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
Page 1 of 17
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Oct. 31, April 30,
1998 1998
-------- --------
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.
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended Six Months Ended
----------------------------- -----------------------------
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1998 Oct. 31, 1997
------------- ------------- ------------- -------------
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
======== ======== ======== ========
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)
Six Months Ended
-------------------------------
Oct. 31, 1998 Oct. 31, 1997
------------- -------------
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
======= =======
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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Six Months Ended
-------------------------------
Oct. 31, 1998 Oct. 31, 1997
------------- -------------
(in thousands)
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
======== ========
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):
Oct. 31, 1998 April 30, 1998
------------- --------------
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
======== ========
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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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
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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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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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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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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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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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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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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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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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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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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