<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended November 1, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________
to __________________.
COMMISSION FILE NUMBER: 0-21488
CATALYST SEMICONDUCTOR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0083129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 BORREGAS AVENUE,
SUNNYVALE, CALIFORNIA 94089
(Address, including zip code, of
Registrant's principal executive offices)
(408) 542-1000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of December
18, 1998 was 13,948,061
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Unaudited Condensed Consolidated Balance Sheets
at October 31, 1998 and April 30, 1998................................... Page 3
Unaudited Condensed Consolidated Statements of Operations for the three and
six month periods ended October 31, 1998 and 1997........................ Page 4
Unaudited Condensed Consolidated Statements of Cash Flows for the six month
periods ended October 31, 1998 and 1997.................................. Page 5
Notes to Unaudited Condensed Consolidated Financial Statements............. Pages 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION......................................... Pages 8-16
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.......................................................... Page 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................... Page 17
SIGNATURES......................................................................... Page 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Oct. 31, April 30,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash .............................................. $ 2,733 $ 534
Restricted cash ................................... 0 5,750
Accounts receivable, net .......................... 4,805 4,726
Inventories ....................................... 2,861 4,194
Other assets ...................................... 994 815
-------- --------
Total current assets .......................... 11,393 16,019
Property and equipment, net ....................... 2,181 2,834
-------- --------
$ 13,574 $ 18,853
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit .................................... $ 3,175 $ 3,225
Accounts payable .................................. 6,387 13,400
Accrued expenses .................................. 3,530 3,650
Deferred gross profit on shipments to
distributors..................................... 1,104 475
Current portion of long-term debt and capital lease
obligations...................................... 1,439 1,471
-------- --------
Total current liabilities ..................... 15,635 22,221
Long-term debt and capital lease obligations .......... 435 501
-------- --------
Total liabilities ............................. 16,070 22,722
Total stockholders' equity (deficit) .................. (2,496) (3,869)
-------- --------
$ 13,574 $ 18,853
======== ========
See accompanying notes to the unaudited condensed
consolidated financial statements.
</TABLE>
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1998 Oct. 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues ......................... $ 8,126 $ 10,175 $ 15,431 $ 19,723
Cost of revenues ..................... 5,776 9,021 10,841 16,194
-------- -------- -------- --------
Gross profit ......................... 2,350 1,154 4,590 3,529
Research and development ............. 583 1,048 1,150 2,228
Selling, general and administrative... 1,921 1,851 4,017 3,643
-------- -------- -------- --------
Loss from operations ................. (154) (1,745) (577) (2,342)
Interest income (expense), net ....... (266) (203) (488) (388)
-------- -------- -------- --------
Loss before income taxes ............. (420) (1,948) (1,065) (2,730)
Income tax provision .............. -- -- -- --
-------- -------- -------- --------
Net loss .......................... $ (420) $ (1,948) $ (1,065) $ (2,730)
======== ======== ======== ========
Net loss per share:
Basic ......................... $ (0.03) $ (0.24) $ (0.08) $ (0.34)
======== ======== ======== ========
Diluted ....................... $ (0.03) $ (0.24) $ (0.08) $ (0.34)
======== ======== ======== ========
Weighted average common shares:
Basic ......................... 13,948 8,204 13,948 8,106
======== ======== ======== ========
Diluted ....................... 13,948 8,204 13,948 8,106
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
Oct. 31, 1998 Oct. 31, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $(1,065) $(2,730)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 668 968
Changes in assets and liabilities:
Restricted cash ............................... 5,750 --
Accounts receivable ........................... (79) (698)
Inventories ................................... 1,333 1,832
Other assets .................................. (179) (314)
Accounts payable .............................. (7,013) (387)
Accrued expenses .............................. (120) (110)
Deferred gross profit on shipments to
distributors.................................. 629 14
------- -------
Net cash used in operating activities .................... (76) (1,425)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for the acquisition of equipment ........... (15) (1,211)
------- -------
Cash used in investing activities ............... (15) (1,211)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock transactions, net ....................... 2,438 902
Net proceeds from (payment of) line of credit ........ (50) 690
Payment of long-term debt and capital lease
obligations.......................................... (98) (266)
------- -------
Cash provided by (used in) financing activities... 2,290 1,326
------- -------
Net increase (decrease) in cash and cash equivalents ..... 2,199 (1,310)
Cash and cash equivalents at beginning of the period ..... 534 2,695
------- -------
Cash at end of the period ................................ $ 2,733 $ 1,385
======= =======
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
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CATALYST SEMICONDUCTOR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the unaudited condensed consolidated
interim financial statements included herein have been prepared on the same
basis as the April 30, 1998 audited consolidated financial statements and
include all adjustments, consisting of only normal recurring adjustments,
necessary to fairly state the information set forth herein. The statements have
been prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosures necessary to
present the statements in accordance with generally accepted accounting
principles. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended April 30, 1998. The results of operations for the six
month period ended October 31, 1998 are not necessarily indicative of the
results to be expected for the entire year.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998 and thus far in fiscal 1999, the market
for certain FLASH and EEPROM devices, which comprise the majority of Catalyst's
business, experienced an excess market supply relative to demand which resulted
in a significant downward trend in prices. The Company could continue to
experience a downward trend in product pricing which could further adversely
affect the Company's operating results.
The Company's operating results in the past year have consumed
substantial amounts of cash. The reduction in cash has also placed restrictions
on wafer purchases which, during the fourth quarter of 1998, resulted in the
cancellation of some customer sales orders. In May 1998, the Company received
net proceeds of $1.5 million from the sale of 1,500,000 shares of its Common
Stock in a private placement. In September 1998, the Company completed the sale
of 4,000,000 additional shares of its Common Stock to the same investor for $1.0
million. Management believes, however, that it will require additional cash from
similar or related private placements or other sources of liquidity to meet the
Company's projected working capital and other cash requirements for fiscal 1999,
and is currently pursuing other sources of liquidity.
As a result of these circumstances, the Company's independent
accountants' opinion on the Company's April 30, 1998 consolidated financial
statements includes an explanatory paragraph indicating that these matters raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's fiscal year and its first, second and third fiscal
quarters end the Sunday closest to April 30, July 31, October 31 and January 31,
respectively. For purposes of financial statement presentation, the year end
date is expressed as April 30 and the quarter end dates are expressed as July
31, October 31 or January 31.
NOTE 2 - INCOME (LOSS) PER SHARE
During the quarter ended January 31, 1998, the Company adopted SFAS No.
128, "Earnings Per Share". SFAS No. 128 requires presentation of both basic and
diluted net income per share on the face of the income statement. All prior
period net income per share data presented has been restated in accordance with
SFAS No. 128. Basic net income per share is computed by dividing net income
available to common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period and excludes the
dilutive effect of stock options. Diluted net income per share gives effect to
all dilutive potential common shares outstanding during a period. In computing
diluted net income per share, the average stock price for the period is used in
determining the number of shares assumed to be purchased from exercise of stock
options.
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<PAGE> 7
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
Oct. 31, 1998 Oct. 31, 1997
------------- -------------
(in thousands)
<S> <C> <C>
Net loss ............................... $ (1,065) $ (2,730)
Shares calculation:
Average shares outstanding-basic ... 13,948 8,106
Effect of Dilutive securities:
Stock options ...................... -- --
-------- --------
Average shares outstanding-diluted ..... 13,948 8,106
======== ========
</TABLE>
Options to purchase 2,889,000 shares of common stock at prices ranging
from $0.13 to $6.30 per share outstanding during the quarter ended October 31,
1998 and options to purchase 2,675,000 shares of common stock at prices from
$1.08 to $7.25 per share outstanding during the quarter ended October 31, 1997
were not included in the computation of diluted EPS because the inclusion of
such options would have been antidilutive.
NOTE 3 - BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
Oct. 31, 1998 April 30, 1998
------------- --------------
<S> <C> <C>
Accounts receivable:
Accounts receivable ............................... $ 5,034 $ 5,052
Less: Allowance for doubtful accounts ............ (308) (326)
-------- --------
$ 4,726 $ 4,726
======== ========
Inventories:
Work-in-process ................................... $ 2,454 $ 2,410
Finished goods .................................... 407 1,784
-------- --------
$ 2,861 $ 4,194
======== ========
Property and equipment:
Engineering and test equipment .................... $ 7,691 $ 7,691
Computer hardware and software .................... 3,485 3,470
Furniture and office equipment .................... 1,275 1,275
-------- --------
12,451 12,436
Less: accumulated depreciation and amortization ... (10,270) (9,602)
-------- --------
$ 2,181 $ 2,834
======== ========
</TABLE>
NOTE 4 - DEBT:
Under the terms of a bank revolving line of credit, the Company can
borrow the lesser of $13.5 million or an amount determined by a formula applied
to eligible accounts receivable, local inventory and backlog from certain
foreign customers, at a variable interest rate of prime plus 5.25% (13.5% at
October 31, 1998). The revolving line of credit is subject to compliance with
loan covenants. At July 31, 1998, the Company was not in compliance with certain
of the loan covenants and the bank has agreed in a letter of forbearance not to
enforce certain of its rights to which it is entitled under such condition. Such
forbearance is granted until March 31, 1999 for each condition of non-compliance
on July 31, 1998. As a result of such non-compliance with the terms of the loan,
the Company cannot currently borrow any additional funds under the line without
the permission of the bank. During the six months ended October 31, 1998, the
bank has continued to loan amounts in accordance with the loan agreement.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same. The
loan which bears interest at 18%, was originally due and payable on May
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<PAGE> 8
15, 1998. A subsequent agreement has been negotiated, allowing the Company to
satisfy the obligation by making monthly payments of $0.1 million principle and
interest beginning on November 15, 1998 until paid in full.
NOTE 5 - SALE OF COMMON STOCK:
In May 1998, a private investor purchased 1,500,000 shares of the
Company's common stock in a private placement for $1.00 per share. The offer and
sale of the securities was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) of such Act. In connection with such
issuance, the investor agreed to various standstill and voting provisions
including not acquiring additional shares of Company Stock or taking actions to
control the Company. The Company also has repurchase rights with respect to the
shares sold over the twelve months from the date of issuance.
In September 1998, the same shareholder purchased an additional
4,000,000 shares of the Company's common stock for $.25 per share. The terms and
conditions applicable to this additional purchase are the same as the shares
purchased in May 1998. In addition, for a period of twelve months following the
closing of the foregoing sale of shares, the Company has the right to require
the shareholder to purchase up to 4,000,000 additional shares of common stock at
a purchase price of $.25 per share.
NOTE 6 - STOCK OPTION PLAN REPRICING:
In September 1998, the Board of Directors repriced all outstanding
options held by employees and consultants to the then current fair market value
of the Common Stock. As a consequence, all such outstanding options were
cancelled and an equivalent number of new options with an exercise price of
$.125 were issued in replacement thereof. The terms and conditions applicable to
the new options, including the vesting provisions, were the same as the old
options except that the price was lowered and the expiration date of the options
was extended to a date ten years from the date of the repricing.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
accompanying condensed consolidated financial statements and notes thereto
included in this report. In addition, the Company desires to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Specifically, the Company wishes to alert readers that the factors set
forth in "Certain Factors that May Affect the Company's Future Results" as set
forth below in this Item 2, as well as other factors, in the past have affected
and in the future could affect the Company's actual results, and could cause the
Company's results for future quarters to differ materially from those expressed
in any forward looking statements made by or on behalf of the Company.
OVERVIEW
Catalyst Semiconductor, Inc., incorporated October 8, 1985, designs,
develops and markets a broad range of nonvolatile semiconductor memory products
and is in the process of developing mixed signal and micro-controller
supervisory products. Revenues are derived from sales of semiconductor products
designed by the Company and manufactured by other companies.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998 and through the six months ended October
31, 1998, the market for certain FLASH and EEPROM devices, which comprise the
majority of Catalyst's business, experienced an excess market supply relative to
demand which resulted in a significant downward trend in prices. The Company
could continue to experience a downward trend in product pricing which could
further adversely affect the Company's operating results.
The Company's operating results in the past year have consumed
substantial amounts of cash. The reduction in cash has also placed restrictions
on wafer purchases which, during the fourth quarter of fiscal 1998 and the first
quarter of fiscal 1999, resulted in the cancellation of some customer sales
orders. In May 1998, the Company received net proceeds of $1.5 million from the
sale of 1,500,000 shares of its Common Stock in a private placement. In
September 1998, the Company sold 4,000,000 additional shares of its Common Stock
for $1.0
-8-
<PAGE> 9
million in another private placement to the same investor. Management believes,
however, that it may require additional cash from similar or related private
placements or other sources of liquidity to meet the Company's projected working
capital and other cash requirements for fiscal 1999, and is currently pursuing
these sources of liquidity.
As a result of these circumstances, the Company's independent
accountants' opinion on the Company's April 30, 1998 consolidated financial
statements includes an explanatory paragraph indicating that these matters raise
substantial doubt about the Company's ability to continue as a going concern.
RESULTS OF OPERATIONS
Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales has been made through independent
distributors. Revenue from product sales to original equipment manufacturers and
from sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the distributor
sells the product to the end customer. Total revenues decreased 21% to $8.1
million for the quarter ended October 31, 1998 from $10.2 million for the
quarter ended October 31, 1997. For the six months ended October 31, 1998, total
revenues decreased 22% to $15.4 million from $19.7 million for the six months
ended October 31, 1997. The decreases were primarily attributable to price
erosion caused by excess supply and other adverse industry-wide conditions.
Total revenues of $8.1 million for the quarter ended October 31, 1998 increased
by 11% from $7.3 million for the quarter ended July 31, 1998. The increase is
primarily attributable to the fact that the Company experienced cancellations in
the quarter ended July 31, 1998 as a result of being unable to purchase
sufficient wafers during the fourth quarter of fiscal 1998 due to insufficient
working capital. The Company is reliant upon receiving and fulfilling orders
within the same quarter to meet or exceed its current revenue levels. A
continuation of weak demand, capital deficiencies and price erosion for the
Company's products could lead to continued poor operating results. In May and
June of 1998, the Company received substantial cancellations of the backlog
existing at fiscal year end. For the six months ended October 31, 1998,
approximately 28% of the Company's revenues were derived from shipments to
international customers compared with 64% and 63% of net product sales in fiscal
1998 and 1997, respectively.
Gross Profit (Loss). Gross profit for the quarter ended October 31, 1998
was $2.4 million, or 29% of revenues, compared to gross profit of $1.2 million,
or 12% of revenues, for the quarter ended October 31, 1997. The gross profit for
the quarter ended October 31, 1998 includes $0.7 million benefit as a result of
credits issued by a key supplier in connection with the payment of $7.0 million
owed for products purchased. For the six months ended October 31, 1998, gross
profits increased by 31% to $4.6 million or 30% of revenues, from $3.5 million,
or 18% of revenues, for the six months ended October 31, 1997. The results in
fiscal 1998 include the benefit of $1.2 million in credits and vendor debt
reductions negotiated by management. Gross margins were also adversely affected
by the excess supply of competitive products and other adverse industry-wide
conditions.
Research and Development. Research and development (R&D) expenses
consist principally of salaries for engineering, technical and support
personnel, depreciation of equipment, and the cost of wafers used to evaluate
new products and new versions of current products. R&D expenses decreased by 40%
to $0.6 million, or 7% of revenues, for the quarter ended October 31, 1998 from
$1.0 million, or 10% of revenues, for the quarter ended October 31, 1997. For
the six months ended October 31, 1998, R&D expenses decreased 45% to $1.2
million, or 8% of revenues, from $2.2 million, or 11% of revenues, for the six
months ended October 31, 1997. The primary reason for the decreases in absolute
dollars spent was lower material costs for wafers being evaluated for new
products and new versions of current products and reductions in headcount and
the transfer of portions of the engineering expenses to lower cost offshore
sources.
Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses consist principally of salaries for sales, marketing and
administrative personnel, commissions and promotional activities. SG&A expenses
were $1.9 million, or 29% of revenues, for the quarter ended October 31, 1998,
the same as $1.9 million, or 19% of revenues, for the quarter ended October 31,
1997. The primary reason for the increase in the percentage of revenue is the
decrease in revenues primarily attributable to the erosion of prices to the
Company's customers. For the six months ended October 31, 1998, SG&A expenses
increased 11% to $4.0 million, or 26% of revenues, from $3.6 million, or 18% of
revenues, for the six months ended October 31, 1997. The primary reason for the
increase in the absolute dollars spent is the increase in bad debt expense and
freight expenses. The primary reason for the increase in the percentage of
revenue is the decrease in revenues primarily attributable to the erosion of
prices to the Company's customers.
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<PAGE> 10
Net Interest Income (Expense.) Net interest expense increased by 31% to
$266,000 for the quarter ended October 31, 1998 from $203,000 for the quarter
ended October 31, 1997. Net interest expense for the six months ended October
31, 1998 was $488,000 compared to $388,000 for the six months ended October 31,
1997. The changes were primarily attributable to higher interest rates.
Income Tax Provision. As a result of the Company's losses, the provision
for income taxes remained at zero for the quarter ended October 31, 1998.
As of April 30, 1998 the Company had available net operating loss
carryforwards of approximately $37.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, which begin to expire in
2001. Availability of the net operating loss and general business credit
carryforwards may potentially be reduced in the event of substantial changes in
equity ownership.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased $2.2 million to $2.7 million as of October 31, 1998 from
$.5 million as of April 30, 1998. The increase was primarily attributable to
$2.5 million received from the sale of common stock to an investor. Restricted
cash decreased to zero as of October 31, 1998 from $5.8 million as of April 30,
1998. The restricted cash was pledged as security on a letter of credit that had
been required by certain of the Company's wafer foundries until a payment of
$7.0 million was made in September, 1998.
Under the terms of a bank revolving line of credit, the Company can
borrow the lesser of $13.5 million or an amount determined by a formula applied
to eligible accounts receivable, local inventory and backlog from certain
foreign customers, at a variable interest rate of prime plus 5.25% (13.5% at
October 31, 1998). The revolving line of credit is subject to compliance with
loan covenants. At October 31, 1998, the Company was not in compliance with
certain of the loan covenants and the bank has agreed in a letter of forbearance
not to enforce certain of its rights to which it is entitled under such
condition. Such forbearance was granted until March 31, 1999 for each condition
of non-compliance on July 31, 1998. As a result of such non-compliance with the
terms of the loan, the Company cannot currently borrow any additional funds
under the line without the permission of the bank. During the six months ended
October 31, 1998, the bank has continued to loan amounts in accordance with the
loan agreement. Due to continued losses by the Company, the borrowings against
the backlog from certain foreign customers have been eliminated.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same. The
loan, which bears interest at 18%, was originally due and payable on May 15,
1998. The Company has renegotiated the terms of the note and agreed to satisfy
the obligation with monthly payments of $0.1 million applied to principle and
interest beginning on November 15, 1998 until paid in full. There can be no
assurance that the Company will be able to make such payments to the
satisfaction of the vendor or, if the Company fails to comply with the agreement
that the vendor will not seek to enforce its right to collect the unpaid
balance.
The Company has been seeking additional equity or debt financing to
address its working capital needs and to provide funding for capital
expenditures. In September 1998, the Company entered into an agreement to issue
Common Stock in exchange for $1.0 million with the right to obtain an additional
$1.0 million of equity financing on the same terms and conditions. There can be
no assurances, however, that further financing will be available on terms
acceptable to the Company, if at all. If the Company is not successful in
raising additional capital, in view of the uncertainties relating to
arrangements with its bank and other lenders, the Company can not reasonably
assess how long its current cash balances, cash generated from operations and
borrowings available under any remaining loans or lines of credit and from
equipment financing, even with substantial reductions in operating expenses and
capital expenditures, will permit the Company to continue operations.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS
THE COMPANY DESIRES TO TAKE ADVANTAGE OF CERTAIN PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, ENACTED IN DECEMBER 1995 (THE
"REFORM ACT") THAT PROVIDES A "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS MADE
BY OR ON BEHALF OF THE COMPANY. THE COMPANY HEREBY CAUTIONS STOCKHOLDERS,
PROSPECTIVE INVESTORS IN THE COMPANY AND OTHER READERS THAT THE FOLLOWING
IMPORTANT FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE
COULD AFFECT, THE COMPANY'S STOCK PRICE OR CAUSE THE COMPANY'S ACTUAL RESULTS
FOR THE FISCAL YEAR ENDING APRIL 30, 1999, FOR THE FISCAL QUARTER ENDING JANUARY
31, 1999, AND FUTURE FISCAL YEARS
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AND QUARTERS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS, ORAL OR WRITTEN, MADE BY OR ON BEHALF OF THE COMPANY.
The Company's business and future operating results are subject to
potential fluctuations due to a number of factors including the following:
Defaults under Outstanding Loans; Risk of Bankruptcy. The Company has
approximately $3.2 million of secured loans owing to its bank. As a result of
the Company's financial condition and results of operations, the bank has
determined that the Company is in default under various provisions of the loan
agreement entitling the bank to terminate the loan agreement and declare the
loans immediately due and payable. Although the Company has obtained letters of
forbearance from the bank taking any action with respect to existing defaults,
such forbearance only extends until March 31, 1999 and only as to the specified
defaults claimed through September 21, 1998. The Company is seeking to persuade
the bank not to take action on the events of default and not to declare the loan
due and payable. In that regard the Company has received $1.0 million in equity
financing and a twelve month right to obtain up to an additional $1.0 million of
equity financing. There can be no assurance that efforts to obtain additional
funding will be successful or, if successful, that the bank will continue to
forbear action on or otherwise waive the existing defaults. If the Company's
efforts are unsuccessful, the bank is likely to declare the loans due and
payable. Under such circumstances the Company would be unable to continue
operations which would result in bankruptcy. The Company is also indebted to
other creditors in the amount of approximately $6.4 million. Continued operation
of the Company would also require such other lenders to forbear taking action or
waiving defaults under such other debt. Moreover, it is anticipated that any
continued forbearance by the bank would require such other lenders to take
similar action under the other loans. In addition, although the Company is
current on its lease payments under the lease of its headquarters facility, as a
result of its financial condition, the Company is in violation of certain terms
of its lease. Similar violations have resulted under certain equipment lease
agreements.
Need for Additional Capital. The Company has incurred significant losses
and experienced significant negative cash flow from operations for over two
years. Such negative cash flow has significantly reduced the Company's available
capital. The Company has thus far been successful in having its lenders agree to
waive or forbear actions on defaults under existing loans or to renegotiate the
terms of such loans to enable the Company to keep such loans outstanding but
there can be no assurance that such lenders will continue to agree to such
favorable actions. The Company may, as a condition to such waivers or
forbearances, need to obtain additional capital. If the Company is not
successful in raising additional capital, in view of the uncertainties relating
to arrangements with its bank and other lenders, the Company can not reasonably
assess how long its current cash balances, cash generated from operations and
borrowings available under any remaining loans or lines of credit and from
equipment financing, even with substantial reductions in operating expenses and
capital expenditures, will permit the Company to continue operations. There can
be no assurance that the Company will generate sufficient revenue to fund its
operations in the absence of additional funding sources. The Company has pursued
and continues to pursue measures designed to reduce expenses and conserve cash
such as deferring payments to vendors and other suppliers, headcount reductions,
deferrals of planned expenditures, other expense reductions and other measures.
Although such activities help preserve cash and enable the Company to continue
operations, the lack of available capital hinders the Company's ability to
continue manufacturing, sales, product development and other ongoing operational
activities necessary to generating revenues. Such activities can have a
material, adverse affect on the Company's business, financial condition and
operating results. Furthermore, to the extent the Company suffers further
adverse effects to its revenues or margins because of delays in new product
introductions, price competition or other competitive factors, the Company's
cash position and its business, operating results and financial condition could
be further adversely affected.
The Company obtained additional capital of $1.5 million in the quarter
ended July 31, 1998 and $1.0 million equity financing in the quarter ended
October 31, 1998 and a twelve month right to obtain up to an additional $1.0
million of equity financing. The Company may seek additional equity or debt
financing to address its working capital needs and to provide funding for
capital expenditures. There can be no assurance that additional funding will
continue to be available at acceptable terms, if at all. If the Company is
successful in raising additional funds through the issuance of equity
securities, existing stockholders of the Company would likely experience
substantial dilution, or the securities may have rights, preferences or
privileges senior to those of the Company's Common Stock. If adequate funds are
not available or are not available on acceptable terms, further reductions in
its operating expenses and capital expenditures would be required to continue
operations either of which could have a material adverse effect on the Company's
business, operating results and financial condition.
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<PAGE> 12
Recent Operating Results; Anticipated Future Losses. The Company's
recent operating results reflect an increase in revenues from the previous
quarter but continue to result in a net loss. Total revenues for the quarter
ended October 31, 1998 were $8.1 million compared to revenues of $7.3 million in
the quarter ended July 31, 1998 and revenues of $10.2 million for the comparable
period of the prior year. In addition, the Company incurred net losses for the
quarter ended October 31, 1998 of $.4 million compared to a loss for the quarter
ended July 31, 1998 of $.6 million and to a net loss of $1.9 million for the
comparable period in the prior year. The Company lost $18.9 million in the
fiscal year ended April 30, 1998 and the Company's last profitable year was the
fiscal year ended April 30, 1996. For over two years, the Company has
experienced significant negative cash flow from operations. The Company has
taken many steps to reduce its operating expenses including reducing its
headcount from 71 in December, 1996 to 41 in October 1998. Although reductions
in headcount could help the Company meet its operating expense objectives, such
reductions could adversely impact the Company's sales, marketing and product
development efforts. The Company anticipates that negative cash flow from
operations will continue for the foreseeable future. There can be no assurance
that the Company can generate revenue growth, or that any revenue growth that is
achieved can be sustained. To the extent that increases in such operating
expenses precede and are not subsequently followed by increased revenues, the
Company's business, results of operations and financial condition would be
materially adversely affected. There can be no assurance that the Company will
ever achieve or sustain profitability.
Fluctuations in Operating Results. The Company's operating results have
historically been and in future quarters may be adversely affected or otherwise
fluctuate due to factors such as timing of new product introductions and
announcements by the Company and its competitors, fluctuations in customer
demand for the Company's products, volatility in supply and demand affecting
market prices generally (such as the increases in supply of competitive products
and significant declines in average selling prices experienced by the Company in
the six months ended October 31, 1998 and in the fiscal years ended April 30,
1998 and 1997), increased expenses associated with new product introductions or
process changes, increased expenditures related to expanding the Company's sales
channels, gains or losses of significant customers, timing of significant orders
of the Company's products, fluctuations in manufacturing yields, changes in
product mix, wafer price increases due to foreign currency fluctuations and
general economic conditions. The Company anticipates that a significant portion
of its revenue will be derived from a limited number of large orders, and the
timing of receipt and fulfillment of any such orders is expected to cause
material fluctuations in the Company's operating results, particularly on a
quarterly basis.
Due to the foregoing factors, quarterly revenue and operating results
are difficult to forecast. The Company's expense levels are based, in
significant part, on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. If revenue levels fall below
expectations, as has occurred during the six months ended October 31, 1998 and
the years ended April 30, 1998 and 1997, net income is likely to be
disproportionately adversely affected because a proportionately smaller amount
of the Company's expenses varies with its revenue. There can be no assurance
that the Company will be able to achieve or maintain profitability on a
quarterly or annual basis in the future. Due to the foregoing factors, the
Company's operating results may fall below the expectations of securities
analysts and investors, which could have a material adverse effect on the market
price of the Company's Common Stock. Reductions in revenue expectations can also
require the Company to take additional reserves against inventory valuations
based upon the reduced likelihood that the Company will be able to liquidate its
inventories at profitable prices.
Inventory. The cyclical nature of the semiconductor industry
periodically results in oversupply or shortages of wafer fabrication capacity
such as the Company has experienced from time to time. Since the Company must
order products and build inventory substantially in advance of product
shipments, there is a risk that the Company will forecast incorrectly and
produce excess or insufficient inventories of particular products because demand
for the Company's products is volatile and customers place orders with short
lead times. The ability of the Company's customers to reschedule or cancel
orders without significant penalty could adversely affect the Company's
liquidity, as the Company may be unable to adjust its purchases from its wafer
suppliers to match such customer changes and cancellations. There can be no
assurance that the Company's inventory will be reduced by the fulfillment of
customer orders or that in the future the Company will not produce excess
quantities of its products. To the extent the Company produces excess
inventories of particular products, the Company's operating results could be
adversely affected by charges that the Company could recognize due to
significant reductions in demand for its products, rapid declines in the market
value of inventory resulting in inventory writedowns or other related factors.
For example, during the last half of fiscal 1998, the Company recorded charges
of approximately $7.5 million attributable to reserves for lower of cost or
market adjustments and for excess and obsolete inventory adjustments. During the
first half of fiscal 1999, the charges for the reductions in inventory valuation
have been offset by reductions in the reserves necessary to cover the lower
costs. There can be no assurance that the Company
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<PAGE> 13
will not suffer similar reductions in values of its inventories in the future or
that the Company will be able to liquidate its inventory at acceptable prices.
Competition. The semiconductor industry is intensely competitive and has
been characterized by rapid price erosion, declining gross margins, rapid
technological change, product obsolescence and heightened international
competition in many markets. Average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have decreased
significantly and rapidly over the life of each product. The Company expects
that average selling prices for its existing products will continue to decline
rapidly for the foreseeable future and that average selling prices for each new
product will decline significantly over the life of the product. Declines in
average selling prices for the Company's products, if not offset by reductions
in the cost of producing those products or by sales of new products with higher
gross margins, would decrease the Company's overall gross margins, could cause a
negative adjustment to the valuation of the Company's inventories and could
materially and adversely affect the Company's operating results.
The Company competes with major domestic and international semiconductor
companies, many of which have substantially greater financial, technical, sales,
marketing, production, distribution and other resources than the Company. There
can be no assurance that the Company will be able to compete successfully in the
future. The Company's more mature products, such as Serial and Parallel EEPROM
devices, compete on the basis of product performance, price and customer
service. The Company believes it competes successfully with respect to each of
these competitive attributes; however price competition is significant and
expected to continue. Principal competitors with respect to the Company's EEPROM
products currently include SGS-Thomson, National Semiconductor, Atmel and Xicor,
all of which have substantially greater resources than the Company.
The market for Flash memory products has been characterized by long
production cycles, irregular yields, competing technologies and, particularly
since the first quarter of fiscal 1997, intense price competition resulting in
major reductions in average selling prices and corresponding reductions in
margins. The Company's Flash memory products compete on the basis of product
performance, price and customer service. However, given the development of
higher density/lower cost products and the intense price competition prevalent
for these products, there can be no assurance that the Company will be able to
compete successfully in the future against its competitors on the bases of these
or other competitive factors.
Dependence on Independent Foreign Manufacturers and Subcontractors;
Manufacturing Risks. The Company does not manufacture the semiconductor wafers
used for its products. The Company principally utilizes facilities of Oki
Electric Industry Co., Ltd. ("OKI") in Japan to fabricate the Company's wafers
and subcontractors in Southeast Asia to assemble and test its integrated
circuits. To date, a majority of these wafers have been manufactured by OKI. The
manufacture of semiconductor products is highly complex and sensitive to a wide
variety of factors and, as is typical in the semiconductor industry, the
Company's outside wafer foundries from time to time have experienced lower than
anticipated production yields. While the Company believes it has an adequate
wafer supply to meet its currently anticipated needs, there can be no assurance
that the Company will continue to receive sufficient quantities of wafers at
favorable prices on a timely basis, if at all, or that the Company will be able
to attain higher levels of wafer supply as demand requires. Material disruptions
in the supply of wafers as a result of manufacturing yield or other
manufacturing problems are not uncommon in the semiconductor industry. The
Company may also be subject to production transition delays. There can be no
assurance that the Company will not experience such problems in the future.
Moreover, delays in the Company's payments to wafer suppliers resulting from the
Company's current cash constraints can often result in delays or reductions in
wafer deliveries and assembly and test services from the Company's suppliers.
Such delays and reductions can result in cancellations of customer orders
thereby adversely affecting the Company's ability to generate future revenues.
The loss of OKI as a supplier, any prolonged inability to obtain adequate yields
or deliveries from OKI or other subcontractor manufacturers, or any other
circumstance that would require the Company to seek and qualify alternative
sources of supply of products or services, could delay shipments, result in the
loss of customers and have a material adverse effect on the Company's business
and operating results. Moreover, the inability to procure supplies and services
from these foreign subcontractor manufacturers on commercially reasonable terms
as a result of foreign currency exchange rate fluctuations may have a material
adverse effect on the Company's operating results. The Company also has concerns
about the financial viability of its primary test and assembly contractor.
Although the Company is exploring alternative contractors, there can be no
assurance that it will be able to obtain such alternative services or that the
Company will have adequate test and assembly facilities available. Failure to
have such services available would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company's business is subject to other risks generally associated with doing
business with foreign
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<PAGE> 14
subcontractors including, but not limited to, foreign government regulations,
political and financial unrest which may cause disruptions or delays in
shipments to the Company's customers or access to the Company's inventories.
International Operations. For the six months ended October 31, 1998 and
fiscal 1998, 1997 and 1996 international sales accounted for approximately 28%,
64%, 63% and 60%, respectively, of the Company's product sales. The Company
expects that international sales will continue to represent a significant
portion of its product sales in the future. The Company's international
operations may be adversely affected by fluctuations in exchange rates,
imposition of government controls, political and financial instability, trade
restrictions, changes in regulatory requirements, difficulties in staffing
international operations and longer payment cycles. In particular, recent
adverse developments in the economic environment in the Far East may have a
material adverse effect on the Company's subcontractors. There can be no
assurance these or other factors related to international operations will not
have a material adverse affect on the Company's business, financial condition
and results of operations.
New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence. The timely introduction of new products at competitive
price/performance levels is a key factor to the success of the Company's
business. In particular, the Company's future success will depend on its ability
to develop and implement new design and process technologies which enable the
Company to achieve higher product densities and thereby reduce product costs.
For example, most of the Company's products are currently designed and
manufactured using a 0.8 micron CMOS EEPROM process or a 0.5 micron Flash memory
process. There can be no assurance that the Company will be able to select and
develop new products and technologies and introduce them to the market in a
timely manner and with acceptable fabrication yields and production costs.
Furthermore, there can be no assurance that the Company's products will achieve
market acceptance. The failure of the Company to complete and introduce new
products at competitive price/performance levels could materially and adversely
affect the Company's business, financial condition and operating results. Delays
in developing new products, achieving volume production of new products,
successfully completing technology transitions with acceptable yields and
reliability or the lack of commercial acceptance of new products introduced by
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Flash Memory Market. A significant amount of the Company's net revenues
during the six months ended October 31, 1998 and the fiscal year ended April
1998 were derived from sales of Flash memory products. The market for Flash
memory products has been characterized by intense price competition, long
production cycles, inconsistent yields, competing technologies, rapidly
declining average selling prices, declines in gross margins and intense overall
competition. The Company's operating results in fiscal 1997, 1998 and for the
first six months of fiscal 1999 have been adversely affected by intense price
competition caused by increased supplies of products and other adverse
industry-wide conditions. Intel and other competitors (which include Advanced
Micro Devices, Atmel, Fujitsu, Hitachi, Micron, Mitsubishi, SGS-Thomson, Sharp,
Texas Instruments and Toshiba) are expected to further increase Flash memory
production. There can be no assurance that the Company will be able to sustain
the market acceptance for its Flash memory products. The Company anticipates
continued price and other competitive pressures, which adversely affected fiscal
1997, fiscal 1998 and the first half of fiscal 1999 operating results, to
adversely affect the Company's future operating results.
Semiconductor Industry. The semiconductor industry is highly cyclical
and has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and gross margins, and production overcapacity. Accordingly, the
Company may experience substantial period to period fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. For example, the Company experienced and
continues to experience accelerated erosion of average selling prices caused by
adverse industry-wide conditions in fiscal 1997, fiscal 1998 and thus far in
fiscal 1999.
Dependence on Proprietary Technology; Risk of Intellectual Property
Litigation. In the semiconductor industry companies place extensive reliance
upon their intellectual property and proprietary technology and it is typical
for companies to receive notices from time to time that allege infringement of
patents or other intellectual property rights of others. There can be no
assurance that the Company will not receive any such notification or that
proceedings alleging infringement of intellectual property rights will not be
commenced against the Company in the future. In such event, there can be no
assurances that the Company could obtain any required licenses of third party
intellectual property rights or could obtain such licenses on commercially
reasonable terms. Failure to obtain such a license in any event could require
the Company to cease production of its products until the Company develops a
non-infringing design or process. Moreover, the cost of litigation of any such
claim or damages resulting therefore
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<PAGE> 15
could be substantial and could materially and adversely affect the Company's
business, financial condition and results of operations.
Dependence upon Key Personnel. The Company's ability to operate
successfully will depend, to a large extent, upon the continued service of
certain key employees, and the continued ability to attract and retain
additional highly qualified personnel. Competition for such personnel,
particularly for highly skilled design, process and test engineers, is intense
and there can be no assurance that the Company can retain such personnel or that
it can attract other highly qualified personnel. The loss of or failure to
attract and retain any such highly qualified personnel could have a material
adverse affect on the Company's business, financial condition and results of
operations.
Customer Concentration. A relatively small number of customers have
accounted for a significant portion of the Company's net revenue in the past.
During the six month period ended October 31, 1998, only one customer, Intel
Corporation, represented more than 10% of the Company's product revenues, which
represented 14% of the Company's shipments. During the fiscal years 1998, 1997
and 1996, the only customer which represented more than ten percent of
Catalyst's product revenue was Marubun Corporation, a Japanese distributor (21%,
14% and 12%, respectively). In December 1997, Marubun resigned as a distributor
effective in or about March 1998. Loss of one or more of the Company's current
customers could materially and adversely affect the Company's business,
operating results and financial condition. In addition, the Company has
experienced and may continue to experience lower margins on sales to significant
customers as a result of volume pricing arrangements.
Dependence on Manufacturer Representatives and Distributors. The Company
markets and distributes its products primarily through manufacturers'
representatives and independent distributors. The Company's distributors
typically offer competing products. The distribution channels have been
characterized by rapid change, including consolidations and financial
difficulties. The loss of one or more manufacturers' representatives or
distributors, or the decision by one or more distributors to reduce the number
of the Company's products offered by such distributors or to carry the product
lines of the Company's competitors, could have a material, adverse effect on the
Company's operating results.
Year 2000 Issues, General. The Company is currently conducting a
company-wide Year 2000 readiness program ("Y2K Program"). The Y2K Program is
addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000. Therefore, some
computer hardware and software will need to be modified prior to the Year 2000
in order to remain functional. The Company anticipates that Year 2000 compliance
will be substantially complete by August 1999.
Y2000 Program. The Company's Y2K Program is divided into four major
sections -- Products manufactured by the Company, internal information ("IS")
systems, non-IS systems (e.g., test and product design equipment), and third
party suppliers and customers. The general phases common to all sections are:
(1) inventorying Year 2000 items; (2) assessing the Year 2000 compliance of
items determined to be material to the Company; and (3) repairing or replacing
material items that are determined not to be Year 2000 compliant.
The Company has completed the process of reviewing its products for Year
2000 compliance purposes and believes that all of Company's products are Year
2000 compliant. This determination was reached due to the fact the Company's
products, nonvolatile memory semiconductors, do not create or calculate date
related information. The Company's products are, however, purchased by a wide
variety of customers for use in various complex systems and applications
designed and manufactured by such customers which may not be Year 2000
compliant. The Company believes that any Year 2000 problems in such products
will be related to hardware or software issues independent of the Company's
products.
With respect to its internal IS systems, the Company has established
March 30, 1999 as the target date for the completion of this phase of the
project. Correspondence from the manufacturer of the Company's principal
financial system indicates that the latest release of its software is Year 2000
compliant. Such update will be provided to the Company for installation at no
additional cost through the maintenance agreement that is currently in place.
The Company is currently evaluating and addressing Year 2000 issues
associated with its non-IS systems. Those non-IS systems that are not Year 2000
compliant are expected to be upgraded or replaced by August 1999.
The Company intends to assess the possible effects on the Company's
operations of the Year 2000 readiness of its key suppliers and contract
manufacturers. See "Dependence on Independent Foreign Manufacturers
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<PAGE> 16
and Subcontractors; Manufacturing Risks." The Company expects this assessment
will be completed no later than June 1999. The Company's reliance on suppliers
and contract manufacturers and, therefor, on the proper functioning of their
information systems and software, means that failure to address Year 2000 issues
could have a material impact on the Company's operations and financial results;
however, the potential impact and related costs are not known at this time. The
Company suppliers that represent more than 10% of each of its manufacturing
activities are: Oki, the Company's principal wafer fabricator, Yoshikawa
Semiconductor Co., Ltd., provider of wafer testing services and NS Electronics
Bangkok (1998) Ltd. and Gateway Electronics Corporation its primary contract
assembly and test providers.
Y2000 Costs. The total cost associated with required modifications to
become Year 2000 compliant is not expected to be material to the Company's
financial position. Through October 1998, the Company has spent no additional
funds to investigate or implement Year 2000 compliant programs. Based on
information currently available, the Company believes that most of the
expenditures required to identify and correct Year 2000 issues in its IS and
non-IS systems will be included in the maintenance agreements that the Company
has kept current with most of its key system and software providers. The Company
estimates that it may spend up to an additional $25,000 for other replacements
or upgrades and for communicating with key suppliers and customers.
Y2000 Risks. The failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity and financial condition. Due to
the general uncertainty inherent in the Year 2000 problem resulting in part from
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity and financial condition. The Y2K Program is
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material key suppliers and customers. The Company believes
that, with the implementation of system upgrades and completion of the Y2K
Program as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
Takeover Resistive Measures. The Company's Stockholder Rights Plan,
which provides stockholders with certain rights to acquire shares of Common
Stock in the event a third party acquires more than 15% of the Company's stock,
the Board's ability to issue "blank check" Preferred Stock without stockholder
approval and the Company's staggered terms for its directors, could have the
effect of delaying or preventing a change in control of the Company.
Volatility of Stock Price. The Company's stock price has been and may
continue to be subject to significant volatility. Any shortfall in revenues or
earnings from levels expected or projected by securities analysts or others
could have an immediate and significant adverse effect on the trading price of
the Company's Common Stock in any given period. In addition, the stock market in
general has experienced extreme price and volume fluctuations particularly
affecting the market prices for many high technology companies and small
capitalization companies, and these fluctuations have often been unrelated to
the operating performance of the specific companies. These broad fluctuations
may adversely affect the market price for the Company's Common Stock.
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<PAGE> 17
CATALYST SEMICONDUCTOR, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.4 Bylaws of Registrant
10.66 Amendment No. 2 to Preferred Shares Rights Agreement dated as
of September 14, 1998 between Registrant and BankBoston, N. A.,
as rights agent
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended October
31, 1998.
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<PAGE> 18
CATALYST SEMICONDUCTOR, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Sunnyvale and State of
California.
Date: December 21, 1998 By: /s/ Radu M. Vanco
--------------------- -----------------
Radu M. Vanco
President and Chief Executive Officer
Date: December 21, 1998 By: /s/ Thomas E. Gay III
--------------------- ---------------------
Thomas E. Gay III
Vice President of Finance and Administration
and Chief Financial Officer
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<PAGE> 19
EXHIBIT INDEX
Exhibit
No. Document
---- --------
3.4 Bylaws of Registrant
10.66 Amendment No. 2 to Preferred Shares Rights Agreement dated
as of September 14, 1998 between Registrant and BankBoston,
N. A., as rights agent
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
OF
CATALYST SEMICONDUCTOR, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware, County of New Castle. The name of the
corporation's registered agent at such address shall be The Corporation Trust
Company. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the state of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year at such place as shall be determined by the
board of directors of the corporation, for the purpose of electing directors
and, conducting such other proper business as may come before the meeting. The
date, time and place of the annual meeting shall be determined by the board.
Section 2. Special Meetings. Special meetings of stockholders may be called
for any purpose and may be held at such time and place, within or without the
State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the board of directors or the president and shall be called by the president
upon the written request of holders of shares entitled to cast not less than ten
percent (10%) of the votes at the meeting. No business may be transacted at any
special meeting otherwise than as specified in the notice to stockholders of
such meeting.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, if a special meeting be otherwise called,
the place of meeting shall be the principal executive office of the corporation.
<PAGE> 2
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. All such notices
shall be delivered, either personally or by mail, by or at the direction of the
board of directors, the president or the secretary, and if mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock ledger
of the corporation shall make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote of
the majority of shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the stockholders,
unless the question is one upon which by express provisions of an applicable law
or of the certificate of incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question. Where a separate vote by class is required, the affirmative vote of
the majority of
2
<PAGE> 3
shares of such class present in person or represented by proxy at the meeting
shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder. The holders of preferred stock will be entitled to vote as
provided by law and by the corporation's certificate of incorporation or any
amendments thereto.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Advance Notice of Stockholder Nominees and Stockholder
Business. To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered or mailed to and received by the
secretary of the corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
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(i) the name and address of the stockholder who intends to make the
nominations or propose the business, and, as the case may be, the name and
address of the person or persons to be nominated or the nature of the business
to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice or introduce the business specified in the
notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
ARTICLE III
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the first board shall be three (3). Thereafter, the
number of directors shall be established from time to time by resolution of the
board of directors or the stockholders. The directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote in the election of directors. The directors
shall be elected in this manner at the annual meeting of the stockholders,
except as provided in Section 5 of this Article III.
Section 3. Classes of Directors. At the first annual meeting of
stockholders scheduled to be held after such time as shares of capital stock of
the corporation are designated as qualified for trading as National Market
System securities on the National Association of Securities Dealers, Inc.
Automated Quotation System (or any successor national market system) (the "First
Public Company Annual Meeting"), the directors shall be divided and elected into
three classes designated as Class I, Class II and Class III, respectively. At
the first annual meeting of stockholders following the First Public Company
Annual Meeting, the term of office of the Class
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II directors shall expire and Class II directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
First Public Company Annual Meeting, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the First
Public Company Annual Meeting, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
each succeeding annual meeting of stockholders, directors shall be elected for a
full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of directors
constituting the board of directors shall shorten the term of any incumbent
director.
Section 4. Removal and Resignation. Prior to the First Public Company
Annual Meeting, any director or the entire board of directors may be removed at
any time, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. After the First Public Company
Annual Meeting, any director or the entire board of directors of the corporation
may be removed at any time, but only for cause and only by the affirmative vote
of the holders of a majority of the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. Notwithstanding the foregoing, and except as otherwise required by
law, whenever the holders of any class or series are entitled to elect one or
more directors by the provisions of the corporation's certificate of
incorporation, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 5. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors shall be filled by a
majority of the holders of the corporation's outstanding stock entitled thereon.
Each director so chosen shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as herein
provided.
Unless otherwise provided in the Certificate of Incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a
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majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
Section 6. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or any two directors on at least 48 hours notice to
each director, either personally, by telephone, by mail or by telegraph.
Section 8. Quorum. Required Vote and Adjournment. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation, which to the
extent provided in such resolution or these by-laws shall have and may exercise
the powers of the board of directors in the management and affairs of the
corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by
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the board of directors. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
Section 10. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 9 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a chief executive officer, one or more
vice-presidents, a secretary and a chief financial officer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. The corporation may also have, at the discretion
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of the board of directors, a chairman of the board, a president, a chief
operating officer, one or more executive, senior or assistant vice presidents,
assistant secretaries and any such other officers as may be appointed in
accordance with the provisions of Section 2 of Article IV of these bylaws. Any
number of offices may be held by the same person. In its discretion, the board
of directors may choose not to fill any office for any period as it may deem
advisable.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal and Resignation. Any officer or agent elected by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 4. Vacancies. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term by the board of directors
then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from time
to time be assigned to him by the board of directors or as may be prescribed by
these bylaws. If there is no chief executive officer, then the chairman of the
board shall also be the chief executive officer of the corporation and shall
have the powers and duties prescribed in Section 5.5 of these bylaws.
Section 7. Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a Chairman of the Board at all meetings
of the Board of Directors. He or she shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation,
including general supervision,
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direction and control of the business and supervision of other officers of the
corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 8. President. Subject to such supervisory powers as may be given by
these Bylaws or the Board of Directors to the Chairman of the Board or the Chief
Executive Officer, if there be such officers, the president shall have general
supervision, direction and control of the business and supervision of other
officers of the corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws. In the event a Chief
Executive Officer shall not be appointed, the President shall have the duties of
such office.
Section 9. Vice-Presidents. The vice-president, or if there shall be more
than one, the vice-presidents in the order determined by the board of directors,
shall, in the absence or disability of the president, act with all of the powers
and be subject to all the restrictions of the president. The vice-presidents
shall also perform such other duties and have such other powers as the board of
directors the president or these by-laws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these
by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
representative, is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless by the
corporation to the fullest extent which it is empowered to do so unless
prohibited from doing so by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment) against all expense,
liability and loss including attorneys' fees actually and reasonably incurred by
such person in connection with such proceeding, and such indemnification shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 hereof, the corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such
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person only if such proceeding was authorized by the board of directors of the
corporation. The right to indemnification conferred in this Article V shall be a
contract right and, subject to sections 2 and 5 hereof, shall include the right
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition. The corporation may, by action
of its board of directors, provide indemnification to employees and agents of
the corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within 60 days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within 60 days, the right to indemnification or advances as granted by
this Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the corporation (including its board of directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer,
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employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, whether or not the corporation would have
the power to indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section 1
of this Article V in defending a proceeding shall be paid by the corporation in
advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case, upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the
president or a vice-president and the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by such holder in the
corporation. If such a certificate is countersigned (1) by a transfer agent or
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an assistant transfer agent other than the corporation or its employee or (2) by
a registrar, other than the corporation or its employee, the signature of any
such president, vice-president, secretary, or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. Shares of stock of the corporation
shall only be transferred on the books of the corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization, and other matters as
the corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the corporation to issue
a new certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The board of directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of
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stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to
13
<PAGE> 14
all shares of the same series. In case of default in the payment of any
installment or call when such payment is due, the corporation may proceed to
collect the amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or any other purpose, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks Drafts or Orders. All checks, drafts, or other orders for
the payment of money by or to the corporation and all notes and other evidences
of indebtedness issued in the name of the corporation shall be signed by such
officer or officers, agent or agents of the corporation, and in such manner, as
shall be determined by resolution of the board of directors or a duly authorized
committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured or secured in such manner as the board of
directors shall approve, including without limitation a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and
14
<PAGE> 15
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 7. Voting Securities Owned by Corporation. Voting securities in any
other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of the same powers.
**********
15
<PAGE> 1
EXHIBIT 10.66
[CONFORMED COPY]
AMENDMENT NO. 2
TO
PREFERRED SHARES RIGHTS AGREEMENT
THIS AMENDMENT NO. 2 TO PREFERRED SHARES RIGHTS AGREEMENT dated as of
September 14, 1998 (this "Amendment") is made between CATALYST SEMICONDUCTOR,
INC., a Delaware corporation (the "COMPANY"), and BANKBOSTON, N.A., a national
banking association, formerly known as a The First National Bank of Boston, as
rights agent (the "RIGHTS AGENT").
RECITALS
A. The Company and the Rights Agent are parties to a Preferred Shares
Rights Agreement dated as of December 3, 1996 as amendmended by Amendment No. 1
thereto dated as May 22, 1998 (the "RIGHTS AGREEMENT").
B. Elex N.V. ("ELEX") previously purchased 1,500,000 shares of Common
Stock from the Company. Elex and the Company are entering into a Common Stock
Purchase Agreement (the "PURCHASE AGREEMENT") pursuant to which the Company will
issue and Elex will purchase up to 8,000,000 shares of Common Stock of the
Company (the "INVESTMENT"). The Board of Directors of the Company has authorized
and approved the Purchase Agreement and the transactions contemplated thereby.
C. Pursuant to Section 27 of the Rights Agreement, the Board of Directors
of the Company has determined that an amendment to the Rights Agreement as set
forth herein is necessary and desirable to reflect the foregoing and the Company
and the Rights Agent desire to evidence such amendment in writing.
NOW, THEREFOR, the parties hereto agree as follows:
1. Amendment of Section 1(a). Section 1(a) of the Rights Agreement
is amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary,
Elex N.V. ("ELEX") shall not be deemed to be an Acquiring Person
solely by virtue of the announcement, occurrence or continuance of (i)
the execution of the Common Stock Purchase Agreement dated as of May
26, 1998 between Elex and the Company (the "PURCHASE AGREEMENT"), (ii)
the execution of the Common Stock Purchase Agreement dated as of
September 14, 1998 between Elex and the Company (the "SECOND PURCHASE
AGREEMENT"), (iii) the issuance to Elex of 1,500,000 shares of Common
Stock of the Company in accordance with the terms of the Purchase
Agreement and up to 8,000,000 shares of Common Stock of the Company in
accordance with the terms of the Second Purchase Agreement
(collectively, the "PERMITTED SHARES"), (iv) the consummation of any
and all
<PAGE> 2
other transactions contemplated by the Purchase Agreement and the
Second Purchase Agreement, or (iv) Elex holding the Permitted Shares;
provided, however, that if Elex and its Affiliates, at any time after
consumation of the transactions contemplated by the Second Purchase
Agreement and the issuance of all the Permitted Shares, collectively
shall be or become the Beneficial Owner of shares of Common Stock of
the Company other than the Permitted Shares, then Elex's exemption
from being deemed an Acquiring Person contained in this sentence shall
not be applicable.
2. Effectiveness. This Amendment shall be deemed effective as of
September 14, 1998 as if executed on such date. Except as amended hereby, the
Rights Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
3. Miscellaneous. This Amendment shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
governed by and construed in accordance with the laws of such state applicable
to contracts to be made and performed entirely within such state. This Amendment
may be executed in any number of counterparts, each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. If any provision, covenant
or restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, illegal or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
[REMAINDER OF PAGE LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 2 to
the Rights Agreement as of the date first above written.
CATALYST SEMICONDUCTOR, INC.
By: /s/ Radu M. Vanco
--------------------------------
Radu M. Vanco
President
ATTEST:
/s/Thomas E. Gay III
- --------------------------------
Thomas E. Gay III
Vice President and
Chief Financial Officer
BANKBOSTON N.A.
By: /s/ Carol Mulvey-Eori
--------------------------------
Name: Carol Mulvey-Eori
Title: Administration Manager
ATTEST:
/s/ Jeff Seiders
- --------------------------------
Name: Jeff Seiders
Title: Senior Account Administrator
[SIGNATURE PAGE TO AMENDMENT NO.1 TO
PREFERRED SHARES RIGHTS AGREEMENT]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
THE UNAUDITED FINANCIAL RESULTS FOR THE SIX MONTH PERIOD ENDED NOVEMBER
1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 2,773
<SECURITIES> 0
<RECEIVABLES> 5,113
<ALLOWANCES> (308)
<INVENTORY> 2,861
<CURRENT-ASSETS> 11,393
<PP&E> 12,451
<DEPRECIATION> (10,270)
<TOTAL-ASSETS> 13,574
<CURRENT-LIABILITIES> 15,635
<BONDS> 0
0
0
<COMMON> 45,227
<OTHER-SE> (47,723)
<TOTAL-LIABILITY-AND-EQUITY> 13,574
<SALES> 15,431
<TOTAL-REVENUES> 15,431
<CGS> 10,841
<TOTAL-COSTS> 10,841
<OTHER-EXPENSES> 5,167
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 488
<INCOME-PRETAX> (1,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,065)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
