Chief 1995 219,692 115,000 -- 15,000(4) Executive Officer 1994 171,923 24,000 -- 180,000 Robert C. McClelland 1996 128,076 17,000 -- 13,000(5) Former Chief Financial 1995 121,792 18,000 -- 10,000(6) Officer 1994 112,599 5,000 -- 33,750 Dennis McDonald (7) Vice President, Human 1996 134,302 19,174 -- 17,000(8) Resources 1995 70,400 175 -- 25,000(9) Philip Siu (7) Vice President, 1996 139,195 25,174 -- 22,000(10) Engineering 1995 92,308 25,155 -- 62,500(11) James Boswell (7) Vice President, Sales 1996 119,638 9,174 $1,385(12) 26,250(13) and Marketing 1995 6,250 -- -- 15,000(14) - -------------- (1) The Company changed its fiscal year-end from March 31 to December 31 in June 1994. For purposes of the Summary Compensation Table, the 1994 fiscal year figures presented reflect annual compensation for the four quarters ended December 31, 1994. (2) Represents cash bonuses, profit sharing and commissions paid during the year. (3) Includes options granted on February 3, 1997 for 25,000 shares upon cancellation of a previous option granted on July 24, 1996. (4) Includes options granted on February 3, 1997 for 15,000 shares upon cancellation of a previous option granted on June 15, 1995. (5) Includes options granted on February 3, 1997 for 5,000 shares and 8,000 shares upon cancellation of previous options granted on January 1, 1996 and July 24, 1996, respectively. (6) Includes options granted on February 3, 1997 for 10,000 shares upon cancellation of a previous option granted on June 15, 1995. (7) Mr. Siu, Mr. McDonald and Mr. Boswell were hired by the Company in April, May and November 1995, respectively. (8) Includes options granted on February 3, 1997 for 5,000 shares and 12,000 shares upon cancellation of previous options granted on January 1, 1996 and July 24, 1996, respectively. (9) Includes options granted on February 3, 1997 for 25,000 shares upon cancellation of a previous option granted on May 24, 1995. (10) Includes options granted on February 3, 1997 for 10,000 shares and 12,000 shares upon cancellation of previous options granted on January 1, 1996 and July 24, 1996, respectively. (11) Includes options granted on February 3, 1997 for 62,500 shares upon cancellation of a previous option granted on April 20, 1995. (12) Represents automobile expenses. (13) Includes options granted on February 3, 1997 for 15,000 shares and 11,250 shares upon cancellation of previous options granted on July 24, 1996 and November 21, 1996, respectively. (14) Includes options granted on February 3, 1997 for 15,000 shares upon cancellation of previous options granted on December 28, 1995.
-4- The following table sets forth certain information regarding options granted during the fiscal year ended December 31, 1996 to the Named Executive Officers.
Potential Realizable Value at Assumed Annual Rates of Stock Price Number of Appreciation for Option Securities Percent of Total Term(2) Underlying Options Granted Exercise or ------------------------- Options to Employees in Base Price Expiration Granted(#) Fiscal Year(1) ($/Share) Date 5%($) 10%($) --------------- ------------------ ------------- ------------ ---------- ---------- Michael Gulett 25,000(3) 2.12% $ 4.50 07/24/06 $ 70,751 $ 179,296 25,000(4) 2.12 2.0625 07/24/06 32,428 82,175 Robert C. McClelland 5,000(3) 0.43 13.50 01/01/06 42,494 107,715 8,000(3) 0.68 4.50 07/24/06 22,640 57,375 5,000(4) 0.43 2.0625 01/01/06 6,486 16,435 8,000(4) 0.68 2.0625 07/24/06 10,377 26,296 Philip Siu 10,000(3) 0.85 13.50 01/01/06 84,989 215,430 12,000(3) 1.02 4.50 07/24/06 33,960 86,062 10,000(4) 0.85 2.0625 01/01/06 12,971 32,870 12,000(4) 1.02 2.0625 07/24/06 15,565 39,444 Dennis McDonald 5,000(3) 0.43 13.50 01/01/06 42,494 107,715 12,000(3) 1.02 4.50 07/24/06 33,960 86,062 5,000(4) 0.43 2.0625 01/01/06 6,486 16,435 12,000(4) 1.02 2.0625 07/24/06 15,565 39,444 James Boswell 15,000(3) 1.28 4.50 07/24/06 39,450 98,365 11,250(5) 0.96 2.50 11/21/06 17,688 44,824 15,000(4) 1.28 2.0625 07/24/06 19,457 49,305 11,250(4) 0.96 2.0625 11/21/06 14,592 36,979 - ---------- (1) Based on options to purchase an aggregate of 1,174,312 shares of Common Stock granted during fiscal 1996. (2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date and are not presented to forecast possible future appreciation, if any, in the price of the Common Stock. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise of the options or the sale of the underlying shares. The actual gains, if any, on the stock option exercises will depend on the future performance of the Common Stock, the optionee's continued employment through applicable resting periods and the date on which the options are exercised. (3) Six months after the original grant dated, 1/8th of the shares will be vested and thereafter the remaining shares will vest over four years at 1/48th per month. (4) Options granted on February 3, 1997 upon cancellation of previously granted options for the same number of shares. See the table entitled "Ten-Year Option Repricings" on page 6 of this Proxy Statement. (5) Six months after the original grant date, 1/4th of the shares will be vested; one year after the original grant date, 1/2 of the shares will be vested; two years after the original grant date 3/4th of the shares will be vested; and three years after the original grant date, all shares will be fully vested.
-5- The following table shows stock options exercised by the Named Executive Officers as of December 31, 1996. In addition, this table includes the number of shares of Common Stock represented by outstanding stock options held by each of the Named Executive Officers as of December 31, 1996. The closing price of the Company's Common Stock at fiscal year-end was $2.38. Aggregated Option Exercises in Last Fiscal Year d Option Values
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Shares Options at FY-End(#) at FY-End($)(1) Acquired on Value --------------------------- -------------------------- Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable ---- ---------------- ------------ ----------- -------------- ----------- ------------- Michael Gulett 15,000 $ 146,313 166,837 38,163 $ 334,515 $ 7,860 Robert C. McClelland 20,058 230,690 10,366 26,326 17,619 14,863 Philip Siu -- 0 27,292 57,208 0 0 Dennis McDonald -- 0 9,896 32,104 0 0 James Boswell -- 0 3,750 22,500 0 0 - -------------- (1) Value is calculated by (i) subtracting the exercise price per share from the year-end closing price of $2.38 per share; and (ii) multiplying the number of shares subject to the option.
Ten-Year Option Repricings Repricing of Stock Options In February 1997 and as indicated in the Executive Committee Report on Compensation of this Proxy Statement, the Company offered all executive officer option holders and directors the opportunity to exchange their options for new options at the February 3, 1997 fair market value of $2.0625 per share. The options retain their original vesting schedule and expiration date. The following table sets forth the repricing of options held by the Named Executive Officers and directors.
Length of Market Original Number of Price of Exercise Option Term Securities Number Stock at Price at Remaining Underlying of New Time of Time of New at Date of Options Options Repricing Repricing Exercise Repricing Name Date Repriced (#) Granted ($) ($) Price ($) (years.months) - --------------------- ----------- ------------- ---------- --------- ------------- ------------- -------------- Michael Gulett 02/03/97 15,000 15,000 $ 2.0625 $ 9.00 $ 2.0625 8.4 02/03/97 25,000 25,000 2.0625 4.50 2.0625 9.5 Robert C. McClelland 02/03/97 10,000 10,000 2.0625 9.00 2.0625 8.4 02/03/97 5,000 5,000 2.0625 13.50 2.0625 8.10 02/03/97 8,000 8,000 2.0625 4.50 2.0625 9.5 Philip Siu 02/03/97 62,500 62,500 2.0625 8.50 2.0625 8.2 02/03/97 10,000 10,000 2.0625 13.50 2.0625 8.10 02/03/97 12,000 12,000 2.0625 4.50 2.0625 9.5 Dennis McDonald 02/03/97 25,000 25,000 2.0625 9.00 2.0625 8.3 02/03/97 5,000 5,000 2.0625 13.50 2.0625 8.10 02/03/97 12,000 12,000 2.0625 4.50 2.0625 9.5 James Boswell 02/03/97 15,000 15,000 2.0625 4.50 2.0625 9.5 02/03/97 11,250 11,250 2.0625 2.50 2.0625 9.9 02/03/97 15,000 15,000 2.0625 13.50 2.0625 8.9 George Collins 02/03/97 12,500 12,500 2.0625 25.00 2.0625 8.8 James Kochman 02/03/97 12,500 12,500 2.0625 6.00 2.0625 8 Atiq Raza 02/03/97 12,500 12,500 2.0625 13.50 2.0625 8.10
-6- Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules of the Securities and Exchange Commission (the "Commission") thereunder require the Company's directors and executive officers to file reports of their ownership and changes in ownership of Common Stock with the Commission. Personnel of the Company generally prepare these reports on the basis of information obtained from each director and officer. Based on such information, the Company believes that all reports required by Section 16(a) of the Exchange Act to be filed by its directors and executive officers during the last fiscal year were filed on time, except that Mr. Veldhouse, a former officer of the Company, filed a Form 4 in November 1996 relating to transactions involving the purchase and sale of the Company's Common Stock approximately nine days late. Compensation of Directors The Company's non-employee directors ("Outside Directors") receive a fee of $3,000 per quarter. All Outside Directors are also reimbursed for expenses incurred in connection with attending Board and committee meetings. The Company's 1994 Stock Option Plan (the "Option Plan") provides for the grant of options to Outside Directors pursuant to a nondiscretionary, automatic grant mechanism, whereby each Outside Director is granted an option at fair market value to purchase 3,125 shares of Common Stock on the date of each Annual Meeting of Stockholders, provided such director is re-elected. These options vest over four years at the rate of 25% per year so long as the optionee remains an Outside Director of the Company. Each new Outside Director who joins the Board is automatically granted an option at fair market value to purchase 12,500 shares of Common Stock upon the date on which such person first becomes an Outside Director. These options vest over four years at the rate of 25% per year. Employment Agreements The Company entered into an employment agreement with Michael Gulett on August 26, 1996 (the "Agreement"), which provides for a base salary of $255,000 and the right to participate in the Company's executive compensation program. The Company may terminate Mr. Gulett's employment at any time with or without cause upon 90 days' advance written notice; provided, however, that if he is terminated without cause (other than as a result of disability or change of control of the Company), he will receive salary continuation for six months. In the event Mr. Gulett's employment is terminated during the term of the Agreement and within the first six-month period after the occurrence of a change of control of the Company, as defined in the Agreement, Mr. Gulett will be entitled to receive one and a half times his annual rate of base salary as in effect on the date of the employment termination, plus one and a half times the last annual bonus awarded by the Company. EXECUTIVE COMMITTEE REPORT ON COMPENSATION The compensation of the Company's executive officers is determined by the Executive Compensation Committee of the Board (the "Compensation Committee") on an annual basis. The Chief Executive Officer's recommendations of compensation to be paid to other executive officers of the Company are considered by the Compensation Committee in its decision-making process. During fiscal year 1996, the Compensation Committee was comprised entirely of non-employee directors. The Compensation Committee is currently composed of one (1) non-employee director. The Stock Option Committee of the Board administers the Company's Stock Option Plans and determines grants to executive officers. The Stock Option Committee is composed of one "disinterested" director, as defined by Rule 16b-3 under the Exchange Act. The Compensation Committee's policy on executive compensation is to attract and retain highly qualified personnel while linking compensation to performance. Consequently, the Compensation Committee seeks to establish compensation that will reward individuals for Company performance as well as individual performance and motivate and reward executives for achievement of strategic business objectives. -7- The primary factors used by the Compensation Committee in determining the compensation of the Company's executive officers are as follows: 1. The executive officer's individual performance and contributions to the Company; 2. The financial results of the Company, including pre-tax profit; and 3. The compensation of executive officers employed by companies in similar industries with similar revenue levels. Executive Compensation Generally The Company's executive compensation program is designed to attract and retain qualified executives and to ensure that their efforts are directed toward the long-term interests of the Company and its stockholders. To that end, the Company strives to pay competitive base salaries and to provide incentive to its executives by linking individual compensation to Company financial performance and long-term growth of the Company through incentive-based compensation, and to link executive and stockholder interests through the Company's Stock Option Plan. During 1996, the compensation of executive officers was generally composed of (i) base salary, (ii) a management group bonus and (iii) stock options. The following is a summary of the executive officer compensation programs: Base Salary. Base salaries are determined primarily upon an evaluation of the officer's management responsibilities and efforts on behalf of the Company including (i) individual performance, (ii) level of responsibility, (iii) expertise, (iv) Company performance and (v) industry compensation. The Company used the 1996 Radford Associates/Alexander & Alexander Consulting Group Management Total Compensation Report for the High-Tech Industries (the "Radford Report"), which is a survey of over 375 high technology companies of which approximately 14% fall into the semiconductor industry segment, as a basis for establishing the base salaries for its executives. Management Group Bonus. The Company established a variable bonus pool for its management group based on profits before taxes for 1996 with a range of $0 to $800,000. The bonus was based on achieving a specific pre-tax profit goal at the end of the fiscal year. No Management Group Bonus was paid in 1996. Stock Options. In January 1996 and July 1996, certain of the Company's current executive officers received stock options in amounts which are set forth in the Summary Compensation Table in this Proxy Statement. Stock options were granted to the Company's current executive officers on the basis of each such executive's anticipated future performance and contributions to the Company. The stock option grants are designed to align more closely the interests of the executives with the interests of the stockholders by providing the executives with a financial participation in the success of the Company. The Company used the Radford Report as a basis for establishing the option grants. Option Repricing. In February 1997, the Board agreed that additional incentives were needed since many of the Company's executive officers and directors held stock options with grants priced significantly higher than the fair market value of the Company's Common Stock. Therefore, the Company implemented a program whereby executive officers and directors could exchange higher priced option shares for the same number of lower priced option shares. The new shares were issued on February 3, 1997 at the then fair market value of $2.0625 per share. Executive officers must remain active on the Company's payroll to exercise their new options. All executive officer option holders and directors were eligible to participate in this program. Data for executive officers and directors who were eligible to reprice shares is shown in the table entitled "Ten-Year Option Repricings" on page 6 of this Proxy Statement. Chief Executive Officer Compensation Mr. Gulett's base salary for 1996 was approximately $249,185 which was negotiated as part of his Employment Agreement dated August 26, 1996. Pursuant to the Employment Agreement and effective as of March 14, 1996, Mr. Gulett's base salary was increased to $255,000 per year. In 1996, the Company paid Mr. -8- Gulett a total salary and bonus of $334,185. Also, pursuant to the Employment Agreement, Mr. Gulett was to be eligible to participate in the management bonus program. However, no bonus was paid to management in 1996. Effective July 24, 1996, the Board approved a grant to Mr. Gulett of stock options to purchase 25,000 shares. Grants to certain other executive officers of the Company were made at the same time. The Compensation Committee had no predetermined number of options that it believed Mr. Gulett should hold. The actual number of options granted to Mr. Gulett was based on subjective as well as objective factors, such as his individual performance, his position in the Company relative to other executive officers who received option grants at the same time, the Company's overall performance, his length of service with the Company, the industry standards for executive officer option grants as indicated by the Radford Report, his past contributions to the success of the Company and his contributions to the Company's success that are expected to be made in the future. Other Since the compensation of the Company's executive officers does not exceed $1,000,000 for any single officer, the Company does not have a policy regarding qualifying compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended. EXECUTIVE COMPENSATION COMMITTEE GEORGE J. COLLINS -9- COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Securities and Exchange Commission requires disclosure where an executive officer of a company served or serves as a director or on the compensation committee of another entity and an executive officer of such other entity served or serves as a director or on the compensation committee of the company. The Company does not have any such interlocks. Decisions as to executive compensation are made by the Compensation Committee and the Stock Option Committee. During fiscal year 1996, the Compensation Committee and the Stock Option Committee were comprised entirely of non-employee directors. STOCK PERFORMANCE GRAPH Set forth below is a graph, based on the closing price of the last business trading day in each calendar month for the period, comparing the Company's total cumulative stockholder return as compared to the Standard & Poor's 500 Index and the Standard & Poor's Small Cap Semiconductor Index for the period from June 28, 1995 (the date of the Company's initial public offering) through December 31, 1996. Total stockholder return assumes $100 invested at the beginning of the period in the Company's Common Stock, the stocks represented in the Standard & Poor's 500 Index and the stocks represented in the Standard & Poor's Small Cap Semiconductor Index, respectively. Total return also assumes reinvestment of dividends. The Company has paid no dividends on its Common Stock. Historical stock price performance should not be relied upon as indicative of future stock price performance. INDEXED STOCK PRICE COMPARISON June 28, 1995 through December 31, 1996 [GRAPHIC OMITTED]
6/95 7/95 8/95 9/95 10/95 11/95 12/95 1/96 2/96 3/96 4/96 5/96 6/96 7/96 8/96 9/96 10/96 11/96 12/96 ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ----- S&P SMALL CAP SEMI $100 $114 $108 $109 $104 $96 $88 $88 $90 $92 $98 $101 $97 $90 $96 $100 $99 $104 $105 S&P 500 100 105 104 107 107 111 113 116 117 118 120 122 123 117 119 126 129 138 135 PARADIGM 100 218 234 220 183 134 97 120 107 70 71 66 52 35 35 37 20 23 17
-10- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of March 31, 1997 by: (i) each person known to the Company to beneficially own more than five percent of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers of the Company as a group. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such person subject to community property laws where applicable.
Shares Beneficially Name of Beneficial Owner Owned Percent - ---------------------------------------------- ------------ --------- Vintage Products, Inc.(1) Arlozorv Street Telaviv, Israel .............................. 1,600,000 22.1% ACMA Limited(2) 17 Jurong Port Road Singapore 2261................................ 1,300,000 17.5 Atmel Corporation(3) 2125 O'Nel Drive San Jose, CA 95131............................ 1,028,050 13.8 Michael Gulett(4)............................. 190,313 2.6 Philip Siu(5)................................. 40,657 * James L. Kochman(6)........................... 21,875 * Robert C. McClelland(7)....................... 20,027 * Dennis McDonald(8)............................ 17,792 * Richard Morley................................ 11,000 * James Boswell(9).............................. 6,563 * George J. Collins(10)......................... 3,125 * S. Atiq Raza(11).............................. 3,125 * All directors and executive officers as a group (10 persons)(12)...................... 314,477 4.2 - ---------- * Less than one percent (1%). (1) Represents shares issuable upon conversion of the Company's 5% Series A Convertible Redeemable Preferred Stock (the "Preferred Stock") pursuant to the purchase from the Company of 200 shares of Preferred Stock. The Preferred Stock is redeemable by the Company under certain limited circumstances. The Company is not required to issue shares of Common Stock equal to or greater than twenty percent (20%) of the Common Stock outstanding on the date of the initial issuance of the Preferred Stock. (2) Includes 200,000 shares issuable upon exercise of outstanding warrants. (3) Includes 200,000 shares issuable upon exercise of outstanding warrants. (4) Includes 179,063 shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (5) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (6) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (7) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (8) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (9) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (10) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (11) Represents shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997. (12) Includes 292,227 shares subject to stock options that are exercisable or will become exercisable within 60 days of March 31, 1997.
-11- PROPOSAL NUMBER 2 RATIFICATION OF INDEPENDENT ACCOUNTANTS The Board has approved the retention of Price Waterhouse LLP as independent accountants for the Company until revoked by further action. Price Waterhouse LLP has been the Company's independent accountants since June 1994. The stockholders are asked to ratify the designation of Price Waterhouse LLP as independent accountants for the Company for the fiscal year ending December 31, 1997. A representative of Price Waterhouse LLP is expected to be present at the Annual Meeting to make a statement if he or she desires to do so, and such representative is expected to be available to respond to appropriate questions. Should the stockholders fail to ratify the designation of Price Waterhouse LLP as independent accountants, retention of the firm for the fiscal year ending December 31, 1997 will be reconsidered by the Board. Unless marked to the contrary, proxies received will be voted "FOR" ratification of the designation of Price Waterhouse LLP as independent accountants for the Company's fiscal year ending December 31, 1997. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF THE COMPANY'S INDEPENDENT ACCOUNTANTS. OTHER MATTERS Proposals Intended to be Presented at the Next Annual Meeting. Proposals of security holders intended to be presented at the Company's 1998 Annual Meeting of Stockholders must be received by the Company for inclusion in the Company's proxy statement and form of proxy no later than December 19, 1997. Other Matters. Management knows of no business that will be presented for consideration at the Annual Meeting other than as stated in the Notice of Meeting. If, however, other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying form of proxy to vote the shares represented thereby on such matters in accordance with their best judgment. Proxy Solicitation. The expense of solicitation of proxies will be borne by the Company. In addition to solicitation of proxies by mail, certain officers, directors and Company employees who will receive no additional compensation for their services may solicit proxies by telephone, telegraph or personal interview. The Company may retain a proxy solicitation firm and, if it does so, would pay approximately $6,000 in fees plus a reasonable amount to cover expenses. The Company is required to request brokers and nominees who hold stock in their name to furnish this proxy material to beneficial owners of the stock and will reimburse such brokers and nominees for their reasonable out-of-pocket expenses in so doing. Annual Report. The Company will provide a copy of its 1996 Annual Report to Stockholders, without charge, to any stockholder who makes written request to Michael Gulett, President, Chief Executive Officer and Secretary, Paradigm Technology, Inc., 694 Tasman Drive, Milpitas, California 95035. By Order of the Board of Directors MICHAEL GULETT President, Chief Executive Officer and Secretary Milpitas, California May 8, 1997 -12- -----END PRIVACY-ENHANCED MESSAGE-----