<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a party other than the Registrant[ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
[ ] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CATALYST SEMICONDUCTOR, INC.
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(Name of Registrant as Specified in Its Charter)
CATALYST SEMICONDUCTOR, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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CATALYST SEMICONDUCTOR, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1998
TO THE STOCKHOLDERS OF CATALYST SEMICONDUCTOR, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Catalyst Semiconductor, Inc., a Delaware corporation (the "Company"), will be
held on March 26, 1998 at 10:00 a.m., local time, at the Sheraton Four Points
Hotel at 1108 North Mathilda Avenue, Sunnyvale, California 94089 for the
following purposes:
1. To elect one Class II director to serve for a three-year term
expiring upon the Annual Meeting of Stockholders next
following April 30, 2000 or until such director's successor is
duly elected and qualified.
2. To approve the issuance and sale of Common Stock with an
aggregate purchase price of up to $5,000,000 (up to 6,250,000
shares), warrants to purchase a number of shares of Common
Stock equal to 25% of the shares so issued (up to 1,562,500
shares), and warrants to purchase up to an additional 300,000
shares of Common Stock.
3. To approve an amendment to the Company's Employee Stock
Purchase Plan to increase the number of shares of Common Stock
available for issuance thereunder by 250,000 shares.
4. To approve an amendment to the Company's Stock Option Plan to
increase the number of shares of Common Stock reserved for
issuance thereunder by 800,000 shares.
5. To ratify the appointment of Price Waterhouse LLP as
independent accountants of the Company for the fiscal year
ending April 30, 1998.
6. To transact such other business as may properly come before
the meeting and any adjournment or postponement thereof.
The enclosed Preliminary Proxy Statement (the "Proxy Statement") more
fully describes the foregoing items and business to be conducted at the Annual
Meeting.
THE COMPANY CURRENTLY EXPECTS THAT DEFINITIVE PROXY MATERIALS WILL BE
RELEASED TO THE COMPANY'S STOCKHOLDERS ON OR ABOUT MARCH 2, 1998. NO
PRELIMINARY PROXY MATERIALS HAVE BEEN OR WILL BE RELEASED.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
<PAGE> 3
After reading the Proxy Statement, please mark, date, sign and return,
as soon as possible, the enclosed proxy card in the accompanying reply envelope.
If you decide to attend the Annual Meeting, please notify in writing the
Secretary of the Company at the Company's principal executive offices, that you
wish to vote in person and your proxy will not be voted. The Company's principal
executive offices are located at 1250 Borregas Avenue, Sunnyvale, California
94089. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED
PROXY, OR ATTEND THE ANNUAL MEETING IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peter Cohn
PETER COHN
Secretary
Sunnyvale, California
February 27, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND IN ANY EVENT NO LATER THAN MARCH
19, 1998 IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED,
THE COMPANY WILL HAVE THE ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF
YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
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<PAGE> 4
CATALYST SEMICONDUCTOR, INC.
--------------------------
PRELIMINARY PROXY STATEMENT FOR THE 1997 ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD MARCH 26, 1998
--------------------------
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Catalyst Semiconductor, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held on March 26, 1998 at 10:00 a.m., local time, or at any
adjournment thereof (the "Annual Meeting") for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Sheraton Four Points Hotel, 1108 North Mathilda Avenue,
Sunnyvale, California 94089.
The Company currently anticipates that definitive proxy materials will
be released to the Company's stockholders on or about March 2, 1998. No
preliminary proxy materials have been or will be released to the Company's
stockholders.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on February 27,
1998 (the "Record Date") are entitled to notice of and to vote at the meeting.
As of the close of business on January 21, 1998, there were 8,444,681 shares of
the Company's Common Stock outstanding and entitled to vote and approximately
6,000 stockholders of record, including several holders who are nominees for an
undetermined number of beneficial owners.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company at its principal executive offices at 1250 Borregas Avenue,
Sunnyvale, California 94089, a written notice of revocation, or a duly executed
proxy bearing a later date, or by attending the meeting and voting in person.
VOTING GENERALLY; SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock
on all matters presented at the Annual Meeting. Stockholders do not have the
right to cumulate their votes in the election of the Company's directors.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes, whereas broker non-votes will not be
counted for purposes of determining whether a proposal has been approved or not.
The cost of soliciting proxies, consisting of the printing, handling
and mailing of the proxy card and related material, and the actual expense
incurred by brokerage houses, custodians, nominees and fiduciaries in forwarding
proxy material to the beneficial owners of stock, will be paid by the Company.
In order to assure that a majority vote will be present in person or by proxy at
the Annual Meeting, it may be necessary for certain officers, directors, regular
employees and other representatives of the Company to solicit proxies by
telephone, facsimile, telegraph, electronic means, or in person. These persons
will receive no extra compensation for their services. The Company reserves the
right to have an outside solicitor conduct the solicitation of proxies and to
pay such solicitor for its services.
<PAGE> 5
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR," "AGAINST," "WITHHELD" or "ABSTAIN" are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total number
of Votes Cast with respect to a proposal (other than the election of directors).
In the absence of controlling precedent to the contrary, the Company intends to
treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal.
The Delaware Supreme Court has held that, while broker non-votes should
be counted for purposes of determining the presence or absence of a quorum for
the transaction of business, broker non-votes should not be counted for purposes
of determining the number of Votes Cast with respect to the particular proposal
on which the broker has expressly not voted. Accordingly, the Company intends to
treat broker non-votes in this manner. Thus, a broker non-vote will not affect
the outcome of the voting on a proposal.
COMPANY INFORMATION
The Company's principal executive offices are located at 1250 Borregas
Avenue, Sunnyvale, California 94089. The telephone number of the Company's
principal offices is (408) 542-1000.
PROPOSAL 1
ELECTION OF ONE CLASS II DIRECTOR
NOMINEE
The Company's Bylaws provide that the number of directors shall be
established by the Board or the stockholders of the Company. The number
currently fixed by the Board is five (5). The Company's Certificate of
Incorporation provides that the directors shall be divided into three (3)
classes, with the classes serving for staggered, three (3) year terms. Currently
there are two (2) directors in Class I, one (1) director in Class II and two (2)
directors in Class III. The Class II director is scheduled for election at the
Annual Meeting. Accordingly, one (1) Class II director is to be elected at the
Annual Meeting. The Class II director will hold office until the Annual Meeting
following the fiscal year ending April 30, 2000 or until his successor has been
duly elected and qualified. The term of each Class III director will expire at
the Annual Meeting of Stockholders following the fiscal year ending April 30,
1998, and the term of each Class I director will expire at the Annual Meeting of
Stockholders next following the fiscal year ending April 30, 1999.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's nominee named below each of whom currently is
a director of the Company. In the event that a nominee of the Company becomes
unable or declines to serve as director at the time of the Annual Meeting, the
proxy holders will vote the proxies for any substitute nominee who is designated
by the current Board of Directors to fill such vacancy. It is not expected that
the nominees listed below will be unable or will decline to serve as a director.
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INFORMATION WITH RESPECT TO NOMINEE AND CONTINUING DIRECTORS
Set forth below are the names of, and certain information as of January
21, 1998 about, the nominee for Class II director as well as the current Class I
and Class III directors with unexpired terms.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- -------------------------------------------------- -------- -------------------------------------------------------
<S> <C> <C>
Nominee for and Current Class II Director
Patrick Verderico 53 President and Chief Executive Officer of Integrated
Packaging Assembly Corporation
Continuing Class I Directors
Radu M. Vanco 48 Executive Vice President of Engineering of Catalyst
Semiconductor, Inc.
Hideyuki Tanigami 47 President and Chief Executive Officer of Marubun USA
Corporation
Continuing Class III Directors
C. Michael Powell 46 Chairman, President and Chief Executive Officer of
Catalyst Semiconductor, Inc.
Lionel M. Allan 54 President and Chief Executive Officer of Allan
Advisors, Inc.
</TABLE>
Except as indicated below, each nominee or incumbent director has been
engaged in the principal occupation set forth above during the past five years.
There are no family relationships between any directors or executive officers of
the Company.
PATRICK VERDERICO has served as a director of the Company since April
1996. From July 1997 to present, Mr. Verderico has served as President and Chief
Executive Officer of Integrated Packaging Assembly Corporation, and from April
1997 to July 1997 he served in various other capacities with such company. Prior
thereto, from August 1996 to April 1997, he was an independent business
consultant. From April 1996 to July 1996, Mr. Verderico served as Executive Vice
President and Chief Operating Officer of Maxtor Corporation, a hard disk drive
company. From 1994 to March 1996, he served as Chief Financial Officer and Vice
President, Finance and Administration, of Creative Technology, a multimedia
products manufacturer. From 1992 to 1994, he served as Chief Financial Officer
and Vice President, Finance and Administration, of Cypress Semiconductor, and
from 1989 to 1992, served as Partner in Charge, West Region Manufacturing
Consulting of Coopers & Lybrand, an independent public accounting and consulting
firm. Prior thereto he held various positions with Philips Semiconductor,
National Semiconductor and Fairchild Semiconductor. Mr. Verderico has also been
a director of Micro Component Technology, Inc. since December 1992 and a
director of Integrated Packaging Assembly Corporation since July 1997.
RADU M. VANCO joined the Company in November 1992. Mr. Vanco has served
the Company as a director since November 1995, as Executive Vice President of
Engineering since October 1995 and as Vice President, Engineering, from November
1992 to October 1995. From 1991 to 1992, Mr. Vanco served as director of
engineering of Cypress Semiconductor. From 1985 to 1991, Mr. Vanco held various
positions at SEEQ Technology, Inc. Mr. Vanco holds an M.S. in Electrical
Engineering from the Polytechnical Institute, Bucharest, Romania.
HIDEYUKI TANIGAMI has served as a director of the Company since
February 1996. From January 1996 to present, he has served as President and
Chief Executive Officer of Marubun USA Corporation, an electronics
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distribution company. From 1985 to April 1994, Mr. Tanigami served as Vice
President, Corporate Development, of the Company. From June 1994 to present, he
has also served as President of Technology Matrix, Inc.
C. MICHAEL POWELL joined the Company in August 1993. Mr. Powell has
served as Chairman since August 1995, as Chief Executive Officer and in other
various capacities at the Company, and has served as a director of the Company
since July 1994 and as President of the Company since August 1993. From April
1990 to July 1993, Mr. Powell served as Vice President of Product Lines at
Cypress Semiconductor Corporation, a semiconductor company. From July 1988 to
March 1990, Mr. Powell served as the Vice President, General Manager of the
Memory Division of SEEQ Technology, Inc. Prior to joining SEEQ, Mr. Powell held
various management positions with Fairchild Semiconductor, Telmos and Hewlett
Packard. Mr. Powell holds Bachelors and Masters degrees in Physics from Georgia
Institute of Technology as well as M.S.E.E. and MBA degrees from Stanford
University.
LIONEL M. ALLAN has served as a director of the Company since August
1995. For more than five years, Mr. Allan has been President and Chief Executive
Officer of Allan Advisors, Inc., a legal consulting firm. Mr. Allan is also a
director and past Chairman of the Board of KTEH Public Television Channel 54, in
San Jose, California, a director of Accom, Inc., a digital video systems
company, and a director of Global Motorsport Group, Inc., a motorcycle parts
company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of ten (10) meetings
during the period from April 30, 1996 to April 30, 1997 ("Fiscal Year 1997"),
none of which were telephonic meetings. The Board of Directors has an Audit
Committee and a Compensation Committee. The Board of Directors has no nominating
committee or any committee performing similar functions.
The Audit Committee currently consists of Messrs. Tanigami and
Verderico. The Audit Committee is charged with reviewing the Company's annual
audit and meeting with the Company's independent auditors to review the
Company's internal controls and financial management practices. The Audit
Committee held two (2) meetings during the last fiscal year.
The Compensation Committee currently consists of Messrs. Tanigami and
Verderico. The Compensation Committee is responsible for reviewing and approving
the Company's compensation policies and the compensation paid to executive
officers. The Compensation Committee held three (3) meetings during the last
fiscal year.
No incumbent director attended fewer than 75% of the meetings of the
Board of Directors and of the committees on which such director served and that
were held during the period such individual was a director during the Fiscal
Year 1997.
COMPENSATION OF DIRECTORS
The Company's non-employee directors, currently consisting of Messrs.
Allan, Tanigami and Verderico, receive cash compensation in the amount of $3,600
for each quarter in which they attend one or more meetings of the Board of
Directors. In addition, directors are reimbursed for reasonable out-of-pocket
expenses incurred in connection with attendance at such meetings.
Each non-employee director of the Company is entitled to participate in
the Company's 1993 Director Stock Option Plan (the "Director Option Plan") by
receiving automatic annual grants of Common Stock of the Company. Initial grants
under the Director Option Plan of options to purchase 20,000 shares each were
made to Messrs. Allan, Tanigami and Verderico on August 14, 1995, February 10,
1996 and April 4, 1996, respectively, at exercise prices of $5.125, $6.00 and
$5.00 per share, respectively. On April 1, 1996, Mr. Allan was granted options
under the Director Option Plan to purchase 7,500 shares of Common Stock at an
exercise price of $5.00 per share. On April 1, 1997, each of Mr. Allan, Mr.
Verderico and Mr. Tanigami were granted options under the Director Option Plan
to purchase 7,500 shares of Common Stock at an exercise price of $1.6875. Each
option expires five years from the date of grant. All options which have been
granted under the Director Option Plan are subject to
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<PAGE> 8
cumulative yearly vesting as to one-third (1/3) of the total grant on each
anniversary of the date of grant, and terminating five (5) years from the date
of grant unless terminated sooner upon termination of the optionee's status as a
director or otherwise pursuant to the Director Option Plan.
VOTE REQUIRED FOR ELECTION
The affirmative vote of a majority of the Votes Cast is required for
the nominee to be elected as Class II director. Votes withheld from the director
will be counted for purposes of determining the presence or absence of a quorum
but will not be counted as affirmative votes. A broker non-vote will be counted
for purposes of determining the presence or absence of a quorum, but, under
Delaware law, will have no other legal effect upon the election of the Class II
director.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE CLASS II DIRECTOR NOMINEE SET FORTH HEREIN.
PROPOSAL 2
APPROVAL OF ISSUANCE AND SALE OF COMMON STOCK WITH AN AGGREGATE
PURCHASE PRICE OF UP TO $5,000,000 AND WARRANTS TO PURCHASE
ADDITIONAL SHARES OF COMMON STOCK
At the Annual Meeting, stockholders are being asked to approve the
issuance and sale of Common Stock of the Company with an aggregate purchase
price of up to $5,000,000 (up to 6,250,000 shares)(the "Shares"), warrants to
purchase a number of shares of Common Stock equal to 25% of the shares so issued
(up to 1,562,500 shares), and warrants to purchase up to an additional 300,000
shares of Common Stock of the Company. No director or officer will receive any
compensation in connection with this transaction.
THE PROPOSED PRIVATE PLACEMENT
The Board of Directors has approved the issuance and sale in a private
placement transaction of Common Stock of the Company with an aggregate purchase
price of up to $5,000,000 (up to 6,250,000 Shares), to accredited investors for
a purchase price equal to not less than 80% of the average closing price of the
Common Stock for the five trading days immediately preceding the closing of the
issuance and sale of the Shares (the "Closing"). Purchasers of the shares will
also receive five-year warrants (the "Warrants") to purchase a number of shares
of Common Stock equal to 25% of the number of Shares so issued (up to 1,562,500
Shares). The exercise price of 50% of the Warrants will be $2.00 per share and
of the remaining 50% of the Warrants will be $2.50 per share. It is anticipated
that upon issuance of the Shares, the Company would be required to use its best
efforts to file with the Securities and Exchange Commission a registration
statement covering the sale by the purchasers of the Shares within 30 days
following the closing . The Company anticipates that The Shemano Group will
serve as placement agent for the issuance and sale of the Shares and the
Warrants on a best efforts basis in exchange for a cash payment equal to 6% of
the proceeds raised in the private placement plus the issuance to such placement
agent of warrants to purchase a number of shares equal to 6% of the number of
Dollars raised in the private placement. Such warrants will have exercises
prices equal to the exercise prices of the Warrants. The issuance and sale of
the securities described above are collectively referred to as the "Private
Placement". No director or executive officer will receive any compensation in
connection with the Private Placement.
NEED FOR A STOCKHOLDER VOTE
Delaware Law does not require stockholder approval of the Private
Placement; however, the Company's Common Stock is quoted on The Nasdaq National
Market. Pursuant to the rules of the National Association of Securities Dealers,
the Company, in order to maintain its eligibility to have its Common Stock
quoted on The Nasdaq National Market, must obtain stockholder approval for the
issuance of common stock or securities convertible into or exercisable for
common stock at a price less than the greater of market or book value of the
stock, if such securities have or would, upon issuance or exercise, have voting
power equal to or in excess of 20% of the voting power outstanding prior to such
issuance. Since the Shares proposed to be issued would exceed the
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foregoing requirements, the Company is seeking the required stockholder
approval. As of the date of this Proxy Statement, and, assuming stockholder
approval, the Board of Directors anticipates consummating the Private Placement
as soon as practicable following stockholder approval, but in no case later than
June 30, 1998. Unless the affirmative vote of a majority of the Votes Cast is
obtained, the Private Placement will not be consummated.
RATIONALE FOR THE PRIVATE PLACEMENT
For the fiscal year ended April 30, 1997, the Company suffered a net
loss of $4,039,000 on net revenues of $47,094,000. For the fiscal quarters ended
July 31 and October 31, 1997, the Company suffered net losses of $782,000 and
$1,948,000 on net revenues of $9,584,000 and $10,175,000, respectively.
The Company's liquidity (presented below in thousands) has similarly declined
over these periods as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 JULY 31, 1997 OCTOBER 31, 1997
-------------- ------------- ----------------
<S> <C> <C> <C>
Cash and Cash Equivalents $2,695 $1,606 $1,385
Restricted Cash 5,250 5,250 $5,250
Accounts Receivable - Net 7,074 8,381 $7,772
</TABLE>
During this period (the past three quarters) the Company has undertaken
various steps to reduce its expenditures including a reduction in workforce,
subleasing part of its facilities, reducing its product unit cost by reducing
die sizes, and renegotiating subcontractor manufacturing prices. In October
1997, the Board of Directors recognized that the Company required significant
additional working capital and that such working capital could not be generated
from operations. As a result, the Company began to contact numerous potential
investors and other financing sources in an effort to structure a capital
investment plan on suitable terms.
RECOMMENDATION OF THE BOARD OF DIRECTORS; EFFECT ON EXISTING STOCKHOLDERS
The Board of Directors unanimously recommends a vote for the approval
of the Private Placement and the issuance and sale of the Common Stock and the
Warrants contemplated thereby. The Board of Directors believes that the
transactions contemplated by the Private Placement are fair and in the best
interests of the Company and its stockholders in light of the Company's
historical financial performance, its current financial condition and the
absence of more attractive alternative transactions or opportunities. In
reaching this conclusion the Board of Directors investigated, considered and
analyzed a variety of factors including, without limitation the following:
(1) The Company's Financial Condition and Results of
Operations. The Board of Directors reviewed carefully the Company's historical
financial performance and its financial condition. See " -- Rationale for the
Private Placement." The Company has substantial liabilities, including as of
October 31, 1997, current liabilities of $17,908,000 and long-term debt and
capital lease obligations of $549,000.
(2) The Company's Need for Working Capital. The Company has
limited working capital and needs additional working capital to continue to meet
its financial obligations, generate sales, develop additional products and
operate its business.
(3) Unsuccessful Efforts to Obtain Capital from Other Sources.
In view of the Company's financial condition and results of operations, the
Company is unable to borrow money and obtain financing from other sources and on
terms it deems commercially reasonable.
The Board of Directors acknowledges that there are drawbacks to the
Private Placement. Thus, the Board of Directors urges stockholders to consider
carefully, among other things, the following in connection with their
consideration of the matters to be voted on: (a) the securities issued and sold
in the Private Placement will be issued and sold at a substantial discount to
the market price; (b) there can be no assurance that the warrants issued in the
Private Placement will be exercised; (c) there can be no assurance that the
proceeds of the financing will be sufficient to fund the Company's operations on
a long-term basis; (d) there can be no assurance that if additional funds are
required by the Company, they will be available on terms acceptable to the
Company, if at all; and (e) the
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consummation of the Private Placement will result in a substantial dilution to
the Company's existing stockholders, and will result in the transfer of in
excess of 49% of the voting power outstanding prior to the closing of the
Private Placement if all the Shares are issued and all the Warrants are issued
and exercised.
Notwithstanding the foregoing, the Board of Directors believes that the
Private Placement has advantages. The Company estimates that the net proceeds
from the sale of the Shares may, if consummated, provide the Company with up to
$4.7 million. The Company intends to use the proceeds to fund operations and for
working capital and general corporate purposes, including, but not limited to,
new product development (5-volt Flash, reset controllers, high density serial
EEPROMs and mixed signal devices), foundry development (0.5 micron EEPROM
process and 0.35 Flash memory process), the development of its technical sales
force and the purchase of capital equipment for the development of 8-inch wafer
sort capability. The Company believes that the proceeds should be sufficient to
meet its requirements for the next 12 months. However, there can be no assurance
that the Private Placement will be consummated, that such belief will prove to
be correct or that the Company will have sufficient working capital to meet its
needs. In light of the foregoing, the Board of Directors has determined that the
Private Placement is in the best interests of the Company.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast is required to
approve the Private Placement including the issuance and sale of the Common
Stock and the Warrants thereunder. If there are an insufficient number of
affirmative votes, the Private Placement will not be consummated.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE APPROVAL OF THE PRIVATE PLACEMENT INCLUDING THE ISSUANCE AND SALE OF THE
COMMON STOCK AND THE WARRANTS CONTEMPLATED THEREBY.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve an amendment (the "Purchase Plan Amendment") to the Company's Employee
Stock Purchase Plan (the "Purchase Plan") to increase the number of shares
available for issuance thereunder by 250,000 shares of Common Stock. As of
December 31, 1997, there were 25 participants in the Purchase Plan, and only
approximately 24,000 shares were available for issuance pursuant to the
Company's Purchase Plan. Accordingly, stockholders are being asked to approve at
the annual meeting the amendments to the Purchase Plan as approved by the Board
of Directors.
The following is a summary of principal features of the Purchase Plan.
The summary however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Secretary of the Company at its principal executive offices.
GENERAL
The Purchase Plan was adopted by the Board of Directors and approved by
the stockholders in March 1993, with 250,000 shares reserved thereunder. In
April 1997 pursuant to authority granted under the Purchase Plan, the Board
amended the offering and purchase periods to those described herein. On January
15, 1998, the Board of Directors approved the Purchase Plan Amendment to
increase the number of shares reserved thereunder by 250,000, subject to
approval by the Company's stockholders.
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code of 1986, as amended (the "Code"). The
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Purchase Plan is not a qualified deferred compensation plan under Section 401(a)
of the Internal Revenue Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974("ERISA").
PURPOSE
The primary purpose of the Purchase Plan is to attract and retain the
best available personnel for the Company in order to promote the success of the
Company's business.
ADMINISTRATION
The Purchase Plan may be administered by the Board of Directors or a
committee of members of the Board appointed by the Board (the "Administrator").
The Purchase Plan is currently being administered by the Compensation Committee
of the Board of Directors. All questions of interpretation of the Purchase Plan
are determined by the Administrator, and its decisions are final and binding
upon all participants. Members of the Board of Directors who are eligible
employees are permitted to participate in the Purchase Plan, provided that any
such eligible member may not vote on any matter affecting the administration of
the Purchase Plan or the grant of any option pursuant to it, or serve on a
committee appointed to administer the Purchase Plan. No charges for
administrative or other costs will be made against the payroll deductions of a
participant in the Purchase Plan. Members of the Board of Directors receive no
additional compensation for their services in connection with the administration
of the Purchase Plan.
ELIGIBILITY
Any person who is employed by the Company (or by any subsidiary
designated by the Board of Directors) as of the offering date and completes a
subscription agreement on the form provided by the Company is eligible to
participate in the Purchase Plan. A person is "employed" for this purpose if he
or she is then customarily employed for at least 20 hours per week and more than
five months per year.
OFFERING DATES
The Purchase Plan is implemented by twenty-four (24) month extended
offering periods consisting of four six-month purchase periods. A new offering
period commences on or about June 1 and December 1 of each year and continues
until May 31 and November 30 two years later. The Board of Directors may alter
the duration of the offering periods without stockholder approval if such change
is announced at least 5 days prior to the scheduled beginning of the first
offering period to be affected.
TERMS OF OPTIONS
(a) Participation in the Plan. Eligible employees become
participants in the Purchase Plan by delivering to the Company a subscription
agreement authorizing payroll deductions prior to the applicable offering date,
unless a later time for filing the subscription agreement has been set by the
Board of Directors for all eligible employees with respect to a given offering.
A person who becomes employed after the commencement of an offering period may
not participate in the Purchase Plan until the commencement of the next offering
period, if any.
(b) Purchase Price. The purchase price per share at which shares
are sold under the Purchase Plan is the lower of 85% of the fair market value of
the Common Stock on the date of commencement of the twenty-four extended
offering period or 85% of the fair market value of the Common Stock on the last
day of each six-month purchase period within such offering period (an "Exercise
Date"). The fair market value of the Common Stock on a given date is generally
the closing sales price on The Nasdaq National Market as of such date.
(c) Payment of Purchase Price; Payroll Deductions. The purchase
price of the shares is accumulated by payroll deductions during the offering
period. The deductions may not be less than 1% and may not be more than 10% of a
participant's compensation on each payday during the offering period and not
more than 10% of the eligible compensation during the offering period. A
participant may discontinue or decrease his or her participation
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in the Purchase Plan during any offering period and may increase or decrease the
rate of payroll deductions at any time during the offering period, subject to
limitations on the number of such changes imposed by the Board of Directors.
All payroll deductions are credited to the participant's account under
the Purchase Plan and are deposited with the general funds of the Company. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose. No interest accrues on the payroll deductions of a
participant in the Plan.
(d) Purchase of Stock; Exercise of Option. By executing a
subscription agreement to participate in the Purchase Plan, the participant is
entitled to have shares placed under option. The maximum number of shares placed
under option to a participant in an offering is that number determined by
dividing the amount of the participant's total payroll deductions to be
accumulated during the offering period by the lower of (i) 85% of the fair
market value of the Common Stock at the beginning of the offering period, or
(ii) 85% of the fair market value of the Common Stock on an Exercise Date,
provided that the number of shares placed under option may not exceed the number
of shares determined by dividing $25,000 by the fair market value of a share of
the Company's Common Stock at the beginning of the offering period for each
calendar year in which the option is outstanding. Unless the participant's
participation is discontinued, each participant's option for the purchase of
shares will be exercised automatically on each Exercise Date at the applicable
price. Participants pay no commissions on Common Stock purchased under the
Purchase Plan. However, if a participant decides to sell the Common Stock, the
participant can expect to be charged a fee or commission if he or she uses an
agent, such as a stock broker.
However, no participant is permitted to subscribe for shares under the
Purchase Plan if immediately after the grant of the option the participant would
own stock and/or hold outstanding options to purchase stock possessing 5% or
more of the voting power or value of all classes of stock of the Company or of
any of its subsidiaries (including stock which may be purchased under the
Purchase Plan) nor is any participant granted an option which would permit the
participant to buy pursuant to the Purchase Plan more than $25,000 worth of
stock (determined at the fair market value of the shares at the time the option
is granted) in any calendar year. Furthermore, if the number of shares which
would otherwise be placed under option at the beginning of an offering period
exceeds the number of shares then available under the Purchase Plan, a pro rata
allocation of the available shares is made in as equitable a manner as is
practicable.
(e) Withdrawal. While each participant in the Purchase Plan is
required to sign a subscription agreement authorizing payroll deductions, the
participant's interest in a given offering may be terminated in whole, but not
in part, by signing and delivering to the Company a notice of withdrawal from
the Purchase Plan. Such withdrawal may be elected at any time prior to the end
of the applicable offering period.
Any withdrawal by the participant of accumulated payroll deductions for
a given offering automatically terminates the participant's interest in that
offering. In effect, the participant is given an option which may or may not be
exercised during the six-month offering period. By executing the subscription
agreement, the participant is not obligated to make the stock purchase; rather
the subscription agreement is merely an election by the participant to place
shares under option. Unless the participant's participation is discontinued, the
option for the purchase of shares will be exercised automatically on each
Exercise Date, and the maximum number of full shares purchasable with such
participant's accumulated payroll deductions will be purchased for the
participant at the applicable price.
In the event that a participant fails to remain in the continuous
employment of the Company, such participant will be deemed to have elected to
withdraw from the Purchase Plan and the payroll deductions credited to such
participant's account will be returned to such participant.
A participant's withdrawal from an offering does not have any effect
upon such participant's eligibility to participate in subsequent offerings under
the Plan.
(f) Termination of Employment. Termination of a participant's
employment for any reason, including retirement or death, prior to the
completion of the offering period cancels his or her participation in the
Purchase Plan immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such
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participant, or in the case of death, to the person or persons entitled thereto
as specified in the participant's subscription agreement.
(g) Nontransferability. No rights or accumulated payroll
deductions of a participant under the Purchase Plan may be pledged, assigned or
transferred for any reason and any such attempt may be treated by the Company as
an election to withdraw from the Purchase Plan.
(h) Capital Changes/Acceleration of Option. In the event any
change, such as a stock split or stock dividend, is made in the Company's
capitalization which results in an increase or decrease in the number of
outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustments will be made in the shares subject to purchase
and in the purchase price per share, as well as in the number of shares
available for issuance under the Purchase Plan.
In the event of the proposed dissolution or liquidation of the Company,
the current offering period will terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Administrator. In the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Purchase Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date.
(i) Reports. Individual accounts will be maintained for each
participant in the Plan. Each participant will receive after each end of the
six-month purchase period a report of such participant's account setting forth
the total amount of payroll deductions accumulated, the per share purchase
price, the number of shares purchased and the remaining cash balance, if any.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time amend or terminate the Purchase
Plan, but no amendment or termination is allowed if it would impair the rights
of any participant under any grant previously made, without his or her consent.
In addition, the Company must obtain stockholder approval of any amendment to
the Purchase Plan in such a manner and to the extent necessary to comply with
Rule 16b-3 under the Exchange Act and/or Section 423 of the Code (or any other
applicable law or regulation). If not earlier terminated, the Purchase Plan will
continue in effect until 2013.
FEDERAL INCOME TAX ASPECTS OF THE PURCHASE PLAN
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be recognized by a
participant prior to disposition of shares acquired under the Purchase Plan.
If the shares are sold or otherwise disposed of (including by way of
gift) more than two years after the first day of the offering period during
which shares were purchased and more than one year after an Exercise Date, a
participant will recognize as ordinary income at the time of such disposition
the lesser of (a) the excess of the fair market value of the shares at the time
of such disposition over the purchase price of the shares or (b) 15% of the fair
market value of the shares on the first day of the offering period. Any further
gain or loss upon such disposition will be treated as long-term capital gain or
loss. If the shares are sold for a sale price less than the purchase price,
there is no ordinary income and the participant has a capital loss for the
difference.
If the shares are sold or otherwise disposed of (including by way of
gift) before the expiration of the holding periods described above, the excess
of the fair market value of the shares on the purchase date over the purchase
price will be treated as ordinary income to the participant. This excess will
constitute ordinary income in the year of sale or other disposition even if no
gain is realized on the sale or a gift of the shares is made. The balance
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of any gain or loss will be treated as capital gain or loss and will be treated
as long-term capital gain or loss if the shares have been held more than one
year.
The ordinary income reported under the rules described above, added to
the actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of the
shares.
The Company is entitled to a deduction for amounts taxed as ordinary
income to a participant only to the extent that ordinary income must be reported
upon disposition of shares by the participant before the expiration of the
holding periods described above.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE SUMMARY OF THE EFFECT
OF FEDERAL INCOME TAXATION UPON PARTICIPANTS IN THE PURCHASE PLAN OR UPON THE
COMPANY AND DOES NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO TAXPAYERS
WITH SPECIAL TAX STATUS. IT ALSO DOES NOT REFLECT PROVISIONS OF THE INCOME TAX
LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH A PARTICIPANT MAY
RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX CONSEQUENCES OTHER THAN
INCOME TAX CONSEQUENCES.
RESTRICTIONS ON RESALE
Certain officers and directors of the Company may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act.
The Common Stock acquired under the Purchase Plan by an affiliate may be
reoffered or resold only pursuant to an effective registration statement or
pursuant to Rule 144 under the Securities Act or another exemption from the
registration requirements of the Securities Act.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast is required to
approve the proposed amendments to the Option Plan. If an insufficient number of
affirmative votes are obtained, the amendments to the Option Plan will not be
implemented.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE PROPOSED AMENDMENT TO THE PURCHASE PLAN.
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE STOCK OPTION PLAN
At the Annual Meeting, stockholders are being asked to approve an
amendment (the "Option Plan Amendment") to the Company's Stock Option Plan (the
"Option Plan") that would increase the shares reserved for issuance thereunder
by 800,000 shares of Common Stock. The following is a summary of principal
features of the Option Plan. The summary, however, does not purport to be a
complete description of all the provisions of the Option Plan. Any stockholder
of the Company who wishes to obtain a copy of the actual plan document may do so
upon written request to the Secretary of the Company at its principal executive
offices.
GENERAL
The Option Plan provides for the grant of options, stock purchase
rights, stock appreciation rights ("SARs") and long-term performance awards to
officers, employees and consultants of the Company. The increase in shares
reserved for issuance under the Option Plan has been necessitated by the hiring
of new employees and the grant of additional stock options to current employees
as previously granted options vest and become exercisable. The increase will
provide additional stock to continue the Company's policy of equity ownership by
employees and consultants as an incentive to contribute to the Company's
success.
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The Option Plan was adopted by the Board of Directors and approved by
the stockholders in 1989. An amendment and restatement of the Option Plan to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to allow for cashless exercises and to increase the number
of shares available for issuance thereunder was approved by the Board of
Directors in March 1993 and by the stockholders in May 1993.
Amendments to the Option Plan to increase the number of shares
available for issuance thereunder and to limit the number of options, SARs and
stock purchase rights an employee may be granted under the Option Plan in any
fiscal year of the Company to comply with Section 162(m) of the Internal Revenue
Code (the "Code") were approved by the Board of Directors in June 1995 and by
the stockholders in July 1995. An amendment to increase the number of shares
reserved for issuance under the Option Plan was approved by the Board of
Directors in May 1996 and the stockholders in August 1996. On January 15, 1998,
the Board of Directors approved the Option Plan Amendment subject to approval of
the Company's stockholders. At the same meeting, the Board approved a repricing
of all outstanding employee and consultant options under the Option Plan to
$1.0625, the closing price of the Common Stock on such date. The stockholders
are being asked to approve the Option Plan Amendment at the Annual Meeting.
Options granted under the Option Plan may be either "incentive stock
options" within the meaning of Section 422 of the Code or nonstatutory stock
options at the discretion of the Board of Directors and as reflected in the
terms of the written option agreement. The Option Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code, and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
As of December 28, 1997 and after giving effect to the Option Plan
Amendment, options for 2,459,000 shares were outstanding under the Option Plan
and 686,000 shares remained available for future grants (subject to stockholder
approval at the Annual Meeting). As of January 21, 1998, the fair market value
of shares underlying outstanding options was approximately $1.15625 per share
based upon the closing price of the Common Stock as reported on The Nasdaq
National Market on such date.
The Company cannot now determine the exact number of options to be
granted in the future to the Named Officers, all current executive officers as a
group or all employees (excluding executive officers). See "Additional
Information -- Employee Benefit Plans -- Option Grants in Fiscal Year 1997" for
the number of stock options granted to the Named Officers in Fiscal Year 1997.
PURPOSE
The purpose of the Option Plan is to provide incentive to eligible
employees, consultants and officers whose present and potential contributions
are important to the continued success of the Company, to afford these
individuals the opportunity to acquire a proprietary interest in the Company,
and to enable the Company to enlist and retain qualified personnel for the
successful conduct of its business.
ADMINISTRATION
The Option Plan may be administered by the Board of Directors or by a
committee of the Board of Directors and shall be administered in a manner that
complies with Rule 16b-3 under the Exchange Act. Currently, the Option Plan is
administered by the Compensation Committee of the Board of Directors. Members of
the Board of Directors receive no additional compensation for their services in
connection with the administration of the Option Plan. All questions of
interpretation of the Option Plan are determined by the Board of Directors or
its committee and its decisions are final and binding upon all participants.
ELIGIBILITY
The Option Plan provides that either incentive stock options or
nonstatutory options may be granted to employees (including officers and
directors who are also employees) of the Company or any of its subsidiaries. In
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addition, the Option Plan provides that nonstatutory options may be granted to
consultants (excluding directors who are not compensated for their services as a
director or are paid only a director's fee by the Company) of the Company or any
of its subsidiaries. The Board of Directors or its committee selects the
optionees and determines the number of shares to be subject to each option. In
making such determination, there are taken into account the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company, and
other relevant factors.
The Option Plan provides that the maximum number of shares of Common
Stock which may be granted under options (or rights) to any one employee during
any fiscal year shall be 750,000, provided that the Company may make an
additional one time grant of options (or rights) for 250,000 shares for any
newly hired employee. This limitation is intended to preserve the Company's
ability to deduct for federal income tax purposes any compensation expense
relating to stock options granted to certain executive officers under the Option
Plan. Without this limitation, federal tax legislation enacted in 1993 might not
allow the Company to deduct such compensation expense.
In addition to the foregoing limitation on discretion for certain
grants, there is also a limit on the aggregate market value of shares subject to
all incentive stock options that may be granted to an optionee during any
calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the
Company and the optionee. Each option is subject to the following additional
principal terms and conditions:
(a) Exercise of the Option. The Board of Directors or its committee
determines when options may be exercised. In general, such options become
exercisable as to one-fourth of the total shares granted on the one-year
anniversary of the date of grant with the remainder becoming exercisable on a
ratable monthly basis over the three year period thereafter, for so long as the
optionee remains an employee of or consultant to the Company. An option is
exercised by giving written notice of exercise to the Company specifying the
number of full shares of Common Stock to be purchased and by tendering of
payment of the purchase price. The option exercise price may be paid in cash,
promissory note, shares of the Company's Common Stock, or through a
broker-dealer sale and remittance procedure which will allow the optionee to
exercise the option and sell the purchased shares on the same day, with the sale
proceeds used to satisfy the option price payable for the purchased shares.
(b) Exercise Price. The exercise price of each option granted under the
Option Plan is determined by the Board of Directors or its committee and, in the
case of an incentive stock option, may not be less than 100% of the fair market
value of the Common Stock on the date the option is granted. The fair market
value per share is equal to the closing price of the Company's Common Stock on
the Nasdaq National Market on the last market trading day prior to the date of
grant. In the case of an incentive stock option granted to an optionee who owns
more than 10% of the voting power of all classes of stock of the Company, its
parent or subsidiaries, the exercise price must not be less than 110% of the
fair market value on the date of the grant.
(c) Termination of Employment. Currently, the Option Plan provides that
if the optionee's employment or consulting relationship terminates for any
reason other than disability or death, options under the Option Plan may be
exercised the period of time determined by the Board or Committee at the date of
grant but not later than six months (three months in the case of an incentive
stock option) after such termination and may be exercised only to the extent the
option was exercisable on the date of termination. In no event (either under the
current terms of the Option Plan or under the proposed amendments thereto) may
an option be exercised by any person after the expiration of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his total
and permanent disability, options may be exercised within six months of
termination and may be exercised only to the extent the option was exercisable
on the date of termination, but in no event may an option be exercised after its
expiration date.
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(e) Death. Under the Option Plan, if an optionee should die while
employed or retained by the Company, options may be exercised within six months
after the date of death (or such other period of time not exceeding twelve
months as is determined by the Board or its committee and specified in the
option agreement) to the extent the options would have been exercisable on the
date of death. In no event may an option be exercised after its expiration date.
(f) Term of Options. The Option Plan provides that options granted
under the Option Plan shall be exercisable during the period of time specified
by the Board of Directors or its committee as provided in the option agreement
but as to incentive stock options, no later than ten years from the date of
grant. In general, these agreements provide for a term of ten years. Incentive
stock options granted to an optionee who, immediately before the grant of such
option, owned more than 10% of the total combined voting power of all classes of
stock of the Company, its parents or subsidiaries, may not in any case have a
term of more than five years. No option may be exercised by any person after its
expiration date.
(g) Option Not Transferable. An option is not transferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime and in the event of
the optionee's death by a person who acquires the right to exercise the option
by bequest or inheritance or by reason of the optionee's death.
(h) Acceleration of Options. In the event of a merger of the Company
with or into another corporation or a sale of substantially all of the Company's
assets, each option will be assumed or an equivalent option substituted by the
successor corporation. In the event that the successor corporation does not
assume the option or substitute an equivalent option, the Board shall provide
that the exercisability of all outstanding options shall be automatically
accelerated and that the options shall be exercisable for a period of not less
than fifteen (15) days following the date notice of such acceleration is given.
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Option Plan as may be
determined by the Board of Directors or its committee.
OTHER AWARDS
The Option Plan also allows the Company to grant SARs, stock purchase
rights and long-term performance awards. SARs may be granted in connection with
or independent of options and entitle the holder thereof to receive an amount,
in cash or Common Stock, at the Company's discretion, equal to the excess of the
fair market value of the shares subject to the SAR on the date of its exercise
over the fair market value on the date of grant. Stock purchase rights allow an
offeree to purchase stock, subject to a right of the Company to repurchase
unvested shares in the event of termination of employment. Shares purchased
pursuant to stock purchase rights vest over time, based on continued employment.
Long-term performance awards are cash or stock bonus awards which may be earned
over a specified period after grant, based upon performance or employment
factors. No SARs, stock purchase rights or long-term performance awards have
been granted under the Option Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization upon
any stock split, reverse stock split, stock dividend, combination or
reclassification of Common Stock or any other increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the Option Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Board of Directors or its committee.
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AMENDMENT AND TERMINATION
The Board of Directors may amend the Option Plan at any time or from
time to time or may terminate it without approval of the stockholders; provided,
however, that stockholder approval is required for any amendment to the Option
Plan that increases the number of shares that may be issued under the Option
Plan, modifies the standards of eligibility, modifies the limitation on grants
to employees described in the Option Plan or results in other changes which
would require stockholder approval to qualify options granted under the Option
Plan as performance-based compensation under Section 162(m) of the Code.
However, no action by the Board of Directors or stockholders may alter or impair
any option previously granted under the Option Plan. Unless sooner terminated,
the Option Plan will terminate on December 31, 2002, provided that any
outstanding option, SAR, stock purchase right or long term performance award
under the Option Plan shall remain outstanding until they expire by their terms.
FEDERAL INCOME TAX ASPECTS OF THE OPTION PLAN
Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the Option Plan is an incentive stock
option, under U.S. tax laws the optionee will recognize no income upon grant of
the incentive stock option and incur no tax liability due to the exercise.
However, the excess of the value of the stock subject to the option over the
exercise price will be an item of alternative minimum taxable income which could
result in the optionee being subject to the alternative minimum tax for the year
of exercise. The Company will not be allowed a deduction for federal income tax
purposes as a result of the exercise of an incentive stock option regardless of
the applicability of the alternative minimum tax. Upon the sale or exchange of
the shares at least two years after grant of the option and one year after
exercise of the shares by the optionee, any gain will be treated as long-term
capital gain under U.S. tax laws. If these holding periods are not satisfied,
the optionee will recognize ordinary income equal to the difference between the
exercise price and the lower of the fair market value of the stock at the date
of the option exercise or the sale price of the stock. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain recognized on such a premature disposition of the shares
in excess of the amount treated as ordinary income will be characterized under
U.S. tax laws as long-term capital gain if the sale occurs more than one year
after exercise of the option or as short-term capital gain if the sale is made
earlier. Under current U.S. tax laws, the tax rate on long-term capital gains
under U.S. tax laws is capped at 28% for shares held more than one-year but not
more than 18 months after exercise, and at 20% for shares held more than 18
months after exercise. Capital losses are allowed under U.S. tax laws in full
against capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under U.S. tax laws at the time he or she is granted a
nonstatutory stock option. However, upon its exercise, under U.S. tax laws the
optionee will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the exercise price. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer, director or 10% stockholder
of the Company, the date of taxation may be deferred unless the optionee files
an election with the Internal Revenue Service under Section 83(b) of the Code.
The income recognized by an optionee who is also an employee of the Company will
be subject to tax withholding by the Company by payment in cash or out of the
current earnings paid to the optionee. Upon resale of such shares by the
optionee, any difference between the sales price and the exercise price, to the
extent not recognized as ordinary income as provided above, will be treated
under U.S. tax laws as capital gain or loss, and will qualify for long-term
capital gain or loss treatment if the shares have been held for more than one
year.
Stock purchases, stock appreciation rights and long-term performance
awards will generally be taxed in the same manner as the exercise of a
nonstatutory stock option.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE SUMMARY OF THE EFFECT
OF FEDERAL INCOME TAXATION UPON HOLDERS OF OPTIONS OR UPON THE COMPANY AND DOES
NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO
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<PAGE> 19
TAXPAYERS WITH SPECIAL TAX STATUS. IT ALSO DOES NOT REFLECT PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH AN
OPTIONEE MAY RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX CONSEQUENCES
OTHER THAN INCOME TAX CONSEQUENCES.
RESTRICTIONS ON RESALE
Certain officers and directors of the Company may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act.
The Common Stock acquired under the Option Plan by an affiliate may be reoffered
or resold only pursuant to an effective registration statement or pursuant to
Rule 144 under the Securities Act or another exemption from the registration
requirements of the Securities Act.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast is required to
approve the proposed amendments to the Option Plan. If an insufficient number of
affirmative votes are obtained, the amendments to the Option Plan will not be
implemented.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE PROPOSED AMENDMENT TO THE OPTION PLAN.
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse LLP, independent
auditors, to audit the financial statements of the Company for the year ending
April 30, 1998, and recommends that the stockholders vote for ratification of
such appointment. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection.
Representatives of Price Warehouse LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so. The representatives also are expected to be available to
respond to appropriate questions from stockholders. The Board of Directors
believes that reappointing Price Waterhouse LLP is in the best interest of the
Company.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast is required to
ratify the appointment of Price Waterhouse LLP as the Company's independent
auditors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING APRIL 30, 1998.
-16-
<PAGE> 20
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company in
Fiscal Years 1997, 1996 and 1995 to (i) the Company's Chief Executive Officer,
(ii) the four most highly compensated officers other than the Chief Executive
Officer who served as executive officers at April 30, 1997, and (iii) two highly
compensated individuals who would have qualified under (ii) above except they
were not serving as executive officers as of April 30, 1997 (collectively, the
"Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- ----------------------------------
AWARDS PAYOUTS
----------------------- ----------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPENSA- FISCAL
POSITION SALARY($) BONUS($) SATION($) AWARDS($) OPTIONS(#)(1) PAYOUTS($) TION($)(2) YEAR
- -------------------------- ----------- ----------- ---------- ---------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Michael Powell........ $337,500 $77,459 -- -- 250,000 -- $14,028 1997
President and Chief $331,501 $38,210 -- -- -- -- $13,577 1996
Executive Officer $259,519 $30,000 -- -- 350,000 -- $16,344 1995
Radu M. Vanco............ $231,879 $48,342 -- -- 215,000 -- $ 609 1997
Executive Vice $222,270 $ 9,334 -- -- -- -- $ 513 1996
President of $188,808 $20,000 -- -- 169,166 -- -- 1995
Engineering
Daryl E. Stemm........... $108,654 -- -- -- 114,900 -- $ 66 1997
Vice President of $ 96,463 -- -- -- -- -- $ 42 1996
Finance & Administration $ 67,907 -- -- -- 14,333 -- $ 16 1995
and Chief Financial Officer
Chris Carstens........... $129,808 -- -- -- 75,000 -- $ 261 1997
Vice President, $134,770 -- -- -- -- -- $ 261 1996
Quality and Reliability $118,808 $10,000 -- -- 75,000 -- $ 232 1995
Scott L. Parker(3) ..... $236,769 -- -- -- 200,000 -- $ 238 1997
Vice President, $ 49,277 -- -- -- -- -- -- 1996
Marketing and Sales -- -- -- -- -- -- -- 1995
Alan L. Renninger(4) .... $133,808 -- -- -- 30,000 -- $ 499 1997
Vice President, $142,847 -- -- -- -- -- $ 478 1996
Technology Development $127,452 -- -- -- 40,000 -- $ 432 1995
</TABLE>
- --------------
(1) Options listed for Fiscal Years 1995 and 1997 include options granted as a
result of repricings (and consequent cancellation of previously issued
options) on May 14, 1994 and December 3, 1996. See "Ten-Year Option
Repricings." In Fiscal 1995, options granted to each of the Named Officers
upon the repricing (and consequent cancellation) of previously granted
options were as follows: Mr. Powell -- 250,000 (all of which were
originally granted in Fiscal Year 1994); Mr. Vanco -- 121,666 (69,445 of
which were originally granted in Fiscal Year 1994 and 52,221 of which were
originally granted in Fiscal Year 1993); Mr. Stemm -- 4,333 (all of which
were originally granted in Fiscal Year 1993); Mr. Renninger -- 30,000 (all
of which were originally granted in Fiscal Year 1994); Mr. Carstens --
30,000 (all of which were originally granted in Fiscal Year 1994). The
repriced options retain the same term and vesting schedules as the options
that were replaced.
In Fiscal 1997, options granted to each of the Named Officers upon the
repricing (and consequent cancellation) of previously granted options were
as follows: Mr. Powell -- 150,000 (all of which were originally granted in
Fiscal Year 1996); Mr. Vanco -- 155,000 (all of which were originally
granted in Fiscal Year 1996); Mr. Stemm -- 33,000 (all of which were
originally granted in Fiscal Year 1996); Mr. Carstens - 50,000 (all of
which were originally granted in Fiscal Year 1996); Mr. Parker -- 200,000
(all of which were originally granted in Fiscal Year 1996); Mr. Renninger
-- 20,000 (all of which were originally granted in Fiscal Year 1996). The
repriced options retain the same term and vesting schedule as the options
that were replaced.
(2) The amount included under "All Other Compensation" represents the dollar
value of term life insurance premiums paid by the Company for the benefit
of such Named Officer.
(3) Mr. Parker terminated his employment with the Company on March 7, 1997.
(4) Mr. Renninger terminated his employment with the Company on March 28,
1997.
-17-
<PAGE> 21
EMPLOYEE BENEFIT PLANS
Each current Named Officer is entitled to participate in the Option
Plan. The Option Plan provides for the grant of options, stock purchase rights,
SARs and long-term performance awards.
The following table sets forth certain information with respect to
stock options granted during Fiscal Year 1997 to the Named Officers. No SARs
were granted in Fiscal Year 1997. In accordance with the rules of the Securities
and Exchange Commission, also shown below is the potential realizable value over
the term of the option (the period from the grant date to the expiration date)
based on assumed rates of stock appreciation from the option exercise price of
5% and 10%, compounded annually. These amounts are based on certain assumed
rates of appreciation and do not represent the Company's estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of the Common Stock.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
--------------------------------------------------------------- ASSUMED ANNUAL RATES OF STOCK
PERCENT OF TOTAL PRICE APPRECIATION FOR OPTION
NUMBER OF OPTIONS TERM
SECURITIES GRANTED EXERCISE -----------------------------
UNDERLYING TO EMPLOYEES IN OR BASE EXPIRATION
NAME OPTIONS GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 5% ($) 10% ($)
- ----------------------- ----------------- ---------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NEW GRANTS
C. Michael Powell........ 100,000 4.55% $1.5625 04/21/07 $98,268 $249,028
Radu M. Vanco............ 60,000 2.73% $1.5625 04/21/07 $58,960 $149,421
Daryl E. Stemm........... 56,900 2.58% $2.7500 02/17/07 $98,406 $249,382
25,000 1.04% $1.5625 04/21/07 $24,566 $ 62,255
Chris Carstens........... 25,000 1.14% $1.5625 04/21/07 $24,567 $ 62,259
REPRICING OF PRIOR GRANTS
C. Michael Powell........ 50,000 2.28% $2.6875 12/02/06 $84,508 $214,159
100,000 4.55% $2.6875 12/02/06 $169,015 $428,318
Radu M. Vanco............ 50,000 2.27% $2.6875 12/02/06 $84,508 $214,159
50,000 2.27% $2.6875 12/02/06 $84,508 $214,159
55,000 2.50% $2.6875 12/02/06 $92,958 $235,575
Daryl E. Stemm........... 33,000 1.50% $2.6875 12/02/06 $55,775 $141,345
Chris Carstens........... 25,000 1.14% $2.6875 12/02/06 $42,254 $107,080
25,000 1.14% $2.6875 12/02/06 $42,254 $107,080
Scott L. Parker.......... 200,000 9.07% $2.6875 12/02/06 $338,031 $856,636
Alan L. Renninger........ 10,000 0.45% $2.6875 12/02/06 $16,902 $ 42,832
10,000 0.45% $2.6875 12/02/06 $16,902 $ 42,832
</TABLE>
-18-
<PAGE> 22
The following table sets forth information with respect to options
exercised in Fiscal Year 1997 by the Named Officers and the value of unexercised
options at April 30, 1997.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
APRIL 30, 1997 (#) APRIL 30, 1997 ($)(1)
SHARES ACQUIRED VALUE ------------------------------ ---------------------------
NAME ON EXERCISE (#) RECEIVED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- -------------- -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. Michael Powell......... 26,000 $138,544 256,289 292,711 $0 $12,500
Radu M. Vanco............. 22,500 $119,844 114,321 198,845 $0 $ 7,500
Daryl E. Stemm............ 2,500 $ 18,750 16,439 108,561 $0 $ 3,125
Chris Carstens............ 0 $ 0 68,123 81,877 $0 $ 3,125
Scott L. Parker........... 0 $ 0 49,999 0 $0 $ 0
Alan L. Renninger......... 6,000 $ 33,000 0 0 $0 $ 0
</TABLE>
- ----------------
(1) Market price at fiscal year end ($1.6875) less exercise price. For
purposes of these calculations, the fiscal year end market price of the
shares is deemed to be the closing sale price of the Company's Common
Stock as reported on The Nasdaq National Market on May 2, 1997.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following Compensation
Committee Report and the Performance Graph shall not be incorporated by
reference into any such filings.
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee of the Board of
Directors of the Company (the "Committee") describing the compensation
philosophy and parameters applicable to the Company's executive officers with
respect to the compensation paid to such officers during Fiscal Year 1997. The
actual compensation paid to the Named Officers during fiscal year 1997 is shown
in the "Summary Compensation Table."
The Committee is responsible for reviewing and approving the Company's
compensation policies and the actual compensation paid to the Company's
executive officers. At the end of Fiscal Year 1997, the Committee was comprised
of two (2) of the non-employee directors, Hideyuki Tanigami and Patrick
Verderico.
Compensation Philosophy. The general philosophy of the Company's
compensation program is to offer the Company's Chief Executive Officer and other
executive officers competitive compensation packages based upon both the
Company's performance as well as the individual's performance and contributions.
The Company's compensation policies are intended to motivate and reward highly
qualified executives for long-term strategic management and the enhancement of
stockholder value, to support a performance-oriented environment that rewards
achievement of specific internal Company goals and to attract and retain
executives whose abilities are critical to the long-term success and
competitiveness of the Company. The Company's compensation program is comprised
of three main components, Base Salary, Bonus Plan and Stock Options.
Base Salary. Base salary for executive officers is set annually by
reviewing the competitive pay practices of comparable companies, the skills and
performance level of the individual executives and the needs of the Company.
Bonus Plan. The Company's officers are eligible for bonuses under the
terms of individual bonus arrangements. When bonuses are given, they are based
upon the individual's achievement of specific corporate goals as well as the
individual's experience and contributions to the success of the Company. During
Fiscal Year 1997, the following executive officers received bonuses: C. Michael
Powell and Radu M. Vanco. No other executive officer received a bonus during
Fiscal Year 1997. See "Certain Relationships and Related Transactions."
Stock Options. The Committee believes that stock options provide
additional incentives to officers to work toward maximizing stockholder value.
The Committee views stock options as one of the more important
-19-
<PAGE> 23
components of the Company's long-term, performance-based compensation
philosophy. These options are provided through initial grants at or near the
date of hire and through subsequent periodic grants based upon performance and
promotions, as well as additional grants to provide continuing motivation as
earlier grants vest in full. Options granted by the Company to its executive
officers and other employees have exercise prices equal to fair market value at
the time of grant and, generally, vest over a four-year period.
Severance Arrangements. See "Certain Relationships and Related
Transactions" for a description of severance arrangements with certain executive
officers.
Compensation for the Chief Executive Officer. Mr. Powell's base salary
was established at a level which the Committee determined to be similar to the
amounts paid by comparably sized companies. Mr. Powell received a bonus of
$77,459 in Fiscal Year 1997 which equaled the principal and accrued interest due
and payable on a loan owed to the Company, and a tax gross-up for such payment
pursuant to the agreement entered into between Mr. Powell and the Company. See
"Certain Relationships and Related Transactions."
The Committee considers equity based compensation, in the form of stock
options, to be an important component of a Chief Executive Officer's
compensation. These grants are intended to motivate leadership for long-term
Company growth and profitability. During Fiscal Year 1997, Mr. Powell was
granted new options to purchase 100,000 shares of the Company's Common Stock at
the exercise price of $1.5625 per share. In addition, options to repurchase
150,000 shares were repriced in December 1996. See "Ten-Year Option Repricing."
Report on Repricing of Options. On December 3, 1996, the Board of
Directors of the Company unanimously approved resolutions authorizing the
exchange of certain outstanding stock options held by all then employees,
including officers, and certain consultants of the Company on the terms
described below. The overall purpose of the Company's stock option plan had been
to attract and retain the services of the Company's employees and to provide
incentives to such persons to exert exceptional efforts for the Company's
success. The Committee concluded that the decline in the market value of the
Company's Common Stock had diminished the value of the Company's stock option
program as an element of the Company's compensation arrangements. Accordingly,
the Committee approved the exchange program described below.
All employees of the Company, including officers, and certain
consultants were given the opportunity to exchange those unexercised options
granted prior to December 2, 1996, with an exercise price above $2.6875 per
share, the closing price on December 3, 1996 (the "Old Options"), for new
options ("New Options") on a one-for-one basis. The exercise price of the New
Options is $2.6875 per share. The expiration date of the New Options is December
2, 2006.
Tax Deductibility of Executive Compensation. Section 162(m) of the Code
provides that a publicly held corporation cannot deduct compensation of a
covered employee (the CEO and the four other most highly compensated employees
for the taxable year whose compensation is required to be reported to
shareholders under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) to the extent the compensation exceeds $1 million per tax year.
There is a statutory exception to this limitation for compensation based on the
attainment of performance goals. Income derived from stock options will qualify
for this exception and thus be treated as performance-based compensation if
granted in accordance with requirements set forth in Section 162(m). The Option
Plan complies with those requirements. However, because the Option Plan is being
amended to increase the number of shares of Common Stock reserved for issuance
under the 1995 Option Plan, the Company is again required to obtain shareholder
approval for the amended plan in order for the option to continue to qualify as
performance-based compensation under Section 162(m).
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Hideyuki Tanigami
Patrick Verderico
-20-
<PAGE> 24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists
of Messrs. Tanigami and Verderico. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
PERFORMANCE GRAPH
The following line graph compares the annual percentage change in the
cumulative total stockholder return for the Company's Common Stock with the S&P
500 Index and the S&P Electronics (Semi/Components) Index for the period
commencing May 11, 1993 (the date the Company's Common Stock first traded on the
Nasdaq National Market) and ending on April 30, 1997. The graph assumes that
$100 was invested on May 11, 1993, the date of the Company's initial public
offering, and that all dividends are reinvested. Historic stock price
performance should not necessarily be considered indicative of future stock
price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CATALYST SEMICONDUCTOR, INC., THE S & P 500 INDEX
AND THE S & P ELECTRONICS (SEMICONDUCTORS) INDEX
[GRAPH]
<TABLE>
5/11/93 3/31/94 3/31/95 4/30/96 4/30/97
<S> <C> <C> <C> <C> <C>
Catalyst Semiconductor, Inc. x $100 $ 41 $ 37 $ 50 $ 13
S & P 500 - $100 $104 $120 $161 $202
S & P Electronics (Semiconductors) o $100 $140 $168 $217 $427
</TABLE>
-21-
<PAGE> 25
SECURITY OWNERSHIP
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
December 28, 1997 by (i) each beneficial owner of more than 5% of the Company's
Common Stock, (ii) each director, (iii) each Named Officer and (iv) all
directors and executive officers as a group. Except as otherwise indicated, each
person has sole voting and investment power with respect to all shares shown as
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------
NUMBER PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES TOTAL
- --------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
United Microelectronics Corp............................................. 650,000 6.8%
No. 13, Innovation Road I
Science-Based Industrial Park
Hsin-Chei City, Taiwan R.O.C.
Bharat Kumar (B.K.) Marya(1)............................................ 465,554 4.8%
P.O. Box 250
Los Altos, California 94023
C. Michael Powell(2).................................................... 350,034 3.6%
Radu M. Vanco(2)........................................................ 197,604 2.1%
Lionel M. Allan(2)...................................................... 43,953 *
Hideyuki Tanigami(2).................................................... 74,893 *
Patrick Verderico(2).................................................... 6,666 *
Daryl E. Stemm(2) ...................................................... 41,198 *
Chris Carstens(2)........................................................ 92,911 1.0%
Scott L. Parker(2)(3) .................................................. 49,999 *
Alan L. Renninger(4).................................................... 0 *
All current directors and executive
officers as a group (7 persons).......................................... 806,759 7.3%
</TABLE>
- -----------------
* Percentage of shares beneficially owned is less than one percent of total.
(1) Includes shares issuable upon exercise of stock options as of December 28,
1997 or within 60 days thereafter as follows: 87,441 shares at $1.8000;
183,333 shares at $1.9375; and 40,000 shares at $3.00. Includes shares
held by the B.K. Marya Revocable Living Trust and by Kamlesh Kumari, the
mother-in-law of Mr. Marya (including shares held by Ms. Kumari as trustee
of certain trusts for Mr. Marya's children). Mr. Marya disclaims
beneficial ownership of such shares.
-22-
<PAGE> 26
(2) Includes shares issuable upon exercise of stock options as of December 28,
1997 or within 60 days thereafter, in the following amounts: C. Michael
Powell - 350,034 shares; Radu M. Vanco - 197,604 shares; Lionel M Allan -
43,953 shares; Hideyuki Tanigami - 74,893 shares; Patrick Verderico -
6,666 shares; Daryl E. Stemm - 40,198; Chris Carstens - 92,911 shares;
Scott L. Parker - 49,999 shares.
(3) Mr. Parker's employment with the Company terminated on March 7, 1997. As
of December 28, 1997, he held 49,999 shares issuable upon exercise of
stock options or within 60 days thereafter.
(4) Mr. Renninger's employment with the Company terminated on March 28, 1997.
As of December 28, 1997, he held no shares issuable upon exercise of stock
options or within 60 days thereafter.
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information as of April 30, 1997
with respect to the repricing of certain stock options held by the Company's
executive officers.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK PRICE AT NEW REMAINING
NAME AND OPTION AT TIME OF TIME OF EXERCISE AT DATE OF
POSITION DATE REPRICED(#) REPRICING($) REPRICING($) PRICE($) REPRICING (MONTHS)
-------- ---- ----------- ------------ ------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
C. Michael Powell........ 12/3/96 50,000 $2.6875 $5.25 $2.6875 104
President and Chief 12/3/96 100,000 $2.6875 $6.00 $2.6875 111
Executive Officer 5/14/94 250,000 $1.9375 $5.75 $1.9375 113
Radu M. Vanco............ 12/3/96 50,000 $2.6875 $5.25 $2.6875 104
Executive Vice 12/3/96 50,000 $2.6875 $7.25 $2.6875 108
President, Engineering 12/3/96 55,000 $2.6875 $6.00 $2.6875 111
5/14/94 52,221 $1.9375 $5.75 $1.9375 103
5/14/94 50,000 $1.9375 $5.75 $1.9375 113
5/14/94 19,445 $1.9375 $5.75 $1.9375 110
Daryl E. Stemm........... 12/3/96 33,000 $2.6875 $6.00 $2.6875 111
Vice President of 5/14/94 4,333 $1.9375 $6.30 $1.9375 103
Finance & Administration
and Chief Financial Officer
Chris Carstens........... 12/3/96 25,000 $2.6875 $5.25 $2.6875 104
Vice President, 12/3/96 25,000 $2.6875 $6.00 $2.6875 111
Quality and 5/14/94 30,000 $1.9375 $5.75 $1.9375 115
Reliability
Scott L. Parker.......... 12/3/96 200,000 $2.6875 $5.00 $2.6875 111
Vice President,
Marketing and Sales
Alan Renninger........... 12/3/96 10,000 $2.6875 $7.25 $2.6875 108
Vice President, 12/3/96 10,000 $2.6875 $6.00 $2.6875 111
Technology Development 5/15/94 30,000 $1.9375 $5.75 $1.9375 115
</TABLE>
- ----------
(1) In order to reincent its employees, in May 1994 the Board of Directors
approved an option exchange for all employees holding options with an
exercise price in excess of $1.9375 entitling each such employee to cancel
their outstanding options in exchange for new options with an exercise
price of $1.9375 per share, the fair market value of the Company's stock on
the date of the Committee's approval. Similarly, in December 1996, in order
to reincent its employees, the Board of Directors approved an option
exchange for all employees holding options with an exercise price in excess
of $2.6875 entitling each such employee to cancel their outstanding options
in exchange for new options with an exercise price of $2.6875 per share,
the fair market value of the Company's stock on the date of Board approval.
In both the May 1994 and December 1996 repricings, the new options were
subject to the same vesting schedule as the canceled options, including the
same original vesting commencement date.
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<PAGE> 27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal Year 1997, the Company paid approximately $135,000 to
Essex Com SRL, a Romanian corporation ("Essex"), for engineering services. Radu
M. Vanco, the Company's Executive Vice President of Engineering owns 100% of the
capital stock of Essex. Negotiations with Essex to determine the fee for such
services were conducted as an arms length commercial negotiation and did not
include any participation by Mr. Vanco.
In March 1994, the Company loaned Radu M. Vanco, then Vice President
Engineering and, since October 1995, Executive Vice President of Engineering,
$100,000 payable in two years with interest at 6% per annum. The loan proceeds
were used by Mr. Vanco for his home. On March 12, 1996, the Company and Mr.
Vanco agreed to a bonus arrangement which has the effect of (a) forgiving the
principal and accrued interest on the note on a monthly basis over two years
commencing March 16, 1996 as long as he remains employed by the Company and (b)
forgiving the principal and accrued interest immediately if he is terminated
without cause or in the event of a change in control. The principal and accrued
interest on the note becomes immediately due and payable if he voluntarily
resigns or is terminated for cause. At the end of Fiscal Year 1997, $44,792 in
principal and accrued interest were outstanding on the note.
In September 1995, the Company loaned C. Michael Powell, Chairman,
Chief Executive Officer and President of the Company, $200,000 payable by Mr.
Powell in five years with interest at 7% per annum. The loan proceeds were used
by Mr. Powell for his home. The agreement between the parties provides for a
bonus arrangement which has the effect of (a) forgiving the principal and
accrued interest on the note over five years on a monthly basis commencing
October 7, 1995 as long as he remains employed by the Company and (b) forgiving
the principal and accrued interest immediately if he is terminated without cause
or in the event of a change of control. In addition he receives an amount equal
to any federal or state taxes payable with respect to such bonuses. The
principal and accrued interest on the note becomes immediately due and payable
if he voluntarily resigns or is terminated for cause. At the end of Fiscal Year
1997, $147,143 in principal and accrued interest were outstanding on the note.
The Company entered into employment agreements with Messrs. Powell,
Vanco, Carstens and Stemm in August, October, April and September 1995,
respectively, which entitle such officers to a one-time severance payment upon
any involuntary termination by the Company without cause. Pursuant to the terms
and conditions of said agreements, for terminations resulting from a merger,
sale or change in ownership of the Company, severance payments shall be as
follows: Mr. Powell will receive to 2, 1-1/2, 1 and 1/2 times his salary if
terminated within one, two, three or more than three years, respectively, of his
agreement; Mr. Vanco will receive 1-1/2, 1 and 1/2 times his salary if
terminated within one, two or more than two years, respectively, of his
Agreement; and Messrs. Carstens and Stemm will receive one-half their respective
salary if so terminated. If involuntary termination without cause should occur
in the absence of a merger, sale or change in control of the Company, then the
severance payment for Messrs. Powell, Vanco, Stemm and Carstens shall equal 1,
1/2, 1/2 and 1/4 times their respective annual salaries. For the purposes of
determining the severance payments described above, salary is defined as the
salary payable to an officer for the fiscal year in which such officer's
termination occurs.
The Company has entered into separate indemnification agreements with
each of its directors and executive officers that may require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors or officers and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
Hideyuki Tanigami, a director of the Company, is President of Marubun
USA Corporation, a wholly owned subsidiary of Marubun Japan. Marubun Japan is a
distributor of the Company's products in Japan and accounted for approximately
14% of the Company's net revenues in Fiscal Year 1997.
In connection with the sale by the Company and the purchase by United
Microelectronics Corporation, a corporation organized and existing under the
laws of the Republic of China ("UMC"), of 650,000 shares of Common Stock in
February 1996, UMC agreed to provide the Company with specified levels of wafer
supplies and
-24-
<PAGE> 28
UMC and the Company entered into certain mutual licensing arrangements. UMC also
obtained certain registration rights relating to the Common Stock purchased.
The terms of the transactions described above were negotiated at arms
length such that the terms were as favorable to the Company as could have been
obtained from an unaffiliated third party.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of copies of such forms received by it or
written representations from certain reporting persons, the Company believes
that during Fiscal Year 1997 all such reports were filed on a timely basis.
1934 EXCHANGE ACT REPORTS
The Company hereby undertakes to mail, without charge, to any
stockholder of the Company upon written request, copies of reports it files with
the Securities and Exchange Commission, including financial statements,
schedules and exhibit lists contained therein. Requests should be sent to the
Chief Financial Officer of the Company at its principal executive offices at
1250 Borregas Avenue, Sunnyvale, California 94089. Such documents are also
available on EDGAR at the website of the Securities and Exchange Commission at
www.sec.gov.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS TO BE
PRESENTED AT NEXT ANNUAL MEETING
Proposals to be presented by stockholders of the Company at the
Company's 1998 Annual Meeting must be received by the Company at its principal
executive offices no later than March 31, 1998. Such proposals may be included
in next year's proxy statement if they comply with the applicable rules and
regulations promulgated by the United States Securities and Exchange Commission.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting.
If any other matters properly come before the meeting or any adjournment or
postponement thereof, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend.
FOR THE BOARD OF DIRECTORS
PETER COHN
Secretary
Dated: February 27, 1998
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CATALYST SEMICONDUCTOR, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase
Plan of Catalyst Semiconductor, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, Company.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Catalyst Semiconductor, Inc., a
Delaware corporation.
(e) "Compensation" shall mean all compensation, including base
straight time gross earnings, payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions and all other
compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of
the Company for purposes of tax withholding under the Code whose customary
employment with the Company or any Designated Subsidiary is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
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(i) "Exercise Date" shall mean the last day of each Offering
Period, or, with respect to an Extended Offering Period, the last day of each
Purchase Period.
(j) "Extended Offering Period" shall mean a period of
approximately twelve (12), eighteen (18) or twenty-four (24) months, commencing
on the date or dates so specified by the Board, during which options granted
pursuant to the Plan may be exercised. The duration, commencement and
termination of Extended Offering Periods may be changed pursuant to Section 4 of
this Plan.
(k) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for the Common Stock (or the closing bid, if no sales were
reported) , as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the date of such determination
(or, if not a market trading day, then the last market trading day prior to the
date of determination), as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ
system (but not on the National Market System thereof) or is regularly quoted by
a recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(4) For purposes of the Enrollment Date under the
first Offering period under the Plan, the Fair Market Value of the Common Stock
shall be the "price to public" as set forth in the final prospectus filed with
the Securities and Exchange Commission pursuant to Rule 424 under the Securities
Act of 1933, as amended.
(l) "Offering Period" shall mean a period of approximately six
(6) months, commencing on the first Trading Day on or after June 1 and
terminating on the last Trading Day in the period ending the following December
30, or commencing on the first Trading Day on or after May 31 and terminating on
the last Trading Day in the period ending the following November 30, during
which options granted pursuant to the Plan may be exercised. The duration,
commencement and termination of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
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<PAGE> 31
(n) "Purchase Period" shall mean, with respect to an Extended
Offering Period, the approximately six (6) month period commencing after one
Exercise Date and ending with the next Exercise Date, except that the first
Purchase Period of any Extended Offering Period shall commence on the Enrollment
Date and end with the next Exercise Date. The duration, commencement and
termination of Purchase Periods may be changed pursuant to Section 4 of this
Plan.
(o) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(p) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date, shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods or Extended Offering Periods, as determined by the Board, with
a new Offering Period or Extended Offering Period, as the Board may determine,
commencing on the first Trading Day on or after April 1 and October 1 each year,
or on such other dates as the Board shall determine, and continuing thereafter
until terminated in accordance with Section 19 hereof. The Board shall have the
power: (i) to implement Extended Offering Periods, (ii) to change the duration,
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<PAGE> 32
commencement and termination of Offering Periods, Extended Offering Periods
and/or Purchase Periods with respect to future offerings without stockholder
approval if such change is announced at least five (5) days prior to the
scheduled beginning of the first Offering Period, Extended Offering Period or
Purchase Period to be effective thereafter, and (iii) to implement overlapping
Offering Periods and/or Extended Offering Periods.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period or Extended Offering Period in an amount not less
than one percent (1%) and not exceeding ten percent (10%) of the Compensation
which he or she receives on each pay day during the Offering Period or Extended
Offering Period, and the aggregate of such payroll deductions during all
concurrent Offering Periods and Extended Offering Periods shall not exceed ten
percent (10%) of the participant's Compensation during any such Offering Period
or Extended Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period or Purchase Period. The
change in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods and Purchase Period unless terminated as provided in
Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period or Purchase Period which is scheduled
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<PAGE> 33
to end during the current calendar year (the "Current Period") that the
aggregate of all payroll deductions which were previously used to purchase stock
under the Plan in a prior Offering Period or Purchase Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Period equal $21,250. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period or Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during any Offering Period (or, with
respect to an Extended Offering Period, during any six-month Purchase Period)
more than a number of Shares determined by dividing $12,500 by the Fair Market
Value of a share of the Company's Common Stock on the Enrollment Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant to
Section 10 hereof, and shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period or Purchase Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
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<PAGE> 34
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal, Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period or Extended Offering Period will be automatically
terminated, and no further payroll deductions for purchase of shares will be
made for such Offering Period or Extended Offering Period. If a participant
withdraws from an Offering Period or Extended Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period or
Extended Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined
in Section 2(g) hereof), for any reason, including by virtue of him or her
having failed to remain an Employee of the Company for at least twenty (20)
hours per week during an Offering Period or Extended Offering Period in which
the Employee is a participant, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period or Extended Offering Period but not yet used
to exercise the option will be returned to such participant or, in the case of
his or her death, to the person or persons entitled thereto under Section 14
hereof, and such participant's option will be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 250,000 shares
(which number gives effect to a one-for-nine reverse split of the Common Stock
approved by the Board in March 1993) subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If on a given
Exercise Date the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
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<PAGE> 35
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan,
provided that:
(1) Members of the Board who are eligible to
participate in the Plan may not vote on any matter affecting the administration
of the Plan or the grant of any option pursuant to the Plan.
(2) If a Committee is established to administer the
Plan, no member of the Board who is eligible to participate in the Plan may be a
member of the Committee.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
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<PAGE> 36
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments, Upon Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Period or Extended Offering
Period(s) then in progress by setting a new Exercise Date (the "New Exercise
Date") or to cancel each outstanding right to purchase and refund all sums
collected from participants during the Offering Period(s) or Extended Offering
Period(s) then in progress. If the Board shortens the Offering Period(s) or
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<PAGE> 37
Extended Offering Period(s) then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for his option has been changed to the New
Exercise Date and that his option will be exercised automatically on the New
Exercise Date, unless prior to such date he has withdrawn from the Offering
Period(s) or Extended Offering Period(s) as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalization, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided that
an Offering Period or Extended Offering Period may be terminated by the Board of
Directors on any Exercise Date if the Board determines that the termination of
the Plan is in the best interests of the Company and its stockholders. Except as
provided in Section 18 hereof, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Rule 16b-3 or under Section 423 of the Code
(or any successor rule or provision or any other applicable law or regulation),
the Company shall obtain stockholder approval in such a manner and to such a
degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
Extended Offering Periods or Purchase Periods, limit the frequency and/or number
of changes in the amount withheld during an Offering Period, Extended Offering
Period or Purchase Period, establish the exchange ratio applicable to amounts
withheld
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<PAGE> 38
in a currency other than U.S. dollars, permit payroll withholding in excess of
the amount designated by a participant in order to adjust for delays or mistakes
in the Company's processing of properly completed withholding elections,
establish reasonable waiting and adjustment periods and/or accounting and
crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Additional Restrictions of Rule 16b-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and
such options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
24. Automatic Transfer to Lower Price Extended Offering Period. To
the extent permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value
of the Common Stock on any Exercise Date in an Extended Offering Period is lower
than the Fair Market Value of the Common Stock on the Enrollment Date of such
Extended Offering Period, then all participants in such Extended Offering Period
shall be automatically withdrawn from such Extended Offering
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<PAGE> 39
Period immediately after the exercise of their option on such Exercise Date and
automatically re-enrolled in the immediately following Extended Offering Period
as of the first day thereof.
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<PAGE> 40
EXHIBIT A
CATALYST SEMICONDUCTOR, INC.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_________ Original Application Enrollment Date:___________
_________ Change in Payroll Deduction Rate
_________ Change of Beneficiary(ies)
1. ________________________ hereby elects to participate in the
Catalyst Semiconductor, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common Stock
in accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of ____% of my Compensation on each payday (not to exceed 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete "Employee Stock Purchase
Plan." I understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand my ability to
exercise the option under this Subscription Agreement is subject to obtaining
stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan
should be issued in the name(s) of (Employee or Employee and Spouse Only):
________________________
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal to
the excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby agree to
notify the Company in writing within 30 days after the date of any disposition
of shares and I will make adequate provision for Federal, state or other tax
withholding obligations if any, which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding obligation
including any
<PAGE> 41
withholding necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and 1-year
holding periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition, and
that such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares, or (2) 15% of the fair market value of the shares on the first day
of the Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock
Purchase Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:
NAME: (Please print)________________________________________________________
(First) (Middle) (Last)
_____________________________ ______________________________
Relationship
______________________________
(Address)
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<PAGE> 42
NAME: (Please print)
-----------------------------------------------------------
(First) (Middle) (Last)
- ----------------------------- ------------------------------
Relationship
------------------------------
(Address)
Employee's Social
Security Number:
------------------------------
Employee' s Address:
------------------------------
------------------------------
------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Date:
---------------------------- ----------------------------------
Signature of Employee
----------------------------------
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE> 43
EXHIBIT B
CATALYST SEMICONDUCTOR, INC.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period or Extended Offering
Period of the Catalyst Semiconductor, Inc. Employee Stock Purchase Plan which
began on ____________ 19__ (the "Enrollment Date") hereby notifies the Company
that he or she hereby withdraws from such Offering Period or Extended Offering
Period. He or she hereby directs the Company to pay to the undersigned as
promptly as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period or Extended Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period or Extended Offering Period will be automatically terminated. The
undersigned understands further that no further payroll deductions will be made
for the purchase of shares in the current Offering Period or Extended Offering
Period and the undersigned shall be eligible to participate in succeeding
Offering Periods or Extended Offering Periods only by delivering to the Company
a new Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE> 44
CATALYST SEMICONDUCTOR, INC.
1993 DIRECTOR STOCK OPTION PLAN
AS AMENDED AND RESTATED ON MAY 30, 1996
1. Purpose of the Plan. The purpose of this 1993 Director Stock Option
Plan is to attract and retain highly qualified personnel to serve as Outside
Directors of the Company.
All options granted hereunder shall be "non-statutory stock
options."
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Catalyst Semiconductor, Inc., a Delaware
corporation, and its predecessor corporation Catalyst Semiconductor, Inc., a
California corporation.
(e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
(g) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(i) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation
the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the date of
determination, or, if not a market trading day, on the last market trading day
prior to the date of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable;
<PAGE> 45
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means an Outside Director who receives an
Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1993 Director Stock Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 220,000 Shares (the "Pool") of Common Stock (which number
gives effect to a one-for-nine reverse stock split of the Shares approved by the
Board on March ___, 1993 ("Post-Split")). The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this
Section 4(b) shall not be amended more than once every six months, other than to
comply with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules
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<PAGE> 46
thereunder. All grants of Options hereunder shall be automatic and
non-discretionary and shall be made strictly in accordance with the following
provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number
of Shares to be covered by Options granted to Outside Directors.
(ii) Each new Outside Director who shall first join
the Board on or after March 1, 1993 (including any new Outside Director who
shall have first joined the Board of Catalyst Semiconductor, Inc., a California
corporation, subsequent to March 1, 1993), shall automatically be granted an
Option to purchase 20,000 Post-Split Shares upon the date on which such person
first becomes an Outside Director, whether through election by the stockholders
of the Company, appointment by the Board to fill a vacancy, or termination of
employment by the Company while remaining as a Director (a "One-Time Grant"). In
addition, on April 1, 1994, and on each April 1 thereafter during the term of
this Plan, each Outside Director who shall have been an Outside Director for at
least six (6) months as of such date shall automatically receive an Option to
purchase 7,500 Post-Split Shares (an "Annual Grant").
(iii) The terms of each Option granted hereunder shall
be as follows:
(A) the term of the Option shall be five
(5) years;
(B) the Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 8 hereof;
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of the Option;
(D) each Annual Grant and One-Time Grant
shall become exercisable in installments cumulatively as to one-third of the
Optioned Stock on each anniversary of the date of grant, so that 100% of the
Optioned Stock granted under any such grant shall be exercisable in full three
(3) years after the date of grant of the Option, assuming in each case
Continuous Status as a Director.
(iv) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus
the number of Shares previously purchased upon exercise of Options to exceed the
Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors entitled to receive Options on the grant
date. No further grants shall be made until such time, if any, as additional
Shares become available for grant under the Plan through action of the
shareholders to increase the number of Shares which may be issued under the Plan
or through cancellation or expiration of Options previously granted hereunder.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of
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<PAGE> 47
relevant information and in accordance with Section 2(i) of the Plan, the Fair
Market Value of the Common Stock; (ii) to interpret the Plan; (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted hereunder; and (v) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his or her directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
until April 30, 2003, unless sooner terminated under Section 11 of the Plan.
7. Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of (i) cash, (ii) check, (iii)
promissory note, (iv) other shares which have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised and which, in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than 12 months
on the date of surrender, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) delivery of an irrevocable subscription agreement for the Shares which
irrevocably obligates the Optionee to take and pay for the Shares not more than
12 months after the date of delivery of the subscription agreement, (vii) any
combination of the foregoing methods of payment, or (viii) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until stockholder approval of the Plan in accordance with Section 16 hereof has
been obtained.
-4-
<PAGE> 48
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 10 of the
Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. In the
event an Optionee's Continuous Status as a Director terminates (other than upon
the Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within 90 days from the date of such termination, and only to the extent that
the Optionee was entitled to exercise it at the date of such termination (but in
no event later than the expiration of its five-year term). To the extent that
the Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within six months from the date of such termination, and
only to the extent that the Optionee was entitled to exercise it at the date of
such termination (but in no event later than the expiration of its five-year
term). To the extent that the Optionee was not entitled to exercise an Option at
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death
while a Director, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance may exercise the Option, but only
within one year following the date of death, and only to the extent that the
Optionee was entitled to exercise it at the date of death (but in no event later
than the expiration of its five-year term). To the extent that the Optionee was
not entitled to exercise an Option at the date of death, and to the extent that
the Optionee's estate or a person
-5-
<PAGE> 49
who acquired the right to exercise such Option does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will, by the laws of descent or distribution or pursuant to a qualified domestic
relations order, and may be exercised, during the lifetime of the Optionee, only
by the Optionee or a permitted transferee.
10. Adjustments.
(a) Changes in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split,
recapitalization, or other change in the capital structure of the Company, or
converted into or exchanged for other securities as a result of any merger,
consolidation or reorganization, or in the event that the outstanding number of
shares of stock of the Company is increased through payment of a stock dividend,
appropriate proportionate adjustments shall be made in the number and class of
shares of stock subject to the Plan, the number and class of shares subject to
any Option outstanding under the Plan, and the exercise price of any such
outstanding Option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustment. Any such adjustment
shall be made upon approval by the Board, whose determination shall be
conclusive. If there is any other change in the number or type of the
outstanding shares of stock of the Company, or of any other security into which
such stock shall have been changed or for which it shall have been exchanged,
and if the Board in its sole discretion determines that such change equitably
requires an adjustment in the Options then outstanding under the Plan, such
adjustment shall be made in accordance with the determination of the Board. No
adjustments shall be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of its stock or securities
convertible into or exchangeable for shares of its stock.
(b) Change in Control. In the event of a "Change in Control"
of the Company, as defined in paragraph (c) below, then the following provisions
shall apply:
(i) Any Option outstanding on the date of such Change
in Control ("Outstanding Option") that is not yet exercisable and vested on such
date shall become fully exercisable and vested;
(ii) Each Outstanding Option shall be assumed by the
successor corporation (if any) or by a Parent or Subsidiary of the successor
corporation (if any);
(iii) Each Outstanding Option shall remain exercisable
by the Optionee for a period of at least ninety (90) days from the date of the
Change in Control; and
(iv) Each Optionee with an Outstanding Option shall be
provided with written notice of the period of exercisability provided for in
subsection (b)(iii) above promptly after the date of the Change in Control by
the Company or by the entity surviving after the Change in Control.
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<PAGE> 50
(c) Definition of "Change in Control". For purposes of this
Section 10, a "Change in Control" means the happening of any of the following:
(i) when any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a
Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty (50%) of the combined voting power of the
Company's then outstanding securities entitled to vote generally in the election
of directors; or
(ii) a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the stockholders of the Company approve an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets; or
(iv) a change in the composition of the Board
occurring as a result of any one meeting of the stockholders of the Company, as
a result of which fewer than a majority of the directors are Incumbent
Directors. "Incumbent Directors" shall mean directors who either are (A)
directors of the Company as of the date the Plan is approved by the
stockholders, or (B) elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall
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<PAGE> 51
be given to each Outside Director to whom an Option is so granted within a
reasonable time after the date of such grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws and the requirements of any stock exchange or
market system upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the first granting of an Option
hereunder. Such stockholder approval shall be obtained in the degree and manner
required under applicable state and federal law.
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<PAGE> 52
CATALYST SEMICONDUCTOR, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned stockholder of CATALYST SEMICONDUCTOR, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated February 27, 1998, and hereby
appoints C. Michael Powell and Daryl Stemm, and each of them, with full power of
substitution, as proxies and attorneys-in-fact, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Stockholders
of Catalyst Semiconductor, Inc. to be held on March 26, 1998 at 10:00 a.m. local
time, at the Sheraton Four Points Hotel, 1108 North Mathilda Avenue, Sunnyvale,
California 94089, and at any adjournment or postponement thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth below or on the
reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF ONE CLASS II
DIRECTOR IN THE MANNER DESCRIBED IN THE PROXY STATEMENT, (2) FOR THE PROPOSAL TO
ISSUE AND SELL IN A PRIVATE PLACEMENT COMMON STOCK WITH AN AGGREGATE PURCHASE
PRICE OF UP TO $5,000,000 (UP TO 6,125,000 SHARES), WARRANTS TO PURCHASE COMMON
STOCK EQUAL TO 25% OF THE SHARES SO ISSUED (UP TO 1,862,500 SHARES) AND WARRANTS
TO PURCHASE UP TO AN ADDITIONAL 300,000 SHARES, (3) FOR THE PROPOSAL TO APPROVE
AN AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 250,000 SHARES, (4)
FOR THE PROPOSAL TO APPROVE AN AMENDMENT TO THE STOCK OPTION PLAN, TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 800,000
SHARES, AND (5) FOR THE PROPOSAL TO RATIFY THE SELECTION OF PRICE WATERHOUSE LLP
AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING APRIL 30, 1998.
|X| PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s). The Board of Directors unanimously recommends
a vote FOR the Class II Director nominee and proposals 2, 3, 4 and 5.
1. Election of one Class II Director
Nominee: Patrick Verderico [ ] FOR [ ] WITHHELD
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
<PAGE> 53
2. To approve the issuance and sale of Common Stock with an aggregate
purchase price of up to $5,000,000 (up to 6,250,000 shares), warrants
to purchase a number of shares of Common Stock equal to 25% of the
shares so issued (up to 1,562,500 shares), and warrants to purchase up
to an additional 300,000 shares of Common Stock
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve amendments to the Employee Stock Purchase Plan to increase
the number of shares of Common Stock reserved for issuance thereunder
by 250,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve amendments to the Stock Option Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 800,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending April 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. The proxies are also authorized to vote, in their discretion on such
other business as may properly come before the meeting or any
adjournment or postponement hereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. Where shares are held in the name of
two or more persons, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
--------------------------------------
(Please Print Your Name)
--------------------------------------
(Signature of Stockholder)
--------------------------------------
(Date)
