-----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, URVFzov96M9CEtdDJhigYF7xKS0+LBMagkv9yCC6poLAib3PqbF75iyfyjYRrRP2 rivSC9Gzc8x+klYm5c7T7w== 0001012870-98-002927.txt : 19981118 0001012870-98-002927.hdr.sgml : 19981118 ACCESSION NUMBER: 0001012870-98-002927 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXYS CORP /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: 10-Q SEC ACT: SEC FILE NUMBER: 000-26124 FILM NUMBER: 98751356 BUSINESS ADDRESS: STREET 1: 3540 BASSETT STREET CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4089540500 MAIL ADDRESS: STREET 1: 3540 BASSETT STREET CITY: SANTA CLARA STATE: CA ZIP: 95054 FORMER COMPANY: FORMER CONFORMED NAME: PARADIGM TECHNOLOGY INC /DE/ DATE OF NAME CHANGE: 19951031 10-Q 1 FORM 10-Q FOR QUARTER ENDED 09/30/1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-26124 IXYS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 770140882-5 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3540 BASSETT STREET SANTA CLARA, CALIFORNIA 95054-2704 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 982-0700 PARADIGM TECHNOLOGY, INC. 694 TASMAN DRIVE MILPITAS, CA 95035 DECEMBER 31, 1998 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of the Registrant's Common Stock outstanding as of October 31, 1998 was 11,955,684. INDEX PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets..................... 3 Condensed Consolidated Statements of Operations........... 4 Condensed Consolidated Statements of Comprehensive Income (Loss).................................................. 5 Condensed Consolidated Statements of Cash Flows........... 6 Condensed Notes to Consolidated Financial Statements...... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 10 PART II OTHER INFORMATION......................................... 14 ITEM 1. LEGAL PROCEEDINGS......................................... 14 ITEM 2. CHANGES IN SECURITIES..................................... 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 18 SIGNATURES......................................................... 20 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IXYS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
ASSETS MARCH 31, SEPTEMBER 30, 1998 1998 -------------- ------------------ (UNAUDITED) Cash and cash equivalents $10,594 $11,129 Trade accounts receivable, net of allowance for doubtful accounts of $588 in 1998 and $613 in 1999 10,009 9,981 Inventories 17,103 19,469 Other current assets 168 Deferred income taxes 1,617 1,617 ------- ------- Total current assets 39,323 42,364 Property and equipment, net 10,602 11,904 Goodwill and other intangible assets 5,557 Other 1,143 709 Deferred income taxes 3,272 2,672 ------- ------- Total assets $54,340 $63,206 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current portion, capital leases $ 428 $ 734 Current portion, long term debt 4,168 4,578 Current portion, mandatorily redeemable convertible preferred stock 9,300 Accounts payable 4,474 5,738 Other accrued liabilities 7,119 9,085 ------- ------- Total current liabilities 25,489 20,135 Long term capital leases 814 1,477 Long term debt 6,624 7,801 Pension obligations 5,113 5,755 ------- ------- Total liabilities 38,040 35,168 ------- ------- Mandatorily redeemable convertible preferred stock 28,256 Common stock, $0.01 par value: Issued and outstanding: 4,176,879 in 1998 and 11,955,670 in 1999 42 120 Additional paid-in capital 1,031 43,281 Notes receivable from employees (936) (936) Cumulative translation adjustment (734) 279 Accumulated deficit (11,359) (14,706) ------- ------- Total mandatorily redeemable convertible preferred stock and stockholders' equity 16,300 28,038 ------- ------- Total liabilities and stockholders' equity $54,340 $63,206 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- --------------------- 1997 1998 1997 1998 ------- ------- ------- ------- Net revenues...................................... $13,965 $16,449 $27,211 $32,717 Cost of goods sold................................ 9,054 10,629 17,382 22,076 ------- ------- ------- ------- Gross profit................................... 4,911 5,820 9,829 10,641 ------- ------- ------- ------- Operating expenses: Research, development and engineering.......... 762 1,366 1,494 2,094 Selling, general and administrative............ 2,196 2,396 4,383 4,693 Acquisition of in-process research and development................................. 5,807 5,807 ------- ------- ------- ------- Total operating expenses..................... 2,958 9,569 5,877 12,594 ------- ------- ------- ------- Operating income............................. 1,953 (3,749) 3,952 (1,953) Other income (expense), net....................... 69 82 (13) 99 ------- ------- ------- ------- Income (loss) before income tax provision.... 2,022 (3,667) 3,939 (1,854) Income tax provision.............................. 1,054 813 1,922 1,493 ------- ------- ------- ------- Net income (loss)................................. $ 968 $(4,480) $ 2,017 $(3,347) ======= ======= ======= ======= Net income (loss) per share - basic............... $ 0.26 $ (0.94) $ 0.54 $ (0.75) ======= ======= ======= ======= Number of shares used in per share calculation - basic............................................. 3,778 4,766 3,762 4,472 ======= ======= ======= ======= Net income (loss) per share - diluted............... $ 0.08 $ (0.94) $ 0.17 $ (0.75) ======= ======= ======= ======= Number of shares used in per share calculation - diluted........................................... 11,820 4,766 11,795 4,472 ======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ----------------------- 1997 1998 1997 1998 ------ ------- ------ ------- Net income (loss)................................. $ 968 $(4,480) $2,017 $(3,347) Other comprehensive income, net of tax: Foreign currency translation adjustments...... 68 204 (83) 606 ------ ------- ------ ------- Comprehensive income (loss)....................... $1,036 $(4,276) $1,934 $(2,741) ====== ======= ====== =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 IXYS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
SIX MONTHS ENDED SEPTEMBER 30, ------------------------------------ 1997 1998 --------------- ---------------- Cash flows from operating activities: Net income (loss) 2,017 $ (3,347) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 531 1,079 Other (49) (870) Provision for excess and obsolete inventory (284) 1,483 Loss (gain) on foreign currency translation 155 962 Acquisition of in-process research and development 5,807 Changes in operating assets and liabilities: Accounts receivable (732) 1,725 Inventories 433 (2,542) Prepaid expenses and other current assets (506) 73 Other assets (112) (25) Accounts payable 256 (1,354) Accrued expenses and other liabilities 1,874 (417) Pension liabilities 67 (260) ------- ------- Net cash provided by operating activities 3,650 2,314 ------- ------- Cash flows used in investing activities: Acquisition of Paradigm Technology, Inc., net of cash acquired (606) Purchase of plant and equipment (767) (1,236) ------- ------- Net cash used in investing activities (767) (1,842) ------- ------- Cash flows from financing activities: Proceeds from capital lease obligations 991 Principal payments on capital lease obligations (156) (225) Repayment of notes payable to bank (305) Other, net 4 ------- ------- Net cash provided by (used in) financing activities (156) 465 ------- ------- Effect of foreign exchange rate fluctuations on cash and cash (281) (402) equivalents ------- ------- Net increase in cash and cash equivalents 2,446 535 Cash and cash equivalents at beginning of period 8,231 10,594 ------- ------- Cash and cash equivalents at end of period $10,667 $11,129 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INTERIM FINANCIAL DATA (UNAUDITED): The unaudited financial statements for the quarters ended September 30, 1997 and 1998 have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and results of operations in accordance with generally accepted accounting principles. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"), the Company (as defined in Note 7) believes the disclosures made are adequate to make the information presented not misleading. It is suggested that the accompanying financial statements be read in conjunction with the Company's annual financial statements for the year ended March 31, 1998 which have been included in Paradigm Technologies, Inc.'s Form S-4 filed with the Commission (see Note 7). The Company's balance sheet as of March 31, 1998 was derived from the Company's audited financial statements, but does not include all disclosures necessary for the presentation to be in accordance with generally accepted accounting principles. 2. 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' equity. Foreign currency transaction gains and losses are included as a component of other income and expense. 3. EARNINGS PER SHARE: The Company 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 Operations. 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. For the three months and six months ended September 30, 1998, common equivalent shares from restricted stock, stock options, warrants and preferred stock have been excluded from the computation as their effect is antidilutive. 4. RECENT ACCOUNTING PRONOUNCEMENTS: 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 the Company's fiscal year 1999 and requires that comparative information from earlier years be restated to conform to the requirements of this standard. The Company is evaluating the requirements of SFAS 131 and the effects, if any, on the Company's current reporting and disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheets and 7 measure those instruments at fair value. This Statement becomes effective for the Company for fiscal years beginning after December 15, 1999. The Company is evaluating the requirements of SFAS 133 and the effects, if any, on the Company's current reporting and disclosures. 5. COMPREHENSIVE INCOME: Effective in the first quarter of 1998, the Company has adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS 130). Comprehensive income generally represents all changes in stockholders' equity except those resulting from investments or contributions by stockholders. The Company has reclassified earlier financial statements for comparative purposes. The only component of comprehensive income for the three months and six months ended September 30, 1997 and 1998 was the change in the cumulative translation adjustment. 6. INVENTORIES: Inventories consist of the following (in thousands): MARCH 31, SEPTEMBER 30, 1998 1998 ------- ------------- Raw materials $ 3,789 $ 4,098 Work in process 12,059 12,530 Finished goods 5,765 9,250 ------- ------- 21,613 25,878 Less inventory reserve (4,510) (6,409) ------- ------- $17,103 $19,469 ======= ======= 7. ACQUISITION AND MERGER: Effective September 23, 1998, IXYS Corporation ("IXYS") merged with Paradigm Technology, Inc. ("Paradigm"), a company that designs and markets fast SRAM products, in a transaction accounted for as a reverse merger. In the merger, Paradigm issued 11,513,821 shares of its common stock in exchange for all outstanding shares of IXYS capital stock. At the conclusion of the merger, IXYS stockholders held approximately 96% of the combined company. In the merger, the historic accounting records of IXYS became those of the combined company and, accordingly, Paradigm changed its name to IXYS (the combined company of which is referred to in this filing as the "Company" or the "Registrant"). 8 The purchase price for Paradigm, consisting of the value of Paradigm common stock outstanding at the date of the merger, costs incurred by IXYS and the Paradigm liabilities assumed, has been allocated to Paradigm's tangible and intangible assets based on relative fair values as follows: Current assets $ 484 Fixed assets 810 In-process research and development 5,807 Other intangibles 1,463 Goodwill 4,094 ------- $12,658 ======= The goodwill and other intangible assets recorded as part of the purchase price allocation, in the total amount of approximately $5.6 million, will be amortized over twenty-four months. The value of the in-process research development acquired in the transaction, in the amount of $5.8 million, was recorded as an expense immediately following the transaction as the products under development had not reached technological feasibility and there was no other alternative future use for the costs incurred. In conjunction with the merger, all outstanding shares of mandatorily redeemable convertible preferred stock were converted to common stock and the carrying value of $37,556,000 has been reclassified as stockholders' equity. 8. COMPUTATION OF NET INCOME (LOSS) PER SHARE: Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- --------------------- 1997 1998 1997 1998 ------- ------- -------- -------- Basic: Weighted-average common shares.... 3,778 4,766 3,762 4,472 ======= ======= ======= ======= Net income (loss)................. $ 968 $(4,480) $ 2,017 $(3,347) ======= ======= ======= ======= Net income (loss) per share....... $ 0.26 $ (0.94) $ 0.54 $ (0.75) ======= ======= ======= ======= Diluted: Weighted-average common shares... 3,778 4,766 3,762 4,472 Restricted stock subject to repurchase................... 417 434 Common equivalent shares from stock options and warrants... 1,181 1,155 Common equivalent shares from preferred stock............. 6,444 6,444 ------- ------- ------- ------- Shares used in per share calculation..................... 11,820 4,766 11,795 4,472 ------- ------- ------- ------- Net income (loss)................ $ 968 $(4,480) $ 2,017 $(3,347) ======= ======= ======= ======= Net income (loss) per share...... $ 0.08 $ (0.94) $ 0.17 $ (0.75) ======= ======= ======= =======
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including without limitation as detailed and included in the report of Paradigm Technology, Inc., a Delaware corporation ("Paradigm") (Registration no. 333-57003) on Form S-4 (the "Form S-4"), as filed with the Securities and Exchange Commission (the "Commission"), which includes the IXYS financial statements as of March 31, 1998 and 1997 and the three years in the period ended March 31, 1998. Actual results may differ materially from the results discussed in the forward-looking statements. Important factors affecting the Company's (as defined below) ability to achieve future revenue growth include whether, and the extent to which, demand for the Company's products increases and reflects real end-user demand; whether customer cancellations and delays of outstanding orders increase; and whether the Company is able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether the Company is able to achieve its new product development and introduction goals, including, without limitation, goals for recruiting, retaining, training, and motivating engineers, particularly design engineers, and goals for conceiving and introducing timely new products that are well received in the marketplace; and whether the Company is able to successfully commercialize its new technologies, which it has been investing in by designing and introducing new products based on these new technologies. Other important factors that could cause actual results to differ materially from those predicted include overall economic conditions, such as the economic issues affecting Asian countries; fluctuations in currency exchange ratios as the Company sells products in currencies other than the U.S. dollar; demand for electronic products and semiconductors generally; demand for the end-user products for which the Company's semiconductors are suited; the level of utilization of the Company's production capacity; timely availability of, and changes in the cost of, raw materials, equipment, supplies and services; unanticipated manufacturing problems; problems in obtaining products from outside foundries that manufacture for the Company; increases in production and engineering costs associated with initial manufacture of new products; technological and product development risks; competitors' actions; and other risk factors described in the Company's filings with the Commission and in particular the risk factors described in the Form S-4 regarding "Risks Relating to the Business of IXYS" and "Risks Relating to the Business of Paradigm - Litigation" and "- Declining SRAM Prices." The impact of these and other factors on the Company's revenues and operating results in any future period cannot be forecasted with certainty. The Company's expense levels are based, in part, on its expectations as to future revenues. Because the Company's sales are generally made pursuant to purchase orders that are subject to cancellation, modification, quantity reduction or rescheduling on short notice and without significant penalties, the Company's backlog as of any particular date may not be indicative of sales for any future period, and such changes could cause the Company's net sales to fall below expected levels. If revenue levels are below expectations, operating results are likely to be materially adversely effected. Net income, if any, and gross margins may be disproportionately affected by a reduction in net sales because a proportionately smaller amount of the Company's expenses varies with its revenues. All forward-looking statements included in this document are made as of the date hereof, based on the information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward- looking statement. OVERVIEW On September 23, 1998, IXYS Corporation, a Delaware corporation ("IXYS") merged with Paradigm in a transaction accounted for as a reverse merger. In the merger, the historic accounting records of IXYS became those of the combined company, and, accordingly, Paradigm formally changed its name to "IXYS Corporation" (the combined company of which is referred to in this report as the "Company" or the "Registrant"). The Company 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. The Company's power semiconductors convert electricity at relatively high 10 voltage and current levels to create efficient power as required by a specific application. The Company's 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 the Company considers to be those capable of processing greater than 500 watts of power. The Company 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"). In addition, the Company also 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. RESULTS OF OPERATIONS Net Sales: Net sales for the three months ended September 30, 1998 were $16.4 million, an increase of 17.8% from the $14.0 million reported in the three months ended September 30, 1997. For the first six months of fiscal 1999, net sales of $32.7 million were $5.5 million, or 20.2% higher than for the same period in fiscal 1998. Unit sales volume for the three months ended September 30, 1998 and for the year to date period increased over the same periods in the prior year and the effect on revenue was offset partially by declines in average selling prices. Future revenue will depend largely upon customer demand, unit shipments and production volumes. Gross Profit. Gross margin was 35.4% of net sales for the three months ended September 30, 1998 and was relatively unchanged as compared with 35.2% for the three months ended September 30, 1997. Gross margin was 32.5% of net sales for the six months ended September 30, 1998 as compared to 36.1% for the six-month period ended September 30, 1997. The decline in gross margin for the six month period ended September 30, 1998 as compared to the same period in 1997 was due to lower average selling prices per unit. Research and Development. Research and development expenses increased $604,000 in the three months ended September 30, 1998, compared to the same period in 1997. Research and development expenses increased $600,000 in the six months ended September 30, 1998, compared to the same period in 1997. Research and development expenses increased primarily due to expanded research efforts to support the Company's overall plan. Selling, General and Administrative. Selling, general and administrative expenses increased $200,000 in the three months ended September 30, 1998, compared to the same period in the prior fiscal year. Selling, general and administrative expenses increased $310,000 in the six months ended September 30, 1998, compared to the same period in the prior fiscal year. The increase in selling, general and administrative expenses was primarily related to increased selling costs on the higher revenues. The Company anticipates that operating expenses will fluctuate in absolute dollars and as a percentage of net sales as headcount is modified to support new product introductions, and due to changes in levels of production volume and unit shipments. Acquisition of in-process research and development. The Company recorded a one-time charge of $5.8 million in connection with the acquisition of Paradigm. Other Income, Net. Net other income increased $13,000 during the three months ended September 30, 1998, compared to the same period in fiscal 1998, and $112,000 during the six months ended September 30,1998, compared to the same period in fiscal 1998. Provision for Income Taxes. For the three months ended September 30, 1998, the Company recorded an income tax provision of $813,000 on a loss of $3.7 million, after giving effect to the write-off of the one-time charge of $5.8 million in connection with the reverse merger acquisition of Paradigm, as compared to an effective income tax rate of 52% for the three months ended September 30, 1997 and 49% for the six months ended September 30, 1997. The tax provision for the three months ended September 30, 1998 gives effect to the non- deductible tax items relating to the acquisition of Paradigm. The income tax provision for the six months ended September 30, 1998 reflects the Company's expected effective tax rate for fiscal year 1999, prior to the effect of the write-off of the one-time non-deductible charge of $5.8 million in connection with the reverse merger acquisition of Paradigm, of approximately 38%. 11 LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations to date through the private sale of equity, lease financing, and bank borrowings. As of September 30, 1998, cash and cash equivalents were $11.1 million, an increase of $535,000 from cash and cash equivalents of $10.6 million at March 31, 1998. The increase in cash and cash equivalents was primarily due to cash generated from operations. Line of credit facilities available to the Company are as follows: A line of credit with a U.S. bank that as of September 30, 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 (8.5% at September 30, 1998). The line is collateralized by certain assets and contains certain general and financial covenants, which include provisions stating that the Company cannot incur additional debt or pledge assets without the prior approval of such bank. At September 30, 1998, the Company had drawn $2.1 million against such line of credit. As of March 31, 1998, the Company 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. The accounts receivable at September 30, 1998 were relatively unchanged from March 31, 1998. The inventories at September 30, 1998 were 13.8% greater than the inventories at March 31, 1998 as a consequence of expectations for increased orders deliverable during the period. Net plant and equipment at September 30, 1998 increased 12.2% as compared to March 31, 1998. The Company evaluates the acquisition of businesses, products or technologies that complement the Company's business. Any such transactions, if consummated, may use a portion of the Company's working capital or require the issuance of equity securities, which may result in further dilution to the Company's stockholders. The Company 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 bank facilities are insufficient to meet its capital requirements, the Company 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 the Company's 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. 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 the Company's fiscal year 1999 and requires that comparative information from earlier years be restated to conform to the requirements of this standard. The Company is evaluating the requirements of SFAS 131 and the effects, if any, on the Company's current reporting and disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheets and measure those instruments at fair value. This Statement becomes effective for the Company for fiscal years beginning after December 15, 1999. The Company is evaluating the requirements of SFAS 133 and the effects, if any, on the Company's current reporting and disclosures. 12 Effective in the first quarter of 1998, the Company has adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS 130). Comprehensive income generally represents all changes in stockholders' equity except those resulting from investments or contributions by stockholders. The Company has reclassified earlier financial statements for comparative purposes. The only component of comprehensive income for the three months and six months ended September 30, 1997 and 1998 was the change in the cumulative translation adjustment. YEAR 2000 COMPLIANCE The Company has reviewed both its internal computer systems and its products that could be affected by the "Year 2000" issue and has identified certain minor software applications that will be affected. In the ordinary course of replacing computer equipment and software, the Company attempts to obtain replacements that are Year 2000 compliant. Utilizing both internal and external resources to identify and assess needed Year 2000 remediation, the Company currently anticipates that its internal Year 2000 identification, assessment, remediation and testing efforts, will be completed on or about March 31, 1999, and that such efforts will be completed prior to any currently anticipated impact on its internal computer equipment and software. The Company presently believes, with modification to existing software and conversion to new software, the "Year 2000" issues relating to internal computer systems and products will not cause significant operational problems or computer problems. Furthermore, the cost of implementing these solutions is not anticipated to be material to the financial position or results of operations. The plan is currently expected to result in non-recurring expenses over the next 1-1/2 years of approximately $750,000 in the aggregate. However, if such modifications and conversions are not made, or not completed, the Company does not expect the "Year 2000" issue to have a material adverse impact on the operations of the Company as there are inexpensive alternatives available. Although the Company has completed its internal assessment of the Year 2000 issue and believes that it is substantially compliant, there can be no assurance that all potential problem areas have been identified and the Year 2000 risks accurately assessed. Should there be systems that were not included in the assessment and which are not Year 2000 compliant or should the Company's assessment prove to be in error in some material respect, the Company may be unable to conduct business or manufacture its products, which could cause a material adverse effect on the Company's results of operations. The Company has initiated formal communications with all of its significant suppliers during fiscal 1999 to determine the extent to which the Company is vulnerable to those third parties failure to remediate their own "Year 2000" issues. There can be no guarantee that the systems or products of other companies or significant suppliers will be converted. A failure to convert by another company, or a conversion that is incompatible with the Company's systems may have a material adverse impact on the Company. The Company's suppliers and customers may be adversely affected by their respective failure to address the Year 2000 problem. Should any of the Company's suppliers encounter Year 2000 problems that cause them to delay manufacturing or shipments of key components, the Company may be forced to delay or cancel shipments of its products, which would have a material adverse effect on the Company's results of operations. Additionally, any inability of material customers to become Year 2000 compliant, which would cause them to delay or cancel substantial purchase orders or delivery of products, would also have a material adverse effect on the Company's results of operations. The Company is currently working with its suppliers to address their Year 2000 compliance in a timely manner. The Company anticipates completion of this effort by June 1999; however, there can be no assurance that any such effort will be successful. Currently, the Company does not have a Year 2000 contingency plan in place as it has completed its internal assessment and believes that it is substantially compliant. However, the Company intends to create such a contingency plan by July 1999 if its communications with its suppliers indicate such is advisable. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 12, 1996, the Company and Michael Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam (the "Paradigm Defendants") were named, along with PaineWebber, Inc., as defendants in a purported class action (entitled Bulwa et al. v. Paradigm Technology, Inc. et al., Santa Clara County Superior Court Case No. CV759991) brought on behalf of stockholders who purchased the Company's stock between November 20, 1995 and March 22, 1996 (the "Class Period"). The complaint asserted six causes of action against the Paradigm Defendants: negligent misrepresentation, fraud, breach of fiduciary duty, violations of California Corporations Code sections 25400 and 25500 ("Sections 25400 and 25500"), violation of Corporations Code section 1507, and violation of California Civil Code sections 1709 and 1710. The Paradigm Defendants responded to the complaint by filing a demurrer which challenged the legal sufficiency of all six causes of action. On December 12, 1996, the Court sustained the demurrer as to all of the causes of action except for the fourth cause of action for violation of Sections 25400 and 25500 (and as to all causes of action for defendant Michael Gulett). The Court, however, granted plaintiffs leave to amend the complaint to attempt to cure the defects which caused the Court to sustain the demurrer. Plaintiffs failed to amend within the allotted time and independently expressed an intent to prosecute only the fourth cause of action. On January 8, 1997, the Paradigm Defendants, with the exception of Michael Gulett (who by virtue of the ruling on the demurrer has obtained a dismissal with prejudice as to all causes of action asserted against him), 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 some of 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 plaintiffs' motion to amend their complaint to incorporate factual allegations derived from the Campbell, et al. action described below. The court overruled the Paradigm Defendants' demurrer to the amended complaint on August 6, 1998. The Paradigm Defendants filed an answer to the amended complaint on August 27, 1998. There can be no assurance that the Company will be successful in the defense of this action. If 14 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, with causes of action and factual allegations essentially identical to those of the Bulwa, et al. action, was filed by the law firm of Stull, Stull & Brody in the Santa Clara County Superior Court on behalf of stockholders who held the Company's stock between November 20, 1995 and March 22, 1996. The action is entitled Chai, et al. v. Paradigm Technology Inc. et al. (Case No. CV764259), and is asserted against the same Paradigm Defendants as in the Bulwa, et al. action, PaineWebber, Inc. and Smith Barney. Prior to the hearing on the Paradigm Defendants' demurrer to the initial complaint, plaintiff amended its complaint to incorporate factual allegations derived from the Campbell, et al. action 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 appealed the decision, and oral argument on the appeal was heard on October 8, 1998. As of the date hereof, the appeal court has not issued an opinion on the matter. There can be no assurance that the Company will be successful in defeating the 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, Thomas Campbell, James Zulliger and Mark Wagenhals, former employees of the Company, filed an action (Campbell, et al. v. Paradigm Technology, Inc., et al., Case No. CV766271) in Santa Clara County Superior Court. The complaint named as defendants the Company, Michael Gulett, Richard Veldhouse, Dennis McDonald and Chiang Lam. The Campbell plaintiffs filed with the complaint a notice that they considered their case related legally and factually to the Bulwa action discussed above. The Campbell complaint contained causes of action for fraud, breach of fiduciary duty, violations of California Corporations Code sections 25400-25402, 25500-25502 and 25504 and violation of California Civil Code sections 1709-1710. The Campbell complaint alleged that the defendants misled them and committed fraud by allegedly overstating the Company's back orders in the fourth quarter of 1995 and inflated reported sales in the fourth quarter of 1995 and the first quarter of 1996, which allegedly resulted in distorting the Company's financial condition, which allegedly inflated its stock price. Plaintiffs alleged that they purchased the Company's stock at the allegedly inflated prices and were damaged thereby. The complaint 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. 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 was heard on September 3, 1998. That same day, the Court sustained the demurrer but granted plaintiffs leave to file a third amended complaint by September 30, 1998. Plaintiffs then filed a third amended 15 complaint. Following defendants' filing of a demurrer to the third amended complaint, plaintiffs agreed to dismiss their claims with prejudice in exchange for defendants' agreement not to seek to recover defendants' costs incurred in defending against the action. On May 19, 1998, the law firm that filed the Bulwa, et al. action described above filed an additional securities class action lawsuit against the Company, Michael Gulett, Robert McClelland, Richard A. Veldhouse and Chiang Lam, this time in the United States District Court for the Northern District of California. The complaint alleged violations of section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Commission Rule 10b-5 and section 20(a) of the Exchange Act. Plaintiff alleged the same class and the same substantive factual allegations that are contained in the Bulwa, et al. action as amended. Defendants responded to the complaint on July 27, 1998 by filing a motion to dismiss the complaint for failure to state claims upon which relief can be granted and for various pleading inadequacies. In lieu of opposing the motion, plaintiff filed a first amended complaint. Defendants' motion to dismiss the first amended complaint is scheduled for hearing on December 18, 1998. There can be no assurance that the Company will be successful in the defense of this action. If unsuccessful in the defense of any such claim, the Company's business, operating results and cash flows could be materially adversely affected. 16 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Following approval by the stockholders of Paradigm at the 1998 Annual Meeting of Stockholders (including adjournments) (the "Annual Meeting"), the Company's common stock was reclassified to effectuate a fifteen for one reverse stock split (the "Reverse Stock Split") (such that for every fifteen (15) shares of the Company's common stock held by a stockholder, such holder became entitled to one (1) share of Company's common stock, outstanding warrants and options to purchase stock being adjusted accordingly). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting commenced on August 4, 1998 and adjourned to August 26, 1998, September 3, 1998, and September 10, 1998. (b) At the Annual Meeting, the stockholders (i) approved the issuance of Company common stock in connection with the reverse merger transaction (the "Merger") between Paradigm and IXYS (the "Issuance Proposal"), (ii) approved the Reverse Stock Split (the "Reverse Stock Split Proposal"), (iii) approved the increase in the number of authorized shares of common stock from 25,000,000 to 40,000,000 (the "Increased Authorization Proposal"), (iv) approved the change of the Company's corporate name from "Paradigm Technology, Inc." to "IXYS Corporation" (the "Name Change Proposal"), (v) elected each of the persons below to serve as a directors of the Company until the next Annual Meeting of Stockholders or until his successor is elected (the "Director Proposal"); (vi) approved the amendment of the Company's 1994 Stock Option Plan, as amended, to (A) increase the number of shares of Common Stock available for grant thereunder to employees, independent contractors and advisors by 100,000 shares (after the Reverse Stock Split), (B) increase the number of shares of common stock available for grant to non-employee directors by 15,000 shares (after the Reverse Stock Split), (C) provide that non-employee directors who are employed by the stockholders of the Company who hold more than 5% of the outstanding shares of common stock of the Company shall not be eligible to receive non-discretionary grants of stock options under the 1994 Stock Option Plan and (D) increase the number of shares of common stock that can be made subject to options in any fiscal year to 35,000 (after the Reverse Stock Split) (the "Stock Plan Proposal"), and (vii) ratified the selection of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending December 31, 1998 (the "Ratification Proposal"). There were 1,779,401 shares of common stock outstanding as of June 19,1998, the record date for the Annual Meeting. At the Annual Meeting, holders of a total of 1,709,235 shares of common stock were present in person or represented by proxy. The following sets forth information regarding the results of the voting at the Annual Meeting: (C) PROPOSAL 1: THE ISSUANCE PROPOSAL Votes in Favor 1,041,899 Votes Against 139,556 Abstentions 25,116 Broker Non-Votes 502,664 17 PROPOSAL 2: THE REVERSE STOCK SPLIT PROPOSAL Votes in Favor 963,398 Votes Against 231,441 Abstentions 33,164 Broker Non-Votes 481,232 PROPOSAL 3: THE INCREASED AUTHORIZATION PROPOSAL Votes in Favor 1,012,379 Votes Against 180,851 Abstentions 34,773 Broker Non-Votes 481,232 PROPOSAL 4: THE NAME CHANGE PROPOSAL Votes in Favor 1,105,437 Votes Against 87,734 Abstentions 34,831 Broker Non-Votes 481,233 PROPOSAL 5: THE DIRECTOR PROPOSAL VOTES IN FAVOR VOTES WITHHELD -------------- -------------- George J. Collins 1,592,566 116,670 Michael R. Gulett 1,554,154 155,082 James L. Kochman 1,593,344 115,892 PROPOSAL 6: THE STOCK PLAN PROPOSAL Votes in Favor 947,237 Votes Against 216,560 Abstentions 42,774 Broker Non-Votes 502,664 PROPOSAL 7: THE RATIFICATION PROPOSAL Votes in Favor 1,611,966 Votes Against 62,746 Abstentions 34,522 Broker Non-Votes 1 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. 3.1 Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding increased authorization and reverse stock split). 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding name change). 10 Registration and Stockholder Rights Agreement, by and between the Company, Asea Brown Boveri AG, and Asea Brown Boveri, Inc., dated September 23, 1998. 18 11 Computation of Per Share Earnings as set forth in Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I of the Form 10-Q. 27 Financial Data Schedule. (B) REPORTS ON FORM 8-K (i) Current Report on Form 8-K, filed with the Commission on August 7, 1998 reporting the resignation of the Registrant's Chief Financial Officer and Vice President of Finance on August 7, 1998. (ii) Current Report on Form 8-K, as filed with the Commission on August 19, 1998, reporting that the Registrant had filed its Quarterly Report on Form 10-Q on August 14, 1998. The Form 10-Q, including the financial statements included therein, was filed as an exhibit to the August 19, 1998 Form 8-K. (iii) Current Report on Form 8-K, as filed with the Commission on August 27, 1998, reporting that the Registrant had adjourned its Annual Meeting until September 3, 1998. (iv) Current Report on Form 8-K, as filed with the Commission on September 8, 1998, reporting that the Registrant had adjourned its Annual Meeting until September 10, 1998. (v) Current Report on Form 8-K, as filed with the Commission on September 14, 1998, reporting that the Registrant's stockholders had approved all the proposals voted upon at the Annual Meeting. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IXYS CORPORATION By: /s/ ARNOLD AGBAYANI ------------------------ Arnold Agbayani, Vice President, Finance and Administration (Principal Financial Officer) Date: November 15, 1998 20 EXHIBIT INDEX ------------- 3.1 Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding increased authorization and reverse stock split). 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding name change). 10 Registration and Stockholder Rights Agreement, by and between the Company, Asea Brown Boveri AG, and Asea Brown Boveri, Inc., dated September 23, 1998. 11 Computation of Per Share Earnings as set forth in Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I of the Form 10-Q. 27 Financial Data Schedule. EX-3.1 2 CERTIFICATE OF AMENDMENT REGARDING AUTHORIZATION EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO 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 Section 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 follows: (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. Each fifteen (15) shares of the Common Stock of the Corporation issued as of the date and time immediately preceding September 23, 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 has caused this certificate to be signed by its duly authorized Acting President and Chief Executive Officer this 23rd day of September 1998. PARADIGM TECHNOLOGY, INC. By: /s/ Richard M. Morley --------------------- Richard M. Morley Acting President Attest: By: /s/ Emeka Chukwu ---------------- Emeka Chukwu Secretary 2. EX-3.2 3 CERTIFICATE OF AMENDMENT REGARDING NAME CHANGE EXHIBIT 3.2 CERTIFICATE OF AMENDMENT TO 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 the provisions of Section 242 of the General Corporation Law of the state of Delaware: RESOLVED, that Article 1 of the Amended and Restated Certificate of Incorporation of the Corporation be amended and restated to read in its entirety as follows: "Name ----- The name of this Corporation is IXYS Corporation." IN WITNESS WHEREOF, Paradigm has caused this certificate to be signed by its duly authorized Acting President and Chief Executive Officer with 23rd day of September 1998. PARADIGM TECHNOLOGY, INC. By: /s/ Richard M. Morley --------------------- Richard M. Morley Acting President Attest: By: /s/ Emeka Chukwu ---------------- Emeka Chukwu Secretary 2. EX-10 4 REGISTRATION AND STOCKHOLDER RIGHTS AGREEMENT EXHIBIT 10 REGISTRATION AND STOCKHOLDER RIGHTS AGREEMENT
PAGE ---- ITEM 1. FINANCIAL STATEMENTS.................................................................... 3 CONDENSED CONSOLIDATED BALANCE SHEETS........................................................... 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS................................................. 4 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)................................ 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS................................................. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 10 PART II. OTHER INFORMATION..................................................................... 14 ITEM 1. LEGAL PROCEEDINGS...................................................................... 14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................... 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................... 15 I. REGISTRATION RIGHTS.................................................................... 0 1.1 DEFINITIONS............................................................................ 0 1.2 DEMAND REGISTRATION.................................................................... 0 1.3 COMPANY REGISTRATION................................................................... 2 1.4 OBLIGATIONS OF THE COMPANY............................................................. 2 1.5 EXPENSES OF DEMAND REGISTRATION AND S-3 REGISTRATION................................... 3 1.6 EXPENSES OF COMPANY REGISTRATION....................................................... 4 1.7 UNDERWRITING REQUIREMENTS.............................................................. 4 1.8 INDEMNIFICATION........................................................................ 4 1.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934.......................................... 5 1.10 FORM S-3 REGISTRATION.................................................................. 6 PRIVATE 1.11 ASSIGNMENT OF REGISTRATION RIGHTS.................................................. 7 PRIVATE 1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS...................................... 7 PRIVATE 1.13 TERMINATION OF REGISTRATION RIGHTS................................................. 7 1.14 DELAY OF REGISTRATION; FURNISHING INFORMATION.......................................... 7 II. COVENANTS.............................................................................. 7 2.1 BOARD OF DIRECTOR MEETINGS............................................................. 7 2.3 CONFIDENTIALITY........................................................................ 8 3.1 REQUISITE CONSENTS; NONVIOLATION....................................................... 8 3.2 AUTHORITY FOR AGREEMENT................................................................ 8 IV. MISCELLANEOUS.......................................................................... 9 PRIVATE 4.1 SUCCESSORS AND ASSIGNS............................................................. 9 PRIVATE 4.2 GOVERNING LAW...................................................................... 9 PRIVATE 4.3 COUNTERPARTS....................................................................... 9 PRIVATE 4.4 TITLES AND SUBTITLES............................................................... 9 PRIVATE 4.5 NOTICES............................................................................ 9 PRIVATE 4.6 EXPENSES........................................................................... 9
i.
PAGE ---- PRIVATE 4.7 AMENDMENTS AND WAIVERS............................................................. 9 PRIVATE 4.8 SEVERABILITY....................................................................... 9 PRIVATE 4.9 AGGREGATION OF STOCK............................................................... 9 PRIVATE 4.10 ENTIRE AGREEMENT; AMENDMENT; WAIVER................................................ 9
ii. REGISTRATION AND STOCKHOLDER RIGHTS AGREEMENT ----------------------------------------------------------- THIS REGISTRATION AND STOCKHOLDER RIGHTS AGREEMENT (the "Agreement") is made as of the 23rd day of September, 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"). R E C I T A L S 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. (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 2 distribution contemplated in the Registration Statement has been completed; 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 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 3 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 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. 4 (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 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; 5 (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 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. 6 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 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 7 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. 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. 8 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. 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. 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. PARADIGM TECHNOLOGY, INC. By: /s/ Richard M. Morley ----------------------------------------------- Title: Acting President and Chief Executive Officer ----------------------------------------------- ASEA BROWN BOVERI A.G. By: /s/ Mr. Hartmann /s/ Mr. Prinzler ----------------------------------------------- Title: Vice Presidents ----------------------------------------------- ASEA BROWN BOVERI, INC. By: /s/ Timothy Powers ----------------------------------------------- Title: Vice President ----------------------------------------------- EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDING SEPTEMBER 30, 1998 INCLUDED IN THE COMPANY'S FORM 10-Q FILED NOVEMBER 16, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000 6-MOS MAR-31-1998 APR-01-1998 SEP-30-1998 11,129 0 10,594 (613) 19,469 42,364 26,912 (15,008) 63,206 20,135 0 0 0 120 27,918 63,206 32,717 32,717 22,076 22,076 12,594 0 (75) (1,854) (1,493) (3,347) 0 0 0 (3,347) (0.75) (0.75)
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