<PAGE> 1
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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 July 31, 1997 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
(408) 542-1000
(Address, including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
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
August 3, 1997 was 8,045,751
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
at July 31, 1997 and April 30, 1997........................Page 3
Unaudited Condensed Consolidated Statements of Operations
for the three month periods ended July 31, 1997 and 1996...Page 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the three month periods ended July 31, 1997
and 1996...................................................Page 5
Notes to Unaudited Condensed Consolidated
Financial Statements.......................................Page 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition .......................Page 7-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ...........................................Page 12
Item 6. Exhibits and Reports on Form 8-K.............................Page 12
Signatures ...........................................................Page 13
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 1,606 $ 2,695
Restricted cash ............................................................. 5,250 5,250
Accounts receivable, net .................................................... 8,381 7,074
Inventories ................................................................. 12,157 12,732
Other assets ................................................................ 987 895
------- -------
Total current assets .................................................... 28,381 28,646
Property and equipment, net .................................................... 4,124 3,907
------- -------
$32,505 $32,553
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank and other short-term debt .............................................. $ 4,648 $ 3,449
Accounts payable ............................................................ 11,448
10,942
Accrued expenses ............................................................ 1,587
1,269
Deferred gross profit on shipments to distributors .......................... 403 378
Current portion of long-term debt and capital lease obligations ............. 593 593
------- -------
Total current liabilities ............................................... 18,679 16,631
Long-term debt and capital lease obligations ................................... 525 1,885
------- -------
Total liabilities ....................................................... 19,204 18,516
Total stockholders' equity ..................................................... 13,301 14,037
------- -------
$32,505 $32,553
======= =======
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
3
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
July 31, 1997 July 31, 1996
------------- -------------
<S> <C> <C>
Net revenues ................................ $ 9,548 $15,832
Cost of revenues ............................ 7,173 11,121
------- -------
Gross profit ................................ 2,375 4,711
Research and development .................... 1,180 1,273
Selling, general and administrative ......... 1,792 2,261
------- -------
Income (loss) from operations ............... (597)
1,177
Interest income (expense), net .............. (185) 28
------- -------
Income (loss) before income taxes ........... (782) 1,205
Income tax provision ........................ -- 46
------- -------
Net income (loss) ........................... $ (782) $ 1,159
======= =======
Net income (loss) per share ................. $ (0.10) $ 0.13
======= =======
Shares used in per share calculation ........ 8,008 8,881
======= =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements.
4
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
July 31, July 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ (782) $ 1,159
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................................... 459 436
Changes in assets and liabilities:
Accounts receivable .................................................... (1,307) (1,091)
Inventories ............................................................ 575 27
Other assets ........................................................... (92) (61)
Accounts payable ....................................................... 506 (1,860)
Accrued expenses ....................................................... 318 (392)
Deferred gross profit on shipments to distributors ..................... 25 43
------- -------
Net cash used in operating activities ................................ (298) (1,739)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments ........................................... -- --
Cash used for the acquisition of equipment ................................. (676) (925)
Proceeds from the disposal of equipment .................................... -- --
------- -------
Cash used in investing activities .................................... (676) (925)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock transactions, net ............................................. 46 351
Net proceeds from line of credit ........................................... . 10 2,300
Payment of long-term debt and capital lease obligations ................... (171) (216)
------- -------
Cash provided by (used in) financing activities ...................... (115) 2,435
------- -------
Net decrease in cash and cash equivalents ...................................... (1,089) (229)
Cash and cash equivalents at beginning of the period .......................... 2,695 2,966
------- -------
Cash and cash equivalents at end of the period ................................ $ 1,606 $ 2,737
======= =======
</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, 1997 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, 1997. The results of operations for the three
month period ended July 31, 1997 are not necessarily indicative of the results
to be expected for the entire year.
NOTE 2 - NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during each period presented. Dilutive common equivalent
shares consist of common stock issuable upon the exercise of stock options
(using the treasury stock method). Common Stock equivalents were excluded from
the net income (loss) per share calculations for the three month periods ended
July 31, 1997 as their effect was anti-dilutive.
NOTE 3 - CERTAIN BALANCE SHEET CAPTIONS (IN THOUSANDS):
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
-------- --------
<S> <C> <C>
Inventories:
Work-in-process ............................... $ 6,394 $ 5,123
Finished goods ................................ 5,763 7,609
-------- --------
$ 12,157 $ 12,732
======== ========
Property and equipment:
Engineering and test equipment ................ $ 8,509 $ 9,392
Computer hardware and software ................ 3,458 3,364
Furniture and office equipment ................ 1,196 1,183
-------- --------
13,163 13,939
Less: accumulated depreciation and amortization (9,039) (10,032)
-------- --------
$ 4,124 $ 3,907
======== ========
</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 2.25%. In addition,
the bank agreement contains restrictive covenants with which the Company was in
compliance as of July 31, 1997.
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% is payable on May 15, 1998.
As of July 31, 1997, the Company owed approximately $521,000 on
equipment loans. The loans which bear interest at 9.57% and 9.87% are payable in
fixed monthly installments through August, 2001.
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CATALYST SEMICONDUCTOR, INC.
NOTE 5 - SUBSEQUENT EVENT:
On May 22, 1996 Samsung Semiconductor filed a complaint against the
Company in the Superior Court for the County of Santa Clara. The complaint
alleged that the Company failed to pay for integrated circuits delivered to the
Company by Samsung and sought $1.1 million in damages for breach of contract. On
September 2, 1997, the Company and Samsung reached a settlement agreement. The
Company accrued $1.1 million at the time of the purchase and this accrual was
sufficient to meet the requirements of the resultant settlement agreement.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENT FAS 128:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share". This
statement is effective for the Company's quarter ending April 30, 1998. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. If the Company had adopted this Statement for the
quarter ended July 31, 1997 and for the comparable period in the prior year, the
Company's earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
Quarter ended July 31,
-------------------------
1997 1996
------- -----
<S> <C> <C>
Basic earnings (loss) per share $ (0.10) $0.15
Diluted earnings (loss) per share $ (0.10) $0.13
</TABLE>
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.
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. The Company generally does not recognize revenues on such sales
until the distributor resells the Company's products. Total revenues decreased
by 40% to $9.5 million for the quarter ended July 31, 1997 from $15.8 million
for the quarter ended July 31, 1996. The decrease was primarily attributable to
price erosion caused by excess supply and other adverse industry-wide
conditions. The Company's backlog as of July 31, 1997 was at its highest
end-of-quarter level since January 31, 1996. The increase in bookings were
primarily attributable to demand for the Company's Flash memory devices targeted
at personal computer and disk drive applications.
Gross Profit. Gross profit decreased by 50% to $2.4 million, or 25% of
revenues, for the quarter ended July 31, 1997 from $4.7 million, or 30% of
revenues, for the quarter ended July 31, 1996. The decrease was primarily
attributable to price erosion caused by excess supply and other adverse
industry-wide conditions. Lower cost versions of the Company's Serial and
Parallel EEPROMs, produced on 0.8 micron processes, and Flash memory devices,
produced on 0.6 micron processes, are currently in design or already released to
production.
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 7%
to $1.2 million, or 12% of revenues, for the quarter ended July 31, 1997 from
$1.3 million, or 8% of revenues, for the quarter ended July 31, 1996. The
primary reasons for the
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CATALYST SEMICONDUCTOR, INC.
decrease in absolute dollars spent were lower material costs for wafers being
evaluated for new products and new versions of current products, offset in part
by higher facility costs related to the Company's move into a new building in
August 1996.
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
decreased by 21% to $1.8 million, or 19% of revenues, for the quarter ended July
31, 1997 from $2.3 million, or 14% of revenues, for the quarter ended July 31,
1996. The primary reason for the decrease in absolute dollars spent was
decreased personnel costs, due to reductions in headcount including the
Company's reduction in workforce in November 1996.
Net Interest Income (Expense.) Net interest expense was $185,000 for the
quarter ended July 31, 1997 compared to net interest income of $28,000 for the
quarter ended July 31, 1996. The change was primarily attributable to increased
average outstanding borrowings.
Income Tax Provision. As a result of the Company's loss, the provision
for income taxes decreased to zero in the quarter ended July 31, 1997 from
$46,000 in the quarter ended July 31, 1996.
As of April 30, 1997 the Company had available net operating loss
carryforwards of approximately $21.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, expiring from 2001 to 2008.
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
Total cash (including $5.3 million of restricted cash) decreased $1.1
million to $6.9 million as of July 31, 1997 from $7.9 million as of April 30,
1997. The decrease was primarily attributable to net cash used for the
acquisition of equipment and by operating activities. As of July 31, 1997, $5.3
million of the total cash was pledged as security on letters of credit required
by certain of the Company's wafer foundries. Net cash used by operating
activities totaled $0.3 million for the three months ended July 31, 1997. This
net use of cash was primarily attributable to an increase in accounts receivable
and net operating losses, offset in part by an increase in accounts payable and
a decrease in inventories.
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 2.25%. In addition,
the bank agreement contains restrictive covenants with which the Company was in
compliance as of July 31, 1997.
The Company believes that current cash balances, together with cash
generated from operations and borrowings available under the Company's bank line
of credit and from equipment financing, will be sufficient to fund capital and
working capital needs through fiscal 1998. Thereafter, the Company may require
additional equity or debt financing to address its working capital needs, to
provide funding for capital expenditures or to fund increases to restricted cash
requirements. There can be no assurances, however, that events in the future
will not require the Company to seek additional capital sooner or, if so
required, that it will be available on terms acceptable to the Company.
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 shareholders,
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 quarter ending October 31, 1997, for the fiscal year ending April
30, 1998, and future fiscal quarters and years 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:
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CATALYST SEMICONDUCTOR, INC.
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 (such as the increase in demand for the
Company's Flash memory devices targeted at personal computer and disk drive
applications experienced in the quarter ended July 31, 1997), volatility in
supply and demand affecting market prices generally (such as the Company
experienced in fiscal 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.
Future Capital Needs. The Company has had limited cash resources in
recent periods and operating activities have consumed significant amounts of
cash. However, the Company believes that substantial investments in research and
development and sales and marketing expenses are essential to revenue growth and
to maintain and enhance the Company's competitive position. There can be no
assurance that the Company will be able to generate sufficient cash from
operations or other sources to fund these investments. Moreover, there can be no
assurance that such expenditures will result in successful product introductions
or increased revenues. Although certain expenses can be managed or controlled on
a short term basis, a substantial portion of such expenses are essentially fixed
on a quarter to quarter basis. As a result, to the extent the Company suffers
adverse effects to its revenues or margins because of delays in new product
introductions, price competition or other competitive factors, the Company may
be unable to take actions in the short term to substantially reduce expenses.
Moreover, in the event that the Company may undertake such actions to further
reduce expense levels and cash requirements, such actions could adversely affect
the Company's operations and future operating results. If the Company is unable
to generate sufficient cash to fund research and development investments and
sales and marketing expenditures, the Company may need to seek additional funds.
There can be no assurance that such funding will be available at favorable
terms, if at all.
Dependence on Independent Foreign Manufacturers; 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, and is initiating manufacturing of certain products at
United Microelectronics Corporation ("UMC") in Taiwan, to fabricate and test the
Company's wafers, and subcontractors in South East Asia to assemble and test
finished integrated circuits. To date, a majority of these wafers and all of the
Company's Flash memory 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. The loss of OKI as a supplier, the
inability to complete the commencement of fabrication at UMC on a timely basis,
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 alternative sources of supply, could delay shipments 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 has a wafer purchase agreement
with OKI that is based upon the exchange rate between the US dollar and Japanese
Yen. As a result, exchange rate fluctuations may cause the Company's cost per
die to fluctuate in the future and gross profit could be adversely affected. In
addition, the Company's business is subject to other risks generally associated
with doing business with foreign 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 three monts ended July 31, 1997,
international sales accounted for 63% of the Company's product sales. In fiscal
1997, 1996 and 1995, international sales accounted for 65%, 60% and 61%,
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. There can be no
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CATALYST SEMICONDUCTOR, INC.
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.
Inventory. The cyclical nature of the semiconductor industry
periodically results in shortages and oversupply of wafer fabrication capacity
such as the Company experiences 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. During the quarter ended July 31, 1997,
the Company's inventory decreased by $600,000 to $12.2 million There can be no
assurance that the Company's inventory will be reduced further by the
fulfillment of customer orders or that in the future the Company will not
produce excess quantities of any 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, a decline in the
market value of inventory or other related factors.
New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence, and the timely introduction of new products is a key factor in 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 1.0 micron CMOS EEPROM process or a
0.7 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. The Company is currently working on major transitions in
design and process technologies. These transitions are to change certain EEPROM
products from 1.0 micron to 0.8 micron designs, Flash memory products from 0.7
micron to 0.6 micron designs and the development of new Flash memory products on
0.5 micron designs at UMC. Delays in developing new products, achieving volume
production of new products, successfully completing technology transitions 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. The market for Flash memory products has been
characterized by intense price competition, long production cycles, inconsistent
yields, competing technologies and intense overall competition. The Company's
fiscal 1997 operating results were 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 operating results and could further adversely affect the Company's future
operating results.
Competition. The semiconductor industry is intensely competitive and has
been characterized by price erosion, rapid technological change and product
obsolescence. The Company competes with major domestic and international
semiconductor companies, many of whom have substantially greater financial,
technical, marketing, distribution and other resources than the Company. The
Company's future success will depend, in large part, upon its ability to attract
and retain highly qualified employees. The can be no assurance that the Company
will be able to complete 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. 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, as well
as the Company's strategic manufacturing partner Oki, all of which have
substantially greater resources than the Company.
The market for Flash memory products is relatively new and has been
characterized by long production cycles, irregular yields, competing
technologies and, particularly in fiscal 1997, intense price competition. The
Company believes it currently competes successfully with respect to product
performance, price and customer service on its Flash memory products. In fact,
the Company guarantees that all of its Flash memory products will provide
100,000 cycle read/write cycle endurance.
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However, 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.
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 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 accelerated erosion of
average selling prices caused by adverse industry-wide conditions in fiscal
1997.
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 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.
Takeover Resistive Measures. The Company's Stockholder Rights Plan,
which provides stockholders with certain rights to acquire shares of Common
Stock in the event of 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.
11
<PAGE> 12
CATALYST SEMICONDUCTOR, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 22, 1996, Samsung Semiconductor filed a complaint against the
Company in the Superior Court for the County of Santa Clara. The complaint
alleged that the Company failed to pay for integrated circuits delivered to the
Company by Samsung. On September 11, 1997, the court approved a settlement
between the Company and Samsung.
On January 30, 1997, ASAT, Inc. filed a complaint against the Company
in Superior Court for the County of Santa Clara. The complaint alleged breach of
contract against the Company for failure to pay for wafers manufactured by
ASAT's affiliate. On September 11, 1997, the court approved a settlement between
the Company and ASAT.
ITEM 5.
See information included under Item 1 hereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.49 Loan and Security Agreement dated June 19, 1997 between Coast
Business Credit and the Registrant.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended July
31, 1997.
12
<PAGE> 13
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: September 16, 1997 By: /s/ C. Michael Powell
------------------ ---------------------
C. Michael Powell
Chairman of the Board of Directors,
President and Chief Executive
Officer
Date: September 16, 1997 By: /s/ Daryl E. Stemm
------------------ ------------------
Daryl E. Stemm
Vice President of Finance and
Administration and Chief
Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
Exhibit Description
--------- -------------
10.49 Loan and Security Agreement between the Company and Coast
Business Credit dated June 19, 1997.
27 Financial data schedule
14
<PAGE> 1
EXHIBIT 10.49
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COAST
LOAN AND SECURITY AGREEMENT
BORROWER: CATALYST SEMICONDUCTOR, INC.,
A DELAWARE CORPORATION
ADDRESS: 1250 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089
DATE: JUNE 19, 1997
THIS LOAN AND SECURITY AGREEMENT ("Loan Agreement"), dated the above date, is
entered into at Los Angeles, California, between COAST BUSINESS CREDIT, a
division of Southern Pacific Thrift & Loan Association ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and the borrower named above ("Borrower"), whose chief
executive office is located at the above address ("Borrower's Address").
1. LOANS.
1.1 LOANS, COLLATERAL AGREEMENTS. Borrower has requested and may
hereafter request that Coast advance funds or otherwise extend credit to or for
the benefit of Borrower ("Loan(s)") in accordance with the terms and provisions
of this Loan Agreement and other written agreements ("Collateral Agreement(s)"),
including, but not limited to, any one or more of the following described
security agreements now or hereafter entered into between Borrower and Coast:
(a) Accounts Collateral Security Agreement; (b) Inventory Collateral Security
Agreement; (c) Intellectual Property Collateral Security Agreement; and (d) any
promissory notes or guaranties. The amount and terms of payment of any Loans by
Coast to Borrower shall be determined in accordance with the terms and
provisions of this Loan Agreement and of any executed Collateral Agreements.
Notwithstanding anything herein or in any Collateral Agreement to the contrary,
in no event shall the Borrower permit the total balance of all Loans and all
other Obligations (including without limitation the Obligations under and as
defined in the CEFO Agreement, as defined below) outstanding at any one time to
exceed $13,500,000 ("Maximum Dollar Amount"); and, if for any reason they do,
Borrower shall immediately pay the amount of such excess to Coast in immediately
available funds.
1.2 INTEREST. Unless specifically provided to the contrary in any
Collateral Agreement, all Loans shall bear interest at a rate equal to the
"Prime Rate" (as hereinafter defined), plus 2.25% per annum, calculated on the
basis of a 360-day year for the actual number of days elapsed provided, however,
all Loans shall bear interest at a rate equal to the Prime Rate plus 1.75% per
annum upon receipt of evidence acceptable to Coast in its sole and absolute
discretion that Borrower has achieved for a period of two consecutive quarters
and thereafter maintained a Tangible Net Worth (as that term is defined herein)
of no less than $17,000,000. The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and the interest to be
charged for that month shall be based on the highest "Prime Rate" in effect
during said month, but in no event shall the rate of interest charged on any
Loans in any month be less than 8% per annum. "Prime Rate" is defined as the
actual "Reference Rate" or the substitute therefor of the Bank of America NT &
SA ("B of A") whether or not that rate is the lowest interest rate charged by B
of A. If the Prime Rate, as defined, is unavailable, "Prime Rate" shall mean the
highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate on corporate loans at large U.S.
money center commercial banks. Regardless of the amount of Obligations that may
be outstanding from time to time, Borrower shall pay Coast minimum monthly
interest during the of this Agreement with respect to the Loans the amount of
Fifty Thousand Dollars ($50,000) per quarter (prorated for any partial quarter
at the beginning of the term of this Agreement).
1.3 FEES. Borrower shall pay to Coast a loan origination fee in the amount
of $101,250 concurrently
1
<PAGE> 2
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
herewith, and an annual loan fee of N/A on each anniversary of the date hereof
during the term of this Loan Agreement. Borrower shall pay to Coast a facility
fee of Two Thousand Eight Hundred Dollars ($2,800) per quarter (prorated for any
partial quarter at the beginning of the term of this Agreement). Borrower shall
pay to Coast a letter of credit fee of 0.45% per annum of the aggregate face
amount of all outstanding letters of credit plus Coast's expenses, payable at
funding and thereafter payable each year in advance (prorated for any partial
year at the beginning of the term of this Agreement). Said fees are in addition
to all other sums payable to Coast, are not refundable for any reason, and shall
bear interest from the date due to the date paid at the highest interest rate
applicable to any of the Obligations.
1.4 LETTERS OF CREDIT. At the request of Borrower, Coast may, in its
sole discretion, arrange for the issuance of letters of credit for the account
of Borrower (collectively, "Letters of Credit"), by issuing guarantees to the
issuer of the letter of credit or by other means. All Letters of Credit shall be
in form and substance satisfactory to Coast in its sole discretion . The
aggregate face amount of all outstanding Letters of Credit from time to time
shall not exceed $7,500,000 (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges for the issuance of Letters of Credit. Any payment by
Coast under or in connection with a Letter of Credit shall constitute a Loan
hereunder on the date such payment is made. Each Letter of Credit shall have an
expiry date no later than thirty (30) days prior to the initial renewal date set
forth in Section 8 and thereafter each subsequent renewal date. Borrower hereby
agrees to indemnify, save, and hold Coast harmless from any loss, cost, expense,
or liability, including payments made by Coast, expenses, and reasonable
attorneys' fees incurred by Coast arising out of or in connection with any
Letters of Credit. Borrower agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Coast and
opened for Borrower's account or by Coast's interpretations of any Letter of
Credit issued by Coast for Borrower's account, and Borrower understands and
agrees that Coast shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require
Coast to indemnify the issuing bank for certain costs or liabilities arising out
of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Coast harmless with respect to any loss, cost, expense, or
liability incurred by Coast under any Letter of Credit as a result of Coast's
indemnification of any such issuing bank. The provisions of this Loan Agreement,
as it pertains to Letters of Credit, and any other present or future documents
or agreements between Borrower and Coast relating to Letters of Credit are
cumulative.
1.5 CONDITIONS PRECEDENT. The obligation of Coast to make the Loans is
subject to the satisfaction, in the sole discretion of Coast, at or prior to the
first advance of funds hereunder, of each, every and all of the following
conditions:
1. STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be
due and unpaid ninety (90) days past its due date;
2. REVIEW OF BORROWER'S FORECASTS. Coast shall have received,
reviewed, and accepted Borrower's financial forecasts.
3. MINIMUM AVAILABILITY. Borrower shall have minimum
availability immediately following the initial funding of the Loans of Two
Hundred Thousand Dollars ($200,000);
4. LANDLORD WAIVER. Coast shall have received duly executed
landlord waivers in form an substance satisfactory to Coast, in Coast's sole and
absolute discretion, and in form for recording in the appropriate recording
office, with respect to all locations where Borrower maintains any inventory or
equipment;
5. EXECUTED LOAN DOCUMENTS. Coast shall have received the
Collateral Agreements duly executed and in form and substance satisfactory to
Coast in its sole and absolute discretion;
6. DAILY REMITTANCE. Coast shall have received evidence that
Borrower has established a procedure for (and Borrower shall provide for) the
daily remittance to be collected either by payment in kind, blocked account, or
lockbox basis;
7. SUBORDINATION. Borrower's sub-debt, if any, shall be
subordinated to Coast in a form and substance acceptable to Coast in its sole
and absolute discretion; and
8. PRIORITY OF COAST'S LIENS. Coast shall have received the
results of "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform Commercial Code filings against Borrower
indicating that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted Liens.
2
<PAGE> 3
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
1.6 CONDITION SUBSEQUENT. The obligations of Coast to make the Loans is
subject to the receipt by Coast from Borrower, as soon as practicable from
Borrower's best efforts but no later than sixty (60) days from the date hereof,
of a perfected security interest on all of the Inventory located in Thailand.
2. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. Coast and the Borrower are also parties to that certain
Loan and Security Agreement dated June 19, 1997 (the "CEFO Agreement") and the
agreements referred to therein. Both this Agreement and the CEFO Agreement and
such other agreements shall continue in full force and effect, and all rights
and remedies of Coast hereunder and thereunder are cumulative. The term
"Obligations" as used in this Loan Agreement, and any and all Collateral
Agreements, shall mean and include each and all of the following: the obligation
to pay all Loans and all interest thereon when due and to pay and perform when
due all other indebtedness, liabilities, obligations, guarantees, covenants,
agreements, warranties and representations of Borrower to Coast, whether
heretofore, now or hereafter existing, owing or arising; whether primary,
secondary, direct, acquired from a third party, absolute, contingent, fixed,
secured or unsecured; joint or several, written or oral, monetary or
non-monetary; and whether created pursuant to, or caused by Borrower's breach
of, this Loan Agreement, a Collateral Agreement or any other present or future
agreement or instrument, or created by operation of law or otherwise (including
without limitation the Obligations under and as defined in the CEFO Agreement).
2.2 COLLATERAL. As security and collateral for all Obligations, Borrower
hereby grants to Coast a continuing security interest in, and assigns to Coast,
all of Borrower's interest in the types of property described below, whether now
owned or hereafter acquired and wherever located, together with all proceeds
(including insurance proceeds), substitutions, accessions and products thereof
(collectively referred to as "Collateral "):
2.2(a) ACCOUNTS. All accounts, contract rights, chattel paper, and
instruments, and all other obligations now or hereafter owing to Borrower
(hereinafter sometimes collectively referred to as "Accounts"), including, but
not limited to, those described in any Accounts Collateral Security Agreement
executed by Borrower, and all right, title and interest of Borrower in, and all
of Borrower's rights and remedies with respect to, all goods, the sale or other
disposition of which gives rise to any Account, including, without limitation,
all returned, reclaimed and repossessed goods and all rights of stoppage in
transit, replevin, reclamation, and all rights as an unpaid vendor; and
2.2(b) INVENTORY. All inventory, goods, merchandise, materials, raw
materials, work in process, finished goods, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in Borrower's
business, including, without limitation, any and all of the foregoing which are
returned, repossessed, reclaimed or stopped in transit, and including, but not
limited to, those described in any Inventory Collateral Security Agreement
executed by Borrower, and all warehouse receipts and other documents or
instruments now or hereafter issued with respect to any of the foregoing; and
2.2(c) EQUIPMENT. All equipment, goods (other than inventory),
machinery, fixtures, trade fixtures, vehicles, furnishings, furniture, supplies,
materials, tools, machine tools, office equipment, appliances, apparatus, parts,
dies, jigs, and chattels, including, but not limited to, those described in any
Equipment Collateral Security Agreement executed by Borrower*; and
* EXCEPT FOR EQUIPMENT ACQUIRED BY PURCHASE MONEY FINANCING UNDER
AGREEMENTS EXPRESSLY PROHIBITING JUNIOR LIENS ON SUCH EQUIPMENT
2.2(d) INTANGIBLES. All deposit accounts and general intangibles
(including, but not limited to, tax refunds, goodwill, name, drawings,
trademarks, blueprints, trade names, trade secrets, customer lists, patents,
patent applications, copyrights, security deposits, loan commitment fees,
royalties, licenses, processes, and all other rights, privileges and
franchises); and
2.2(e) INVESTMENT PROPERTY. All investment property as defined by
Section 9115 of the California Commercial Code in effect on the date hereof; and
All personal property of Borrower which comes into Coast's possession,
custody or control; and all tangible and intangible personal property in which
Coast now has or hereafter acquires a security interest to secure any or all of
the Obligations; and all substitutions, additions and accessions to any or all
of the foregoing items of Collateral; and all guaranties of and security for any
and all of the foregoing; and all books and records relating to any and all of
the foregoing and the equipment containing said books and records. Payment and
performance of the Obligations are collateralized by the Collateral and by any
security interest created in any other agreement now or hereafter existing
between Coast and Borrower unless such other
3
<PAGE> 4
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
agreement is a deed of trust or other security instrument having real property
or rents from real property as its subject matter and expressly provides to the
contrary.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
To induce Coast to enter into this Loan Agreement and now and hereafter to
enter into any Collateral Agreement, Borrower represents and warrants that each
of the following representations and warranties now is and hereafter will
continue to be true and correct in all respects and Borrower has and will timely
perform each of the following covenants:
3.1 CORPORATE EXISTENCE AND POWER. Borrower, if a corporation, is and will
continue to be, duly authorized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will continue to
be qualified and licensed to do business in all jurisdictions in which the
nature of the business transacted by it, or the ownership or leasing of its
property, makes such qualification or licensing necessary*, and Borrower has and
will continue to have all requisite power and authority to carry on its business
as it is now, or may hereafter be, conducted.
*AND WHERE THE FAILURE TO BE SO QUALIFIED WOULD HAVE A MATERIAL ADVERSE EFFECT
ON THE BORROWER
3.2 AUTHORITY. Borrower is, and will continue to be, authorized to enter
into, to grant security interests in its property pursuant to, and to perform
its obligations under, this Loan Agreement, any Collateral Agreement and all
other instruments and transactions contemplated herein. The execution, delivery
and performance by Borrower of this Loan Agreement, any Collateral Agreement and
all other instruments and transactions contemplated herein have been validly
authorized, are enforceable against the Borrower in accordance with their terms,
and do not violate any law or any provision of, Borrower's Articles of
Incorporation, By-Laws and any Shareholder Agreements*.
*NOR DO THEY VIOLATE ANY MATERIAL PROVISION OF, NOR WILL THEY RESULT IN
ACCELERATION UNDER, ANY MATERIAL AGREEMENT, INDENTURE, NOTE OR INSTRUMENT WHICH
IS BINDING UPON BORROWER, OR ANY OF ITS PROPERTY
3.3 NAME; TRADE NAMES AND STYLES. Borrower has set forth above its
correct name. Listed on the Schedule hereto are all prior names of Borrower and
each fictitious name, trade name and trade style by which Borrower has been, or
is now, known. Borrower shall provide Coast with fifteen (15) days' advance
written notice prior to doing business under any other name, fictitious name,
trade name or trade style. Borrower has complied, and will hereafter comply,
with all laws relating to the conduct of business under, the ownership of
property in, and the renewal or continuation of the right to use, a corporate,
fictitious or trade name or trade style.
3.4 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's sole place of
business; or, if Borrower has more than one place of business, Borrower's chief
executive office; or, if Borrower is an individual and does not have a separate
place of business, Borrower's residence is, and will continue to be, located at
Borrower's Address and all of Borrower's books and records, including, but not
limited to, the books and records relating to Borrower's Accounts, are and will
be maintained at Borrower's Address unless and until Coast shall otherwise
consent in writing. In addition to Borrower's Address, Borrower has places of
business and Collateral is located only at the locations shown on the Schedule
hereto. Borrower will provide Coast with at least fifteen (15) days advance
written notice if Borrower moves any of the Collateral*, or obtains any
additional sites for the conduct of Borrower's business or the location of any
Collateral.
*TO ANY NEW LOCATION NOT PREVIOUSLY REPORTED TO COAST
3.5 TITLE TO COLLATERAL; LIENS. Borrower is now, and will at all times
hereafter be, the lawful and sole owner of all the Collateral. With the
exception of the security interest granted Coast, the Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims *. Without limiting any of Coast's other rights
and remedies, if Borrower grants any third party a lien or encumbrance on or
security interest ** in any of the Collateral, Coast, in its sole discretion,
shall have the right to treat such action as a notice of termination by Borrower
to Coast under Paragraph 8(d) hereof, as of any date subsequent to such grant
selected by Coast, in its sole discretion, and to charge Borrower the
termination fee therein provided. Coast now has, and will have, a perfected and
enforceable first priority security interest in all of the Collateral ***, and
Borrower will at all times defend Coast and the Collateral against all claims of
others. Borrower is not and will not become a lessee under any real property
lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises****. Whenever any Collateral is located upon premises in which any
third party has an interest
4
<PAGE> 5
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, whatever waivers and subordinations that Coast specifies, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and effect,
and will comply with all the terms of, any lease of real property where any of
the Collateral now or in the future may be located.
*("LIENS"), OTHER THAN PERMITTED LIENS. AS USED HEREIN, "PERMITTED LIENS" MEANS
(I) ANY LIENS EXISTING AS OF THE DATE HEREOF AND DISCLOSED IN SCHEDULE A HERETO;
(II) LIENS FOR TAXES, FEES, ASSESSMENTS OR OTHER GOVERNMENTAL CHARGES OR LEVIES,
EITHER NOT DELINQUENT OR BEING CONTESTED IN GOOD FAITH BY APPROPRIATE
PROCEEDINGS, PROVIDED THE SAME HAVE NO PRIORITY OVER ANY OF COAST'S SECURITY
INTERESTS; (III) LIENS OF MATERIALMEN, MECHANICS, WAREHOUSEMEN, CARRIERS, OR
EMPLOYEES OR OTHER LIKE LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS AND
SECURING OBLIGATIONS EITHER NOT DELINQUENT MORE THAN 45 DAYS OR BEING CONTESTED
IN GOOD FAITH BY APPROPRIATE PROCEEDINGS; (IV) ANY JUDGMENT, ATTACHMENT OR
SIMILAR LIEN, UNLESS THE JUDGMENT IT SECURES IS NOT FULLY COVERED BY INSURANCE
AND HAS NOT BEEN DISCHARGED OR EXECUTION THEREOF EFFECTIVELY STAYED AND BONDED
AGAINST PENDING APPEAL WITHIN 30 DAYS OF THE ENTRY THEREOF PROVIDED THAT, IF THE
JUDGMENT IS NOT FULLY COVERED BY INSURANCE OR EXECUTION THEREOF HAS NOT BEEN SO
STAYED AND BONDED, COAST SHALL NOT BE REQUIRED TO MAKE ANY LOANS OR OTHERWISE
EXTEND CREDIT TO OR FOR THE BENEFIT OF BORROWER; (V) LIENS (I) UPON OR IN ANY
EQUIPMENT ACQUIRED OR TO BE ACQUIRED, HELD OR LEASED BY THE BORROWER TO SECURE
THE PURCHASE PRICE OF SUCH EQUIPMENT OR INDEBTEDNESS INCURRED SOLELY FOR THE
PURPOSE OF FINANCING THE ACQUISITION OF SUCH EQUIPMENT OR (II) EXISTING ON SUCH
EQUIPMENT AT THE TIME OF ITS ACQUISITION OR LEASE, PROVIDED THAT THE LIEN IS
CONFINED SOLELY TO THE EQUIPMENT SO ACQUIRED AND IMPROVEMENTS THEREON; (VI)
LEASES OR SUBLEASES AND LICENSES OR SUBLICENSES GRANTED TO OTHERS NOT
INTERFERING IN ANY MATERIAL RESPECT WITH THE BUSINESS OF BORROWER; (VII)
ENCUMBRANCES SECURING REIMBURSEMENT OBLIGATIONS OF BORROWER WITH RESPECT TO
COMMERCIAL LETTERS OF CREDIT, PROVIDED THAT SUCH ENCUMBRANCES SHALL ATTACH ONLY
TO DOCUMENTS OR OTHER PROPERTY RELATING TO SUCH LETTERS OF CREDIT AND PRODUCTS
AND PROCEEDS THEREOF THAT ARE NOT COLLATERAL UNDER THIS AGREEMENT OR ANY OF THE
COLLATERAL AGREEMENTS SUBSEQUENT TO THE DELIVERY OF SUCH PROPERTY TO BORROWER;
(VIII) LIENS INCURRED IN CONNECTION WITH THE EXTENSION, RENEWAL OR REFINANCING
OF THE INDEBTEDNESS SECURED BY LIENS OF THE TYPE DESCRIBED IN CLAUSES (I) AND
(V) ABOVE, PROVIDED THAT ANY EXTENSION, RENEWAL OR REPLACEMENT LIEN SHALL BE
LIMITED TO THE PROPERTY ENCUMBERED BY THE EXISTING LIEN AND THE PRINCIPAL AMOUNT
OF THE INDEBTEDNESS BEING EXTENDED, RENEWED OR REFINANCED DOES NOT INCREASE;
(IX) LIENS SECURING DEBT JUNIOR IN PERFECTION AND PRIORITY TO THE LIEN OF COAST
WHICH ARE EXPRESSLY SUBORDINATED TO COAST ON TERMS SATISFACTORY TO COAST
(INCLUDING A PROVISION STATING THAT THE SECURED PARTY SHALL NOT TAKE ACTION TO
ENFORCE ITS LIEN SO LONG AS ANY OF THE OBLIGATIONS REMAIN OUTSTANDING); (X)
LIENS IN FAVOR OF CUSTOMS AND REVENUE AUTHORITIES WHICH SECURE PAYMENT OF
CUSTOMS DUTIES IN CONNECTION WITH THE IMPORTATION OF GOODS; (XI) LIENS WHICH
CONSTITUTE RIGHTS OF SET-OFF OF A CUSTOMARY NATURE OR BANKERS' LIENS ON AMOUNTS
ON DEPOSIT, WHETHER ARISING BY CONTRACT OR BY OPERATION OF LAW, IN CONNECTION
WITH ARRANGEMENTS ENTERED INTO WITH DEPOSITORY INSTITUTIONS IN THE ORDINARY
COURSE OF BUSINESS; AND (XII) OTHER LIENS IN EXISTENCE ON THE DATE HEREOF AND
LISTED ON SCHEDULE A HERETO.
**(OTHER THAN A PERMITTED LIEN)
***(OTHER THAN COLLATERAL SUBJECT TO A PERMITTED LIEN) TO THE EXTENT THAT SUCH
SECURITY INTEREST CAN BE PERFECTED BY THE FILING OF FINANCING STATEMENTS
****EXCEPT FOR LEASES OF SALES OFFICES AT WHICH NOT MORE THAN $200,000 IN
COLLATERAL IS LOCATED
3.6 MAINTENANCE OF COLLATERAL. Borrower has maintained and will maintain
the Collateral and all of its assets in good working condition, at Borrower's
expense. Borrower will not use the Collateral or any of its other properties for
any unlawful purpose and will not secrete or abandon the Collateral*. Borrower
will immediately advise Coast in writing of any material loss or depreciation of
the Collateral.
*EXCEPT FOR THE ABANDONMENT OF WORN-OUT OR OBSOLETE EQUIPMENT OR INVENTORY IN
THE ORDINARY COURSE OF BUSINESS
3.7 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address books and records * an accounting system in accordance with
generally accepted accounting principles. Borrower has not and will not in the
future enter into any agreement with any accounting firm, service bureau or
third party to prepare or store Borrower's books and records at any location
other than Borrower's Address, without first obtaining Coast's written consent,
which may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Coast the same rights with respect to access to
books and records and related rights as Coast has under Paragraph 4.3 of this
Loan Agreement.
5
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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*WHICH ARE COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS AND WHICH COMPRISE
3.8 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or
hereafter delivered to Coast have been, and will be, prepared in conformity with
generally accepted accounting principles and now and hereafter will * reflect
the financial condition of Borrower, at the times and for the periods therein
stated. Since the last date covered by any such statement, there has been no
material adverse change in the financial condition, operations or any other
status of the Borrower. Borrower is now and will continue to be solvent in both
the "equity" and "bankruptcy" sense. Borrower will deliver to Coast a copy of
all reports and financial statements in accordance with Schedule 4.2.
*FAIRLY
3.9 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state or local law. Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and contributions
now or hereafter owed by Borrower. Borrower may defer payment of any contested
taxes provided that Borrower (i) in good faith contests Borrower's obligation to
pay such taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies Coast in writing of the commencement of and any
material development in such proceedings, and (iii) posts bonds or takes any
other steps required to keep such contested taxes from becoming a lien * against
or charge upon any of the Collateral or other properties of Borrower. Borrower
shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
Borrower is unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower. Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including, without limitation, any liability to
the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency. When requested, Borrower will furnish Coast with proof
satisfactory to Coast of Borrower's making the payment or deposit of all such
taxes and contributions, such proof to be delivered within five (5) days after
the due date established by law for each such payment or deposit. If Borrower
fails or is unable to pay or deposit such taxes or contributions, Coast may, but
is not obligated to, pay the same and treat all such advances as additional
Obligations of Borrower. Such advances shall bear interest at the highest
interest rate applicable to any of the Obligations.
*(OTHER THAN PERMITTED LIENS)
3.10 COMPLIANCE WITH LAW. * Borrower has complied, and will comply, with
all provisions of all foreign, federal, state and local laws and regulations
relating to Borrower, including, but not limited to, those relating to
Borrower's ownership of real or personal property, conduct and licensing of
Borrower's business and employment of Borrower's personnel.
*UNLESS NONCOMPLIANCE WOULD NOT MATERIALLY ADVERSELY AFFECT (I) BORROWER'S
FINANCIAL CONDITION AS REFLECTED IN ITS FINANCIAL STATEMENTS PREVIOUSLY
DELIVERED TO COAST; (II) BORROWER'S OPERATIONS; OR (III) BORROWER'S BUSINESS,
3.11 LITIGATION. There is no claim, suit, litigation, proceeding or
investigation pending or threatened by or against or affecting Borrower in any
court or before any regulatory commission, board or other governmental agency
(or any basis therefor known to Borrower) which * might result, either
separately or in the aggregate, in any ** adverse change in the business or
condition of Borrower, or in any impairment in the ability of Borrower to carry
on its business in substantially the same manner as it is now being conducted.
Borrower will immediately inform Coast in writing of any claim, proceeding,
litigation or investigation hereafter threatened or instituted by or against
Borrower ***.
*IS REASONABLY LIKELY TO
**MATERIAL
***INVOLVING ANY SINGLE CLAIM OF $50,000 OR MORE, OR INVOLVING $100,000 OR MORE
IN THE AGGREGATE.
3.12 USE OF PROCEEDS. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock." All proceeds of all Loans shall be
used solely for lawful business purposes.
3.13 CONTINUING EFFECT. All representations, warranties and covenants of
Borrower contained in this Loan Agreement and any Collateral Agreement and any
other agreement with Coast shall be true and correct at the time of the
effective date of each such agreement and shall be
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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deemed continuing and shall remain true, correct and in full force and effect
until payment and satisfaction in full of all of the Obligations, and Borrower
acknowledges that Coast is and will be expressly relying on such
representations, warranties and covenants in making Loans to Borrower.
4. ADDITIONAL DUTIES OF BORROWER.
4.1 INSURANCE. Borrower shall, at all times, at Borrower's expense,
insure all of the Collateral and carry such other business insurance with
insurers * acceptable to Coast, in such form and amounts as Coast may * require.
All such insurance policies shall name Coast as an additional loss payee, shall
provide that proceeds payable thereunder be payable directly to Coast unless
written authority to the contrary is obtained, and shall also provide that no
act or default of Borrower or any other person shall affect the right of Coast
to recover thereunder and shall contain a lenders loss payee endorsement in form
acceptable to Coast. Upon receipt of the proceeds of any such insurance, Coast
shall apply such proceeds in reduction of the Obligations as Coast shall
determine in its sole and absolute discretion**. If Borrower fails to provide or
pay for any such insurance, Coast may, but is not obligated to, procure the same
at Borrower's expense. Borrower agrees to deliver to Coast, promptly as
rendered, copies of all ***reports made to all insurance companies.
*REASONABLY
**PROVIDED THAT IF NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, AND THE
PROCEEDS ARE LESS THAN $250,000 COAST SHALL RELEASE THE SAME TO THE BORROWER FOR
THE REPAIR OR REPLACEMENT OF THE PROPERTY AFFECTED
***MATERIAL
4.2 REPORTS. At its expense, Borrower shall report, in form satisfactory
to Coast, such information as Coast may from time to time * specify regarding
Borrower or the Collateral including, without limitation, the written reports
set forth in Schedule 4.2 hereto; such reports shall be rendered with such
frequency as Coast may * specify. All reports furnished Coast shall be complete
and accurate in all ** respects.
*REASONABLY **MATERIAL
4.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At any time (but in no
event less than quarterly) Coast, or its agents, shall have immediate access to
the Collateral and any other property of Borrower, wherever located*. Coast
shall have the right to audit and copy Borrower's books and records and accounts
including accountants' reports wherever located (hereinafter collectively the
"Records"). Such audits shall be at Borrower's expense and the charge for the
audits shall be $750 per person per day (or such higher amount as shall
represent Coast's then current standard charge for the same), plus reasonable
out of pocket expenses. Borrower will not enter into any agreement with any
accounting firm, service bureau or third party to store Borrower's books or
records at any location other than Borrower's Address, without first notifying
Coast of the same and obtaining the written agreement from such accounting firm,
service bureau or other third party to give Coast the same rights with respect
to access to books and records and related rights as Coast has under this Loan
Agreement. Borrower hereby irrevocably authorizes and directs any of the
officers, agents, accountants and attorneys having possession or control of any
of the Records (including computer records) to physically deliver or make same
available to Coast upon Coast's request. Coast shall have the right to
possession of, or to move to the premises of Coast or any agent of Coast, for so
long as Coast may desire, all or any part of the Records.**
*PROVIDED THAT IF NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, SUCH
ACCESS SHALL BE ON ONE BUSINESS DAYS NOTICE AND DURING NORMAL BUSINESS HOURS
**ALL OF THE RIGHTS OF COAST UNDER THIS SECTION 4.3 SHALL BE SUBJECT TO THE
PROVISIONS OF SECTION 14.11 OF THIS AGREEMENT.
4.4 PROHIBITED TRANSACTIONS. Borrower shall not without Coast's prior
written consent: merge, consolidate, dissolve, acquire any other corporation;
enter into any transaction not in its usual course of business; guarantee or
otherwise become in any way liable with respect to the obligations of another
party or entity (except by endorsements of instruments or items of payment for
deposit to the general account of Borrower or which are transmitted or turned
over to Coast on account of the Obligations); pay or declare any dividends upon
Borrower's stock++; redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock; make any change in Borrower's name,
identity, corporate or capital structure*; sell or transfer any Collateral,
except for the sale of finished inventory in the ordinary course of Borrower's
business**; lend or distribute any of Borrower's property or assets, or incur
any debts, outside of the ordinary course of Borrower's business.
++EXCEPT THAT BORROWER MAY REPURCHASE OR REDEEM SHARES OF ITS CAPITAL STOCK
PURSUANT TO EMPLOYEE OPTION PLANS FOR AN AGGREGATE PURCHASE PRICE NOT TO EXCEED
$100,000 PER FISCAL YEAR, ON A NON-CUMULATIVE BASIS
*(EXCEPT THAT BORROWER MAY ISSUE COMMON STOCK UPON
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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EXERCISE OF STOCK OPTIONS, SELL SHARES OF ITS CAPITAL STOCK FOR CASH, AND ISSUE
CONVERTIBLE DEBENTURES SUBORDINATE IN ALL RESPECTS TO THE OBLIGATIONS PURSUANT
TO SUBORDINATION PROVISIONS ACCEPTABLE TO COAST IN ITS DISCRETION)
**AND EXCEPT THAT, PROVIDED NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING,
BORROWER MAY SELL EXCESS EQUIPMENT IN THE ORDINARY COURSE OF BUSINESS IN GOOD
FAITH ARM'S LENGTH TRANSACTIONS, AND RETAIN THE PROCEEDS THEREOF FOR USE IN ITS
BUSINESS
4.5 NOTIFICATION OF CHANGES. Borrower will promptly notify Coast in
writing of any change of its officers, directors, the death of any partner or
joint venturer, any purchase * out of the regular course of Borrower's business
without Coast's consent and any adverse or material change in the business or
financial affairs of Borrower.
*IN EXCESS OF $50,000
4.6 CHARGES. Borrower shall pay all charges assessed by Coast, in
accordance with Coast's schedule of charges in effect from time to time, and
such charges shall be part of the Obligations and shall be payable on demand.
4.7 LITIGATION COOPERATION. Should any suit or proceeding be instituted
by or against Coast with respect to any Collateral or for the collection or
enforcement of any Account, or in any manner relating to Borrower, Borrower
shall, without expense to Coast, and wherever and whenever designated by Coast,
make available Borrower and its officers, employees and agents and Borrower's
Records to the extent that Coast may deem necessary in order to prosecute or
defend any such suit or proceeding.
4.8 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
the Collateral shall be delivered, in kind, by Borrower to Coast in the original
form in which received by Borrower not later than the following business day
after receipt by Borrower*. Borrower agrees that it will not commingle proceeds
of Collateral with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Coast. Coast may from time to time verify directly with the respective
account debtors the validity, amount and any other matters relating to the
Accounts by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
*EXCEPT (I) WIRE TRANSFER REMITTANCES RECEIVED BY BORROWER SHALL BE TRANSMITTED
TO COAST IN TOTAL THE DAY FOLLOWING POSTING TO BORROWER'S BANK ACCOUNT
4.9 EXECUTE ADDITIONAL DOCUMENTATION. Borrower agrees, at its expense,
on demand by Coast, to execute all documents in form satisfactory to Coast, as
Coast, in its sole discretion, may deem * necessary or useful in order to
perfect and maintain Coast's perfected first-priority or any other security
interest in the Collateral, and in order to fully consummate all of the
transactions contemplated under this Loan Agreement and under any Collateral
Agreement.
*REASONABLY
4.10 TANGIBLE NET WORTH. Borrower shall maintain, at all time at which
any Obligations remain outstanding, a minimum Tangible Net Worth of Eleven
Million Dollars ($11,000,000) where "Tangible Net Worth" means consolidated
stockholders' equity, less, goodwill, patents, trademarks, copyrights,
franchises, formulas, leasehold interests, leasehold improvements, non-compete
agreements, engineering plans, deferred tax benefits and organization costs.
5. APPLICATION OF PAYMENTS.
All forms of payments delivered to Coast on account of the Obligations
constitute conditional payment only until such items are actually paid in cash
to Coast; solely for the purpose of computing interest earned by Coast, credit
therefor and for bank wire transfers shall be given as of the * fifth business
day after receipt by Coast as to uncollected funds and zero days after receipt
of collected (goods) funds in order to allow for clearance, bookkeeping and
computer entries. All payments made by Borrower may be applied, and in Coast's
sole discretion reversed and re-applied, in whole or in part to any of the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.
* FIRST
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. If any of the following events shall occur, such
an occurrence shall constitute an "Event of Default" and Borrower shall provide
Coast with immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Coast by Borrower or any
of Borrower's officers, employees or agents now or hereafter shall be incorrect,
false, untrue or misleading in any material respect; or (b) Borrower shall fail
to repay when due part or all of any Loan or to pay any interest thereon when
due; or (c) Borrower shall fail to perform when due any term or condition
contained in this Loan Agreement or in any Collateral Agreement, or any other
agreement between Coast and Borrower; or (d) Borrower shall fail to pay or
perform any other Obligation when due; or (e) Any loss, theft, or substantial
damage to, or destruction of, any or all of the Collateral (unless within five
(5) days after the occurrence of any such event, Borrower furnishes Coast with
evidence satisfactory to Coast that the amount of any such loss, theft, damage
to or destruction of the Collateral is fully insured under policies designating
Coast as the exclusive additional named insured*); or (f) A material impairment
of the prospect of payment or performance of the Obligations or a material
impairment of the value of the Collateral or any impairment in the priority of
Coast's security interest; or (g) Any event shall arise which may result or
actually results in the acceleration of the maturity of the indebtedness of
Borrower to others under any loan or other agreement or undertaking; or (h) Any
levy, assessment, attachment, seizure, lien or encumbrance ** for any cause or
reason whatsoever, upon all or any part of the Collateral or any other asset of
Borrower (unless discharged by payment, release or fully bonded against not more
than ten (10) days after such event has occurred); or (i) Dissolution,
termination of existence, insolvency or business failure of Borrower; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by or against, Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or hereafter in effect; or entry of a court or
governmental order which enjoins, restrains or in any way prevents Borrower from
conducting all or any part of its business; or failure to pay any foreign,
federal, state or local tax or other debt of Borrower unless, with respect to
any such tax, Borrower complies with the provisions of Paragraphs 3.9 (i), (ii),
and (iii); or (j) A notice of lien** , levy or assessment is filed of record
with respect to any of Borrower's assets by the United States or any department,
agency or instrumentality thereof, or by any state, county, municipal or other
governmental agency, or if any taxes or debts now or hereafter owing to any one
or more of them becomes a lien ** upon all or any of the Collateral or any other
assets of Borrower (other than a lien for real
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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property taxes which are not yet due and payable); or (k) Death, insolvency or
incompetency of any guarantor of the Obligations; appointment of a conservator
or guardian of the person of any such guarantor; appointment of a conservator,
guardian, trustee, custodian or receiver of all or any part of the assets,
property or estate of, any such guarantor; revocation or termination of, or
limitation of liability upon, any guaranty of the Obligations; or commencement
of proceedings by or against any guarantor or surety for Borrower under any
bankruptcy or insolvency law; or (l) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
*** or if any person who has subordinated such indebtedness or obligations
terminates or in any way limits his subordination agreement; or (m) Borrower
shall generally not pay its debts as they become due or shall enter into any
agreement (whether written or oral), or offer to enter into any such agreement,
with all or a significant number of its creditors regarding any moratorium or
other indulgence with respect to its debts or the participation of such
creditors or their representatives in the supervision, management or control of
the business of Borrower; or Borrower shall conceal, remove or transfer any part
of its property, with intent to hinder, delay or defraud its creditors, or make
or suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law, or shall make any transfer of
its property to or for the benefit of any creditor at a time when other
creditors similarly situated have not been paid****; or (n) Coast at any time,
acting in good faith and in a commercially reasonable manner, deems itself
insecure because of (i) the occurrence of an event prior to the effective date
hereof of which Coast had no knowledge on the effective date or (ii) the
occurrence of an event on or subsequent to the effective date.
*OTHER THAN LESSORS OF REAL PROPERTY TO BORROWER
**(OTHER THAN PERMITTED LIENS)
***IN VIOLATION OF THE APPLICABLE SUBORDINATION AGREEMENT
****(EXCEPT FOR INDIVIDUALLY NEGOTIATED EXTENSIONS OF TRADE DEBT, LEASES OR
OTHER OBLIGATIONS)
6.2 REMEDIES. Upon the occurrence of any Event of Default, and at any
time thereafter, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower)*, may do any one or more
of the following: (a) Cease advancing money or extending credit to or for the
benefit of Borrower under this Loan Agreement, any Collateral Agreement, and any
other document or agreement; (b) Accelerate and declare all or any part of the
Obligations to be immediately due, payable, and performable notwithstanding any
deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (c) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes Coast
without judicial process to enter onto any of the Borrower's premises without
hindrance to search for, take possession of, keep, store, or remove any of the
Collateral and remain on such premises or cause a custodian to remain thereon in
exclusive control thereof without charge for so long as Coast deems necessary in
order to complete the enforcement of its rights under this Loan Agreement or any
Collateral Agreement, or any other agreement; provided, however, that should
Coast seek to take possession of any or all of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
Coast retain possession of and not dispose of any such Collateral until after
trial or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to Coast at a place or places to be designated
by Coast which are reasonably convenient to Coast and Borrower, and to remove
the Collateral to such locations as Coast may deem advisable; (e) Complete
processing, manufacturing or repair of all or any portion of the Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Without
limiting any security interest granted Coast in other provisions of this Loan
Agreement or in any Collateral Agreement or other agreement, for the purpose of
completing manufacturing, processing or repair of Collateral and the disposition
thereof, Coast is hereby granted a security interest in, and Coast and any
purchaser from Coast may use without charge, all of the Borrower's plant,
machinery, equipment, labels, licenses, processes, patents, patent applications,
copyrights, names, trade names, trademarks, trade secrets, logos, advertising
material and all other assets, and may also utilize all of Borrower's rights
under any license or franchise agreement; (f) Sell, ship, reclaim, lease or
otherwise dispose of all or any portion of the Collateral in its condition at
the time Coast obtains possession or after further manufacturing, processing or
repair, at any one or more public and/or private sales (including execution
sales), in lots or in bulk, for cash, exchange or other property or on credit
and to adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge for such time or
times as Coast deems fit, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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company purchase or lease any Collateral at any such public disposition and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability Borrower
may have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (g) Demand payment of, and collect any Accounts
and general intangibles comprising part or all of the Collateral and, in
connection therewith, Borrower irrevocably authorizes Coast to endorse or sign
Borrower's name on all collections, receipts, instruments and other documents,
to take possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Coast's sole discretion, to grant extensions of time to pay, compromise
claims and settle Accounts and the like for less than face value; (h) Demand and
receive possession of any of Borrower's federal and state income tax returns and
the Records utilized in the preparation thereof or referring thereto. All
attorneys' fees, expenses, costs, liabilities and obligations incurred by Coast
with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations. Without limiting
any of Coast's rights and remedies, from and after the occurrence of any Event
of Default, the interest rate applicable to the Obligations shall be increased
by an additional ** percent per annum.
*(EXCEPT THAT, PRIOR TO OR CONCURRENTLY WITH THE TAKING OF THE FIRST OF ANY OF
THE FOLLOWING ACTIONS, COAST SHALL GIVE BORROWER ONE GENERAL WRITTEN NOTICE
STATING THAT COAST IS "PROCEEDING TO EXERCISE ITS RIGHTS AND REMEDIES" OR WORDS
TO THAT EFFECT)
**THREE
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that the following conduct by Coast with respect to any disposition
of Collateral shall conclusively be deemed commercially reasonable (but other
conduct by Coast, including, but not limited to, Coast's use in its sole
discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition as to which on no later than the * calendar
day prior thereto written notice thereof is mailed or personally delivered to
Borrower and, with respect to any public disposition, on no later than the
* calendar day prior thereto notice thereof describing in general non-specific
terms, the Collateral to be disposed of is published once in a newspaper of
general circulation in the county where the sale is to be conducted, at any
place designated by Coast, with or without the Collateral being present, and
which commences at any time between 8:00 a.m. and 5:00 p.m. Without limiting the
generality of the foregoing, Borrower expressly agrees that, with respect to any
disposition of Accounts, instruments and general intangibles (collectively
"Receivables"), it shall be commercially reasonable for Coast to direct any
prospective acquirer thereof to ascertain directly from Borrower any and all
information (and Coast shall not be required to maintain records of, or answer
any inquiries) concerning the Receivables offered for disposition, including,
but not limited to, the terms of payment, aging and delinquency, if any, of the
Receivables, the financial condition of any obligor or account debtor thereon or
guarantor thereof, any collateral therefor and the condition and location of the
goods, if any, that are the subject of any of the Receivables.
*TENTH
6.4 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
disposition of the Collateral shall be applied by Coast first to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Loan Agreement and any Collateral Agreement,
second to the interest due upon any of the Obligations and third to the
principal of the Obligations in any order determined by Coast in its sole
discretion. The surplus, if any, shall be paid to Borrower; if any deficiency
shall arise, Borrower shall remain liable to Coast therefor. If, as a result of
the disposition of any of the Collateral, Coast directly or indirectly enters
into a credit transaction with any third party, Coast shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of such credit transaction or deferring the
reduction thereof until the actual receipt by Coast of cash therefor from such
third party.
6.5 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Loan Agreement and any Collateral Agreement, Coast shall have all
the other rights and remedies accorded a secured party under the California
Uniform Commercial Code and under any and all other applicable laws and in any
other instrument or agreement now or hereafter entered into between Coast and
Borrower and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by Coast of one or more of its rights or
remedies shall not be deemed an election, nor bar Coast from subsequent exercise
or partial exercise of any other rights or remedies. The failure or delay of
Coast to exercise any rights or remedies shall not operate as a waiver thereof,
but all rights and remedies shall continue in full force and effect until all of
the Obligations have been fully paid and performed.
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7. POWER OF ATTORNEY.
Borrower grants to Coast an irrevocable power of attorney coupled with
an interest, authorizing and permitting Coast (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (a) Execute on
behalf of Borrower any documents that Coast may, in its sole and absolute
discretion, deem advisable in order to perfect, maintain or improve Coast's
security interest in the Collateral or other real or personal property intended
to constitute Collateral, or in order to exercise a right of Borrower or Coast,
or in order to fully consummate all the transactions contemplated under this
Loan Agreement, any Collateral Agreement and all other present and future
agreements; (b) At any time after the occurrence of an Event of Default, to
execute on behalf of Borrower any document exercising, transferring or assigning
any option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Coast's Collateral or in
which Coast has an interest; (c) Execute on behalf of Borrower, any invoices
relating to any Account, any draft against any Account debtor and any notice to
any Account debtor, any proof of claim in bankruptcy, any Notice of Lien, claim
of mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) * Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
Borrower upon any instruments, or documents, evidence of payment or Collateral
that may come into Coast's possession; (e) Upon the occurrence of any Event of
Default, to receive and open all mail addressed to Borrower; (f) Endorse all
checks and other forms of remittances received by Coast "Pay to the Order of
Coast Business Credit Corporation," or in such other manner as Coast may
designate; (g) ** Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim In or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (h)
**Grant extensions of time to pay, compromise claims and settle Accounts and the
like for less than face value and execute all releases and other documents in
connection therewith; (i) Pay any sums required on account of Borrower's taxes
or to secure the release of any liens therefor, or both; (j) Settle and adjust,
and give releases of, any insurance claim that relates to any of the Collateral
and obtain payment therefor; (k) Instruct any third party having custody or
control of any books or records belonging to, or relating to, Borrower to give
Coast the same rights of access and other rights with respect thereto as Coast
has under
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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Paragraph 4.3 of this Loan Agreement; and (I) Take any action or pay any sum
required of Borrower pursuant to this Loan Agreement, any Collateral Agreement
and any other present or future agreements. Any and all sums paid and any and
all costs, expenses, liabilities, obligations and attorneys' fees incurred by
Coast with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Coast's rights under the foregoing power of attorney or any of Coast's
other rights under this Loan Agreement or any Collateral Agreement be deemed to
indicate that Coast is in control of the business, management or properties of
Borrower.
*SUBJECT TO THE TERMS OF THIS AGREEMENT AND THE COLLATERAL AGREEMENTS
**AFTER AN EVENT OF DEFAULT
8. TERMINATION.
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This Loan Agreement and all Collateral Agreement(s) shall continue in
effect until June 19, 1998 (the "initial renewal date") and shall thereafter
automatically and continuously renew for successive additional terms of ONE
year(s) each unless terminated as to future transactions as hereinafter provided
so long as Borrower pays a renewal fee of 0.5% of the Maximum Dollar Amount to
Coast prior to the initial renewal date and thereafter each subsequent
anniversary thereof. (The initial renewal date and each subsequent date on which
the terms of this Loan Agreement and the Collateral Agreement(s) automatically
renew are hereinafter referred to as "renewal dates.") This Loan Agreement and
any Collateral Agreement may be terminated, as to future transactions only, as
follows: (a) By written notice from either Coast or Borrower to the other, not
less than one hundred twenty (120) days prior to the next renewal date, in which
event termination shall be effective on the next renewal date; or (b) By Coast
at any time after the occurrence of an Event of Default, without notice, in
which event termination shall be effective immediately; or (c) By one hundred
twenty (120) days' prior written notice from Borrower to Coast, in which event,
termination shall be effective on the one hundred twentieth day after such
notice is given; or (d) By the grant by Borrower to any third party of a lien or
encumbrance on, or security interest in, any of the Collateral, as provided in
Paragraph 3.5, in which event termination shall be effective on the date
selected by Coast pursuant to Paragraph 3.5. On the effective date of
termination, Borrower shall pay and perform in full all Obligations, whether
evidenced by installment notes or otherwise, and whether or not all or any part
of such Obligations are otherwise then due and payable. If Borrower attempts to
terminate this Loan Agreement under subparagraph (a) or (c) above, but does not
pay and perform all Obligations in full on the effective date of termination,
then this Loan Agreement and all Collateral Agreement(s) shall not be terminated
and shall continue in full force and effect until the next renewal date and
shall automatically renew thereafter as provided above. If termination occurs
under subparagraph (b), (c) or (d) above, Borrower shall pay to Coast a
termination fee in an amount equal to two percent (2%) of the Maximum Dollar
Amount. Said termination fee shall be included in the Obligations, shall be
payable on the effective date of termination, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations. Without
limiting the generality of the foregoing, if on the initial renewal date or
thereafter any subsequent renewal date, or on any earlier effective date of
termination, there are any outstanding Letters of Credit issued by Coast or
issued by another institution based upon an application, guarantee, indemnity or
similar agreement on the part of Coast, then on such date Borrower shall provide
to Coast cash collateral in an amount equal to the face amount of all such
Letters of Credit plus all interest, fees and cost due or to become due in
connection therewith, to secure all of the Obligations relating to said Letters
of Credit, pursuant to Coast's then standard form cash pledge agreement.
Further, notwithstanding any termination of this Loan Agreement or any
Collateral Agreement, all of Coast's security interest in all of the Collateral
and all of the terms and provisions of this Loan Agreement and all Collateral
Agreement(s) shall continue in full force and effect until all Obligations have
been paid and performed in full, and no termination shall in any way affect or
impair any right or remedy of Coast, nor shall any such termination relieve
Borrower of any Obligation to Coast until all of the Obligations have been paid
and performed in full. Without limiting the fact that all Loans are
discretionary on the part of Coast, Coast may, in its sole discretion, refuse to
make any further Loans after termination. Upon payment and performance in full
of all the Obligations, Coast shall promptly deliver to Borrower termination
statements, request for reconveyances and such other documents as may be
required to fully terminate any of Coast's security interests. Notwithstanding
the foregoing, Borrower may not terminate this Agreement under subparagraph (a),
(c) or (d) above, unless Borrower also concurrently terminates the CEFO
Agreement.
9. NOTICES.
All notices to be given hereunder shall be in writing and shall be
served either personally * or by depositing the same in the United States mail,
postage prepaid, by regular first-class mail, or by certified mail, return
receipt requested, addressed to Coast or Borrower at the addresses shown above,
or at any other address as shall be designated by one party in a written notice
to the other party. Any such notice shall be deemed to have been given upon
delivery in the case of notices personally delivered to Borrower or to an
officer of Coast, ** or at the expiration of *** two (2) business days following
the deposit thereof in the United States mail, with postage prepaid (except that
any notice of disposition referred to in Paragraph 6.3 hereof that is mailed
shall be deemed given at the time of deposit thereof in the United States mail,
with postage prepaid). If there is more than one Borrower, notice to any
Borrower shall constitute notice to all; if Borrower is a corporation, the
service upon any member of the Board of Directors, officer, employee or agent
shall constitute service upon the corporation.
*OR BY FEDERAL EXPRESS OR OTHER RECOGNIZED PRIVATE DELIVERY SERVICE ("PRIVATE
DELIVERY")
**OR AT THE EXPIRATION OF ONE (1) BUSINESS DAY AFTER THE DATE SENT BY PRIVATE
DELIVERY,
14
<PAGE> 15
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
***THREE (3)
10. GENERAL WAIVERS.
The failure of Coast at any time or times hereafter to require Borrower
to strictly comply with any of the provisions of this Loan Agreement or any
Collateral Agreement or any other present or future agreement between Borrower
and Coast shall not waive or diminish any right of Coast thereafter to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent thereto. None of
the provisions of this Loan Agreement or any Collateral Agreement or other
agreement now or hereafter executed by Borrower and delivered to Coast shall be
deemed to have been waived by any act or knowledge of Coast or its agents or
employees, but only by a specific written waiver signed by an officer of Coast
and delivered to Borrower. Borrower waives the benefit of all statute(s) of
limitations in any action or proceeding based upon or arising out of this Loan
Agreement or any Collateral Agreement or any other present or future instrument
or agreement between Coast and Borrower. Borrower waives any and all notices or
demands which Borrower might be entitled to receive with respect to this Loan
Agreement, any Collateral Agreement, or any other agreement by virtue of any
applicable law. Borrower hereby waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, Account, general intangible, document or guaranty at any time held
by Coast on which Borrower is or may in any way be liable, and notice of any
action taken by Coast unless expressly required by this Loan Agreement or any
Collateral Agreement. Borrower hereby ratifies and confirms whatever Coast may
do * pursuant to this Loan Agreement and any Collateral Agreement and agrees
that Coast shall not be liable for (a) the safekeeping of the Collateral or any
loss or damage thereto, or diminution in value thereof, from any cause
whatsoever**, or (b) any act or omission of any carrier, warehouseman, bailee,
forwarding agent or other person, or (c) any act of commission or any omission
by Coast or its officers, employees, agents, or attorneys, or any of its or
their errors of judgment or mistakes of fact or law***.
*IN A COMMERCIALLY REASONABLE MANNER
**UNLESS ANY DAMAGE THERETO IS CAUSED BY COAST'S GROSS NEGLIGENCE OR WILFUL
MISCONDUCT
***EXCEPT FOR COAST'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT
11. ATTACHMENT WAIVERS.
To the extent that Coast, in its sole and absolute discretion,
determines, prior to the disposition of all of the Collateral, that the amount
to be realized by Coast from the disposition of all of the Collateral may be
less than the amount of the Obligations, and to the full extent of any such
anticipated deficiency, Borrower waives the benefit of Section 483.010 (b) of
the California Code of Civil Procedure and of any and all other statutes
requiring Coast to first resort to and exhaust all of the Collateral before
seeking or obtaining any attachment remedy against Borrower, and Borrower
expressly agrees that, to the extent of such anticipated deficiency, Coast shall
have all of the rights of an unsecured creditor, including, but not limited to,
the right of Coast, prior to the disposition of all of the Collateral, to obtain
a temporary protective order and writ of attachment or other available remedy.
Coast shall have no liability to Borrower if the actual deficiency realized by
Coast is less than the anticipated deficiency on the basis of which Coast
obtained a temporary protective order or writ of attachment. In the event Coast
should seek a temporary protective order, or writ of attachment, or both,
Borrower hereby irrevocably waives any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident or
condition precedent to the issuance of any temporary protective order or writ of
attachment.
15
<PAGE> 16
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
12. ATTORNEYS' FEES AND COSTS.
Borrower shall forthwith pay to Coast the amount of all * attorneys'
fees and all filing, recording, publication, search and other costs incurred by
Coast pursuant to this Loan Agreement, any Collateral Agreement or any other
present or future agreement or in connection with any transaction contemplated
hereby, or with respect to the Collateral or the defense or enforcement of its
interests (whether or not Coast files a lawsuit against Borrower)**. Without
limiting the generality of the foregoing, Borrower shall, with respect to each
and all of the foregoing, pay all attorneys' fees and costs Coast incurs in
order to: obtain legal advice; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account debtors; commence,
intervene in, respond to, or defend any action or proceeding; initiate any
complaint to be relieved of the effect of the automatic stay in bankruptcy in
order to commence or continue any foreclosure or other disposition of the
Collateral or to commence, defend or continue any action or other proceeding in
or out of bankruptcy against Borrower or relating to the Collateral; file or
prosecute a claim or right in any action or proceeding, including, but not
limited to, any probate claim, bankruptcy claim, third-party claim, secured
creditor claim or reclamation complaint; examine, audit, count, test, copy, or
otherwise inspect any of the Collateral or any of Borrower's books and records;
or protect, obtain possession of, lease, dispose of, or otherwise enforce any
security interest in or lien on, the Collateral or represent Coast in any
litigation with respect to Borrower's affairs. If either Coast or Borrower files
any lawsuit against the other predicated on a breach of this Loan Agreement or
any Collateral Agreement, the prevailing party in such action shall be entitled
to recover its costs and attorneys' fees, including, but not limited to,
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Coast may be entitled pursuant to this Paragraph shall immediately
become part of Borrower's Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations.
*REASONABLE
13. DESTRUCTION OF BORROWER'S DOCUMENTS; LIMITATION OF ACTIONS.
Any documents, schedules, invoices or other papers delivered to Coast
may be destroyed or otherwise disposed of by Coast six (6) months after they are
delivered to Coast unless Borrower makes written request therefor and pays all
expenses attendant to their return, in which event, Coast shall return same when
Coast's actual or anticipated need therefor has terminated. Borrower agrees that
any claim or cause of action by Borrower against Coast, its directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Loan Agreement, or any Collateral Agreement, or any other
present or future agreement, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, occurred, done, omitted or suffered to be done by Coast, its
directors, officers, employees, agents, accountants or attorneys, relating in
any way to Borrower, shall be barred unless asserted by Borrower by the * after
the first act, occurrence or omission upon which such claim or cause of action,
or any part thereof, is based. Borrower agrees that such ** period of time is a
reasonable and sufficient time for Borrower to investigate and act upon any such
claim or cause of action. The six-month period provided herein shall not be
waived, tolled, or extended except by the written consent of Coast in its sole
and absolute discretion. This provision shall survive any termination, however
arising, of this Loan Agreement, any Collateral Agreement, and any other present
or future agreement.
*DELIVERY OF A SPECIFIC WRITTEN CLAIM SETTING FORTH IN REASONABLY SPECIFIC
DETAIL THE BORROWER'S CLAIM OR CAUSE OF ACTION WITHIN ONE YEAR
**ONE-YEAR
14. GENERAL PROVISIONS.
14.1 SEVERABILITY. Should any provision, clause or condition of this
Loan Agreement or any Collateral Agreement be held by any court of competent
jurisdiction to be void or unenforceable, such defect shall not affect the
remainder of this Loan Agreement or any Collateral Agreement.
14.2 INTEGRATION. This Loan Agreement and any Collateral Agreements and
such other agreements, documents and instruments as may be executed in
16
<PAGE> 17
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
connection herewith shall be construed as the entire and complete agreement
between Borrower and Coast and shall supersede all prior negotiations, all of
which are merged and integrated herein.
14.3 AMENDMENT. The terms and provisions of this Loan Agreement and any
Collateral Agreement may not be waived or amended except in a writing executed
by Borrower and a duly authorized officer of Coast.
14.4 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Loan Agreement and any
Collateral Agreement.
14.5 BENEFIT OF AGREEMENT. The provisions of this Loan Agreement and any
Collateral Agreement shall be binding upon and inure to the benefit of the
respective successors, assigns, heirs, beneficiaries and representatives of the
parties hereto; provided, however, that Borrower may not assign or transfer any
of its rights under this Loan Agreement or any Collateral Agreement without the
prior written consent of Coast, and any prohibited assignment shall be void. No
consent by Coast to any assignment shall relieve Borrower or any guarantor from
its liability for the Obligations.
14.6 JOINT AND SEVERAL LIABILITY. The liability of each Borrower shall
be joint and several and the compromise of any claim with, or the release of,
any Borrower shall not constitute a compromise with, or a release of, any other
Borrower.
14.7 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are used
herein for convenience only. Borrower acknowledges that the same may not
describe completely the subject matter of the applicable paragraph, and the same
shall not be used in any manner to construe, limit, define or interpret any term
or provision hereof. This Loan Agreement and the Collateral Agreements have been
fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Loan Agreement or any Collateral
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
14.8 GOVERNING LAW; JURISDICTION; VENUE. This Loan Agreement and any
Collateral Agreement and all acts and transactions hereunder and all rights and
obligations of Coast and Borrower shall be governed by and in accordance with
the laws of the State of California. Any undefined term used in this Loan
Agreement or in any Collateral Agreement that is defined in the California
Uniform Commercial Code shall have the meaning therein assigned to that term. As
a material part of the consideration to Coast to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly hereto shall, at Coast's option, be litigated in courts located
within California, and that the exclusive venue therefor shall be Los Angeles
County; (ii) consents to the jurisdiction and venue of any such court and
consents to service of process in any such action or proceeding by personal
delivery or any other method permitted by law; and (iii) waives any and all
rights Borrower may have to object to the jurisdiction of any such court, or to
transfer or change the venue of any such action or proceeding.
14.9 EXECUTION BY COAST. This Loan Agreement and any Collateral
Agreement which has been executed and delivered by Borrower to Coast shall not
become effective unless and until executed by a duly authorized officer of
Coast.
14.10 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS LOAN AGREEMENT OR ANY COLLATERAL AGREEMENT
OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND
BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF COAST OR BORROWER ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH COAST OR BORROWER.
14.11 CONFIDENTIALITY. COAST COVENANTS AND AGREES, ON A CONTINUING
BASIS, TO USE REASONABLE EFFORTS (BUT IN NO EVENT LESS THAN THE SAME DEGREE OF
CARE THAT IT EXERCISES WITH RESPECT TO ITS OWN PROPRIETARY INFORMATION OF THE
SAME TYPES) TO MAINTAIN THE CONFIDENTIALITY OF AND NOT TO DISCLOSE TO ANY PERSON
OTHER THAN ITS OFFICERS, DIRECTORS, ATTORNEYS AND ACCOUNTANTS AND AFFILIATES,
AND SUCH OTHER PERSONS TO WHOM COAST SHALL AT ANY TIME BE REQUIRED TO MAKE SUCH
DISCLOSURE IN ACCORDANCE WITH APPLICABLE LAW, ANY AND ALL PROPRIETARY, TRADE
SECRET OR CONFIDENTIAL INFORMATION PROVIDED TO OR RECEIVED BY COAST FROM OR ON
ACCOUNT OF BORROWER OR ANY AFFILIATE OF BORROWER, INCLUDING BUSINESS PLANS AND
FORECASTS, NON-PUBLIC FINANCIAL INFORMATION, CONFIDENTIAL OR SECRET PROCESSES,
FORMULAE, DEVICES OR CONTRACTUAL INFORMATION, CUSTOMER LISTS, EMPLOYEE RELATION
MATTERS, AND ANY OTHER INFORMATION THE DISCLOSURE OF WHICH COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE IMPACT ON THE BUSINESS, FINANCES OR
OPERATIONS OF BORROWER OR ITS AFFILIATES, PROVIDED, HOWEVER, THE FOREGOING
PROVISIONS SHALL NOT BE EFFECTIVE REGARDING THE DISPOSITION OF
17
<PAGE> 18
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
COLLATERAL AFTER AN EVENT OF DEFAULT.
BORROWER:
CATALYST SEMICONDUCTOR, INC.,
A DELAWARE CORPORATION
BY /s/ C. MICHAEL POWELL
-------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY /s/ CHRIS CARSTEN
-------------------------------------
ASS'T SECRETARY
COAST:
COAST BUSINESS CREDIT, A DIVISION OF
SOUTHERN PACIFIC THRIFT & LOAN ASSOCIATION,
A CALIFORNIA CORPORATION
BY /s/ JOHN STEINER
-------------------------------------
TITLE Vice President
18
<PAGE> 19
- --------------------------------------------------------------------------------
SCHEDULE TO LOAN AND SECURITY AGREEMENT
PRIOR NAMES (SECTION 3.3):
None
FICTITIOUS NAMES, TRADE NAMES, TRADE STYLES (SECTION 3.3):
CAT FLASH
OTHER ADDRESSES (SECTION 3.4):
SEE ATTACHED LIST
REPORTS (SECTION 4.2)
Borrower shall provide Coast with the following:
(1) Monthly Receivable agings, aged by invoice date, within ten (10)
days after the end of each month.
(2) Monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers within ten (10) days after the
end of each month.
(3) Monthly perpetual inventory reports for the Inventory valued on a
first-in, first-out basis at the lower of cost or market (in
accordance with generally accepted accounting principles) or such
other inventory reports as are reasonably requested by Coast, all
within ten (10) days after the end of each month.
(4) Monthly internally prepared financial statements, as soon as
available, and in any event within thirty (30) days after the end of
each month.
(5) Quarterly internally prepared financial statements (10Qs), as soon
as available, and in any event within forty-five (45) days after the
end of each fiscal quarter of Borrower.
(6) Quarterly customer lists, including customer name, address, and
phone number.
(7) Annual financial statements (10Ks) as soon as available, and in any
event within ninety (90) days following the end of Borrower's fiscal
year, certified by independent certified public accountants
acceptable to Coast.
19
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF JULY 31 AND APRIL 30, 1997, STATEMENTS OF OPERATIONS AND STATEMENTS
OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED JULY 31, 1997 AND 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1997
<PERIOD-START> MAY-01-1997 MAY-01-1996
<PERIOD-END> JUL-31-1997 JUL-31-1996
EXCHANGE-RATE> 1 1
<CASH> 6856 7945
<SECURITIES> 0 0
<RECEIVABLES> 8506 7199
<ALLOWANCES> 125 125
<INVENTORY> 12157 12732
<CURRENT-ASSETS> 28381 28646
<PP&E> 13163 13939
<DEPRECIATION> (9039) (10032)
<TOTAL-ASSETS> 32505 32553
<CURRENT-LIABILITIES> 18679 16631
<BONDS> 525 1885
0 0
0 0
<COMMON> 41875 41829
<OTHER-SE> (28574) (27792)
<TOTAL-LIABILITY-AND-EQUITY> 32505 32553
<SALES> 9548 9548
<TOTAL-REVENUES> 9548 9548
<CGS> 7173 7173
<TOTAL-COSTS> 7173 7173
<OTHER-EXPENSES> 2972 2972
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 185 (28)
<INCOME-PRETAX> (782) 1205
<INCOME-TAX> 0 46
<INCOME-CONTINUING> (782) 1159
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (782) 1159
<EPS-PRIMARY> (0.10) 0.13
<EPS-DILUTED> (0.10) 0.13
</TABLE>
