STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between Paradigm Technology, Inc., a
Delaware corporation, with headquarters located at 000 Xxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxxxxx 00000 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon exemptions from securities registration afforded
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act") and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, 5% Series B Convertible Redeemable Preferred
Stock, $.01 par value per share (the "Preferred Stock"), of the Company which
will be convertible into shares of Common Stock, $.01 par value per share (the
"Common Stock"), of the Company upon the terms and subject to the conditions of
such Preferred Stock (the Common Stock and Preferred Stock sometimes referred to
herein as "Securities"), and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE. The undersigned hereby agrees to purchase from the Company
Preferred Stock of the Company, in the amount set forth on the signature page of
this Agreement, out of a total offering of $2,000,000.00 of Preferred Stock, and
having the terms and conditions set forth in the Certificate of Designation
attached hereto as ANNEX I. The purchase price for the Preferred Stock shall be
as set forth on the signature page hereto and shall be payable in United States
Dollars.
b. FORM OF PAYMENT. The Buyer shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions") as
set forth below. Promptly following payment
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by the Buyer to the Escrow Agent of the purchase price of the Preferred Stock,
the Company shall deliver a Certificate for the Preferred Stock duly executed on
behalf of the Company, to the Escrow Agent. By signing this Agreement, the Buyer
and the Company, and subject to acceptance by the Escrow Agent, each agrees to
all of the terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
c. METHOD OF PAYMENT. Payment into escrow of the purchase price for the
Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx, Esqs.
Account No. 105-0000000
Not later than 1:00 p.m., New York time, on the date which is three (3) NASD
trading days after the Company shall have accepted this Agreement and returned a
signed counterpart of this Agreement to the Escrow Agent by facsimile, the Buyer
shall deposit with the Escrow Agent the aggregate purchase price for the
Preferred Stock, in currently available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment, shall
allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. The Buyer is purchasing the Preferred Stock and will be acquiring
the shares of Common Stock issuable upon conversion of the Preferred Stock for
its own account for investment only and not with a view towards the resale,
public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), and (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the
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entire loss of its investment in the Preferred Stock;
c. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock issuable upon conversion of, or issued as dividends on,
the Preferred Stock (the "Shares" and, together with the Preferred Stock, the
"Securities") by the Buyer shall be made pursuant to registration of the Shares
under the 1933 Act or with respect to the Preferred Stock pursuant to an
exemption from registration;
d. The Buyer understands that the Preferred Stock is being offered and
sold, and the Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgements and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Stock and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including ANNEX V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, (2) Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1997, and (3)
(the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves
a high degree of risk;
g. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Neither Buyer, nor any affiliate of Buyer, has any present intention
of entering into, or will enter into any put option, short position, or other
similar position with respect to the Preferred Stock or the Shares.
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j. Notwithstanding the provisions hereof, in no event (except with
respect to an Event of Mandatory Conversion) shall the holder be entitled to
convert any Preferred Stock in excess of that number of shares upon conversion
of which the sum of (1) the number of shares of Common Stock beneficially owned
by the Buyer and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the Preferred Stock), and (2) the number of shares of Common Stock issuable upon
the conversion of the Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the Buyer
and its affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
Except as disclosed in ANNEX V, delivered in writing to the Buyer, the
Company represents and warrants to the Buyer that:
a. CONCERNING THE SHARES. The Common Shares have been duly authorized
and, when issued upon conversion of, or as dividends on, the Preferred Stock,
will be duly and validly issued, fully paid and non-assessable and will not
subject the holder thereof to personal liability by reason of being such holder.
There are no preemptive rights of any stockholder of the Company, as such, to
acquire the Common Shares.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified as a foreign corporation in all jurisdictions in
which the failure to so qualify would have a material adverse effect on the
Company and its subsidiaries taken as a whole. The Company has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and traded on the
NASDAQ National Market. The Company has timely filed all material required to be
filed pursuant to all reporting obligations under either Section 13(a) or 15(d)
of the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the Preferred Stock, and has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing.
c. AUTHORIZED SHARES. The Company has legally available sufficient
authorized and unissued Shares as may be reasonably necessary to effect the
conversion of the Preferred Stock, if the Preferred Stock were converted on the
date hereof.
d. STOCK PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND STOCK.
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This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as ANNEX IV (the "Registration Rights Agreement"), have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity, the indemnification provisions of the Registration Rights Agreement, and
to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally; and the Securities will be duly and
validly issued, fully paid and non-assessable when delivered on behalf of the
Company upon payment therefor in accordance with this Agreement, subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
articles of incorporation or by-laws of the Company, or any indenture, mortgage,
deed of trust, or other material agreement or instrument to which the Company is
a party or by which it or any of its properties or assets are bound, or any
material existing applicable law, rule, or regulation or any applicable decree,
judgment, or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC FILINGS. None of the SEC Filings with the Securities and
Exchange Commission since January 1, 1996 contained, at the time they were
filed, any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements made
therein in light of the circumstances under which they were made, not
misleading. The Company has since January 1, 1996 timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission.
h. ABSENCE OF CERTAIN CHANGES. Since March 31,1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, outstanding securities, or results
of operations of the Company, except as disclosed in the documents referred to
in Section 2(g) hereof.
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i. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Buyer (including through the publicly filed
documents of the Company) that (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, properties or assets of the Company or (ii) could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
j. ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other), or results of operations
of the Company and its subsidiaries taken as a whole or the transactions
contemplated by this Agreement or any of the documents contemplated hereby or
which would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, this Agreement or
any of such other documents.
k. ABSENCE OF EVENTS OF DEFAULT. No Event of Default, as defined in any
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
l. NO DEFAULT. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property may be bound,
and neither the execution, nor the delivery by the Company, nor the performance
by the Company of its obligations under this Agreement or the Preferred Stock,
other than the conversion provision thereof, will conflict with or result in the
breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement or instrument to which the Company is
a party or by which it is bound or any statute or the Certificate of
Incorporation or By-Laws of the Company, or any decree, judgment, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or its properties, or its listing agreement with respect to any
securities exchange or trading market on which the Common Stock is listed.
m. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any securities pursuant to Regulation S or
Regulation D under the Act, except as set forth on Exhibit 3(m).
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4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the Preferred
Stock has not been and is not being registered under the provisions of the 1933
Act and, except as provided in the Registration Rights Agreement, the Shares
have not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may he sold or transferred pursuant to an exemption from
such registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Preferred Stock, and, until such time as the Common Stock have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement and sold
in accordance with such Registration Statement, the shares of Common Stock,
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred Stock and
the shares of Common Stock):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement, in the form attached hereto as ANNEX IV,
on or before the Closing Date.
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d. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock to the Buyer as
required by United States laws and regulations, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer promptly
after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Preferred Stock or Common Stock issued on conversion thereof, the Company shall
file all reports required to be filed with the SEC pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
f. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Stock (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Preferred Stock) for the
repayment of the Company's debt and internal working capital purposes and shall
not, directly or indirectly (except in any situation where the Company is
acquired by merger or otherwise by a third party) use such proceeds for any loan
to or investment in any other corporation, partnership enterprise or other
person.
g. CERTAIN AGREEMENTS. The Company covenants and agrees that it will
not (i) enter into any subsequent or further offer or sale of common stock or
securities convertible into common stock with any third party until the
expiration of the earlier of (a) one hundred eighty (180) days from the Closing
Date, or (b) forty-five (45) days after the effective date of the Registration
Statement required to be filed under the Registration Rights Agreement, and (ii)
enter into any subsequent or further offer or sale of common stock or securities
convertible into common stock with any third party within a period of thirty
(30) days following the period set forth in clause (i) above, without first
offering the Buyer the opportunity (which shall remain open for a period of five
business days from the date the Buyer receives notice thereof) to purchase all
of such additional securities (in the discretion of the Buyer) on the terms and
provisions on which the Company proposes to offer such additional securities to
such third party. In the event that the Buyer declines to participate in any
such investment, the Company shall provide the Buyer with prompt written notice
of the consummation of any such transaction with a third party, specifying the
material terms thereof. However, clauses 4(g)(i) and 4(g)(ii) will not apply to
(x) the issuance of securities (other than for cash) in connection with a
merger, consolidation, sale of assets, disposition of a business, product or
license by the Company, strategic alliance, bank loan or agreement, public
offering, securities issued at the then current market price (as determined in
good faith by the Board of Directors), or the exercise of options, or (y) the
exchange of the capital stock of the Company for assets, stock or other joint
venture interests. This Section 4(g) may be waived by the holders of two-thirds
of the outstanding shares of Preferred Stock (whether or not the Buyer shall
consent thereto).
h. VOTING. Until the fifth anniversary of the Closing Date, with
respect to all matters to be voted upon by holders of voting securities of the
Company ("Voting Securities"),
8
the Buyer shall vote all Voting Securities directly or indirectly owned by Buyer
in the same proportion as all other voting Securities voted on such matters.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Preferred Stock in accordance with Section l(c) hereof,
the Company will irrevocably instruct its transfer agent to issue Common Stock
from time to time upon conversion of the Preferred Stock in such amounts as
specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. The Company warrants
that no instruction other than such instructions referred to in this Section 5,
the Registration Rights Agreement, and stop transfer instructions to give effect
to Section 4(a) hereof prior to registration and sale of the Shares under the
1933 Act will be given by the Company to the transfer agent and that the Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the 1933 Act, the Company
shall (except as provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer of the Securities and, in the case of the Shares, promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock in such name and in such denominations as specified by the Buyer.
b. The Company will permit the Buyer to exercise its right to convert
the Preferred Stock by telecopying an executed and completed Notice of
Conversion to the Company and delivering within three business days thereafter,
the original Notice of Conversion and the certificate for the Preferred Stock
representing the Shares to the Company by express courier. Each date on which a
Notice of Conversion is telecopied to and received by the Company (and confirmed
via telephonic notice) in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company will transmit the certificates representing the
Shares of Common Stock issuable upon conversion of any Preferred Stock (together
with the Preferred Stock representing the Shares not so converted) to the Buyer
via express courier, by electronic transfer or otherwise, within five business
days after receipt by the Company of the original Notice of Conversion and the
certificate for the Preferred Stock representing the Shares to be converted (the
"Delivery Date").
c. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments, not exceeding $500,000 in the aggregate, to the Buyer for late
issuance of Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
three (3) business days from Delivery Date:
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Late Payment For Each
$10,000 of Preferred Stock
No. Business Days Late Principal Amount Being Converted
---------------------- --------------------------------
1 $50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
> 10 $500 + $100 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit a Buyer's right to
pursue actual damages for the Company's failure to issue and delivery Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the Delivery Date, the Buyer will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company whereupon the
Company and the Buyer shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion (and in such event,
the late payments described above shall not be due and payable).
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow
Agent pursuant to Section l(b) hereof on a delivery against payment basis at the
closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock (the
"Closing Date") shall be the later of 12:00 Noon, New York time on July 22, 1997
or such other mutually agreed to time, but not later than July 31, 1997 unless
waived by the Company. The closing shall occur on the Closing Date at the
offices of the Escrow Agent. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the funds representing
the Purchase Price for the Preferred Stock, and the certificates representing
the shares of the Preferred Stock only upon satisfaction of the conditions set
forth in Section 8(d) hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Preferred Stock to the Buyer pursuant to this Agreement is conditioned upon:
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a. The receipt and acceptance by the Company of such Agreement as
evidenced by execution of such Agreement by the Company for at least $1,000,000
in Preferred Stock (or such lesser amount as the Company, in its sole
discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the Preferred Stock in
accordance with Section l(c) hereof;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date;
d. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock is conditioned upon:
a. Acceptance by Buyer of an Agreement for the sale of Preferred Stock,
as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the Preferred Stock
in accordance with this Agreement;
c. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date; and
d. On the Closing Date, the Buyer having received an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX III attached hereto,
and the Registration Rights Agreement annexed hereto as ANNEX IV.
10. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all
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parties hereto. This Agreement may be signed in one or more counterparts, each
of which shall be deemed am original. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or seven business days after deposit in the United
States Postal Service, by (a) advance copy by fax, and (b) mailing by express
courier or registered or certified mail with postage and fees prepaid, addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
COMPANY: PARADIGM TECHNOLOGY, INC.
000 Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Telecopier No. (000) 000-0000
with a copy to:
Pillsbury Madison & Sutro LLP
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
ATT: Xxxxx del Xxxxx, Esq.
PURCHASER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Xxxxxxx & Prager, Esqs.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
12. SURVIVAL OF REPRESENTATIONS ANI) WARRANTIES. Each party's
representations and warranties shall survive the execution and delivery hereof
of this Agreement and the delivery of the Preferred Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
or one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 200
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $2,000,000
SIGNATURE(S) FOR INDIVIDUAL SUBSCRIBER(S)
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that he, she or they have executed this
Stock Purchase Agreement this ______ day of __________,1997.
-------------------------------------- --------------------------------------
Printed Name Signature
-------------------------------------- --------------------------------------
Address
Telecopier No. ___________________
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Stock Purchase
Agreement to be duly executed on its behalf this _____ day of ____________,
1997.
LYDFORD LTD.
-------------------------------------- --------------------------------------
Address Printed Name of Subscriber
--------------------------------------
By: __________________________________
Telecopier No. _______________________ (Signature of Authorized Person)
--------------------------------------
Printed Name and Title
--------------------------------------
Jurisdiction of Incorporation
or Organization: _____________________
This Agreement has been accepted as of the date set forth below.
PARADIGM TECHNOLOGY, INC.
By: _________________________________
Title: _______________________________
Date: _______________________________
13
ANNEX I
CERTIFICATE OF DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS
OF
5% SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
PARADIGM TECHNOLOGY, INC.
(Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware)
Paradigm Technology, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY that, pursuant to the provisions of section 151(g) of the General
Corporation Law of the State of Delaware and pursuant to authority conferred
upon the Board of Directors of the Corporation (the "Board") by the provisions
of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), the Board has adopted the following resolution
providing for the issuance of series of its preferred stock and fixing the
powers, designations, preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof:
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board by the provisions in Article IV of the Certificate of Incorporation
regarding the issuance of series of preferred stock, par value $.01 per share,
there hereby is created a series of Preferred Stock which shall consist of five
hundred (500) shares and which series shall have the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions as follows:
1. DESIGNATION. The designation of the series of Preferred Stock fixed
by this resolution shall be five hundred (500) shares of "5% Series B
Convertible Redeemable Preferred Stock" (hereinafter referred to as the "Series
B Preferred Stock" or the "Series B Shares"). The Corporation has previously
designated five hundred (500) shares of "5% Series A Convertible Redeemable
Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock" or
the "Series A Shares").
2. CONVERSION RIGHTS. The holders of the Series B Preferred Stock shall
have the conversion rights as follows:
(a) RIGHT TO CONVERT. At any time following the earlier of (i) the
effectiveness of a registration statement for the common stock, par value $0.01
per share, of the Corporation (the "Common Stock" or "Common Shares") into which
the Series B Preferred Stock shall convert (the "Series B Registration
Statement") or (ii) ninety-five (95) days from the date of original issuance of
the Series B Preferred Stock, each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, into that number of fully paid
and nonassessable shares of Common Stock as is determined by dividing (A) the
sum of
-1-
(1) $10,000 plus (2) the amount of all accrued but unpaid or accumulated
dividends on the shares of Series B Preferred Stock being so converted by (B)
the Series B Conversion Price (determined as hereinafter provided) in effect at
the time of conversion. The "Series B Conversion Price" shall be equal to the
lower of (i) the closing sale price of the Common Stock as quoted on the Nasdaq
National Market on the day prior to the date of initial issuance of the Series B
Preferred Stock or (ii) eighty-two percent (82%) of the average closing bid
price of a share of Common Stock as quoted on the Nasdaq National Market over
the five (5) consecutive trading days immediately preceding the date of the
Conversion Notice (as defined in Section 2(d) hereof) of the Series B Preferred
Stock as reported on the Nasdaq National Market. In the event that such security
is not traded on the Nasdaq National Market, the average closing sale or bid
price shall be as reported or quoted on such other national or regional
securities exchange or automated quotations system upon which the Common Stock
is listed and principally traded. In the event that the Common Stock is not
listed on any exchange or quoted on a quotation system, the average closing sale
or bid price shall be as reported or quoted on any trading market in which
quotes can be obtained.
(b) AUTOMATIC CONVERSION. If not sooner converted, all outstanding
shares of Series B Preferred Stock shall be subject to automatic conversion on
such date which is the earlier of (i) twenty-four (24) months after the date of
original issuance thereof, (ii) six months from the effectiveness of the Series
B Registration Statement or (iii) immediately prior to the consummation of the
acquisition of the Corporation pursuant to a merger or consolidation or the sale
of substantially all of the assets of the Corporation.
(c) Except in connection with an automatic conversion pursuant to
Section 2(b) hereof, in no event shall a holder of Series B Preferred Stock be
entitled to convert any Series B Preferred Stock in excess of that number of
shares upon conversion of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Series B Preferred Stock), and (ii) the number of
shares of Common Stock issuable upon the conversion of the shares of the Series
B Preferred Stock with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the Holder or its affiliates
of more than 4.9% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (1) of such proviso.
(d) MECHANICS OF CONVERSION. Before any holder of Series B Preferred
Stock shall be entitled voluntarily to convert the same into shares of Common
Stock, such holder shall surrender (within three (3) business days after the
date of the facsimile referred to below in this paragraph (d)) the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for such stock, and shall give written notice (the
"Conversion Notice") to the Corporation by facsimile (confirmed via telephonic
notice) to the Chief Executive Officer or Chief Financial Officer of the
Corporation that such holder elects to convert the same and shall state therein
the number of shares to be converted and the name or names in which such holder
wishes the certificate or certificates for shares of
-2-
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series B
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled. Such conversion shall be
deemed to have been made on the date of delivery of such facsimile notice to the
Corporation; provided that certificates representing such Series B Shares are
delivered within three (3) business days to the transfer agent of the
Corporation. If such certificates are not delivered within three (b) business
days after such facsimile, then such conversion shall be deemed to occur on the
date of delivery of such Series B Shares to the transfer agent of the
Corporation.
(e) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation
at any time or from time to time after the date of issuance of the Series B
Preferred Stock shall declare or pay, without consideration, any dividend on the
Common Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series B
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the Common
Stock issuable upon conversion of the Series B Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section 2(e)
hereof), the Series B Conversion Price then in effect shall, concurrently with
the effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series B Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series B Preferred
Stock immediately before that change.
(g) NOTICES OF RECORD DATE. In the event that the Corporation shall
propose at any time: (i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding
-3-
involving a change in the Common Stock; or (iv) to merge or consolidate with or
into any other corporation, or sell, lease or convey all or substantially all of
its assets, or to liquidate, dissolve or wind up; then, in connection with each
such event, the Corporation shall send to the holders of Series B Preferred
Stock:
(A) at least twenty (20) days' prior written notice of the
date on which a record shall be taken for such dividend, distribution
or subscription rights (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (iii) and (iv)
above; and
(B) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such
event).
Any notice required by the provisions of this Section 2 to be given to
the holders of shares of Series B Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at such holder's address appearing on the books of the
Corporation.
(h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock; provided, however, that the
Corporation shall not issue more than a 20% Issuance (as defined in Section 6(a)
hereof) pursuant to conversion of the Series B Preferred Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
B Preferred Stock, the Corporation may take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
necessary stockholder approval.
(i) FRACTIONAL SHARES. No fractional share shall be issued upon the
conversion of any share or shares of Series B Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series B Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board).
-4-
3. DIVIDENDS. The holders of the Series B Preferred Stock shall be
entitled to receive dividends as follows:
(a) The holders of the Series B Preferred Stock shall be entitled to
receive dividends at the rate of five percent (5%), per share per annum (as
adjusted for any stock dividends, combinations or splits with respect to such
shares). Such dividends shall be payable only in shares of Series B Preferred
Stock, and the Series B Preferred Stock shall not be entitled to any cash
dividends. Such dividends shall begin to accumulate upon the issuance of the
Series B Preferred Stock and shall be due and payable with respect to any share
of Series B Preferred Stock only immediately prior to the conversion of such
share of Series B Preferred Stock into Common Stock pursuant to Section 2
hereof.
(b) In the event the Corporation shall declare a distribution (other
than any distribution described in Section 5 or Section 6 hereof or a dividend
on the Series A Preferred Stock) payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights to purchase any such securities
or evidences of indebtedness, then, in each such case the holders of the Series
B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of the Series B Preferred Stock were the
holders of the number of shares of Common Stock into which their respective
shares of Series B Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock entitled to receive such
distribution.
4. VOTING RIGHTS OF PREFERRED STOCK. Except as otherwise required by
law or Section 7 hereof, the holders of outstanding shares of Series B Preferred
Stock shall not be entitled to vote on any matters submitted to the stockholders
of the Corporation.
5. LIQUIDATION PREFERENCE. The holders of the Series B Preferred Stock
shall be entitled to a liquidation preference as follows:
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof and on parity
with the holders of the Series A Preferred Stock, the amount of $10,000 per
share of Series B Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares). If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock and Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amount,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock and Series B Preferred Stock in proportion to the preferential
amount each such holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock and
Series B Preferred Stock of the amounts set forth in Section 5(a) hereof, the
entire remaining assets
-5-
and funds of the Corporation legally available for distribution, if any, shall
be distributed among the holders of the Common Stock in proportion to the shares
of Common Stock then held by them.
(c) Whenever the distribution provided for in this Section 5 shall be
payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board.
6. REDEMPTION.
(a) Notwithstanding anything contained in this resolution to the
contrary, unless the approval of the stockholders referred to in clause (i) or
(ii) below has previously been obtained, the Corporation shall not be required
to issue any Common Shares pursuant to any optional or automatic conversion of
Series B Shares under Section 2 hereof, and the Series B Shares shall not be
convertible into Common Shares, if, and to the extent that, (i) the issuance of
such Common Shares upon conversion, when taken together with all prior issuances
of Common Shares pursuant to Section 2 hereof, would result in the issuance by
the Corporation of a number of Common Shares equal to or greater than twenty
percent (20%) of the number of Common Shares outstanding on the date of initial
issuance of the Series B Preferred Stock (a "20% Issuance"), and such 20%
Issuance requires the prior approval of the stockholders of the Corporation
pursuant to any rule, regulation, stated policy, practice or interpretation of
the Nasdaq Stock Market applicable to the Corporation, or (ii) the Board of
Directors of the Corporation determines in good faith that the issuance of such
Common Shares upon conversion (whether or not constituting a 20% Issuance)
otherwise requires the prior approval of the stockholders of the Corporation
pursuant to any applicable rule, regulation, stated policy, practice or
interpretation of any stock exchange or stock market on which the Common Shares
are then listed or admitted to trading (such prior approval of the stockholders
referred to in clauses (i) and (ii) above herein called the "Stockholder
Approval Requirement").
(b) Following the first conversion of Series B Shares to which the
provisions of Section 6(a) hereof are applicable, the Corporation (i) shall
promptly give to all holders of the Series B Shares (determined of record not
more than fifteen (15) days before the date such notice is given) a notice
stating that the Corporation is unable to issue any further Common Shares upon
conversion of Series B Shares, and that the Series B Shares cannot be converted,
without compliance with the Stockholder Approval Requirement, and (ii) shall
take one of the following actions, at its election, within twenty (20) days
following the date of such notice:
(i) the Corporation shall notify all such holders of the
Series B Shares that it intends to seek stockholder approval pursuant
to the Stockholder Approval Requirement, in which event the Corporation
shall thereafter take all action necessary to duly call, give notice
of, convene and hold a meeting of its stockholders as promptly as
reasonably practicable to consider and vote on such matter; or
-6-
(ii) the Corporation shall obtain from the stock exchange or
stock market on which the Common Shares are then listed or admitted to
trading a waiver of or exception to the Stockholder Approval
Requirement and shall commence any mailing to stockholders notifying
them of such waiver or exception that is required by the rules of such
stock exchange or stock market; or
(iii) the Corporation shall notify all such holders of the
Series B Shares that it is redeeming Series B Shares pursuant to the
following provisions of this Section 6:
provided, however, that if the Corporation elects to seek stockholder approval
pursuant to clause (i) above, and such stockholder approval is not obtained
within seventy-five (75) days following the date of the Corporation's notice to
the holders of the Series B Shares that it intends to seek such stockholder
approval, the Corporation shall promptly following the end of such seventy-five
(75) day period notify all holders of the Series B Shares that it is redeeming
Series B Shares pursuant to the following provisions of this Section 6. If the
Stockholder Approval Requirement is complied with or if a waiver of or exception
to the Stockholder Approval Requirement is obtained, the conversion rights of
the holders of the Series B Shares shall be reinstated.
(c) If the Corporation elects or is required to redeem Series B Shares
pursuant to Section (b) hereof, the Corporation shall (i) issue the Maximum
Number of Shares of Common Stock to the holder or holders of Series B Preferred
Stock whose Series B Preferred Stock is proposed to be converted, and will (ii)
redeem, out of funds legally available therefor, all of the Series B Shares that
remain after such conversion (a "Redemption") at a price per Series B Share
equal to $12,190 (as adjusted for any stock split, reverse stock split, stock
dividend, or similar event resulting in a change in the Series B Shares) plus an
amount equal to all dividends, if any, accrued but unpaid on such shares to the
earlier of the date fixed for redemption or the Maturity Date (the "Redemption
Price"). For purposes of this Section 6(c), the "Maximum Number of Shares of
Common Stock" shall mean the greatest number of shares of Common Stock that may
be issued upon conversion of shares of Series B Preferred Stock without causing
a 20% Issuance. The Company shall honor requests for conversion under this
Section 6 in order of receipt, and should the Company simultaneously receive
multiple requests for conversion of Series B Preferred Stock that would
otherwise cause a 20% Issuance, the Company shall honor such conversion requests
pro rata in proportion to the number of shares of Series B Preferred Stock
sought to be converted by each holder.
(d) The Corporation's notice of redemption pursuant to Section 6(b)
hereof shall be given to each holder of record of the Series B Shares to be
redeemed and shall specify the redemption date of such Redemption (which
redemption date shall not be later than twenty (20) days following the date of
such notice of redemption), the place or places at which such Redemption shall
be effected and the Redemption Price and shall call upon such holder to
surrender to the Corporation, in the manner and at a place designated, the
certificate or certificates representing the Series B Shares of such holder to
be redeemed. No failure on
-7-
the part of the Corporation to give any notice or redemption required to be
given by it under this Section 6, and no defect in such notice or in the giving
thereof, shall affect the validity of the proceedings for such Redemption,
except as to a holder of Series B Shares (i) to whom the Corporation has failed
to give such notice or (ii) whose notice was defective. An affidavit of the
Secretary of the Corporation that notice of redemption has been given shall in
the absence of fraud, be prima facie evidence of the facts stated therein.
(e) Notwithstanding anything contained in this resolution to the
contrary, the obligation of the Corporation to redeem Series B Shares at any
given time shall be subject to such limitations and restrictions as may then be
imposed on the Corporation under applicable law or governmental regulation. If,
on the date on which a Redemption is to be effected, the Corporation shall be
unable, because of any applicable law or governmental regulation, to redeem the
total number of Series B Shares to be redeemed on such date, the Corporation
shall redeem, ratably among the holders of the Series B Shares to be redeemed,
the maximum number of such Series B Shares (if any) which it shall be permitted
to redeem under such law or regulation. At any time thereafter when funds of the
Corporation are legally available for the redemption of Series B Shares, such
funds shall immediately be used to redeem the balance of the Series B Shares
that the Corporation has become obligated to redeem on any such date or dates
but which it has not redeemed. If such funds are insufficient to redeem the
total number of such Series B Shares, such Series B Shares shall be redeemed
ratably among the holders of the Series B Shares. If the Corporation is required
to redeem the Series A Shares and the Series B Shares at the same time and if,
on the date on which a Redemption is to be effected, the Corporation shall be
unable, because of any applicable law or governmental regulation, to redeem the
total number of Series A Shares and Series B Shares to be redeemed on such date,
the Corporation shall redeem, ratably among the holders of the Series A Shares
and Series B Shares to be redeemed, the maximum number of such Series A Shares
and Series B Shares which it shall be permitted to redeem under such law or
regulation. At any time thereafter when funds of the Corporation are legally
available for the redemption of the Series A Shares and Series B Shares, such
funds shall immediately be used to redeem the balance of the Series A Shares and
Series B Shares that the Corporation has become obligated to redeem on any such
date or dates but which it has not redeemed. If such funds are insufficient to
redeem the total number of such Series A Shares and Series B Shares, such Series
A Shares and Series B Shares shall be redeemed ratably among the holders of the
Series A Shares and Series B Shares.
(f) From and after the date fixed for a Redemption, notwithstanding
that any certificate for Series B Shares to be redeemed in such Redemption shall
not have been surrendered for cancellation, such Series B Shares shall no longer
be deemed to be outstanding, dividends thereon, if any, shall cease to accrue
from and after the earlier of the date so fixed or the Maturity Date, and the
rights of the holders of such Series B Shares shall forthwith after such
redemption date cease and terminate, excepting only the right of the holders
thereof to receive the Redemption Price thereof, but without interest, upon the
surrender of their respective certificates therefor; provided that if, on or
after the date fixed in any notice as the date of redemption, the Corporation
shall default in the payment of the Redemption Price of any Series B Shares
entitled to redemption upon the surrender of the
-8-
certificate therefor, the dividend and all other rights of the holders of such
share (other than any conversion rights) shall be reinstated retroactively to
such redemption date.
(g) From and after the date fixed for a Redemption, the Corporation
shall, at the place or places specified in the notice of redemption, upon
presentation and surrender to the Corporation by the holder thereof of one or
more certificates representing the Series B Shares to be redeemed, deliver or
cause to be delivered to or upon the written order of such holder, a sum in cash
equal to the Redemption Price of each Series B Shares of such holder to be
redeemed, together with, if the certificate or certificates presented and
surrendered by such holder represent a greater number of Series B Shares than
the number of Series B Shares to be redeemed from such holder, one or more new
certificates registered in the name of such holder and representing the Series B
Shares not redeemed.
(h) Except as provided in this Section 6, the Series B Shares are not
subject to any mandatory redemption by the Corporation. Nothing in this
resolution shall be determined to prohibit the Corporation from purchasing or
otherwise acquiring outstanding shares of its capital stock, whether now or
hereafter authorized, at any time and in any manner not prohibited by applicable
law.
(i) The Corporation shall not be required to maintain any sinking fund
for the redemption of Series B Shares pursuant to this Section 6.
7. RESTRICTIONS AND LIMITATIONS.
(a) So long as at least any shares of Series B Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of at least a majority of the then outstanding shares of Series B
Preferred Stock:
(i) Authorize, create or issue any other equity security senior
to the Series B Preferred Stock as to liquidation preferences; or
(ii) Amend, alter or repeal, by any means, its Certificate of
Incorporation if the powers, preferences, or special rights of the
Series B Preferred Stock would thereby be materially adversely
affected.
-9-
IN WITNESS WHEREOF, this certificate has been signed by Xxxxxxx Xxxxxx,
President of the Corporation, and attested to by Xxxxx Xxxxxxxx, Secretary of
the Corporation, as of the ___ day of July, 1997.
PARADIGM TECHNOLOGY, INC.
By
-----------------------------------
Xxxxxxx Xxxxxx
President
Attest:
By
----------------------------------
Xxxxx Xxxxxxxx
Secretary
-10-
ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the Stock
Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Xxxxxxx & Xxxxxx, Esqs.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Dear Xx. Xxxxxxx:
As escrow agent for both Paradigm Technology, Inc., a Delaware
corporation (the "Company"), and the Purchaser (the "Purchaser") of shares (the
"Shares") of 5% Series B Convertible Redeemable Preferred Stock, $.01 par value
per share, of the Company (the "Preferred Stock"), who is named in the Stock
Purchase Agreement between the Company and the Purchaser to which a copy of
these Joint Escrow Instructions is attached as Annex II (the "Agreement"), you
(hereafter, the "Escrow Agent") are hereby authorized and directed to hold the
documents and funds (together with any interest thereon, the "Escrow Funds")
delivered to the Escrow Agent pursuant to the terms of the Agreement in
accordance with the following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company
of receipt of the purchase price from the Purchaser, and notify the Purchaser
(or such agent as the Purchaser may designate in writing) of receipt of
certificates for the Preferred Shares (each a "Certificate" and collectively the
"Certificates"). Within two (2) days of receipt of written notice from the
Company and the Purchaser that the respective conditions precedent to the
purchase and sale have been satisfied (which notice shall not be unreasonably
withheld), the Escrow Agent shall, after reduction by the amounts referred to in
the next succeeding sentence of this paragraph, release the Escrow Funds to or
upon the order of the Company, and shall release the Certificates to the
Purchaser. After receipt of such notice, $10,000 of the Escrow Funds to the
Escrow Agent, shall be released to or upon the order of Escrow Agent. If such
Certificates are not deposited with the Escrow Agent within ten (10) days after
receipt by the Company of notice of receipt by the Escrow Agent of the funds
from the Purchaser, Escrow Agent shall notify the Purchaser and Purchaser shall
be entitled to cancel the subscription and demand repayment of the funds. If
such funds are not deposited with the Escrow Agent within ten (10) days after
receipt by the Purchaser
of notice of receipt by the Escrow Agent of the Preferred Stock from the
Company, Escrow Agent shall notify the Company and the Company shall be entitled
to cancel the subscription and demand return of the certificates for the
Preferred Stock. If the Company or the Purchaser notifies the Escrow Agent that
on the Closing Date (as defined in the Agreement) the conditions precedent to
the obligations of the Company or the Purchaser, as the case may be, under the
Agreement were not satisfied or waived, then the Escrow Agent shall return the
Escrow Funds to the Purchaser and shall return the Certificates to the Company.
Prior to return of the Escrow Funds to the Purchaser, the Purchaser shall
furnish such tax reporting or other information as shall be appropriate for the
Escrow Agent to comply with applicable United States laws. The Escrow Agent
shall deposit all funds received hereunder in the Escrow Agent's attorney escrow
account at The Bank of New York.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Purchaser and
the Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as Escrow Agent while acting
in good faith, except for fraud, willful misconduct, or gross negligence, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow
Agent's attorneys-at-law shall be evidence of such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for
Purchaser in connection with the Agreement and may continue to act as legal
counsel for Purchaser, from time to time, notwithstanding its duties as Escrow
Agent hereunder.
7. The Escrow Agent's responsibilities as Escrow Agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further instruments
in connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or Escrow Funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings or (2)
to deliver the Escrow Funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent subject
matter jurisdiction and located in the State and City of New York in accordance
with the applicable procedure therefor.
10. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the duties
or performance of the Escrow Agent hereunder other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from fraud, gross negligence or willful misconduct of the Escrow Agent.
11. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or three business days after deposit in the United
States Postal Service, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: Paradigm Technology, Inc.
000 Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Telecopier No. (000) 000-0000
with a copy to:
Pillsbury Madison & Sutro LLP
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxx del Xxxxx, Esq.
PURCHASER: At the address set forth in the Agreement.
ESCROW AGENT: Xxxxxxx & Prager, Esqs.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier No. (000) 000-0000
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Purchaser have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
13. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
XXXXXXX & XXXXXX
By: _______________________________________
Date: _____________________________________
ANNEX III
[PILLSBURY MADISON & SUTRO LLP LETTERHEAD]
July 23, 1997
Purchasers of Paradigm Technology,
Inc. 5% Series B Convertible
Redeemable Preferred Stock
c/o Krieger & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Re: Paradigm Technology, Inc.
Ladies and Gentlemen:
We have acted as counsel to Paradigm Technology, Inc., a corporation
incorporated under the laws of the State of Delaware (the "Company"), in
connection with the proposed issuance and sale of the Company's 5% Series B
Convertible Redeemable Preferred Stock (the "Securities") pursuant to the Stock
Purchase Agreement (the "Stock Purchase Agreement") (together with all Exhibits,
Annexes and Appendices thereto, collectively the "Agreements") of even date
herewith between the Company and the purchasers of the Securities (the
"Purchasers").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date, the proceedings of the Company's Board of
Directors taken in connection with entering into the Agreements, and such other
documents, agreements and records as we deemed necessary to render the opinions
set forth below.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in California. The
Company has been requested to provide additional information to the State of
Delaware and as a result is presently not in good standing in Delaware. The
Company has complied with all requests for additional information and is working
with the State of Delaware to satisfy all requirements to bring them into good
standing.
Purchasers of Paradigm Technology, Inc.
July 23, 1997
Page 2
2. The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $.01 par value per share ("Common Stock") and 5,000,000
shares of Preferred Stock, par value $.01 per share, of which 500 shares have
been designated "5% Series A Convertible Redeemable Preferred Stock" and 500
shares have been designated "5% Series B Convertible Redeemable Preferred
Stock".
3. The Common Stock is registered pursuant to section 12(g) of the
Securities and Exchange Act of 1934, as amended, and the Company has timely
filed all materials required to be filed pursuant to section 13(a) or 15(d) of
such Act (the "SEC filings") for a period of at least twelve months preceding
the date hereof.
4. When delivered to you or upon your order against payment of the
agreed consideration therefor in accordance with the provisions of the
Agreements, the Securities and any Common Stock to be issued upon the conversion
of the Securities as described in the Agreements represented thereby will be
duly authorized and validly issued, fully paid and nonassessable.
5. The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company; to our knowledge, no approval of any
governmental body is required for the execution and delivery of each of the
Agreements by the Company or the consummation of the transactions contemplated
thereby; each of the Agreements has been duly and validly executed and delivered
by and on behalf of the Company, and is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or violation
of any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (a) the Company's Certificate of Incorporation
or Bylaws; (b) any indenture, mortgage, deed of trust, or bank loan agreement,
or other material agreement to which the Company is a party or by which it or
any of its property is bound and which is filed as a material contract with the
Securities and Exchange Commission, (c) any applicable statute or regulation, or
(d) any judgment, decree or order of any court or governmental body having
jurisdiction over the Company or any of its property of which we are aware;
provided however that with respect to the execution of the Registration Rights
Agreement and whether it constitutes a breach or violation of any of the terms
and provisions of, or constitutes a default under or conflicts with or violates
any provision of the Amended and Restated Registration Rights Agreement among
the Company, ACMA Limited, Atmel Corporation ("Amtel") and National
Semiconductor
Purchasers of Paradigm Technology, Inc.
July 23, 1997
Page 3
Corporation (the "Existing Registration Rights Agreement"), we advise
you only that (i) the consent of the holders of a majority of the Registrable
Securities under the Existing Registration Rights Agreement is required in
connection with the grant by the Company of any registration rights whatsoever
(including pursuant to the Registration Rights Agreement attached as Annex IV to
the Stock Purchase Agreement (the "New Registration Rights Agreement")), (ii)
ACMA Limited, has executed a qualified consent to the grant by the Company of
registration rights from time to time, in the form attached hereto as Exhibit A,
and (iii) the consent of Amtel is also required.
7. To our knowledge, the Company complies with the eligibility
requirements for the use of Form S-3 under the Securities Act of 1933, as
amended, for "Transactions Involving Secondary Offerings" as described in
Section I.B.3 of the General Instructions to Form S-3.
8. To the best of our knowledge, after due inquiry, there is no pending
or threatened litigation, investigation or other proceeding against the Company
that is reasonably likely to have a material adverse effect on the Company's
financial condition and results of operations, except as described on the
Company's Disclosure Schedule delivered in writing to the Purchaser in
connection with the Stock Purchase Agreement or as disclosed in the Company's
SEC filings.
The foregoing opinion is subject to such matters as are set forth in
the Agreements (including the Company's Disclosure Schedule delivered to the
Purchasers pursuant to the Stock Purchase Agreement), the Company's SEC filings
and the following qualifications:
(a) the effect of bankruptcy, insolvency, reorganization, receivership,
conservatorship, arrangement, moratorium or other laws affecting or relating to
the rights of creditors generally; (b) the rules governing the availability of
specific performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law, including, without limitation, concepts of materiality; and
reasonableness; (c) the effect of applicable court decisions, invoking statutes
or principles of equity, which have held that certain covenants and provisions
of agreements are unenforceable where the breach of such covenants or provisions
imposes restrictions or burdens upon an obligor, and it cannot be demonstrated
that the enforcement of such restrictions or burdens is necessary for the
protection of the creditor, or which have held that the creditor's enforcement
of such covenants or provisions under the circumstances would violate the
creditor's covenants of good faith and fair dealing implied under California
law; (d) the effect of statutes and rules of law which cannot be waived
prospectively by an obligor; and (e) the enforceability of Section 11(d) of the
Registration Rights Agreement in a federal court.
Purchasers of Paradigm Technology, Inc.
July 23, 1997
Page 5
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of California, as currently in effect, and the General Corporation
Law of the State of Delaware and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states, we
have, with your permission, assumed that such laws are identical in all respects
to the laws of the State of California.
We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as photostatic or telecopied originals, the
legal capacity of all natural persons, and as to documents executed by entities
other than the Company, that each such entity had the power to enter into and
perform its obligations under such documents, and that such documents have been
duly authorized, executed and delivered by, and are binding upon and enforceable
against such entities.
We assume that you know of no agreements, understandings or
negotiations between the parties not set forth in the Agreement that would
modify the terms or rights and obligations of the parties thereunder.
Whenever a statement herein is qualified by "to the best of our
knowledge," "we are not aware" or similar phrase, it indicates that in the
course of our representation of the Company no information that would give us
current actual knowledge of the inaccuracy of such statement has come to the
attention of the attorneys in this firm who have rendered legal services in
connection with this transaction. We have not made any independent investigation
to determine the accuracy of such statement.
In rendering the opinions set forth in paragraphs 6 and 8 above, we
have relied, with your permission, upon a certificate of the Company.
This opinion is being delivered to you by us as counsel to the Company
and may not be delivered to or relied upon by any other person without our
express written approval.
Very truly yours,
E05247
ANNEX IV
TO
STOCK PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July , 1997 (this
"Agreement"), is made by and between PARADIGM TECHNOLOGY, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Stock
Purchase Agreement of even date herewith, between the Initial Investor and the
Company (the "Stock Purchase Agreement"), the Company has agreed to issue and
sell to the Initial Investor 5% Series B Convertible Redeemable Preferred Stock
of the Company (the "Preferred Stock") which will be convertible into shares of
the common stock, $.01 par value (the "Common Stock"), of the Company (the
"Conversion Shares") upon the terms and subject to the conditions of such
Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Stock Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities
Act and pursuant to Rule 415 under the Securities Act or any successor rule
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement by the
United States Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Stock Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and within
thirty (30) days after the Closing Date (as that term is defined in Section 7 of
the Stock Purchase Agreement) file with the SEC, either a Registration Statement
on Form S-3 covering at least an aggregate of 4,000,000 shares of Common Stock
for the Initial Investors (or such lesser number as may be required by the SEC,
but in no event less than 200% of the number of shares into which the Preferred
Stock would be convertible at the time of filing of the Form S-3), or an
amendment to any pending Company Registration Statement on Form S-3, and such
Registration Statement or amended Registration Statement shall state that, in
accordance Rule 457 under the Securities Act it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Stock resulting from adjustment in the Conversion
Price, or to prevent dilution resulting from stock splits, stock dividends or
similar event). If at any time the number of shares of Common Stock into which
the Preferred Stock may be converted exceeds the number of shares of Common
Stock covered by the Registration Statement on Form S-3, referred to in the
preceding sentence, the Company shall, within ten (10) business days after
receipt of a written notice from any Investor, either (i) amend such
Registration Statement, if such Registration Statement has not been declared
effective by the SEC at that time, to register all shares of Common Stock into
which the Preferred Stock may be converted, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file with the SEC
an additional Registration Statement on Form S-3 to register the shares of
Common Stock into which the Preferred Stock may be converted that exceed such
number of shares of Common Stock already registered.
(b) UNDERWRITTEN OFFERING. If (at the Company's discretion) any
offering pursuant to a Registration Statement pursuant to Section 2(a) hereof
involves an underwritten offering, the Investors who hold a majority in interest
of the Registrable Securities subject to such underwritten offering shall have
the right to select one legal counsel to represent their interests, and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Investors who hold the Registrable Securities
to be included in such underwriting shall pay all underwriting discounts and
commissions and other fees and expenses of such
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investment banker or bankers and manager or managers so selected in
accordance with this Section 2(b) (other than fees and expenses relating to
registration of Registrable Securities under federal or state securities laws,
which are payable by the Company pursuant to Section 5 hereof) with respect to
their Registrable Securities and the fees and expenses of such legal counsel so
selected by the Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not effective within ninety (90) days after the Closing Date (the
"Initial Date"), or if the Investors have not otherwise received cash or
marketable securities in exchange for the Registrable Securities by the Initial
Date, then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(c).
The amount to be paid by the Company to the Initial Investor shall be determined
as of each Computation Date, and such amount shall be equal 3% of the Purchase
Price paid by the Initial Investor for the Preferred Stock pursuant to the Stock
Purchase Agreement from the Initial Date to the first Computation Date, and
three (3%) percent of the purchase price for each Computation Date thereafter,
pro rata to the date the Registration Statement is declared effective by the SEC
(the "Periodic Amount"). For example, if the Registration Statement is declared
effective on the 100th day, a payment of $1.00 (30/100 x 3% = 1%) is required
for $100 of Preferred Stock. The full Periodic Amount shall be paid by the
Company in immediately available funds within three business days after each
Computation Date.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Computation Date" means the date which is one hundred five (105) days
after the Closing Date and, if the Registration Statement required to be filed
by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
(d) ELIGIBILITY FOR FORM S-3. The Company represents and warrants that
it meets all the requirements for the use of Form S-3 for registration of the
resale by the Initial Investor and any Investor who purchases the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC as soon as possible after
the Closing Date, a Registration Statement with respect to not less than the
number of Registrable Securities provided in Section 2(a), above, and thereafter
use its best efforts to cause each Registration Statement relating to
Registrable Securities to become effective not later than ninety (90) days of
the Closing Date, and keep the Registration Statement effective pursuant to Rule
415 at all times until the earliest (the "Registration Period") of (i) the date
that is six (6) months after
-3-
the Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; provided
however, that the Investor shall refrain from selling any securities included in
the Registration Statement at the request of the Company during the period
commencing forty-five (45) days after the effective date of the Registration
Statement, for a period of not more than thirty (30) days in the aggregate, if
the Company shall furnish to the Investor a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders (for any reason) for the Investor to sell securities during such
period.
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company,
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general
-4-
consent to service of process in any such jurisdiction, (D) provide any
undertakings that cause more than nominal expense or burden to the Company or
(E) make any change in its certificate of incorporation or by-laws, which in
each case the Board of Directors of the Company determines to be contrary to the
best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "national market system security" within the meaning of Rule
11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable Securities on the NASDAQ
National Market; or if, despite the Company's commercially reasonable efforts to
satisfy the preceding clause (i) or (ii), the Company is unsuccessful in doing
so, to secure NASDAQ authorization and quotation for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be sold
under the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
-5-
(j) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. Except as provided in Section 2(b), all
reasonable expenses, other than underwriting discounts and commissions and other
fees and expenses of investment bankers and other than brokerage commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, fees and disbursements of one
counsel for the Investors, and the fees and disbursements of counsel for the
Company, shall be borne by the Company.
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6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) any untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) being, collectively, "Violations"). Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained in
this Section 6(a) shall not (I) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (II) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (III) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (IV) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each Investor will
indemnify the Company and its officers, directors and agents against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of such Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
-7-
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; PROVIDED,
HOWEVER, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
-8-
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of any Preferred Stock of the Company
which is convertible into such securities) of Registrable Securities only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority in interest of
the Registrable Securities not resold to the public. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail,
-9-
return receipt requested, properly addressed and with proper postage pre-paid
(i) if to the Company, at Paradigm Technology, Inc., with a copy to Xxxxx del
Xxxxx, Esq., Pillsbury Madison & Sutro LLP, 0000 Xxxx Xxxx Xxxx, Xxxxx Xxxx,
Xxxxxxxxxx 00000-0000, (ii) if to the Initial Investor, at the address set forth
under its name in the Stock Purchase Agreement, with a copy to Xxxxxx Xxxxxxx,
Esq., Xxxxxxx & Prager, 000 Xxxxx Xxxxxx, Xxxxx Xxxxx, Xxx Xxxx, XX 00000 and
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after deposit with the United states
Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not effect the validity or enforceability of
any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) The Company acknowledges that any failure by the Company to perform
its obligations under Section 3(a), or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless same is the result of force majeure. Neither
party shall be liable for consequential damages.
-10-
(j) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-11-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
PARADIGM TECHNOLOGY, INC.
By:
-------------------------------
Name:
Title:
LYDFORD LTD.
-----------------------------------
Name:
Title:
-12-
ANNEX V
COMPANY DISCLOSURE
The following are exceptions to the representations and warranties of
Paradigm Technology, Inc. (the "Company") contained in the Stock Purchase
Agreement by and among the Company and each of the Investors named therein (the
"Agreement") and should be considered an integral part of the Agreement. The
section numbers in this Disclosure Schedule correspond to the section numbers in
the Agreement; provided, however, that any information disclosed herein shall be
deemed disclosed and incorporated into any other sections or schedule under the
Agreement where such disclosure would be appropriate, whether or not repeated
under any section number where such disclosure might be deemed appropriate. Any
terms defined in the Agreement shall have the same meaning when used in this
Disclosure Schedule as when used in the Agreement, unless the context otherwise
requires.
3b. REPORTING COMPANY STATUS. In June 1997, the Company received an inquiry from
the Nasdaq Stock Market ("Nasdaq") concerning the Company's compliance with
Nasdaq's listing requirements. The Company addressed Nasdaq's inquiry regarding
compliance by filing a Current Report, and an amendment, on form 8-K. The
Current Report on form 8-K contained pro forma financials which evidenced the
Company's compliance with Nasdaq's listing requirements through the period
ending March 31, 1997. The Company continues to discuss these matters with
Nasdaq. The Company has called a Special Meeting of Stockholders for August to
vote upon measures that will contribute new equity to the Company. There can be
no assurances, however, that the Company will be able to continue to meet
Nasdaq's listing requirements.
3h. ABSENCE OF CERTAIN CHANGES. The Company has experienced losses in its
operations in recent quarters, and no assurance can be given that such losses
will not continue in the future. The Company expects to incur a loss for the
quarter ended June 30, 1997. Markets for the Company's principal products have
been depressed in recent quarters by an excess of supply over demand, and such
oversupply in relation to demand has not been corrected after September 30,
1996.
(1) On August 12, 1996, the Company and several of its then officers
and directors were named, along with PaineWebber, Inc., as defendants in a
purported class action (entitled BULWA ET AL., V. PARADIGM TECHNOLOGY, INC. ET
AL., Santa Xxxxx County Superior Court, Case No., CV759991) brought on behalf of
shareholders who purchased the Company's stock between November 20, 1995 and
March 22, 1996.
The complaint asserted six causes of action against the Paradigm
Defendants: negligent misrepresentation, fraud, breach of fiduciary duty,
violations of California Corporations Code sections 25400 and 25500 ("Sections
25400 and 25500"), violation
of Corporations Code section 1507, and violation of California Civil Code
sections 1709 and 1710.
The Paradigm Defendants responded to the complaint by filing a demurrer
which challenged the legal sufficiency of all six causes of action. On December
12, 1996, the Court sustained the demurrer as to all of the causes of action
except for the fourth cause of action for violation of Sections 25400 and 25500
(and as to all causes of action for Director Xxxxxxx Xxxxxx). 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 Xxxxxxx Xxxxxx (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 which the Paradigm
Defendants have responded. Plaintiffs have served the Paradigm Defendants with a
second set of requests for production, responses to which are not yet due.
Plaintiffs have also subpoenaed documents from various third parties. The
Paradigm Defendants have served the plaintiffs with an initial set of discovery
requests, to which plaintiffs have responded. The Paradigm Defendants also took
the depositions of the named plaintiffs on April 9, 1997.
Following a hearing on plaintiffs' motion for class certification on
May 20, 1997, the Court reset the motion for hearing on September 2, 1997.
(2) 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 Xxxxx, Xxxxx & Xxxxx in the Santa Xxxxx
County Superior Court on behalf of shareholders 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 Xxxxx Xxxxxx. Prior to the hearing on the
Paradigm Defendants' demurrer to the initial complaint,
plaintiffs amended their complaint to incorporate factual
allegations derived from the XXXXXXXX, ET AL. action described
below. The Paradigm Defendants anticipate filing a demurrer to
the amended complaint.
(3) On May 19, 1997 Xxxxxx Xxxxxxxx, Xxxxx Xxxxxxxx and
Xxxx Xxxxxxxxx, former employees of the Company, filed an action
(CAMPBELL, ET AL. V. PARADIGM TECHNOLOGY, INC., ET AL., Case No.
CV766271) in Santa Xxxxx County Superior Court. The complaint names as
defendants the Company, Xxxxxxx Xxxxxx, Xxxxxxx Xxxxxxxxx, Xxxxxx XxXxxxxx and
Xxxxxx Xxx. The XXXXXXXX plaintiffs filed with the complaint a notice that they
consider their case related legally and factually to the BULWA action discussed
above. The XXXXXXXX complaint contains 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 alleges 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 allege
that they purchased the Company's stock at the allegedly inflated prices and
were damaged thereby. The complaint seeks an unspecified amount of compensatory,
rescissory and/or punitive damages.
Issues have arisen as to the service of the summons and complaint on
the defendants. As of the date hereof, legal counsel for the parties are in the
process of resolving these issues and establishing appropriate dates for a
responsive pleading.
3j and 3k. ABSENCE OF EVENTS OF DEFAULT; NO DEFAULT. The Company's Loan and
Security Agreement with Greyrock Business Credit, dated October 25, 1996
prohibits the redemption, retirement, purchase or other acquisition of its stock
for value by the Company.
3m. PRIOR ISSUES. The Company has committed to issue to Greyrock Business
Credit, a division of NationsCredit Commercial Corporation (the "Bank") a five
year warrant (the "Warrant") to purchase 20,000 shares of the Company's Common
Stock. The terms of this Warrant have not been fully negotiated, but the Bank
has proposed that the exercise price for the Warrant be set at $3.00 per share.
The Warrant has not yet been executed, and accordingly no Form D or other
securities law exemption form has been filed.
The Company has committed to grant a warrant to ACMA Limited to
purchase a total of 150,000 shares of Common Stock, exercisable at any time for
three years from the date of issuance at an exercise price of $4.125
The Company issued 200 shares of 5% Series A Convertible Redeemable
Preferred Stock to Vintage Products, Inc. on January 23, 1997 pursuant to
Regulation D.
Approved: PARADIGM TECHNOLOGY, INC.
By: _______________________________
Title: ____________________________
Date: July __, 1997
