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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended May 3, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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COMMISSION FILE NUMBER 0-21488
CATALYST SEMICONDUCTOR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0083129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 Borregas Avenue, Sunnyvale, California 94089
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (408) 542-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether 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 Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of Registrant,
as of August 14, 1998, was approximately $1 million (based upon the average of
the closing bid and asked price for shares of Registrant's Common Stock as
reported by the OTC Bulletin Board for the last trading date prior to that
date). Shares of Common Stock held by each officer, director and holder of 5% or
more of the outstanding Common Stock (including shares with respect to which a
holder has the right to acquire beneficial ownership within 60 days) have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
The number of shares of Registrant's Common Stock outstanding as of August 14,
1998 was 9,961,722.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive Proxy
Statement for Registrant's 1998 Annual Meeting of Stockholders.
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CATALYST SEMICONDUCTOR, INC.
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PART I
Item 1. Business.................................................................................. Page 3
Item 2. Properties................................................................................ Page 9
Item 3. Legal Proceedings......................................................................... Page 9
Item 4. Submission of Matters to a Vote of Security Holders....................................... Page 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters...................... Page 10
Item 6. Selected Consolidated Financial Data...................................................... Page 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... Page 12
Item 7A Quantitative and Cumulative Disclosures about Market Risk................................. Page 19
Item 8. Financial Statements and Supplementary Data............................................... Page 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... Page 20
PART III
Item 10. Directors and Executive Officers of Registrant............................................ Page 20
Item 11. Executive Compensation.................................................................... Page 20
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ Page 20
Item 13. Certain Relationships and Related Transactions............................................ Page 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... Page 20
Signatures........................................................................................... Page 23
Index to Consolidated Financial Statements........................................................... Page F-2
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CATALYST SEMICONDUCTOR, INC.
PART I
ITEM 1. BUSINESS
Catalyst Semiconductor, Inc. ("Catalyst," the "Company" or
"Registrant") designs, develops and markets a broad range of nonvolatile
semiconductor memory products and is in the process of developing mixed signal
and micro-controller supervisory products. Nonvolatile memory ("NVM") retains
stored data when the system power is turned off and is therefore well suited for
a wide variety of applications in the computer, consumer electronics,
telecommunications, automotive, industrial control and instrumentation markets.
The Company was formed as a California corporation in October 1985 and was
reincorporated in Delaware in May 1993. The Company's principal offices are
located at 1250 Borregas Avenue, Sunnyvale, California 94089 and its telephone
number at that address is (408) 542-1000.
The Company has sought to enhance its internal design and process
technology expertise through strategic relationships with leading semiconductor
manufacturers and currently subcontracts the fabrication of its semiconductor
wafers principally through Oki Electric Industry Co., Ltd. ("Oki"). These
relationships enable the Company to draw upon its foundries' expertise in high
volume semiconductor manufacturing. For example, the Company has integrated the
designs and processes for the manufacture of its Flash memory products with
Oki's fine line-width, high density CMOS processes used for high volume Dynamic
Random Access Memory ("DRAM") manufacture.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998, the market for certain FLASH and EEPROM
devices, which compromise the majority of Catalyst's business, experienced an
excess market supply relative to demand which resulted in a significant
downward trend in prices. The Company could continue to experience a downward
trend in product pricing which could further adversely affect the Company's
operating results.
The Company's recent operating results have consumed substantial
amounts of cash. The reduction in cash also placed restrictions on wafer
purchases which, during the fourth quarter of 1998, resulted in the
cancellation of some customer sales orders. In May 1998, the Company received
net proceeds of $1.5 million from the sale of 1,500,000 shares of its Common
Stock in a private placement. Management believes, however, that it will
require additional cash from similar or related private placements or other
sources of liquidity to meet the Company's projected working capital and other
cash requirements for fiscal 1999, and is currently pursuing these sources of
liquidity.
As a result of these circumstances, the Company's independent
accountants' opinion on the consolidated financial statements includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about the Company's ability to continue as a going concern.
As of April 30, 1998, the Company had approximately $3.2 million, and
currently has approximately $1.4 million, of secured loans owing to its bank. As
a result of the Company's financial condition and results of operations, the
bank has determined that the Company is in default under various provisions of
the loan agreement entitling the bank to terminate the loan agreement and
declare the loans immediately due and payable. Although the Company has obtained
a letter of forbearance from the bank taking any action with respect to existing
defaults, such forbearance only extends until September 30, 1998 and only as to
the specified defaults claimed through June 30, 1998. The Company is seeking to
persuade the bank not to take action on the events of default and not to declare
the loan due and payable. In that regard the Company is seeking to obtain equity
or other funding to increase the cash available for operations and other
purposes. There can be no assurance that such efforts to obtain funding will be
successful or, if successful, that the bank will continue to forbear action on
or otherwise waive the existing defaults. If the Company's efforts are
unsuccessful, the bank is likely to declare the loans due and payable. Under
such circumstances the Company would be unable to continue operations which
would result in bankruptcy. The Company is also indebted to other creditors in
the amount of approximately $13.4 million. Continued operation of the Company
would also require such other lenders to forbear taking action or waiving
defaults under such other debt. Moreover it is anticipated that any continued
forbearance by the bank would require such other lenders to take similar action
under the other loans. In addition, although the Company is current on its lease
payments under the lease of its headquarters facility, as a result of its
financial condition, the Company is in violation of certain terms of its lease.
Similar violations have resulted under certain equipment lease agreements.
The Company's recent operating results have been substantially lower
than expected. Total revenues for the quarter and the fiscal year ended April
30, 1998 were $4.8 million and $34.6 million, respectively, compared to
revenues of $9.0 million and $47.1 million for the comparable periods of the
prior year. In addition, the Company incurred net losses for the quarter and
for the year ended April 30, 1998 of $10.1 million and $18.9 million,
respectively, compared to net losses of $1.1 million and $4.1 million for the
comparable periods in the prior year. The Company's last profitable year was
the fiscal year ended April 30, 1996. For over two years, the Company has
experienced significant negative cash flow from operations and investing
activities. The Company has taken many steps to reduce its operating expenses
including reducing its headcount from 71 in December, 1996 to 42 in April 1998.
Although reductions in headcount could help the Company meet its operating
expense objectives, such reductions could adversely affect the Company's sales,
marketing and product development efforts. The Company anticipates that negative
cash flow from operations will continue for the foreseeable future. There can
be no assurance that the Company can generate revenue growth, or that any
revenue growth that is achieved can be sustained. To the extent that increases
in such operating expenses precede and are not subsequently followed by
increased revenues, the Company's business, results of operations and financial
condition would be materially adversely affected. There can be no assurance
that the Company will ever achieve or sustain profitability.
The Company markets its products through a direct sales force and a
worldwide network of independent distributors and sales representatives. For the
year ended April 30, 1998, international sales represented 64% of product sales.
End user customers of the Company's products include Compaq, Fujitsu, IBM,
Matsushita Communications, Maxtor, Motorola, Siemens and Sony.
INDUSTRY BACKGROUND
There are two general classes of semiconductor memories incorporated
into electronic systems, volatile memory and nonvolatile memory. The principal
distinguishing characteristic between the two classes is that volatile memory
devices require a continuous application of power to retain data, while NVM
devices do not. Among volatile memory devices, DRAMs are the most prevalent,
because they are capable of high-speed data transfer, feature high density
circuitry and can be manufactured at relatively low cost. DRAMs are used
primarily as the main memory in computers for temporary storage of application
program data while the system is operating. NVM devices, in contrast, are used
by computers and electronic systems primarily to store system-critical data when
the power to the system is turned off. The continuous memory capability of NVM
renders these devices well-suited for a wide range of applications in the
computer, consumer electronics, telecommunications, automotive, industrial
control and instrumentation markets. NVM devices are used to store essential
data such as PC BIOS software, which regulates the flow of data to and from
system peripherals such as the keyboard and monitor and disk drives. In
addition, NVM devices that can be programmed and reprogrammed in the system are
used to store user-selected system configurations in consumer electronics
devices such as preset stations in automobile radios and to store numbers in
cellular telephones. NVM devices have generally not been used for computer main
memory applications because historically they have been more expensive, provided
slower performance and were more costly to produce than volatile memory such as
DRAMs.
The different NVM semiconductor devices which the Company sells are
reprogrammable NVM memory such as electrically erasable programmable read only
memory ("EEPROM"), nonvolatile random access memory ("NVRAM"); and Flash memory.
Each successive generation of NVM memory offers increasing functionality,
flexibility and performance.
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The following NVM devices are currently available from various
suppliers in the industry:
EEPROMs. EEPROMs can be erased and reprogrammed electrically within the
system, eliminating the need for physical removal, as required by EPROMs. On
"full-featured" EEPROMs, which have on-chip error correction capabilities that
enhance system reliability, individual bytes or segments of the stored data can
be erased and rewritten thousands of times. These features generally offer
greater flexibility to systems designers than EPROMs. EEPROMs are used to store
system-critical information which needs to be updated on a periodic basis. This
includes control panel settings and other user-configurable system parameters in
consumer devices, cache memory for disk drives, and system protocols and stored
telephone numbers in cellular telephones, facsimile machines and other
telecommunications devices. EEPROMs are generally available in two
configurations, serial EEPROM devices, which transmit data through a single
input-output port, and parallel EEPROMs, which transmit data via multiple ports
concurrently. Each cell of an EEPROM (the discrete area on the device in which
one bit is stored) consists of two transistors, one to store data and one to
permit the cell to be selected when erasing data, as compared to the single,
storage transistor of an EPROM. EEPROMs can be modified to be utilized as
programmable erasable read only memory (PEROM) devices for 5-volt FLASH
applications involving sector-by-sector data read and write. EEPROMs are more
expensive to produce than EPROMs, due to their more complex circuitry.
NVRAMs. NVRAMs consist of a Static Random Access Memory ("SRAM") device
and an EEPROM incorporated in a single semiconductor die. This enables the
device to provide both the high speed data transfer rates and read/write rates
typical of volatile SRAMs and the memory retention of NVMs when the system power
is off. However, the complexity of NVRAM devices, which typically utilize 8
transistors per cell, makes them too costly for most commercial applications.
Accordingly, NVRAMs are generally limited in application to critical,
high-performance systems, such as antilock braking systems.
Flash Memory. Flash EEPROMs, or Flash memories, combine the benefits of
high-speed data alterability and data transfer rates and, potentially, the low
cost manufacturability of volatile memory, with the flexibility and continuous
data retention of NVM. Flash memory products can potentially be manufactured
with storage densities as great as DRAM densities and thereby achieve
manufacturing costs approaching the low cost of DRAMs. In addition, the
architecture of Flash memory potentially permits data alterability and transfer
rates as fast as DRAMs. Flash memory exhibits certain limitations as compared to
DRAMs, including a finite life span of read/write cycles, which limits its use
in computer main memory applications. However, Flash memory is being designed
into a wide variety of applications beyond the traditional application of NVM in
fixed program and data storage, and to applications in dynamic data storage due
to its nonvolatility, high storage densities, rapid access speed and decreasing
cost.
PRODUCTS AND APPLICATIONS
Catalyst provides a broad range of NVM products, including serial and
parallel EEPROMs, Flash memories, NVRAMs and mixed signal products. The
Company's principal product lines are as follows:
Serial EEPROM. The Company offers a broad range of serial EEPROM
products compatible with the three popular industry standard bus interface
protocols: the Inter-Integrated Circuit ("I2C") bus interface of Philips
Electronics, the Microwire interface protocol of National Semiconductor and the
Serial Peripheral Interface ("SPI") bus protocol. Additionally, Catalyst offers
4-wire bus interface protocol type products and secure access designed for
applications requiring security lock for data protection. Products are offered
in wide density (1K to 128K) and voltage (1.8V to 6V) ranges. Serial EEPROM
products are used in many applications to store user reconfigurable data. Some
of the more common applications are disk drives, modems, cellular phones, VCRs,
CD players, hearing aids, PCMCIA cards, cordless phones, laser printers,
computers and pagers.
Parallel EEPROM. Parallel EEPROMs transfer data in multiple bits,
generally eight bits at a time. They provide faster transfer rates than serial
EEPROMs, which transfer data through a single port. Parallel EEPROMs are more
costly than serial EEPROMs and, accordingly, are used primarily in high
performance applications. Catalyst offers both standard 5 volt-only and 3.3
volt-only parallel EEPROMs to meet battery operated application
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requirements. Parallel EEPROMs are primarily used in applications such as POS
terminals, industrial controllers, LAN adapters, telecommunication switches,
cellular phones and modems.
Flash Memory. The Company currently offers Intel-licensed, 12-volt
Flash memory devices in densities ranging from 256 kilobit to 2 megabit (Mb).
The Company's BIOS Flash family is targeted toward personal computer OEMs for
BIOS code storage. This family includes Intel-licensed boot block and bulk erase
technologies available in 1 Mb, 1.5 Mb and 2 Mb densities. The 1.5 Mb devices
are unique to Catalyst. These products were developed to exploit the trend for
PC BIOS requirements that exceed 1 Mb but do not require a 2 Mb solution. The
Company's 1 Mb wordwide (x16) Flash memory product is targeted at disk drive
applications. There can be no assurance that the Company will receive additional
significant orders for this product or that it will achieve more wide-spread
market acceptance.
NVRAMs. NVRAMs consist of an SRAM and an EEPROM incorporated on a
single semiconductor die. NVRAMs provide superior performance over other NVM
products and are ideal for applications that require high speed read/write
operations with nonvolatile memories, including parallel processing controllers
for LANs and antilock braking systems.
Mixed Signal/Micro-Controller Supervisory Products. The Company
designs, manufactures and markets selected mixed signal and has under current
development micro-controller supervisory products using embedded EEPROM
technologies for specialized applications including radio frequency tags for
contactless security and access control, freight lading billing systems, data
collection and general micro-controller applications. These products are based
on the Company's NVM expertise and digital/analog mixed signal design.
SALES AND DISTRIBUTION
The Company markets its products through a direct sales force and a
network of independent distributors and sales representatives. In addition to
its Sunnyvale headquarters facility, the Company maintains domestic sales
offices in Arizona, Florida and Georgia and international sales offices in
England and Taiwan. Sales offices support both OEM customers and distributors.
In addition, Nippon Catalyst K.K., the Company's subsidiary in Japan, works
closely with the Company's manufacturing subcontractors and Japanese
distributors.
The Company seeks to develop strategic relationships with major OEM and
other customers. The Company offers a broad range of NVM devices compatible with
the most common industry standards, and also works closely with customers to
provide semi-custom solutions to address individual customers' needs. In fiscal
1998, the Company shipped products directly or through its distribution network
to customers in the computer, consumer electronics, telecommunications,
automotive, data communication and other industries. OEM customers of the
Company's products include Compaq, Fujitsu, IBM, Matsushita Communications,
Motorola, Siemens and Sony.
During fiscal years 1998, 1997 and 1996, the only customer which
represented more than ten percent of Catalyst's product revenue was Marubun
Corporation, a Japanese distributor (21%, 14% and 12%, respectively). In
December 1997, Marubun resigned as a distributor effective in or about March
1998. International product sales represented approximately 64%, 63% and 60% of
the Company's product sales in fiscal 1998, 1997 and 1996. International sales
are primarily billed in U.S. dollars. Due to the magnitude of its international
sales, the Company is subject to the risks of conducting business
internationally, including unexpected changes in regulatory requirements,
fluctuations in the U.S. dollar, which could increase the sales price of the
Company's products in local currencies, tariffs and other barriers and
restrictions, and the burdens of complying with a variety of foreign laws.
The Company generally does not recognize revenue on shipments to its
distributors until the distributor resells the Company's products. In addition,
as is common in the semiconductor industry, the Company grants price protection
to distributors, in an amount equal to the difference between the price
originally charged and the reduced price, for products held in inventory by the
distributor at the time of a price reduction. From time to time, distributors
are also granted credit on an individual basis for Company-approved price
reductions on specific transactions.
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MANUFACTURING
The Company subcontracts the manufacture of all of its products through
independent semiconductor manufacturers, primarily Oki. The Company has designed
its proprietary circuit designs and fabrication processes to operate within the
overall semiconductor manufacturing processes of its contract manufacturers.
Various of the Company's designs have been integrated with Oki's CMOS processes
utilized in high volume production of DRAMs. The Company also endeavors to
develop its processes in a manner that permits the manufacture of its products
in the fabrication facilities of different semiconductor manufacturing
suppliers. If the Company were forced to switch manufacturing from Oki, its
production and delivery of products would be delayed which could adversely
affect the Company's business, financial condition and results of operations.
Manufacturing semiconductor products is highly complex and sensitive to
a wide variety of factors including the level of contaminants in the
manufacturing environment, impurities in the materials used and the performance
of personnel and equipment. While the Company believes that it has suppliers
willing to provide an adequate wafer supply to meet its currently anticipated
needs, there can be no assurance that the Company will receive sufficient
quantities of wafers at favorable prices on a timely basis, if at all. As is
typical in the semiconductor industry, the Company's outside foundries have from
time to time experienced lower than anticipated production yields. There can be
no assurance that manufacturing problems will not occur in the future. The loss
of Oki as a supplier, any prolonged inability to obtain adequate yields or
deliveries from Oki, UMC or other subcontractors or 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 operating results. The Company currently purchases wafer supplies
under an arrangement with Oki while the parties are negotiating a definitive
agreement. The Company also has a purchase agreement with UMC which runs through
February 2006. Due to declining Flash bookings and other circumstances, the
Company has not ordered any wafers from UMC since December 1997. The Company's
ability to purchase wafers is also subject to having sufficient cash or credit
to pay for those wafers. The Company's financial condition has impaired the
Company's ability to purchase necessary wafer supplies. See "Management's
Discussion and Analyses of Financial Condition and Results of
Operations--Results of Operations," and "--Liquidity and Capital Resources."
The Company performs circuit assembly and tests primarily through
subcontractors located in Southeast Asia. In the assembly process, the wafers
are separated into individual dies, which are then assembled into packages and
tested in accordance with procedures developed by the Company. Following
assembly, the packaged devices are further tested and inspected pursuant to the
Company's quality assurance program prior to shipment to customers. While the
timeliness, yield and quality of semiconductor deliveries from the Company's
suppliers have been acceptable to date, there can be no assurance that
manufacturing problems will not occur in the future. Any prolonged inability to
obtain adequate yields or deliveries from these manufacturers, or any other
circumstance that would require the Company to seek alternate sources of supply,
could delay shipments. Any significant delays would have an adverse effect on
the Company's operating results. The Company has concerns with the financial
viability of its primary test and assembly contractor. Although the Company is
exploring alternative contractors, there can be no assurance that it will be
able to obtain such alternative services or that the Company will have adequate
test and assembly facilities available. Failure to have such services available
would have a material effect on the Company's business, financial condition and
results of operations.
As a result of the Company's dependence on foreign subcontractors and
test facilities, the Company's business is subject to the risks generally
associated with doing business abroad, such as fluctuations in currency exchange
rates, foreign government regulations, political unrest, disruptions or delays
in shipments and changes in economic conditions in countries in which the
Company's manufacturing and assembly and test sources are located. Due to the
Company's cash restrictions, the Company may not be able to maintain payments
to wafer and other subcontractor creditors which are within these supplier's
credit terms. Accordingly, these suppliers may restrict the Company's future
purchases and accordingly may restrict sales of the Company's products.
RESEARCH AND DEVELOPMENT
The Company continues to invest substantial sums in research and
development to improve its fabrication processes and develop additional products
with higher performance and reliability, lower voltage requirements, smaller die
sizes and improved manufacturability. The Company's development efforts include
the development of successive generations of its EEPROM and Flash memory
products, scaled to smaller geometries and mixed signal and micro-controller
supervisory circuits with embedded EEPROM technologies. As of April 30, 1998,
the
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Company employed 13 persons in research and development activities. The Company
invested $4.5 million, $5.8 million and $4.4 million in research and development
activities in fiscal 1998, 1997 and 1996, respectively. In addition, the Company
has hired the services of Essex S.A., an independent contractor in Bucharest,
Romania, to perform design services and test program development on behalf of
the Company at market rates. Mr. Vanco is a majority shareholder of Essex. As of
April 30, 1998, Essex employed approximately 12 engineers to perform the
services on behalf of Catalyst.
PATENTS AND LICENSES
As of April 30, 1998, the Company owned fifteen U.S. patents, one
international patent and had one additional U.S. patent application pending. The
Company intends to continue to seek patents on its inventions used in its
products and manufacturing processes. The process of seeking patent protection
can be expensive and time consuming. There can be no assurance that patents will
issue from pending or future applications or that, if patents are issued, they
will provide meaningful protection or other commercial advantage to the Company.
Moreover, there can be no assurance that any patent rights will be upheld in the
future or that the Company will be able to preserve any of its other
intellectual property rights.
In the semiconductor industry it is typical for companies to receive
notices from time to time alleging 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 a
license in any such 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
therefrom could be substantial and could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company has entered into cross license agreements with Oki and
Seiko granting them nontransferable rights to produce certain products, in
exchange for royalty payments. See "Manufacturing." The Company is not currently
receiving any royalties under these licenses. In August 1995, the Company
entered into an agreement with Intel Corporation which provides Catalyst with a
license to Intel's Flash memory and EEPROM technology in exchange for royalty
payments. The Company is currently in arrears on approximately $1 million of
royalties due to Intel. Should Intel cancel the license for the Company's
failure to pay such royalties, the Company's ability to produce its products
would be materially adversely affected which would result in a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, in February 1996, the Company also entered into an agreement with
UMC, granting UMC rights to produce certain products in exchange for the
provision of certain wafer capacities and certain other license rights. In
addition, as a part of such arrangement UMC purchased 650,000 shares of the
Company's Common Stock for an aggregate cash consideration of $3.7 million.
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 more mature products, such as 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 has been characterized by long
production cycles, irregular yields, competing technologies and, particularly in
fiscal 1997 and fiscal 1998, intense price competition. There can be no
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assurance that the Company will be able to compete successfully in the future
against its competitors for Flash products business.
EMPLOYEES
As of April 30, 1998, the Company had 42 employees, of whom 13 were
engaged in research and development. The Company's future success will depend on
its ability to attract, train, retain and motivate highly qualified employees,
who are in great demand. The Company's employees are not represented by any
collective bargaining organization, and the Company has never experienced any
work stoppage. The Company believes that its employee relations are good.
EXECUTIVE OFFICERS AND KEY PERSONNEL
The executive officers and certain key personnel of the Company are as
follows:
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NAME AGE POSITION(S)
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Radu M. Vanco..................... 48 President, Chief Executive Officer and Director
Marc H. Cremer.................... 34 Vice President of Sales
Thomas E. Gay III................. 49 Vice President of Finance and Administration and
Chief Financial Officer
Sorin Georgescu................... 47 Vice President of Technology
Bassam I. Khoury.................. 38 Vice President of Marketing
Gelu Voicu........................ 49 Vice President of Product Engineering and
Manufacturing
William Priestner................. 43 Director of IS/Planning
</TABLE>
Radu M. Vanco has served the Company as President and Chief Executive
Officer since March 1998 and as a director since November 1995. From October
1996 to March 1998 he served as Executive Vice President of Engineering, from
October 1996 to December 1997 as Chief Operating Officer, and from November 1992
to October 1995 as Vice President, Engineering. From 1991 to 1992, Mr. Vanco
served as product line director at Cypress Semiconductor. From 1985 to 1991, Mr.
Vanco held various technical positions at SEEQ Technology, Inc. Mr. Vanco holds
an M.S. in Electrical Engineering from the Polytechnical Institute, Bucharest,
Romania.
Mr. Cremer has served the Company as Vice President of Sales since
March 1998. From April 1997 to March 1998, he served the Company as Director of
North American Sales and as Eastern U.S. Area Sales Manager from February 1997
when he joined the Company until April 1997. From 1995 to 1997, Mr. Cremer held
various sales management positions at Exel Microelectronics, Inc., a
semiconductor company, most recently as national sales manager. From 1993 to
1995, Mr. Cremer held the position of sales engineer at Sales Engineering
Concepts, Inc., a manufacturers representative. From 1990 to 1993, he held
various sales management and field applications positions for Xicor, Inc., a
semiconductor company. Mr. Cremer holds a B.S. in Electrical Engineering from
Northeastern University.
Mr. Gay has served the Company as Vice President of Finance and
Administration, and Chief Financial Officer since May 1998. From August 1997 to
May 1998 he was Controller of Wireless Access, Inc., a communications device
manufacturing company. From April 1993 to May 1994 he was Controller for the
Company and from July 1994 to November 1996 he was a contract accountant for the
Company. From July 1988 to July 1992 he was controller of Sanmina Corporation, a
contract manufacturing company. Mr. Gay holds a B.S. in Accounting from San
Diego State University.
Mr. Georgescu has served the Company as Vice President, Technology
since April 1998. From October 1997 to April 1998 he was a Senior Device
Engineer of Sandisk Corporation, a semiconductor company. From August 1996 to
October 1997 he was Manager of Flash Technology Development of the Company and
from October 1994 to August 1996 he was a Senior Device Engineer for the
Company. From June 1992 to October 1994
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<PAGE> 9
he was a Senior Device Engineer for Power Integrations Corp., a semiconductor
power supply company. Mr. Georgescu holds his M.S. in Electrical Engineering
from the Polytechnical Institute, Bucharest, Romania.
Mr. Khoury has served the Company as Vice President, Marketing since
March 1998. From April 1997 to March 1998, Mr. Khoury served the Company as
Director of Marketing, from July 1995 to March 1997, as Product Line Director of
EEPROMs and as Director of Product Engineering from May 1994 when he joined the
Company until July 1995. From 1991 to 1994, Mr. Khoury held the position of
product engineering manager at Cypress Semiconductor. From 1987 to 1991, he held
the position of product engineering manager at Seeq Technology, Inc. Mr. Khoury
holds a B.S. in Electrical and Electronic Engineering from University of
Virginia Tech.
Mr. Voicu has served the Company as Vice President, Product Engineering
and Manufacturing since April 1998. From July 1995 to April 1998 he was Director
of Flash Product Line for the Company. From October 1993 to July 1995 he was
Manager of Product Engineering of the Company. From June 1991 to October 1993 he
served with Cypress Semiconductor, Inc., a semiconductor company, most recently
as Senior Product Engineer. Mr. Voicu holds his M.S. in Electrical Engineering
from the Polytechnical Institute, Bucharest, Romania.
Mr. Priestner has served the Company as Director of IS/Planning since
September 1997. From June 1994 to September 1997, he was IS Manager for the
Company. From October 1993 to June 1994 he was a programmer analyst for the
Company. From January 1990 to October 1993 he served as MIS Administrator of The
Lutz Snyder Company, a real estate sales company.
INSURANCE
Catalyst presently carries various insurance coverages including, but
not limited to, property damage, workers' compensation, directors and officers
liability, business interruption and general liability.
IN ORDER TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY HEREBY NOTIFIES
READERS THAT THE FACTORS SET FORTH IN "CERTAIN FACTORS THAT MAY AFFECT THE
COMPANY'S FUTURE RESULTS" AS SET FORTH BELOW IN ITEM 7 BELOW, 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 PERIODS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY
OR ON BEHALF OF THE COMPANY, INCLUDING WITHOUT LIMITATION THOSE MADE IN THIS
REPORT.
ITEM 2. PROPERTIES
The Company rents its 42,500 square foot principal facility in
Sunnyvale, California, pursuant to a lease that expires in July 2006. As
permitted in the lease, the Company has subleased out 17,000 square feet of such
office space which it does not need at this time. The sublease will expire in
September, 1999. The Company also has domestic sales offices in Arizona, Florida
and Georgia and international sales offices in England, Taiwan and Japan. The
Company believes that its existing facilities are adequate to meet its current
needs and that additional or alternative space will be available in the future
on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
On June 26, 1998 Micro-Comp Industries filed a complaint against the
Company in Santa Clara County Superior Court. The complaint alleges that the
Company failed to pay for integrated circuits delivered to the Company by UMC
and seeks $1.6 million in damages. The Company has filed an answer and
cross-complaint and intends to defend the action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter for the fiscal year ended April 30, 1998.
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<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's Common Stock is currently traded in the over-the-counter
market but is not regularly quoted in the automated quotation system of a
registered securities association. From the effective date of the Company's
initial public offering through August 4, 1998, the Common Stock was traded in
the over-the-counter market on the Nasdaq National Market under the symbol
"CATS." Commencing August 5, 1998, trading of the Company's Common Stock on
Nasdaq was discontinued. The following table sets forth the high and low closing
sales price for the Common Stock as reported on the Nasdaq National Market for
each calendar quarter of the last two fiscal years.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1997
Quarter ended July 31, 1996 .................. 8 1/2 4 3/4
Quarter ended October 31, 1996 ............... 6 7/8 4 5/8
Quarter ended January 31, 1997 ............... 4 3/4 2 1/8
Quarter ended April 30, 1997 ................. 3 1/16 1 1/2
FISCAL YEAR ENDED APRIL 30, 1998
Quarter ended July 31, 1997 .................. 3 1/16 1 15/32
Quarter ended October 31, 1997 ............... 3 7/16 1 13/16
Quarter ended January 31, 1998 ............... 2 1/8 27/32
Quarter ended April 30, 1998 ................. 1 3/8 5/8
</TABLE>
As of August 12, 1998, there were approximately 172 registered holders
of record of the Company's Common Stock including a number of holders who are
nominees for an undetermined number of beneficial holders.
No cash dividends have been declared or paid by the Company on the
Common Stock and the Company does not anticipate paying any such dividends in
the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, the Company sold 1,500,000 shares of its Common Stock to a
corporate investor in a private placement transaction at $1.00 per share for an
aggregate cash consideration of $1,500,000. There were no sales discounts or
commissions paid. The offer and sale of the securities was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) of such Act. The proceeds of such offering are being used for general
corporate purposes. In connection with such issuance the investor agreed to
various standstill and voting provisions including not acquiring additional
shares of Company Stock or taking actions to control the Company. The Company
also has certain repurchase rights with respect to the shares sold over the
twelve months from the date of issuance.
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<PAGE> 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of
the Company. This historical data should be read in conjunction with the
attached consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Form 10-K including the information
under the caption "Certain Factors that May Affect the Company's Future
Results".
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
APRIL 30, MARCH 31,
------------------------------------ ----------------------
1998 1997 1996(1) 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues ......................... $ 34,579 $ 47,094 $ 60,186 $ 48,764 $ 54,252
Cost of revenues ..................... 39,025 36,720 42,199 33,910 54,755
-------- -------- -------- -------- --------
Gross profit (loss) .................. (4,446) 10,374 17,987 14,854 (503)
Operating expenses:
Research and development .......... 4,462 5,771 4,407 4,252 6,464
Selling, general and administrative 9,111 8,437 9,733 8,263 14,856
-------- -------- -------- -------- --------
Income (loss) from operations ........ (18,019) (3,834) 3,847 2,339 (21,823)
Interest income (expense), net ....... (847) (205) (225) (223) 339
-------- -------- -------- -------- --------
Income (loss) before income taxes .... (18,866) (4,039) 3,622 2,116 (21,484)
Income tax provision ................. -- -- 48 94 122
-------- -------- -------- -------- --------
Net income (loss) .................... $(18,866) $ (4,039) $ 3,574 $ 2,022 $(21,606)
======== ======== ======== ======== ========
Net income (loss) per share: Basic .. $ (2.28) $ (0.51) $ 0.44 $ 0.29 $ (3.55)
======== ======== ======== ======== ========
Diluted ........ $ (2.28) $ (0.51) $ 0.43 $ 0.27 $ (3.55)
======== ======== ======== ======== ========
Weighted average common shares: Basic 8,263 7,918 8,144 6,976 6,079
======== ======== ======== ======== ========
Diluted ........ 8,263 7,918 8,241 7,409 6,079
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, MARCH 31,
---------------------- ----------------------------------
1998 1997 1996(1) 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 534 $ 2,695 $ 2,966 $ 5,246 $ 4,965
Total current assets ....................... 16,019 28,646 36,225 26,587 25,343
Total assets ............................... 18,853 32,553 39,275 30,817 30,632
Total current liabilities .................. 22,221 16,631 21,194 20,104 23,844
Long-term debt and capital lease obligations 501 1,885 571 1,347 82
Stockholders' equity (deficit) ............. (3,869) 14,037 17,510 9,366 6,706
</TABLE>
- -----------------------
(1) In February 1996, the Company changed its fiscal year end from March 31
to April 30 of each year. The first such fiscal year began on May 1,
1995 and ended on April 30, 1996.
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<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS ANNUAL
REPORT ON FORM 10-K. IN ADDITION, IN ORDER TO TAKE ADVANTAGE OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE
COMPANY HEREBY NOTIFIES READERS THAT THE FACTORS SET FORTH IN "CERTAIN FACTORS
THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS" AS SET FORTH BELOW IN THIS ITEM 7,
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 PERIODS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY, INCLUDING WITHOUT LIMITATION
THOSE MADE IN THIS REPORT.
OVERVIEW
Catalyst Semiconductor, Inc., incorporated October 8, 1985, designs,
develops and markets nonvolatile memory semiconductor products including Serial
and Parallel EEPROMs and Flash memory. Revenues are derived from sales of
semiconductor products designed by the Company and manufactured by other
companies.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998, the market for certain FLASH and EEPROM
devices, which comprise the majority of Catalyst's business, experienced an
excess market supply relative to demand which resulted in a significant downward
trend in prices. The Company could continue to experience a downward trend in
product pricing which could further adversely affect the Company's operating
results.
The Company's recent operating results have consumed substantial
amounts of cash. The reduction in cash has also placed restrictions on wafer
purchases which, during the fourth quarter of 1998, resulted in the cancellation
of some customer sales orders. In May 1998, the Company received net proceeds of
$1.5 million from the sale of 1,500,000 shares of its Common Stock in a private
placement. Management believes, however, that it will require additional cash
from similar or related private placements or other sources of liquidity to meet
the Company's projected working capital and other cash requirements for fiscal
1999, and is currently pursuing these sources of liquidity.
As a result of these circumstances, the Company's independent
accountants' opinion on the consolidated financial statements includes an
explanatory paragraph indicating that these matters raise substantial doubt
about the Company's ability to continue as a going concern.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 30, 1998 COMPARED TO FISCAL YEAR ENDED APRIL
30, 1997
Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales has been made through independent
distributors. Revenue from product sales to original equipment manufacturers and
from sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the distributor
sells the product to the customer. Total revenues decreased by 27% to $34.6
million in fiscal 1998 from $47.1 million in fiscal 1997. The decrease was
primarily attributable to price erosion caused by excess supply and other
adverse industry-wide conditions. Additionally, the Company was unable to
purchase sufficient wafers during the fourth quarter of fiscal 1998 due to lack
of working capital. The Company is reliant upon receiving and fulfilling orders
within the same quarter to meet or exceed its current revenue levels. A
continuation of weak demand, capital deficiencies and price erosion for the
Company's products could lead to continued poor operating results. In May and
June of 1998, the company received substantial cancellations of the backlog
existing at fiscal year end. International sales contributed 64% of net product
sales in fiscal 1998 as compared to 63% in fiscal 1997.
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<PAGE> 13
Gross Profit (Loss). Gross loss for fiscal 1998 was $4.4 million, or a
gross loss of 13% of revenues, compared to gross profit of $10.4 million, or 22%
of revenues, for fiscal 1997. The decreases in absolute dollars were primarily
attributable to reduced revenues and $7.5 million in charges taken in the third
and fourth quarters of fiscal 1998. These charges were taken primarily to adjust
the value of certain inventories to reflect reductions in current market pricing
below the cost to produce the inventory and to adjust the value of certain
inventories for which the Company has quantities that exceed forecasted demand.
Gross margins were also adversely affected by excess supplies of competitive
products and other adverse industry-wide conditions, lower than anticipated
yields achieved on the Company's 0.6 micron version of its Flash memory devices,
rework charges incurred to re-mark and re-test certain products in preparation
of shipping those products to customers of the Company, and expedite charges
incurred to ensure that delivery was made in time to meet customer schedules.
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 22% to
$4.5 million in fiscal 1998 from $5.8 million in fiscal 1997. The decrease in
dollars was primarily attributable to decreases in R&D personnel costs. As a
percentage of revenues, R&D expenses increased to 13% from 12%. This increase
was primarily attributable to decreased sales.
Selling, General and Administrative. Selling, general and
administrative ("SG&A") expenses consist principally of salaries for sales,
marketing and administrative personnel, commissions, promotional activities and
directors and officers ("D&O") insurance. SG&A expenses increased 8% to $9.1
million in fiscal 1998 from $8.4 million in fiscal 1997. This increase was
primarily attributable to bad debt expenses and severance accruals. As a
percentage of revenues, SG&A expenses increased to 26% from 18%. The increase in
SG&A as a percentage of revenues was attributable to absolute spending
increasing while revenues decreased.
Net Interest Expense. Net interest expense increased by 313% to
$847,000, or 2% of revenues, in fiscal 1998, as compared to $205,000, or .4% of
revenues, in fiscal 1997. The increase was primarily attributable to increased
average outstanding borrowings. Increased borrowings were not offset by
increased balances in interest bearing cash accounts.
Income Tax Provision. As a result of the Company's loss, the provision
for income taxes remained at zero in fiscal 1998.
As of April 30, 1998 the Company had available net operating loss
carryforwards of approximately $37.6 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, which begin to expire in
fiscal 2001. Availability of the net operating loss and general business credit
carryforwards may potentially be reduced in the event of substantial changes in
equity ownership.
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL
30, 1996
Revenues. Total revenues decreased by 22% to $47.1 million in fiscal
1997 from $60.2 million in fiscal 1996. The decrease was primarily attributable
to price erosion caused by excess supply and other adverse industry-wide
conditions. International sales contributed 63% of net product sales in fiscal
1997 as compared to 60% in fiscal 1996.
Gross Profit. Gross profit decreased by 42% to $10.4 million in fiscal
1997 from $18.0 million in fiscal 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, were in design or already released to production.
Research and Development. R&D expenses increased 31% to $5.8 million in
fiscal 1997 from $4.4 million in fiscal 1996. As a percentage of revenues, R&D
expenses increased to 12% from 7%. The increase was primarily attributable to
increases in R&D personnel costs, facility costs (related to the Company's move
into a new facility in August 1996), depreciation expense, other outside
services (primarily the Company's independent contractors for
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<PAGE> 14
engineering services in Romania) and higher material costs for wafers being used
to evaluate new products and new versions of current products.
Selling, General and Administrative. SG&A expenses decreased 13% to
$8.4 million in fiscal 1997 from $9.7 million in fiscal 1996. This decrease was
primarily attributable to decreases in commissions due to lower revenues and
personnel costs. As a percentage of revenues, SG&A expenses increased to 18%
from 16%. This increase was attributable to absolute spending decreasing at a
rate lower than the revenue decrease.
Net Interest Expense. Net interest expense was $205,000 in fiscal 1997,
as compared to $225,000 in fiscal 1996. Increased borrowings were offset by
increased balances in interest bearing cash accounts.
Income Tax Provision. As a result of the Company's loss, the provision
for income taxes decreased from $48,000 in fiscal 1996 to zero in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Total cash (including $5.8 million of restricted cash) decreased $1.7
million to $6.3 million as of April 30, 1998 from $7.9 million as of April 30,
1997. The decrease was primarily attributable to net cash used to purchase
equipment and repay debt and capital lease obligations. As of April 30, 1998,
$5.8 million of the total cash was pledged as security on letters of credit
required by certain of the Company's wafer foundries. Net cash provided by
operating activities totaled $0.3 million during fiscal 1998. This was primarily
attributable to net operating losses offset by a change in working capital
amounts.
The Company has approximately $3.2 million of secured loans owing to
its bank. As a result of the Company's financial condition and results of
operations, the bank has determined that the Company is in default under various
provisions of the loan agreement entitling the bank to terminate the loan
agreement and declare the loans immediately due and payable. Although the
Company has obtained a letter of forbearance from the bank taking any action
with respect to existing defaults, such forbearance only extends until September
30, 1998 and only as to the specified defaults claimed through June 30, 1998.
The Company is seeking to persuade the bank not to take action on the events of
default and not to declare the loan due and payable. The Company is seeking to
renegotiate a further extension of such forbearance. Although the Company is
seeking to remedy its noncompliance or renegotiate the terms of the loan
agreement, there can be no assurance that the Company will be successful in its
efforts and that the bank will not accelerate all amounts due under the bank
agreement.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same amount.
The loan bears interest at 18% and was due and payable on May 15, 1998, but has
an arrangement to extend it to October 15, 1998.
The Company is currently seeking additional equity or debt financing to
address its working capital needs and to provide funding for capital
expenditures. There can be no assurances, however, that financing will be
available on terms acceptable to the Company, if at all. If the Company is not
successful in raising additional capital, in view of the uncertainties relating
to arrangements with its bank and other lenders, the Company can not reasonably
assess how long its current cash balances, cash generated from operations and
borrowings available under any remaining loans or lines of credit and from
equipment financing, even with substantial reductions in operating expenses and
capital expenditures, will permit the Company to continue operations.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS
THE COMPANY DESIRES TO TAKE ADVANTAGE OF CERTAIN PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, ENACTED IN DECEMBER 1995 (THE
"REFORM ACT") THAT PROVIDES A "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS MADE
BY OR ON BEHALF OF THE COMPANY. THE COMPANY HEREBY CAUTIONS STOCKHOLDERS,
PROSPECTIVE INVESTORS IN THE COMPANY AND OTHER READERS THAT THE FOLLOWING
IMPORTANT FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE
COULD AFFECT, THE COMPANY'S STOCK PRICE OR CAUSE THE COMPANY'S ACTUAL RESULTS
FOR THE FISCAL YEAR ENDING APRIL 30, 1999, FOR THE FISCAL QUARTER ENDING JULY
31, 1998, AND FUTURE FISCAL YEARS AND
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<PAGE> 15
QUARTERS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS, ORAL OR WRITTEN, MADE BY OR ON BEHALF OF THE COMPANY.
The Company's business and future operating results are subject to
potential fluctuations due to a number of factors including the following:
Defaults under Outstanding Loans; Risk of Bankruptcy. The Company has
approximately $3.4 million of secured loans owing to its bank. As a result of
the Company's financial condition and results of operations, the bank has
determined that the Company is in default under various provisions of the loan
agreement entitling the bank to terminate the loan agreement and declare the
loans immediately due and payable. Although the Company has obtained a letter of
forbearance from the bank taking any action with respect to existing defaults,
such forbearance only extends until September 30, 1998 and only as to the
specified defaults claimed through June 30, 1998. The Company is seeking to
persuade the bank not to take action on the events of default and not to declare
the loan due and payable. In that regard the Company is seeking to obtain equity
or other funding to increase the cash available for operations and other
purposes. There can be no assurance that such efforts to obtain funding will be
successful or, if successful, that the bank will continue to forbear action on
or otherwise waive the existing defaults. If the Company's efforts are
unsuccessful, the bank is likely to declare the loans due and payable. Under
such circumstances the Company would be unable to continue operations which
would result in bankruptcy. The Company is also indebted to other creditors in
the amount of approximately $13.4 million. Continued operation of the Company
would also require such other lenders to forbear taking action or waiving
defaults under such other debt. Moreover it is anticipated that any continued
forbearance by the bank would require such other lenders to take similar action
under the other loans. In addition, although the Company is current on its lease
payments under the lease of its headquarters facility, as a result of its
financial condition, the Company is in violation of certain terms of its lease.
Similar violations have resulted under certain equipment lease agreements.
Need for Additional Capital. The Company has incurred significant
losses and experienced significant negative cash flow from operations for over
two years. Such negative cash flow has significantly reduced the Company's
available capital. If the Company is successful in having its lenders agree to
waive or forbear actions on defaults under existing loans or to renegotiate the
terms of such loans to enable the Company to keep such loans outstanding, or
perhaps as a condition to such waivers, the Company will need to obtain
additional capital. If the Company is not successful in raising additional
capital, in view of the uncertainties relating to arrangements with its bank and
other lenders, the Company can not reasonably assess how long its current cash
balances, cash generated from operations and borrowings available under any
remaining loans or lines of credit and from equipment financing, even with
substantial reductions in operating expenses and capital expenditures, will
permit the Company to continue operations. There can be no assurance that the
Company will generate sufficient revenue to fund its operations in the absence
of additional funding sources. The Company has pursued and continues to pursue
measures designed to reduce expenses and conserve cash such as deferring
payments to vendors and other suppliers, headcount reductions, deferrals of
planned expenditures, other expense reductions and other measures. Although such
activities help preserve cash and enable the Company to continue operations, the
lack of available capital hinders the Company's ability to continue
manufacturing, sales, product development and other ongoing operational
activities necessary to generating revenues. Such activities can have a
material, adverse affect on the Company's business, financial condition and
operating results. Furthermore, to the extent the Company suffers further
adverse effects to its revenues or margins because of delays in new product
introductions, price competition or other competitive factors, the Company's
cash position and its business, operating results and financial condition will
be further adversely affected.
The Company is currently seeking additional equity or debt financing to
address its working capital needs and to provide funding for capital
expenditures. The Company's fund raising efforts to date have not been
successful and there can be no assurance that such funding will be available at
acceptable terms, if at all. If the Company is successful in raising funds
through the issuance of equity securities, existing stockholders of the Company
would likely experience substantial dilution, or the securities may have rights,
preferences or privileges senior to those of the Company's Common Stock. If
adequate funds are not available or are not available on acceptable terms,
further reductions in its operating expenses and capital expenditures would be
required to continue operations either of which could have a material adverse
effect on the Company's business, operating results and financial condition.
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<PAGE> 16
Recent Operating Results; Anticipated Future Losses. The Company's
recent operating results have been substantially worse than expected. Total
revenues for the quarter and the fiscal year ended April 30, 1998 were $4.8
million and $34.6 million, respectively, compared to revenues of $9.0 million
and $47.1 million for the comparable periods of the prior year. In addition, the
Company incurred net losses for the quarter and for the year ended April 30,
1998 of $10.1 million and $18.9 million, respectively, compared to net losses of
$1.1 and million and $4.1 million for the comparable periods in the prior year.
The Company's last profitable year was the fiscal year ended April 30, 1996. For
over two years, the Company has experienced significant negative cash flow from
operations. The Company has taken many steps to reduce its operating expenses
including reducing its headcount from 71 in December 1996 to 42 in April 1998.
Although reductions in headcount could help the Company meet its operating
expense objectives, such reductions could adversely impact the Company's sales,
marketing and product development efforts. The Company anticipates that negative
cash flow from operations will continue for the foreseeable future. There can be
no assurance that the Company can generate revenue growth, or that any revenue
growth that is achieved can be sustained. To the extent that increases in such
operating expenses precede and are not subsequently followed by increased
revenues, the Company's business, results of operations and financial condition
would be materially adversely affected. There can be no assurance that the
Company will ever achieve or sustain profitability.
Fluctuations in Operating Results. The Company's operating results have
historically been and in future quarters may be adversely affected or otherwise
fluctuate due to factors such as timing of new product introductions and
announcements by the Company and its competitors, fluctuations in customer
demand for the Company's products, volatility in supply and demand affecting
market prices generally (such as the increases in supply of competitive products
and significant declines in average selling prices experienced by the Company in
the fiscal years ended April 30, 1998 and 1997), increased expenses associated
with new product introductions or process changes, increased expenditures
related to expanding the Company's sales channels, gains or losses of
significant customers, timing of significant orders of the Company's products,
fluctuations in manufacturing yields, changes in product mix, wafer price
increases due to foreign currency fluctuations and general economic conditions.
The Company anticipates that a significant portion of its revenue will be
derived from a limited number of large orders, and the timing of receipt and
fulfillment of any such orders is expected to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis.
Due to the foregoing factors, quarterly revenue and operating results
are difficult to forecast. The Company's expense levels are based, in
significant part, on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. If revenue levels fall below
expectations, as has occurred during the years ended April 30, 1998 and 1997,
net income is likely to be disproportionately adversely affected because a
proportionately smaller amount of the Company's expenses varies with its
revenue. There can be no assurance that the Company will be able to achieve or
maintain profitability on a quarterly or annual basis in the future. Due to the
foregoing factors, the Company's operating results may fall below the
expectations of securities analysts and investors, which could have a material
adverse effect on the market price of the Company's Common Stock. Reductions in
revenue expectations can also require the Company to take additional reserves
against inventory valuations based upon the reduced likelihood that the Company
will be able to liquidate its inventories at profitable prices.
Inventory. The cyclical nature of the semiconductor industry
periodically results in oversupply or shortages of wafer fabrication capacity
such as the Company has experienced from time to time. Since the Company must
order products and build inventory substantially in advance of product
shipments, there is a risk that the Company will forecast incorrectly and
produce excess or insufficient inventories of particular products because demand
for the Company's products is volatile and customers place orders with short
lead times. The ability of the Company's customers to reschedule or cancel
orders without significant penalty could adversely affect the Company's
liquidity, as the Company may be unable to adjust its purchases from its wafer
suppliers to match such customer changes and cancellations. There can be no
assurance that the Company's inventory will be reduced by the fulfillment of
customer orders or that in the future the Company will not produce excess
quantities of its products. To the extent the Company produces excess
inventories of particular products, the Company's operating results could be
adversely affected by charges that the Company could recognize due to
significant reductions in demand for its products, rapid declines in the market
value of inventory resulting in inventory writedowns or other related factors.
-16-
<PAGE> 17
For example, during the last half of fiscal 1998, the Company recorded charges
of approximately $7.5 million attributable to reserves for lower of cost or
market adjustments and for excess and obsolete inventory adjustments. There can
be no assurance that the Company will not suffer similar reductions in values of
its inventories in the future or that the Company will be able to liquidate its
inventory at acceptable prices.
Competition. The semiconductor industry is intensely competitive and
has been characterized by rapid price erosion, declining gross margins, rapid
technological change, product obsolescence and heightened international
competition in many markets. Average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have decreased
significantly and rapidly over the life of each product. The Company expects
that average selling prices for its existing products will continue to decline
rapidly for the foreseeable future and that average selling prices for each new
product will decline significantly over the life of the product. Declines in
average selling prices for the Company's products, if not offset by reductions
in the cost of producing those products or by sales of new products with higher
gross margins, would decrease the Company's overall gross margins, could cause a
negative adjustment to the valuation of the Company's inventories and could
materially and adversely affect the Company's operating results.
The Company competes with major domestic and international
semiconductor companies, many of which have substantially greater financial,
technical, sales, marketing, production, distribution and other resources than
the Company. The can be no assurance that the Company will be able to compete
successfully in the future. The Company's more mature products, such as Serial
and Parallel EEPROM devices, compete on the basis of product performance, price
and customer service. The Company believes it competes successfully with respect
to each of these competitive attributes; however price competition is
significant and expected to continue. Principal competitors with respect to the
Company's EEPROM products currently include SGS-Thomson, National Semiconductor,
Atmel and Xicor, 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 has been characterized by long
production cycles, irregular yields, competing technologies and, particularly
since the first quarter of fiscal 1997, intense price competition resulting in
major reductions in average selling prices and corresponding reductions in
margins. The Company's Flash memory products compete on the basis of product
performance, price and customer service. However, given the development of
higher density/lower cost products and the intense price competition prevalent
for these products, there can be no assurance that the Company will be able to
compete successfully in the future against its competitors on the bases of these
or other competitive factors.
Dependence on Independent Foreign Manufacturers and Subcontractors;
Manufacturing Risks. The Company does not manufacture the semiconductor wafers
used for its products. The Company principally utilizes facilities of Oki
Electric Industry Co., Ltd. ("OKI") in Japan, and United Microelectronics
Corporation ("UMC") in Taiwan, to fabricate and test the Company's wafers and
subcontractors in Southeast Asia to assemble and test its integrated circuits.
To date, a majority of these wafers have been manufactured by OKI. The
manufacture of semiconductor products is highly complex and sensitive to a wide
variety of factors and, as is typical in the semiconductor industry, the
Company's outside wafer foundries from time to time have experienced lower than
anticipated production yields. While the Company believes it has an adequate
wafer supply to meet its currently anticipated needs, there can be no assurance
that the Company will continue to receive sufficient quantities of wafers at
favorable prices on a timely basis, if at all, or that the Company will be able
to attain higher levels of wafer supply as demand requires. Material disruptions
in the supply of wafers as a result of manufacturing yield or other
manufacturing problems are not uncommon in the semiconductor industry. The
Company may also be subject to production transition delays. There can be no
assurance that the Company will not experience such problems in the future.
Moreover, delays in the Company's payments to wafer suppliers resulting from the
Company's current cash constraints can often result in delays or reductions in
wafer deliveries and assembly and test services from the Company's suppliers.
Such delays and reductions can result in cancellations of customer orders
thereby adversely affecting the Company's ability to generate future revenues.
The loss of OKI as a supplier, any prolonged inability to obtain adequate yields
or deliveries from OKI or other subcontractor manufacturers, or any other
circumstance that would require the Company to seek and qualify alternative
sources of supply of products or services, could delay shipments, result in the
loss of customers and have a material adverse effect on the Company's business
and
-17-
<PAGE> 18
operating results. Moreover, the inability to procure supplies and services from
these foreign subcontractor manufacturers on commercially reasonable terms as a
result of foreign currency exchange rate fluctuations may have a material
adverse effect on the Company's operating results. The Company also has concerns
about the financial viability of its primary test and assembly contractor.
Although the Company is exploring alternative contractors, there can be no
assurance that it will be able to obtain such alternative services or that the
Company will have adequate test and assembly facilities available. Failure to
have such services available would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company's business is subject to other risks generally associated with doing
business with foreign 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 fiscal 1998, 1997 and 1996 international
sales accounted for approximately 64%, 63% and 60%, respectively, of the
Company's product sales. The Company expects that international sales will
continue to represent a significant portion of its product sales in the future.
The Company's international operations may be adversely affected by fluctuations
in exchange rates, imposition of government controls, political and financial
instability, trade restrictions, changes in regulatory requirements,
difficulties in staffing international operations and longer payment cycles. In
particular, recent adverse developments in the economic environment in the Far
East may have a material adverse effect on the Company's subcontractors. There
can be no assurance these or other factors related to international operations
will not have a material adverse affect on the Company's business, financial
condition and results of operations.
New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence. The timely introduction of new products at competitive
price/performance levels is a key factor to the success of the Company's
business. In particular, the Company's future success will depend on its ability
to develop and implement new design and process technologies which enable the
Company to achieve higher product densities and thereby reduce product costs.
For example, most of the Company's products are currently designed and
manufactured using a 0.8 micron CMOS EEPROM process or a 0.5 micron Flash memory
process. There can be no assurance that the Company will be able to select and
develop new products and technologies and introduce them to the market in a
timely manner and with acceptable fabrication yields and production costs.
Furthermore, there can be no assurance that the Company's products will achieve
market acceptance. The failure of the Company to complete and introduce new
products at competitive price/performance levels could materially and adversely
affect the Company's business, financial condition and operating results. Delays
in developing new products, achieving volume production of new products,
successfully completing technology transitions with acceptable yields and
reliability or the lack of commercial acceptance of new products introduced by
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Flash Memory Market. A significant amount of the Company's net revenues
during 1998 were derived from sales of Flash memory products. The market for
Flash memory products has been characterized by intense price competition, long
production cycles, inconsistent yields, competing technologies, rapidly
declining average selling prices, declines in gross margins and intense overall
competition. The Company's fiscal 1997 and fiscal 1998 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 and fiscal 1998 operating
results to adversely affect the Company's future operating results.
Semiconductor Industry. The semiconductor industry is highly cyclical
and has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and gross margins, and production overcapacity. Accordingly, the
Company may experience substantial period to period fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. For example, the Company experienced and
continues to experience accelerated erosion of average selling prices caused by
adverse industry-wide conditions in fiscal 1997 and fiscal 1998.
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
-18-
<PAGE> 19
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.
Customer Concentration. A relatively small number of customers have
accounted for a significant portion of the Company's net revenue in the past.
During fiscal years 1998, 1997 and 1996, the only customer which represented
more than ten percent of Catalyst's product revenue was Marubun Corporation, a
Japanese distributor (21%, 14% and 12%, respectively). In December 1997, Marubun
resigned as a distributor effective in or about March 1998. Loss of one or more
of the Company's current customers could materially and adversely affect the
Company's business, operating results and financial condition. In addition, the
Company has experienced and may continue to experience lower margins on sales to
significant customers as a result of volume pricing arrangements.
Dependence on Manufacturer Representatives and Distributors. The
Company markets and distributes its products primarily through manufacturers'
representatives and independent distributors. The Company's distributors
typically offer competing products. The distribution channels have been
characterized by rapid change, including consolidations and financial
difficulties. The loss of one or more manufacturers' representatives or
distributors, or the decision by one or more distributors to reduce the number
of the Company's products offered by such distributors or to carry the product
lines of the Company's competitors, could have a material, adverse effect on the
Company's operating results.
Year 2000 Compliance. The Company is currently working to assess the
potential impact of the Year 2000 on the processing of date-sensitive
information by the Company's computerized information systems. The Year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in miscalculations or system
failures. Costs of addressing potential problems are being considered but are
not expected to have a material adverse effect on the Company's business,
financial position, results of operations or cash flows in future periods.
However, if the Company or its vendors are unable to resolve such processing
issues in a timely manner, it could result in a material financial risk.
Accordingly, the Company plans to devote the necessary resources to resolve all
significant Year 2000 issues in a timely manner.
Takeover Resistive Measures. The Company's Stockholder Rights Plan,
which provides stockholders with certain rights to acquire shares of Common
Stock in the event a third party acquires more than 15% of the Company's stock,
the Board's ability to issue "blank check" Preferred Stock without stockholder
approval and the Company's staggered terms for its directors, could have the
effect of delaying or preventing a change in control of the Company.
Volatility of Stock Price. The Company's stock price has been and may
continue to be subject to significant volatility. Any shortfall in revenues or
earnings from levels expected or projected by securities analysts or others
could have an immediate and significant adverse effect on the trading price of
the Company's Common Stock in any given period. In addition, the stock market in
general has experienced extreme price and volume fluctuations particularly
affecting the market prices for many high technology companies and small
capitalization companies, and these fluctuations have often been unrelated to
the operating performance of the specific companies. These broad fluctuations
may adversely affect the market price for the Company's Common Stock.
ITEM 7A. QUANTITATIVE AND CUMULATIVE DISCLOSURES ABOUT MARKET RISK
-19-
<PAGE> 20
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) FINANCIAL STATEMENTS
See index to Financial Statements on page F-2 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information relating to the Company's directors required by this item
is incorporated herein by reference to the section entitled "Proposal 1 --
Election of Directors" in the 1998 Proxy Statement. Information relating to the
Company's executive officers required by this item appears in "Item 1 --
Executive Officers and Key Personnel" of this report. Additional information
relating to the Company's directors and executive officers required by this item
is incorporated herein by reference to the section entitled "Additional
Information -- Compliance with Section 16(a) of the Securities Exchange Act" in
the 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the sections entitled "Proposal 1 -- Election of Directors -
Compensation of Directors" and "Additional Information - Executive Compensation"
in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the sections entitled "Additional Information - Security Ownership"
in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the sections entitled " Additional Information - Certain
Relationships and Related Transactions" in the 1998 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Index to Financial Statements on page F-2 hereof .
(a)(2) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(1) above. Schedules other than those included in
referenced Index have been omitted because they are not required or are not
applicable.
(a)(3) EXHIBITS
<TABLE>
<S> <C> <C>
3.2 (1) Restated Certificate of Incorporation of Registrant.
3.4 (1) Bylaws of Registrant.
</TABLE>
-20-
<PAGE> 21
<TABLE>
<S> <C> <C>
4.1 (5) Preferred Shares Rights Agreement, dated as of December 3, 1996, between Catalyst Semiconductor, Inc. and First
National Bank of Boston, including the Certificate of Designation of Rights, Preferences and Privileges of
Series A Participating Preferred Stock, the Form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C respectively.
10.3 (1) Stock Purchase Agreement dated March 31, 1992 between Kamlesh Kumari and Registrant, together with Promissory
Note and Guarantee by B.K. Marya.
10.7 (1) Stock Option Plan, as amended, including forms of Stock Option Agreement.
10.8 (1) 1993 Employee Stock Purchase Plan.
10.9 (1) 1993 Director Stock Option Plan.
10.12 (1) Distributor Agreement dated February 1990 between Arrow Electronics, Inc. and Registrant.
10.14 (1) Distributor Agreement dated June 30, 1986 between Registrant and Marubun Corporation.
10.15 (1) Irrevocable License Agreement dated May 8, 1988 between Seiko Instruments, Inc. and Registrant.
10.16 (1) 64 KBIT CMOS EEPROM, 1M BIT CMOS EEPROM and 256 KBIT CMOS EEPROM Consulting and Design Work Agreement dated
March 26, 1986 between OKI Electric Industry Co., Ltd. and the Registrant.
10.17 (1) FLASH EEPROM Development and License Agreement dated July 18, 1988 between OKI Electric Co., Ltd. and
Registrant.
10.18 (1) 4M FLASH Development and License Agreement dated May 27, 1992 between OKI Electric Co., Ltd. and Registrant.
10.27 (1) Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers.
10.34 (2) Wafer Supply Agreement dated February 24, 1995 between OKI Electric Industry Co., Ltd. and the Registrant.
10.36 (3)+ License Agreement dated August 18, 1995 between Intel Corporation and Registrant
10.38 (4) Standard Industrial Lease dated March 22, 1996 between Marin County Employees Retirement Association and
Registrant.
10.39 (4)+ Master Agreement dated February 7, 1996 between United Microelectronics Corporation and the Registrant.
10.41 (4)+ Amendment dated May 20, 1996 to the Wafer Supply Agreement dated February 24, 1994 between OKI Electric Industry
Co., Ltd. and Registrant.
10.42 (4) Separation and Consulting Agreements dated August 14, 1995 between B.K. Marya and Registrant.
10.43 (4) Separation and Consulting Agreements dated August 30, 1995 between Donald B. Witmer and the Registrant.
10.44 (4) Employment Agreement dated April 25, 1995 between Christopher Carstens and Registrant.
10.45 (4) Employment Agreement dated August 14, 1995 between C. Michael Powell and Registrant.
10.46 (4) Employment Agreement dated October 14, 1995 between Radu Vanco and Registrant.
10.47 (4) Loan Agreement and Loan Forgiveness Agreement dated September 7, 1995 between C. Michael Powell and Registrant.
10.48 (4) Loan Forgiveness Agreement dated March 12, 1996 between Radu Vanco and Registrant.
10.49 Loan and Security Agreement dated June 19, 1997 between Coast Business Credit, a division of Southern Pacific
Thrift & Loan Association ("Coast"), and Registrant.
10.50 Loan and Security Agreement (CEFO Facility) dated June 19, 1997 between Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association ("Coast"), and Registrant.
10.51 Commercial Security Agreement dated April 1, 1998 between Registrant and Oki Electric Industry Co., Ltd.
10.52 Wafer Purchase Agreement dated March 23, 1998 between Registrant and Trio-Tech International PTE LTD with
Variation Agreement dated April 16, 1998 between Registrant and Trio-Tech.
10.53 Addendum dated May 29, 1998 to Employment Agreement dated October 14, 1995 between Radu Vanco and Registrant.
10.54 Severance Agreement dated April 28, 1998 between Sorin Georgescu and Registrant.
10.55 Severance Agreement dated April 28, 1998 between Gelu Voicu and Registrant.
10.57 Severance Agreement dated April 28, 1998 between Marc H. Cremer and Registrant.
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C> <C>
10.58 Severance Agreement dated April 28, 1998 between Bassam Khoury and Registrant.
10.59 Severance Agreement dated June 1, 1998 between Thomas E. Gay III and Registrant.
10.60 Amendment No. 1 to Preferred Shares Rights Agreement dated as of May 22, 1998 between Registrant and BankBoston,
N.A., as rights agent.
10.61 Common Stock Purchase Agreement dated as of May 26, 1998 between Registrant and Elex N.V. ("Elex") with
Standstill Agreement dated as of May 26, 1998 between Registrant and Elex.
10.62 Letter Agreement dated August 6, 1998 between Coast and Registrant concerning default and forbearance under the
Company's bank agreements.
21.1 (1) List of Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (reference is made to page __ of this report on Form 10-K).
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to Registrant's Registration
Statement on Form S-1 filed with the Commission on May 11,
1993 (File No. 33-60132), as amended.
(2) Incorporated by reference to Registrant's Form 10-K filed for
the year ended March 31, 1995.
(3) Incorporated by reference to Registrant's Form 10-Q filed for
the quarter ended September 30, 1995.
(4) Incorporated by reference to Registrant's Form 10-K filed for
the year ended April 30, 1996.
(5) Incorporated by reference to Exhibit 1 to Registrant's Form
8-A filed on January 22, 1997. + Confidential treatment has
been granted as to a portion of this Exhibit. Such portion has
been redacted and filed separately with the Securities and
Exchange Commission.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter
ended April 30, 1998.
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, 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, on August 17, 1998.
CATALYST SEMICONDUCTOR, INC.
By: /s/ Radu M. Vanco
-----------------------------------
Radu M. Vanco
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Radu M. Vanco and Thomas E. Gay III, his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
Date: August 17, 1998 By: /s/ Radu M. Vanco
---------------------- ----------------------------------------
Radu M. Vanco
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: August 17, 1998 By: /s/ Thomas E. Gay III
---------------------- ----------------------------------------
Thomas E. Gay III
Vice President of Finance and
Administration
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: August 17, 1998 By: /s/ Lionel M. Allan
---------------------- ----------------------------------------
Lionel M. Allan
Director
Date: August 17, 1998 By: /s/ C. Michael Powell
---------------------- ----------------------------------------
C. Michael Powell
Director
Date: August 17, 1998 By: /s/ Hideyuki Tanigami
---------------------- ----------------------------------------
Hideyuki Tanigami
Director
Date: August 17, 1998 By: /s/ Patrick Verderico
---------------------- ----------------------------------------
Patrick Verderico
Director
-23-
<PAGE> 24
CATALYST SEMICONDUCTOR, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1998 AND 1997
AND
FOR THE THREE FISCAL YEARS ENDED APRIL 30, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT ACCOUNTANTS
F-1
<PAGE> 25
CATALYST SEMICONDUCTOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants............................................................ F-3
Consolidated Balance Sheets as of April 30, 1998 and 1997.................................... F-4
Consolidated Statements of Operations for the years ended April 30, 1998, 1997 and 1996 ..... F-5
Consolidated Statements of Stockholders' Equity for the years ended April 30, 1998,
1997 and 1996 ........................................................................... F-6
Consolidated Statements of Cash Flows for the years ended April 30, 1998, 1997 and 1996...... F-7
Notes to Consolidated Financial Statements................................................... F-8 - F-17
</TABLE>
F-2
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Catalyst Semiconductor, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Catalyst
Semiconductor, Inc. and its subsidiary at April 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net stockholders' deficit that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
July 27, 1998
F-3
<PAGE> 27
CATALYST SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
<TABLE>
<CAPTION>
April 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash .............................................................. $ 534 $ 2,695
Restricted cash ................................................... 5,750 5,250
Accounts receivable, net .......................................... 4,726 7,074
Inventories ....................................................... 4,194 12,732
Other assets ...................................................... 815 895
-------- --------
Total current assets .......................................... 16,019 28,646
Property and equipment, net .......................................... 2,834 3,907
-------- --------
$ 18,853 $ 32,553
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit .................................................... $ 3,225 $ 3,449
Accounts payable .................................................. 13,400 10,942
Accrued expenses .................................................. 3,650 1,269
Deferred gross profit on shipments to distributors ................ 475 378
Current portion of long-term debt and capital lease obligations.... 1,471 593
-------- --------
Total current liabilities ..................................... 22,221 16,631
Long-term debt and capital lease obligations ......................... 501 1,885
-------- --------
Total liabilities ............................................. 22,722 18,516
-------- --------
Commitments and contingencies (Notes 4 and 8)
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 2,000 shares authorized;
zero shares issued and outstanding ............................. -- --
Common stock and paid-in-capital in excess of $.001 par value,
25,000 shares authorized; 8,445 and 7,989 shares
issued and outstanding ........................................ 42,789 41,829
Accumulated deficit ............................................... (46,658) (27,792)
-------- --------
Total stockholders' equity (deficit) .......................... (3,869) 14,037
-------- --------
$ 18,853 $ 32,553
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 28
CATALYST SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended April 30,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues .............................. $ 34,579 $ 47,094 $ 60,186
Cost of revenues .......................... 39,025 36,720 42,199
-------- -------- --------
Gross profit (loss) ....................... (4,446) 10,374 17,987
Research and development .................. 4,462 5,771 4,407
Selling, general and administrative ....... 9,111 8,437 9,733
-------- -------- --------
Income (loss) from operations ............. (18,019) (3,834) 3,847
Interest income (expense), net ............ (847) (205) (225)
-------- -------- --------
Income (loss) before income taxes ......... (18,866) (4,039) 3,622
Income tax provision ...................... -- -- 48
-------- -------- --------
Net income (loss) ......................... $(18,866) $ (4,039) $ 3,574
======== ======== ========
Net income (loss) per share:
Basic .................................. $ (2.28) $ (0.51) $ 0.44
======== ======== ========
Diluted ................................ $ (2.28) $ (0.51) $ 0.43
======== ======== ========
Weighted average common shares outstanding:
Basic .................................. 8,263 7,918 8,144
======== ======== ========
Diluted ................................ 8,263 7,918 8,241
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 29
CATALYST SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
ADDITIONAL
PAR PAID IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1995 ................ 6,604 $ 7 $ 36,010 $(27,327) $ 8,690
Issuance of common stock to UMC .......... 650 1 3,678 -- 3,679
Issuance of common stock for employee
stock purchase plan .................... 29 -- 127 -- 127
Exercise of stock options ................ 507 -- 1,359 -- 1,359
Amortization of deferred
compensation ........................... -- -- 81 -- 81
Net income ............................... -- -- -- 3,574 3,574
-------- -------- -------- -------- --------
Balance at April 30, 1996 ................ 7,790 8 41,255 (23,753) 17,510
Issuance of common stock for employee
stock purchase plan .................... 47 -- 120 -- 120
Exercise of stock options ................ 152 -- 400 -- 400
Amortization of deferred
compensation ........................... -- -- 46 -- 46
Net loss ................................. -- -- -- (4,039) (4,039)
-------- -------- -------- -------- --------
Balance at April 30, 1997 ................ 7,989 8 41,821 (27,792) 14,037
Issuance of common stock to creditors .... 259 -- 675 -- 675
Issuance of common stock for employee
stock purchase plan .................... 87 -- 87 -- 87
Exercise of stock options ................ 110 -- 198 -- 198
Net loss ................................. -- -- -- (18,866) (18,866)
-------- -------- -------- -------- --------
Balance at April 30, 1998 ................ 8,445 $ 8 $ 42,781 $(46,658) $ (3,869)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 30
CATALYST SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended April 30,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $(18,866) $ (4,039) $ 3,574
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization ......................... 2,629 1,731 1,704
Changes in assets and liabilities:
Accounts receivable .................................. 2,348 3,396 (2,545)
Inventories .......................................... 8,538 3,461 (9,341)
Other assets ......................................... 80 451 (642)
Accounts payable ..................................... 3,133 (5,179) 8,327
Accrued expenses ..................................... 2,381 (863) (2,787)
Deferred gross profit on shipments to distributors ... 97 (731) 263
-------- -------- --------
Net cash used in operating activities .............. 340 (1,773) (1,447)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments ......................... -- -- 909
Cash used for the acquisition of equipment ............... (1,556) (2,734) (1,236)
Proceeds from the disposal of equipment .................. -- 146 616
-------- -------- --------
Cash provided by (used in) investing activities .... (1,556) (2,588) 289
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock transactions, net ........................... 285 566 5,248
Net proceeds from (payment of) line of credit ............ (224) 3,319 (3,086)
Payment of long-term debt and capital lease obligations .. (506) (633) (936)
Proceeds from long-term debt and capital lease obligations -- 838 --
Change in restricted cash ................................ (500) -- --
-------- -------- --------
Cash provided by financing activities .............. (945) 4,090 1,226
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........ (2,161) (271) 68
Cash at beginning of the period ............................. 2,695 2,966 2,898
-------- -------- --------
Cash at end of the period ................................... $ 534 $ 2,695 $ 2,966
======== ======== ========
Supplemental disclosures:
Cash paid during the year for:
Interest ............................................... $ 1,425 $ 541 $ 536
======== ======== ========
Income taxes ........................................... $ 15 $ 41 $ 51
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 31
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS
Catalyst Semiconductor, Inc. ("Catalyst" or the "Company"), incorporated
October 8, 1985, designs, develops and markets nonvolatile memory semiconductor
products including Serial and Parallel EEPROMs and Flash memory. Revenues are
derived from sales of semiconductor products designed by the Company and
manufactured by other companies.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998, the market for certain FLASH and EEPROM
devices, which comprise the majority of Catalyst's business, experienced an
excess market supply relative to demand which resulted in a significant downward
trend in prices. The Company could continue to experience a downward trend in
product pricing which could further adversely affect the Company's operating
results.
The Company's recent operating results have consumed substantial amounts
of cash. The reduction in cash has also placed restrictions on wafer purchases
which, during the fourth quarter of 1998, resulted in the cancellation of some
customer sales orders. In May 1998, the Company received net proceeds of $1.5
million from the sale of 1,500,000 shares of its Common Stock in a private
placement. Management believes, however, that it will require additional cash
from similar or related private placements or other sources of liquidity to meet
the Company's projected working capital and other cash requirements for fiscal
1999, and is currently pursuing other sources of liquidity.
BASIS OF PRESENTATION
Catalyst has a fiscal year that ends on the Sunday nearest April 30th. For
presentation purposes, the consolidated financial statements and notes refer to
the calendar month end. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary after elimination of all
significant intercompany balances and transactions.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Japanese subsidiary is the
Japanese yen. Accordingly, all assets and liabilities are translated at the
current exchange rate at the end of the period and revenues and expenses at
exchange rates in effect when incurred. Cumulative translation adjustments and
net gains and losses resulting from foreign exchange transactions were not
significant during any of the periods presented.
F-8
<PAGE> 32
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Revenue from product sales to original equipment manufacturers and from
sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the time the
distributor sells the product to the end customer. Upon shipment by the Company,
amounts billed to distributors with rights to product returns or price
protection rights are included as accounts receivable, inventory is relieved,
the sale is deferred and the gross profit is reflected as a current liability
until the merchandise is sold to the end customer by the distributors. During
the fourth quarter of fiscal 1996, three distributors agreed to amend their
agreements and thereby waive price protection and certain return rights,
resulting in recognition of revenue previously deferred of approximately $2.4
million.
Fees on development and license contracts are recognized using the
percentage of completion method, which generally coincides with the time when
the milestones defined in the contracts have been met and accepted by the
customer. Non-refundable deposits received in connection with development and
license contracts are recognized on a straight-line basis over the lives of the
contracts. Service fees derived from development and license agreements are
recognized as the services are performed. Royalties are recognized when the
licensee sells the related products. Development costs incurred relating to
license revenue and royalty income were not significant during any of the
periods presented.
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market.
During fiscal 1996, the Company's operating results were favorably
impacted by the sale of Flash memory products for which the costs had been
written-down to an estimated net realizable value of zero at the end of fiscal
1994. If the costs had not been written-down in fiscal 1994, then cost of sales
would have been $2.2 million higher than the amounts reported for fiscal 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated economic useful lives of the assets
(generally two to five years). Leasehold improvements are stated at cost and
amortized over their estimated useful lives or the remaining lease term,
whichever is shorter.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and
cash equivalents, short-term investments, accounts receivable, line of credit,
notes payable and accounts payable, the carrying amounts approximate fair value
due to their short maturities.
F-9
<PAGE> 33
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
restricted cash and accounts receivable. Catalyst invests primarily in money
market accounts and certificates of deposit and places its investments with high
quality financial institutions. The restricted cash is held at a financial
institution as collateral for a letter of credit required by one of the
Company's foundries. The Company's accounts receivable are derived from sales to
original equipment manufacturers and distributors serving a variety of
industries located primarily in the United States, Europe and the Far East and
the Company performs ongoing credit evaluations of these customers. A majority
of the accounts payable balance is payable to a foreign foundry.
DEPENDENCE ON WAFER SUPPLIERS
The Company does not directly manufacture finished silicon wafers. The
Company's strategy has been to maintain relationships with wafer foundries.
However, there can be no assurance that the Company will be able to satisfy its
future wafer needs from current or alternative manufacturing sources. This could
result in possible loss of sales or reduced margins.
During fiscal 1996, the Company signed an agreement with United
Microelectronics Corporation (UMC) of Taiwan. Under the terms of this agreement
the Company received a significant commitment of wafers from UMC in exchange for
rights to certain of the Company's designs. In addition, the Company received
net proceeds of $3.7 million from the sale of 650,000 shares of common stock to
UMC.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the amount an employee must pay to acquire
the stock.
NET INCOME (LOSS) PER SHARE
During the quarter ended January 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 requires presentation of both Basic EPS and Diluted EPS. Basic EPS is
computed by dividing net income available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during a period. In computing Diluted EPS, the average price for the
period is used in determining the number of shares assumed to be purchased from
exercise of stock options, warrants and convertible preferred stock. Net income
(loss) per share presented for all prior periods has been restated to conform to
the provisions of SFAS 128.
F-10
<PAGE> 34
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the numerators and denominators of the basic and
diluted income per share is presented below:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) ............................ $(18,866) $ (4,039) $ 3,574
Shares calculation:
Average shares outstanding--basic ............ 8,263 7,918 8,144
Effect of dilutive securities:
Stock options ........................ -- -- 97
-------- -------- --------
Average shares outstanding--diluted .......... 8,263 7,918 8,241
======== ======== ========
Net income (loss) per share--basic ........... $ (2.28) $ (0.51) $ 0.44
======== ======== ========
Net income (loss) per share--diluted ......... $ (2.28) $ (0.51) $ 0.43
======== ======== ========
</TABLE>
Options to purchase 2,637,000 shares of common stock at prices ranging from
$0.69 to $6.30 per share were outstanding during 1998 and 2,466,000 shares of
common stock at prices ranging from $1.08 to $6.30 per share were outstanding
during 1997, and were not included in the computation of diluted EPS because the
inclusion of such options and shares would have been antidilutive.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
establishes standards for reporting comprehensive income and its components in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gain/loss on
available-for-sale securities. The disclosure prescribed by FAS 130 must be made
beginning with the first quarter of fiscal 1999.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company has not yet determined the impact, if any, of adopting
this new standard. The disclosures prescribed by FAS 131 are effective for the
Company's annual consolidated financial statements for the year ending April 30,
1999.
F-11
<PAGE> 35
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
April 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Accounts receivable:
Accounts receivable ..................................... $ 5,052 $ 7,199
Less: Allowance for doubtful accounts .................. (326) (125)
-------- --------
$ 4,726 $ 7,074
======== ========
Inventories:
Work-in-process ......................................... $ 2,410 $ 5,123
Finished goods .......................................... 1,784 7,609
-------- --------
$ 4,194 $ 12,732
======== ========
Property and equipment:
Engineering and test equipment .......................... $ 7,691 $ 9,392
Computer hardware and software .......................... 3,470 3,364
Furniture and office equipment .......................... 1,275 1,183
-------- --------
12,436 13,939
Less: accumulated depreciation and amortization ......... (9,602) (10,032)
-------- --------
$ 2,834 $ 3,907
======== ========
</TABLE>
NOTE 3 -LINE OF CREDIT:
Under the terms of a bank revolving line of credit in place at April 30,
1998, the Company could 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. The line of credit bears interest at
a variable rate equal to the bank's prime lending rate plus 2.25% (13.75% at
April 30, 1998). As of April 30, 1998, $5.75 million of the amount borrowable
had been pledged as security for bank letters of credit. The revolving line of
credit expires on June 19, 1999. Amounts borrowed on the line of credit are
secured by accounts receivable and inventory and subject to compliance with loan
covenants. At April 30, 1998 and 1997, the Company had borrowings of $3.2
million outstanding and $3.4 million under the line of credit agreements. At
April 30, 1998, the Company was in default under various provisions of the loan
agreement entitling the Bank to terminate the loan agreement and declare the
loans immediately due and payable. As a result of noncompliance with the terms
of the loan, the Company cannot currently borrow any additional funds under the
line.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same. The
loan, which bears interest at 18%, was due and payable on May 15, 1998. The loan
is classified under the current portion of long-term debt at April 30, 1998.
NOTE 4 - LEASES:
At April 30, 1998 and 1997, the net book value of assets recorded as
property and equipment under capital leases aggregated $0.7 million and $0.5
million, which is net of accumulated amortization of $1.5 million and $1.2
million, respectively. The amortization of assets recorded under capital leases
is included with depreciation and amortization expense.
The Company leases its office facilities under operating leases. Total
rent expense under these leases was $416,000, $498,000 and $412,000 for fiscal
1998, 1997 and 1996, respectively.
F-12
<PAGE> 36
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate future minimum lease payments, by fiscal year, under capital
and non-cancelable operating leases with initial terms of one year or more at
April 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1999 ................................................... $ 432 $ 401
2000 ................................................... 222 413
2001 ................................................... 204 413
2002 ................................................... 26 425
2003 ................................................... -- 438
Thereafter ............................................. -- 1,434
------ ------
Total minimum payments ................................. 884 $3,524
======
Less: amount representing interest ..................... (101)
------
Present value of future minimum lease payments ......... 783
Current portion of capital lease obligations ........... (282)
------
Long-term portion of capital lease obligations ......... $ 501
======
</TABLE>
NOTE 5 - INCOME TAXES:
The provision for income taxes for the year ended April 30, 1996 was
comprised of minor amounts of current foreign and state income taxes.
Deferred tax assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
April 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred income and sales returns reserves ............ $ 250 $ 374
Loss carryforwards .................................... 13,150 8,497
Research and development credit carryforwards ......... 959 959
Non deductible reserves and accruals .................. 1,482 1,132
Other ................................................. 500 549
-------- --------
Total deferred tax assets ........................... 16,341 11,511
Valuation allowance ................................... (16,341) (11,511)
-------- --------
$ --- $ ---
======== ========
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal income tax rate to
pretax income (loss) as a result of the following:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate ............................... (34)% (34)% 34%
State income taxes ....................................... -- -- 1
Foreign income and withholding taxes ..................... -- -- 1
Realized deferred tax assets previously reserved ......... -- -- (34)
Tax benefits not currently recognized .................... 34 34 --
---- ---- ----
Effective tax rate ................................. ---% ---% 2%
==== ==== ====
</TABLE>
Tax loss carryforwards at April 30, 1998 are approximately $37.6 million
for federal purposes. These carryforwards begin to expire in fiscal 2007. The
research and development credits begin to expire in fiscal 2001. Availability of
the net operating loss and credit carryforwards may potentially be reduced in
the event of certain substantial changes in equity ownership.
F-13
<PAGE> 37
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
No provision is made for income taxes relating to potential future
distributions of accumulated earnings from the Company's foreign subsidiary,
which at April 30, 1998 were not significant, since it is the Company's
intention to reinvest substantially all of the undistributed earnings in its
foreign operations.
NOTE 6 - STOCK PLANS:
STOCK OPTION PLANS
In October 1989, the Company adopted a stock option plan (the "Option
Plan") for incentive stock options and non-statutory stock options. A total of
3.3 million shares of Common Stock have been reserved for issuance under the
Option Plan. Options granted under the Option Plan are for periods not to exceed
ten years. Incentive stock option and non-statutory stock option grants under
the Option Plan must generally be at prices equal to 100% of the fair market
value of the stock at the date of grant. Options generally vest over four year
periods.
During 1993, the Company adopted a Director Stock Option Plan (the
"Director Plan") which provides for the grant of nonstatutory stock options to
nonemployee directors. A total of 220,000 shares of Common Stock have been
reserved for issuance under the Director Plan. Options granted under the
Director Plan are for periods not to exceed five years. Option grants under the
Director Plan must be at prices equal to 100% of the fair market value of the
stock at the date of grant. Options vest over a period of three years. As of
April 30, 1998 a total of 171,000 options at exercise prices ranging from $0.90
to $6.00 per share, have been granted under the Director Plan, 52,000 of which
were exercisable.
During fiscal 1993, the Company issued to certain employees stock options
at prices which gave rise to deferred compensation expense. In connection with
the issuance of these stock options, the Company recorded $316,000 as deferred
compensation and recognized $46,000 and $81,000 as compensation expense for
fiscal 1997 and 1996, respectively. The remaining $189,000 was recognized in
years prior to fiscal 1996.
F-14
<PAGE> 38
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of activity under the Option Plan and the Director Plan are as
follows:
<TABLE>
<CAPTION>
Options Weighted
Available Options Avg Price
for Grant Outstanding Per Share
--------- ----------- ---------
(in thousands)
<S> <C> <C> <C>
Balance at April 30, 1995 .............. 46 1,708 $ 2.02
Additional shares reserved ............. 700 --
Granted ................................ (1,425) 1,425 $ 5.73
Canceled ............................... 243 (243) $ 3.00
Exercised .............................. -- (507) $ 2.17
------ -----
Balance at April 30, 1996 .............. (436) 2,383 $ 3.80
Additional shares reserved ............. 880 --
Granted ................................ (2,205) 2,205 $ 2.74
Canceled ............................... 1,970 (1,970) $ 4.66
Exercised .............................. -- (152) $ 2.06
------ -----
Balance at April 30, 1997 .............. 209 2,466 $ 2.41
Granted ................................ (2,995) 2,995 $ 1.15
Canceled ............................... 2,804 (2,804) $ 2.20
Exercised .............................. -- (110) $ 1.82
------ -----
Balance at April 30, 1998 .............. 28 2,547 $ 1.26
====== =====
</TABLE>
The Range of Exercise Prices table below summarizes information regarding
stock options outstanding at April 30, 1998.
<TABLE>
<CAPTION>
Range of Exercise Prices
------------------------------------------------------------------------------------
0.69-0.91 1.06-1.06 1.69-1.94 2.69-3.00 5.00-6.30 Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding:
Number outstanding ................. 389 1,785 304 39 30 2,637
Weighted-average remaining
contractual life (years) ......... 9.7 7.3 2.5 1.5 2.8 6.8
Weighted-average exercise price .... $ 0.70 $ 1.06 $ 1.88 $ 2.83 $ 5.37 $ 1.26
Options Exercisable:
Number exercisable ................. 18 1,238 289 39 7 1,681
Weighted-average exercise price .... $ 0.69 $ 1.06 $ 1.89 $ 2.83 $ 5.39 $ 1.42
</TABLE>
In January 1998, the Board of Directors offered employee holders of options
the opportunity to cancel such options and receive an equal amount of options
with an exercise price per share equal to the then current fair market value. As
a result, options to purchase approximately 1.8 million shares were canceled and
an equal number were granted at an exercise price of $1.06.
OTHER STOCK PLANS
The Board of Directors and Stockholders approved the Company's Employee
Stock Purchase Plan (the "Purchase Plan") in March 1993. A total of 250,000
shares of Common Stock have been reserved for issuance under the Purchase Plan.
Sales made through this plan will be at the lower of 85% of the market price at
the date of purchase or on the first day of each six-month offering period. As
of April 30, 1998, a total of 228,000 shares have been issued under the Purchase
Plan.
PRO FORMA STOCK COMPENSATION DISCLOSURE
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-valuation model with the following
weighted-average assumptions used for options granted in 1998, 1997 and 1996,
respectively: dividend yield of 0 percent for all years, expected volatility of
79, 80 and 80 percent, risk free interest rates of 5.50, 6.12 and 5.86, and
expected lives of 3 years for non-officer/director employees and 4 years for
officers and directors for all years.
The fair value of each share granted under the Purchase Plan is estimated
on the date of grant using the Black-Scholes option-valuation model with the
following weighted-average assumptions used for shares granted in 1998, 1997 and
1996, respectively: dividend yield of 0 percent for all years, expected
volatility of 79, 86 and 80 percent, risk free interest rates of 5.36, 5.32 and
5.43, and expected lives of 0.5 years for non-officer/director employees and
officers and directors for all years.
F-15
<PAGE> 39
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has elected to continue to apply APB Opinion 25 in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock option plans and its Purchase Plan. Had compensation
cost for the Company's stock-based compensation plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of SFAS 123, the Company's net income (loss) and net income (loss)
per share would have been reduced to the pro forma amounts below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Year ended April 30,
-------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proforma net income (loss): $ (20,226) $ (5,750) $ 3,072
Pro-forma net income (loss) per share: Basic: $ (2.45) $ (0.73) $ 0.38
Diluted: $ (2.45) $ (0.73) $ 0.37
</TABLE>
The above pro forma amounts include compensation expense based on the fair
value of options vesting during the years ended April 30, 1998, 1997 and 1996
and exclude the effects of options granted prior to May 1, 1995. Accordingly,
the above pro forma net income (loss) and net income (loss) per share are not
representative of the effects of computing stock option compensation expense
using the fair value method for future periods.
NOTE 7 - INTERNATIONAL OPERATIONS AND SIGNIFICANT CUSTOMERS:
Revenues from export sales were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended April 30,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Japan ................................... $ 8,883 $ 9,321 $ 9,733
Other Far East .......................... 8,122 10,771 13,453
Europe .................................. 5,263 9,501 12,672
------- ------- -------
Total export sales ................... $22,268 $29,593 $35,858
======= ======= =======
</TABLE>
The Company sells product to its Japanese distributor, which is also a
stockholder. Revenue from this stockholder represented $7.2 million, $6.5
million and $7.3 million or approximately 21%, 14% and 12% of product sales for
the years ended April 30, 1998, 1997 and 1996, respectively. No other customer
accounted for 10% or more of product sales.
Sales and purchase transactions are denominated in U.S. dollars, except
for certain sales and purchases which were denominated in Japanese yen and which
were insignificant for the years ended April 30, 1998, 1997 and 1996. Certain
test equipment, with a net book value of approximately $0 million, $0.9 million
and $0.9 million at April 30, 1998, 1997 and 1996, respectively, is located at a
foreign subcontractor's facilities. Except for such equipment, the Company has
no significant assets located outside of the U.S.
NOTE 8 - LEGAL MATTERS AND OTHER CONTINGENCIES:
In September 1997, the Company settled certain actions filed by Samsung
and another party against the Company. In connection with these settlements, the
Company paid $200,000 in cash and issued 259,000 shares of its common stock in
exchange for full settlement of certain accounts payable balances owed by the
Company.
F-16
<PAGE> 40
CATALYST SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the normal course of business, the Company receives notification of
threats of legal action in relation to claims of patent infringement by the
Company. Although no assurances can be given to the results of these claims,
management does not believe that any such results will have a material adverse
impact on the Company's financial condition or results of operations.
The Company is also negotiating with several creditors who have threatened
or filed legal action for the non-payment of amounts owed to them by the
Company. Management believes that the resolution of these claims will be
forthcoming and the resolution will not have a material adverse impact on the
Company's financial condition or results of operations.
NOTE 9 - SUBSEQUENT EVENT:
In May 1998, a private investor purchased 1,500,000 shares of the Company's
common stock in a private placement for $1.00 per share. The offer and sale of
the securities was exempt from registration under the Securities Act of 1933,
as amended, pursuant to Section 4(2) of such Act. In connection with such
issuance the investor agreed to various standstill and voting provisions
including not acquiring additional shares of Company Stock or taking actions to
control the Company. The Company also has certain repurchase rights with
respect to the shares sold over the twelve months from the date of issuance.
F-17
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
3.2 (1) Restated Certificate of Incorporation of Registrant.
3.4 (1) Bylaws of Registrant.
4.1 (5) Preferred Shares Rights Agreement, dated as of December 3, 1996, between Catalyst Semiconductor, Inc. and First
National Bank of Boston, including the Certificate of Designation of Rights, Preferences and Privileges of
Series A Participating Preferred Stock, the Form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C respectively.
10.3 (1) Stock Purchase Agreement dated March 31, 1992 between Kamlesh Kumari and Registrant, together with Promissory
Note and Guarantee by B.K. Marya.
10.7 (1) Stock Option Plan, as amended, including forms of Stock Option Agreement.
10.8 (1) 1993 Employee Stock Purchase Plan.
10.9 (1) 1993 Director Stock Option Plan.
10.12 (1) Distributor Agreement dated February 1990 between Arrow Electronics, Inc. and Registrant.
10.14 (1) Distributor Agreement dated June 30, 1986 between Registrant and Marubun Corporation.
10.15 (1) Irrevocable License Agreement dated May 8, 1988 between Seiko Instruments, Inc. and Registrant.
10.16 (1) 64 KBIT CMOS EEPROM, 1M BIT CMOS EEPROM and 256 KBIT CMOS EEPROM Consulting and Design Work Agreement dated
March 26, 1986 between OKI Electric Industry Co., Ltd. and the Registrant.
10.17 (1) FLASH EEPROM Development and License Agreement dated July 18, 1988 between OKI Electric Co., Ltd. and
Registrant.
10.18 (1) 4M FLASH Development and License Agreement dated May 27, 1992 between OKI Electric Co., Ltd. and Registrant.
10.27 (1) Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers.
10.34 (2) Wafer Supply Agreement dated February 24, 1995 between OKI Electric Industry Co., Ltd. and the Registrant.
10.36 (3)+ License Agreement dated August 18, 1995 between Intel Corporation and Registrant
10.38 (4) Standard Industrial Lease dated March 22, 1996 between Marin County Employees Retirement Association and
Registrant.
10.39 (4)+ Master Agreement dated February 7, 1996 between United Microelectronics Corporation and the Registrant.
10.41 (4)+ Amendment dated May 20, 1996 to the Wafer Supply Agreement dated February 24, 1994 between OKI Electric Industry
Co., Ltd. and Registrant.
10.42 (4) Separation and Consulting Agreements dated August 14, 1995 between B.K. Marya and Registrant.
10.43 (4) Separation and Consulting Agreements dated August 30, 1995 between Donald B. Witmer and the Registrant.
10.44 (4) Employment Agreement dated April 25, 1995 between Christopher Carstens and Registrant.
10.45 (4) Employment Agreement dated August 14, 1995 between C. Michael Powell and Registrant.
10.46 (4) Employment Agreement dated October 14, 1995 between Radu Vanco and Registrant.
10.47 (4) Loan Agreement and Loan Forgiveness Agreement dated September 7, 1995 between C. Michael Powell and Registrant.
10.48 (4) Loan Forgiveness Agreement dated March 12, 1996 between Radu Vanco and Registrant.
10.49 Loan and Security Agreement dated June 19, 1997 between Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association ("Coast"), and Registrant.
10.50 Loan and Security Agreement (CEFO Facility) dated June 19, 1997 between Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association ("Coast"), and Registrant.
10.51 Commercial Security Agreement dated April 1, 1998 between Registrant and Oki Electric Industry Co., Ltd.
10.52 Wafer Purchase Agreement dated March 23, 1998 between Registrant and Trio-Tech International PTE LTD with
Variation Agreement dated April 16, 1998 between Registrant and Trio-Tech.
10.53 Addendum dated May 29, 1998 to Employment Agreement dated October 14, 1995 between Radu Vanco and Registrant.
10.54 Severance Agreement dated April 28, 1998 between Sorin Georgescu and Registrant.
10.55 Severance Agreement dated April 28, 1998 between Gelu Voicu and Registrant.
10.57 Severance Agreement dated April 28, 1998 between Marc H. Cremer and Registrant.
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C>
10.58 Severance Agreement dated April 28, 1998 between Bassam Khoury and Registrant.
10.59 Severance Agreement dated June 1, 1998 between Thomas E. Gay III and Registrant.
10.60 Amendment No. 1 to Preferred Shares Rights Agreement dated as of May 22, 1998 between Registrant and BankBoston,
N.A., as rights agent.
10.61 Common Stock Purchase Agreement dated as of May 26, 1998 between Registrant and Elex N.V. ("Elex") with
Standstill Agreement dated as of May 26, 1998 between Registrant and Elex.
10.62 Letter Agreement dated August 6, 1998 between Coast and Registrant concerning default and forbearance under the
Company's bank agreements.
21.1 (1) List of Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (reference is made to page __ of this report on Form 10-K).
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to Registrant's Registration
Statement on Form S-1 filed with the Commission on May 11,
1993 (File No. 33-60132), as amended.
(2) Incorporated by reference to Registrant's Form 10-K filed for
the year ended March 31, 1995.
(3) Incorporated by reference to Registrant's Form 10-Q filed for
the quarter ended September 30, 1995.
(4) Incorporated by reference to Registrant's Form 10-K filed for
the year ended April 30, 1996.
(5) Incorporated by reference to Exhibit 1 to Registrant's Form
8-A filed on January 22, 1997.
+ Confidential treatment has been granted as to a portion of
this Exhibit. Such portion has been redacted and filed
separately with the Securities and Exchange Commission.
<PAGE> 1
Exhibit 10.49
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
<PAGE> 2
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 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.
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<PAGE> 3
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 fluids 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. RENEW 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.
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
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<PAGE> 4
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
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<PAGE> 5
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 except for
equipment acquired by purchase money financing under agreements expressly
prohibiting junior liens on such equipment; and
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 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 where the failure to be so qualified would have a material adverse
effect on the Borrower, 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.
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
-5-
<PAGE> 6
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 to any
new location not previously reported to Coast, or obtains any additional sites
for the conduct of Borrower's business or the location of any Collateral.
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 ("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
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<PAGE> 7
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. Without
limiting any of Coast's other rights and remedies, if Borrower grants any third
party a lien or encumbrance on or security interest (other than a Permitted
Lien) 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 provide Coast now has, and will have, a perfected and enforceable first
priority security interest in all of the Collateral (other than Collateral
subject to a Permitted Lien) to the extent that such security interest can be
perfected by the filing of financing statements, 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 except for leases of
sales offices at which not more than $200,000 in Collateral is located. Whenever
any Collateral is located upon premises in which any third party has an interest
(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.
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
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<PAGE> 8
will not use the Collateral or any of its other properties for any unlawful
purpose and will not secrete or abandon the Collateral except for the
abandonment of worn-out or obsolete equipment or inventory in the ordinary
course of business. Borrower will immediately advise Coast in writing of any
material loss or depreciation of the Collateral.
3.7 BOOKS AND RECORDS. Borrower has maintained and will
maintain at Borrower's Address books and records which are complete and accurate
in all material respects and which comprise 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.
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 fairly 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.
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
(other than Permitted Liens) 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
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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.
3.10 COMPLIANCE WITH LAW. 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, 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.
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, beard or other governmental agency
(or any basis therefor known to Borrower) which is reasonably likely to result,
either separately or in the aggregate, in any material 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 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 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 reasonably acceptable to Coast, in such form and amounts as Coast
may reasonably 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
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<PAGE> 10
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 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.
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 material reports made to
all insurance companies.
4.2 REPORTS. At its expense, Borrower shall report, in form
satisfactory to Coast, such information as Coast may from time to time
reasonably 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 reasonably specify. All
reports furnished Coast shall be complete and accurate in all material respects.
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
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. 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. 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 except that 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~umulative basis; 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 (except that Borrower may issue common
stock upon exercise of stock options,
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<PAGE> 11
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); sell or transfer any
Collateral, except for the sale of finished inventory in the ordinary course of
Borrower's business 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; lend or distribute any of Borrower's property
or assets, or incur any debts, outside of the ordinary course of Borrower's
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 in excess of $50,000 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.
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 alter receipt by Borrower except (I) wire transfer remittances
received by Borrower shall be transmitted to Coast in total the day following
posting to Borrower's bank account. Borrower agrees that it will not commingle
proceeds of Collateral with any of Borrower's other fluids or property, but will
hold such proceeds separate and apart from such other fluids 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.
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 reasonably 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.
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,
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<PAGE> 12
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 first fifth
business day alter receipt by Coast as to uncollected ands and zero days alter
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.
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 other than lessors of real
property to Borrower); 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 (other than Permitted Liens) for any cause or
reason whatsoever, upon all or any pert 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
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<PAGE> 13
tax or other debt of Borrower unless, with respect to any such tax, Borrower
complies with the provisions of Paragraphs 3.9 (1), (ii), and (iii); or (j) A
notice of lien (other than Permitted Liens) 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 (other than Permitted
Liens) upon all or any of the Collateral or any other assets of Borrower (other
than a lien for real 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 (1) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations in violation of the applicable subordination
agreement 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 (except for individually
negotiated extensions of trade debt, leases or other obligations); 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.
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) (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),
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
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<PAGE> 14
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 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 three percent per annum.
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<PAGE> 15
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 no later than the tenth 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
tenth calendar day prior thereto notice thereof describing in general
non-specific terms, then 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 inquires) 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.
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.
7. POWER OF ATTORNEY.
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<PAGE> 16
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) subject to the terms of this
Agreement and the Collateral Agreements 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) after an Event of Default 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) after an Event of Default 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 Paragraph 4.3 of
this Loan Agreement; and (l) 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.
8. TERMINATION.
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
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<PAGE> 17
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 ) By Coast at any tune 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 fill 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 fill 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 (ii) 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 fill 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,
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<PAGE> 18
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 Federal Express or other recognized private
delivery service ("Private Delivery") 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 one (1) business day after the date
sent by Private Delivery ,or at the expiration of or at the expiration of one
(1) business day after the date sent by Private Delivery, three (3) 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.
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 in a commercially reasonable manner 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
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<PAGE> 19
whatsoever unless any damage thereto is caused by Coast's gross negligence or
willful misconduct, 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 except for Coast's
gross negligence or willful 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.
12. ATTORNEYS' FEES AND COSTS.
Borrower shall forthwith pay to Coast the amount of all reasonable
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
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<PAGE> 20
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.
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 delivery
of a specific written claim setting forth in reasonably specific detail the
Borrower's claim or cause of action within one year after the first act,
occurrence or commission upon which such claim or cause of action, or any part
thereof, is based. Borrower agrees that such one-year 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.
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 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.
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<PAGE> 21
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 he 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 WAIVE, 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
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<PAGE> 22
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
Collateral after an Event of Default
BORROWER:
CATALYST SEMICONDUCTOR, INC.,
a Delaware corporation
By: /s/ C. Michael Powell
-------------------------------------
President
By: /s/ Chris P. Carstens
-------------------------------------
Assistant Secretary
COAST:
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan
Association, a California corporation
By: /s/ John C. Steiner
-------------------------------------
Title: Vice President
-----------------------------------
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<PAGE> 23
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 (l0Qs), 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.
<PAGE> 1
Exhibit 10.50
COAST
LOAN AND SECURITY AGREEMENT (CEFO FACILITY)
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").
* COAST AND THE BORROWER ARE ALSO PARTIES TO THAT CERTAIN LOAN AND SECURITY
AGREEMENT DATED JUNE 19, 1997 (THE "NONCEFO AGREEMENT") AND THE COLLATERAL
AGREEMENTS REFERRED TO THEREIN. BOTH THIS AGREEMENT AND THE NON-CEFO AGREEMENT
AND SUCH OTHER COLLATERAL AGREEMENTS SHALL CONTINUE IN FULL FORCE AND EFFECT,
AND ALL RIGHTS AND REMEDIES OF COAST HEREUNDER AND THEREUNDER ARE CUMULATIVE.
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) CEFO Collateral 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 Non-CEFO Agreement)
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
<PAGE> 2
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 and
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.
1.3 FEES. Borrower shall pay to Coast a loan origination fee in the
amount of n/a concurrently herewith, and an annual loan fee of n/a on each
anniversary of the date hereof during the term of this Loan 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 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:
(a) STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall
be due and unpaid ninety (90) days past its due date;
(b) REVIEW OF BORROWER'S FORECAST. Coast shall have received,
reviewed, and accepted Borrower's financial forecasts.
(c) LANDLORD WAIVER. Coast shall have received duly executed
landlord waivers in form an substance satisfactory Coast, in Coast's sole and
absolute discretion, and in form for recording in the appropriate recording
office, with respect to all allocations where Borrower maintains any inventory
or equipment;
(d) EXECUTED LOAN DOCUMENTS. Coast shall have received this
Agreement duly executed and in form and substance satisfactory to Coast in its
sole and absolute discretion;
(e) 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.
(f) SUBORDINATION. Borrower's debt, if any shall be
subordinated to Coast in a form and substance acceptable to Coast in its sole
and absolute discretion.
(g) PRIORITY OF COAST'S LIENS. Coast shall have received the
results "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform
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<PAGE> 3
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;
(h) CEFO GUARANTEE. Coast shall have received an assignment of
the California Export Finance Office guarantee on or before the earlier of: (a)
30 days after the date of this Agreement, and (b) the date 5 days before the
date on which the Borrower requests an advance under the CEFO Agreement.
2. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. 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 Non-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"), 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, repletion, 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
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<PAGE> 4
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 except for
equipment acquired by purchase money financing under agreements expressly
prohibiting junior liens on such equipment; and
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.
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 access 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 agreement is a deed of trust or
other security instrument having real property or rents from real property as
its subject matter and express 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 Collateral Agreement, Borrower represents and warrant that each of
the following representations and warrant 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, due authorized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower and will continue to
be qualified and licensed to the business in all jurisdictions in which the
nature of its business transacted by it, or the ownership or leasing of its
property, makes such qualification or licensing necessary and where the failure
to be so qualified would have a material adverse effect on the Borrower, and
Borrower has and will continue to have all requisite power and authority to
carry on its business as it is not or may hereafter be, conducted.
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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 to any new location not
previously reported to Coast, or obtains any additional sites for the conduct of
Borrower's business or the location of any Collateral.
3.5 THE 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 ("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
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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. Without limiting any of Coast's other
rights and remedies, if Borrower grants any third patty a lien or encumbrance on
or security interest (other than a Permitted Lien) 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 (Other than Collateral subject to a Permitted Lien) to the extent
that such security interest can be perfected by the filing of financing
statements 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 (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 patty 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 except for leases of sales offices at which not
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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 except for the abandonment of worn-out or obsolete equipment or
inventory in the ordinary course of business. Borrower will immediately advise
Coast in writing of any material loss or depreciation of the Collateral.
3.7 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address books and records which are complete and accurate in all
material respects and which comprise an accounting system in accordance with
generally accepted principles. Borrower has not and will not in the future enter
into any agreement with any accounting firm, service bureau or third parry 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.
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 fairly
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 pursuant to Schedule 42.
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
(other than Permitted Liens) 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
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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.
3.10 COMPLIANCE WITH LAW. 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, 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.
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 is reasonably likely to result,
either separately or in the aggregate, in any material 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 involving any single claim of $50,000 or more, or involving
$100,000 or more in the aggregate. Borrower will immediately inform Coast in
writing of any claim, proceeding, litigation or investigation hereafter
threatened or instituted by or against Borrower 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 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 reasonably acceptable to Coast,
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in such form and amounts as Coast may reasonably 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 provided that if (I) no Event of
Default has occurred and is continuing, and (ii) the proceeds are less than
$50,000 and (iii) the proceeds relate to Collateral which Is not inventory to be
untitled to fulfill "Eligible Purchase Orders" (as defined in the CEFO
Collateral Agreement of even date), then Coast shall release the same to the
Borrower for the repair or replacement of the property affected. 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 material reports made to all insurance
companies.
4.2 REPORTS. At its expense, Borrower shall report, in form
satisfactory to Coast, such information as Coast may from time to time
reasonably specify regarding Borrower or the Collateral including, without
limitation, the written reports set forth in the Schedule hereto; such reports
shall be rendered with such frequency as Coast may reasonably specify. All
reports furnished Coast shall be complete and accurate in all material respects.
4.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At any time Coast, or its
agents, shall have immediate access to the Collateral and any other property of
Borrower, wherever located 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. 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. All of
the rights of Coast under this Section 4 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
parry or entity (except by endorsements of instruments or items of
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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; 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 S100,000 per fiscal year, on a non-cumulative basis
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 (except that Borrower may issue common stock upon 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); sell or
transfer any Collateral, except for the sale of furnished inventory in the
ordinary course of Borrower's business 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; lend or distribute any of
Borrower's property or assets, or incur any debts, outside of the ordinary
course of Borrower's 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 in excess of $50,000 out of the regularly course of
Borrower's business without Coast's consent and any adverse or material change
in the business or financial affairs of Borrower.
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 except (i) wire transfer remittances
received by Borrower shall be transmitted to Coast in total the day following
posting to Borrower's bank account. Borrower agrees that it will not commingle
proceeds of Collateral with any of Borrower's other fluids 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.
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,
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may deem reasonably 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.
4.10 TANGIBLE NET WORTH. Borrower shall maintain, at all times at which
any Obligations remain outstanding, a minimum Tangible Net Worth of Eleven
Million Dollars 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 first business day
after receipt by Coast as to uncollected fluids and zero days after receipt of
collected (goods) fluids 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.
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 other than lessors of real
property to Borrower); or Other than lessors of real property to Borrower(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 (Other than Permitted Liens) 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,
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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
(1) A notice of lien (Other than Permitted Liens), 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 (Other than Permitted
Liens) upon all or any of the Collateral or any other assets of Borrower (other
than a lien for real 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 in violation of the applicable subordination agreement 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 (except for individually
negotiated extensions of trade debt, leases or other obligations); 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.
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) (except that, prior to or
concurrently with the taking 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), 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,
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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
arid 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 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; (1) Demand and receive possession of any of Borrower's
federal and state income tax returns and the Records
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<PAGE> 14
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 three
percent per annum.
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 tenth 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 tenth
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 p.m. and 5:00 p.m. Without limiting the
generally 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.
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 patty, 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
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<PAGE> 15
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 copy 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.
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) subject to the terms of this
Agreement and Collateral Agreements 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) after an Event of Default Pay, contest or settle any lien,
charge, encumbrance, security interest and adverse claim to any of the
Collateral, or any judgment based on, or otherwise take any action to terminate
or discharge the same; (h) after an Event of Default 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 Paragraph 4.3 of
this Loan Agreement; and (l) 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.
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<PAGE> 16
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.
8. TERMINATION.
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 sixtieth 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 fill 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 of the Maximum Dollar Amount as defined
in Section 1.1 hereof. 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. 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,
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<PAGE> 17
Borrower may not terminate this Agreement under subparagraph (a), (c) or (d)
above, unless Borrower also concurrently terminates the Non-CEFO Agreement.
9. NOTICES.
All notices to be given hereunder shall be in writing and shall be
served either personally or by Federal Express or other recognized private
delivery service ("Private Delivery") 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 one (1) business day after the date
sent by Private Delivery, or at the expiration of three (3) 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.
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 there were 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 in a commercially reasonable manner 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 unless any damage thereto is caused by
Coast's gross negligence or willful
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<PAGE> 18
misconduct, 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 except for Coast's gross
negligence or willful 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 for the disposition of all of the Collateral may be less
than amount of the Obligations, and to the full extent of any such anticipated
deficiency, Borrower waives the 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 of the rights of an
unsecured creditor, including, but are limited to, the right of Coast, prior to
the disposition of the Collateral, to obtain a temporary protective for and writ
of attachment or other available remedy. Company shall have no liability to
Borrower if the actual deficiency realized by Coast is less than the anticipated
deficiency of 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 at
any surety or security relating thereto required by at statute, court rule or
otherwise as an incident or condition precedent to the issuance of any temporary
protection order or writ of attachment.
12. ATTORNEYS' FEES AND COSTS.
Borrower shall forthwith pay to Coast the amount of all reasonable
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 connection with any transaction
contemplated hereby, Coast with respect to the Collateral or the defense o
enforcement of its interests (whether or not Coast files 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 a 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'
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<PAGE> 19
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.
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 banned unless asserted by Borrower by the delivery
of a specific written claim setting forth in reasonably specific detail the
Borrower's claim or cause of action within one year 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 one-year 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 concept 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.
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 INTERVENTION. This Loan Agreement and any Collateral Agreements
and such other agreements, documents and instruments as may be executed in
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.
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<PAGE> 20
14.4 TUNE 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 BENEFICIAL 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
patties 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 WHILE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, LOAN AGREEMENT OR ANY COLLATERAL AGREEMENT OR ANY
OTHER PRESENT OR FUTURE
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<PAGE> 21
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 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 Coast Business Credit Loan and
Security Agreement 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 Collateral after an Event of Default.
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<PAGE> 22
BORROWER:
CATALYST SEMICONDUCTOR, INC.,
A DELAWARE CORPORATION
By /s/ C. Michael Powell
-------------------------------------------
President
By /s/ Chris P. Carstens
-------------------------------------------
Assistant Secretary
COAST:
COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift and Loan
Association, a California corporation
By /s/ John C. Steiner
-------------------------------------------
Title Vice President
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<PAGE> 23
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 LIST ATTACHED TO NON-CEFO AGREEMENT
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 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 (l0Ks) 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.
<PAGE> 24
CATALYST SEMICONDUCTOR, INC.
HEADQUARTERS
1250 Borregas Avenue PH 408-542-1000
Sunnyvale, CA 94089 FX 408-542-1401
SUBSIDIARY AND BRANCH OFFICE LISTING:
EASTERN US SALES OFFICE
253/Unit B Plaza Drive PH
Oviedo, FL 32765 FX
EASTERN US SALES OFFICE
1000 Mansell Exchange West, Suite 250 PH
Alpharetta, GA 30022 FX
TAIWAN SALES OFFICE
9F, No 400, Sec 1 PH 011-886-2-345-6192
Kee-Lung Road FX 011-886-2-729-9388
Taipei, Taiwan
SINGAPORE SALES OFFICE
Blk 446, #B1-1635 PH 011-65-385-8568
Hougang Ave 8 FX 011-65-385-8569
Singapore 530446
EUROPEAN SALES OFFICE
The Quorem, Bldg 7200 PH 011-44-1865-481-411
Oxford Business Park FX 011-44-1865-481-511
Oxford 0X4 2JZ
England
NIPPON CATALYST K.K. - JAPANESE SALES OFFICE
4th Fl, Shin Nakano FK Bldg PH 011-81-3-5340-3781
6-16-12, Honcho FX 011-81-3-5340-3780
Nakano-ku, Tokyo 164
Japan
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<PAGE> 25
In addition, the Company ships its inventory to subcontractor facilities
throughout the world, primarily as indicated below:
VOSHIKAWA SEMICONDUCTOR
4637-1, Kamitonda
Shintomi-Cho, Koyu-gun
Miyazaki, Japan
HANA SEMICONDUCTOR (BKK) CO., LTD.
10/4 Moo 7, Soi Mahanakhon Nivate
Vibhavadi-Rangsit Road, Laksi
Bangkok 10210 Thailand
NS ELECTRONICS BANGKOK (1993) LTD.
40/10 Sukhumvit Road, Soi Lasalle 105
Bangna, Prakanong
Bangkok 10260 Thailand
TRIO-TECH (BANGKOK) CO., LTD.
327 Chalongkrung Road
Lamplathew, Ladrabang
Bangkok 10520 Thailand
GATEWAY ELECTRONICS CORPORATION
Philippines-To be provided.
ANAM INDUSTRIAL CO., LTD.
280-8, 2-ga, Sungsu-dong
Sungdong-gu, Seoul, 133-120
Korea
EXPEDITORS INTERNATIONAL
San Francisco, CA-To be provided.
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EXHIBIT 10.51
COMMERCIAL SECURITY AGREEMENT
This COMMERCIAL SECURITY AGREEMENT ("Agreement") is entered into
between CATALYST SEMICONDUCTOR INC., a corporation organized and existing under
the laws of the State of Delaware Catalyst") and OKI ELECTRIC INDUSTRY CO.,
LTD., a corporation organized and existing under the laws of Japan ("Oki").
WHEREAS, Catalyst and Oki have entered into a Wafer Supply Agreement
dated March 15, 1995 (as defined hereunder) under which Oki produces and
supplies silicon wafers to Catalyst which Catalyst uses to manufacture various
non-volatile memory devices;
WHEREAS, in order to facilitate an increased measure of Catalyst's
production and sale of such memory devices, Oki is willing to grant Catalyst
financial credit on terms and conditions as may be agreed by Oki and Catalyst
from time to time;
WHEREAS, Oki is aware that Catalyst has entered into one or more
Commercial Security Agreements with Coast Business Credit, a Division of the
Southern Pacific Thrift & Loan Association ("Coast Business Credit") dated June
19, 1997 (collectively, the "First Security Agreement") under which Catalyst has
pledged secured interests in its accounts, inventory, proceeds, products and
other assets; and
WHEREAS, in order to permit Oki to secure rights and/or subordinated
rights in certain of Catalyst's assets in return for granting Catalyst financial
credit and in order to facilitate an understanding of Oki's rights as a secured
creditor in relation to Catalyst and its prior obligations to Coast Business
Credit, Oki and Catalyst are desirous of entering into this Agreement,
NOW THEREFORE, Oki and Catalyst hereby agree to the following terms and
conditions:
1. GRANT OF SECURITY INTEREST & ASSIGNMENT
GRANT AND ASSIGNMENT. For consideration and value received, Debtor
hereby mortgages, conveys and assigns as security all of Debtor's right, title
and interest in and grants to Secured Party a security interest in, the
Collateral to secure the Indebtedness.
2. DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Wafer Supply Agreement or the Uniform
Commercial Code, which definitions are incorporated herein by this reference.
All references to dollar amounts shall mean amounts in immediately available
lawful money of the United States of America.
2.1 AGREEMENT. The word "Agreement" means this Commercial Security
Agreement and all exhibits and schedules attached hereto, all as may be amended
from time to time.
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2.2 CLAIM. The word "Claim" means any and all administrative, legal or
other actions, arbitrations, mediations, appeals, settlements, consent decrees,
investigations, liabilities, demands, penalties, and fines.
2.3 COLLATERAL. The word "Collateral" means certain personal property
and rights of Debtor, described below whether now owned or existing or hereafter
acquired or arising and wherever located:
2.3.1 DEPOSITS ACCOUNT. The term "Deposits Account" has the
meaning set forth in Section 9105 of California Uniform Commercial Code in
effect on the date hereof.
2.3.2 EQUIPMENT. The term "Equipment" means all of Debtor's
present and hereafter acquired machinery, molds, machine tools, motors,
furniture, equipment, furnishings, fixtures, motor vehicles, tools, parts, dyes,
jigs, goods, and other tangible personal property (other than Inventory) of
every kind and description used in Debtor's operations or owned by Debtor and
any interest in any of the foregoing and all attachments, accessories,
accessions, replacements, substitutions, additions, or improvements to any of
the foregoing, wherever located.
2.3.3 INVENTORY. The term "Inventory" means all of Debtor's
now owned and hereafter acquired goods, merchandise or other personal property,
wherever located, to be furnished wider any Contract of service or held for sale
or lease (including without limitation all raw materials, work in progress,
finished goods and goods in transit, and including without limitation all raw
products. and all materials and supplies of every kind, nature and description
which are or might be used or consumed in Debtor's business or used connection
with the manufacture, packing, shipping, advertising, selling or finishing of
such goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
2.3.4 RECEIVABLES. The term "Receivables" means of Debtor's
now owned and hereafter acquired accounts (whether or not earned by
performance), letters of credit, contract rights, chattel paper, instruments,
securities, documents and all other forms of obligations at any time owing to
Debtor, all guaranties and other security therefor, all merchandise returned to
or repossessed by Debtor, and all rights of storage in transit and other rights
or remedies of an unpaid vendor, lien or secured party.
2.4 DEBTOR. "Debtor" means CATALYST SEMICONDUCTOR INC., its affiliates,
successors and assigns.
2.5 DEFAULT INTEREST RATE. "Default Interest Rate" means 12% per annum.
2.6 WAFER SUPPLY AGREEMENT. "Wafer Supply Agreement" means that certain
WAFER SUPPLY AGREEMENT dated March 15,1995 (including any exhibits) entered into
by CATALYST SEMICONDUCTOR INC. and Oki Electric Industry Co., Ltd. and any and
all amendments thereto.
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2.7 DEFAULT OR EVENT OF DEFAULT. "Default," "Event of Default" or
"default" means and include any of the Events of Default set forth below in the
section titled "Events of Default."
2.8 INDEBTEDNESS. "Indebtedness" means (i) all amounts of every nature
row or hereafter owed by Debtor to Secured Party under the Wafer Supply
Agreement, including without limitation all payment of the prices and
obligations due thereunder; (ii) all amounts of every nature whatsoever now or
hereafter owned by Debtor to Secured Party under this Agreement; and (iii) all
other now or hereafter existing obligations, debts, liabilities, plus interest
thereon, of Debtor to Secured Party, as well as all claims by Secured Party
against Debtor. "Indebtedness" includes the foregoing whether any of each is
voluntary or involuntary, due or not due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Debtor may be liable
individually or jointly with others; whether Debtor may be obligated as
guarantor, surety, accommodation party or otherwise.
2.9 LAWS. "Laws" means all foreign, federal, state and local laws,
regulations, rules, orders, ordinances, decrees, treaties, conventions and
directives, as amended from time to time and whether now or hereafter existing.
2.10 SECURED PARTY. "Secured Party" means OKI ELECTRIC INDUSTRY CO.,
LTD., its affiliates, successors and assigns.
2.11 RELATED DOCUMENTS. Documents" means all letters of credit and
other agreements and documents, whether now or hereafter existing executed at
any time in connection with any of the indebtedness.
2.12 SENIOR RIGHTS. "Senior Rights" shall mean the interest in the
Collateral and other assets to which Coast Business Credit has secured a prior
perfected position by filing appropriate UCC-1 Financing Statements in the State
of California (and/or in other state. as applicable) and to which Oki will take
a secondary or subordinated interest by filing its own UCC-l Financing
Statements. For purposes of this definition, "Senior Rights" may not include a
secured interest in certain Collateral (including Inventory, work in progress or
other items) being manufactured by Oki for Catalyst under the Wafer Supply
Agreement to which Coast Business Credit has not perfected a prior interest by
filing appropriate UCC-l Financing Statements or by following appropriate legal
procedures in relevant jurisdictions.
3. RIGHTS OF RECOUPMENT AND SETOFF. Subject to the Senior Rights of Coast
Business Credit, Debtor hereby grants Secured Party a subordinated right of
recoupment and a contractual right of setoff and a security interest in (i)
monies, accounts or other property of Debtor held by Secured Party in any
capacity, and (ii) obligations of Secured Party to Debtor, including but not
limited to Secured Party's obligations under the Wafer Supply Agreement,
including any of the foregoing held or owed jointly with someone else. Subject
to the Senior Rights of Coast Business Credit, upon any material Event of
Default, Debtor authorizes Secured Party to recoup, and to charge or setoff from
time to time all Indebtedness against any and all of the foregoing without
regard to concepts of mutuality or other requirements of common law recoupment
or setoff.
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4. OBLIGATIONS OF DEBTOR, AND REPRESENTATIONS AND WARRANTIES. Debtor represents,
warrants and covenants to Secured Party as follows:
4.1 PERFECTION AND PRESERVATION OF SECURITY INTEREST. Debtor agrees to
execute from time to time a mortgage on or assignment for security of Debtor's
Collateral, and to take whatever other actions are reasonably requested by
Security Party to perfect and continue Secured Party's interest in the
Collateral and to note Secured Party's interest upon any and an Collateral as
requested by Secured Party. Secured Party may at any time, and without further
authorization from Debtor, file a carbon, photographic or other reproduction of
any financing statement or of this Agreement for use as a financing statement
4.2 DEBTOR'S NAME & LOCATION. Debtor's true and only name is "CATALYST
SEMICONDUCTOR INC." Debtor has not had any other name in the last six (6)
months, and has no trade names or assumed business names. Debtor promptly shall
notify Secured Party before any material Change in Debtor's name, including any
change to the assumed business names of Debtor, and before any change in the
corporate structure of Debtor. The location of Debtor's chief executive office
and all other places of business are set forth on Schedule 4.2 which is attached
and incorporated herein, and Debtor will not change such locations without
nothing Secured Party.
4.3 AUTHORIZATION. Subject to the Senior Rights of Coast Business
Credit, the execution, delivery and performance of this Agreement by Debtor have
been duly authorized by all necessary action by Debtor and do not conflict with,
result in a violation of, create an encumbrance under, or constitute a default
under: (i) any provision of its charter documents (articles of incorporation and
bylaws) or any agreement, license or other instrument or contract binding upon
Debtor, including without limitation, agreements with creditors of Debtor, or
(ii) any Law, court decree, or order applicable to Debtor.
4.4 ENFORCEABILITY OF COLLATERAL. To the extent, the Collateral
consists of accounts, contract rights, or chattel paper, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear on
the Collateral. All existing accounts arc, and at the time any account hereafter
becomes subject to the security interest in favor of Secured Party the account
shall be, a good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for inventory held subject to
delivery instruments or theretofore tendered, shipped or delivered pursuant to a
contract, or for services therefore performed by Debtor with or for the account
debtor; other than Senior Rights of Coast Business Credit there are none and
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed exists or shall
have been made with the account debtor except those approved for Debtor's
distribution customers in the normal course of business.
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4.5 LOCATION OF THE COLLATERAL. All Collateral is located only at the
locations set forth in Schedule 4.2 and Debtor agrees not to move Collateral
from those locations except in the normal course of business without prior
written consent of Secured Party (except for any disposition of inventory if
such is expressly allowed elsewhere in this Agreement or the First Security
Agreements. Debtor, upon requested of Secured Party, shall deliver from time to
time in form satisfactory to Secured Party, a schedule of real properties and a
schedule of additional locations of Collateral hereafter acquired, including
without limitation the following: (i) all real property owned or being purchased
or leased or rented by Debtor; (ii) all storage facilities owned, rented,
leased, or being used by Debtor or any consignee of Debtor; and (iii) all other
properties where Collateral is or may be located.
4.6 RECORDS. Secured Party may examine and -inspect the Collateral at
any reasonable time but not more than once each month wherever located upon
reasonable notice to Debtor and during Debtor's ordinary business hours. Debtor
shall at all times maintain accurate Records of Collateral and Secured Party may
examine the Records and may consult with Debtor's accountants to determine
Debtor's compliance with this Agreement or any Related Document.
4.7 TRANSACTIONS INVOLVING COLLATERAL. Except for property (including
inventory and equipment) sold, licensed or leased or accounts collected in the
ordinary course of Debtor's business, or under Debtor's senior obligations to
Coast Business Credit Debtor shall rot sell (or license or lease), offer to sell
(or license or lease), or otherwise transfer or dispose of the Collateral. For
so long as Debtor is not in default under this Agreement, Debtor may use the
Collateral and may sell, license or lease inventory on a non-exclusive basis,
but only in the ordinary course and on the ordinary, arms-length terms and
conditions of Debtor's business, which terms and conditions shall conform to
customary trade and industry practices or under Debtor's obligations to Coast
Business Credit.
Debtor agrees at all times during the course of this Agreement that its
indebtedness with regarding accounts receivable shall comply with tile following
formula:
O.8 x A-B > $US million where:
A equals all of Debtor's outstanding accounts receivable
B equals all of Debtors outstanding borrowings from Coast.
4.8 RIGHTS TO AUDIT. Notwithstanding the limitations of Section 4.6
above, in order to satisfy itself that Debtor is meeting its obligations
regarding the indebtedness/receivables formula set forth in Section 4.7 of this
Agreement and that Secured Party's rights are otherwise effectively being
protected under this Agreement, Debtor hereby grants Secured Party from time to
time the right to audit all or any portion of Debtor's current outstanding
accounts receivable in accordance with terms and conditions to be agreed by the
parties.
4.9 TITLE, NO ENCUMBRANCE OR EXCLUSIVE LICENSES, AUTHORIZATION,
PRIORITY. Subject to the Senior Rights of Coast Business Credit, Debtor
represents and warrants to Secured Party that: (i) except for Secured Party no
person or entity except Debtor has any right, title or
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interest in any of the Collateral, except as is disclosed in Schedule 4.9; (ii)
Debtor has not executed any assignment or transfer of the Collateral (as
security, to effect any sale or otherwise) before the date hereto. except as is
disclosed in Schedule 4.9; nor has Debtor granted any exclusive license(s) or
lease(s) of any part of the Collateral; (iii) Debtor holds good and marketable
tide to the Collateral owned by it and holds good and full right and authority
to possess or control all Collateral with respect 10 which Debtor is licensee or
lessee, all free and clear of all liens and encumbrances except as disclosed in
Schedule 4.9; and (iv) the execution and delivery of this Agreement by Debtor
and any realization by Secured Party on all or any part of the Collateral, do
not require the consent, license, approval or authorization from any party or
governmental authority which has not been disclosed Secured Party in schedule
4.9 and do not violate any contract or agreement of, or obligation binding upon,
Debtor.
Except for any encumbrances (if any) listed in Schedule 4.9, Debtor
represents and warrants that Secured Party has a first priority security
interest in and lien on all Collateral, which interest and lien is prior to all
other interests of every nature whatsoever of all other persons or entities. No
financing statement, federal registration, assignment or other registration
covering any of the Collateral and purporting to grant any person other than
Secured Party or Debtor an interest therein, is on file in any public offer
other than those which reflect the security interest created by this Agreement
or to which Secured Party has consented in writing, and Debtor has not executed
or delivered any document that could be so registered by anyone other than
Secured Party or Coast Business Credit in connection with the encumbrances
listed in Schedule 4.9.
4.10 REPORTING, COLLATERAL SCHEDULES AND LOCATIONS. As often as Secured
Party shall reasonably require, and to no lesser extent as Secured Party
furnishes reports to Coast Business Credit with regard to its obligations under
the First Security Agreement, Debtor shall deliver to Secured Party reports
concerning its financial status and schedules of Collateral, including such
information as Secured Party reasonably require from time to time, including
without limitation names and addresses of account debtors and aging of accounts.
Insofar as the Collateral consists of inventory and/or Debtor shall deliver to
Secured Party, as often as Secured Party shall reasonably require, lists and
descriptions of Collateral to allows Secured Party easily to identify the
nature, extent, and location of such Collateral.
4.11 MAINTENANCE AND INSPECTION OF COLLATERAL. Subject to the Senior
Rights of Coast Business Credit Debtor shall maintain all Collateral in good
condition Debtor shall not commit or permit damage or destruction of all or any
part of the Collateral Secured Party and its designated representatives and
agents shall have the right at all reasonable times, but no more than once each
month to examine, inspect, and audit the Collateral wherever located. Debtor
shall immediately notify Secured Party of any material return, rejection,
repossession, loss or damage of or to any Collateral, of any request for credit
or adjustment or of any other dispute arising with respect to the Collateral;
and generally of all happenings and events affecting the Collateral or the value
or the amount of the Collateral that should be material to Secured Party.
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4.12 TAXES, FEES, ASSESSMENTS AND LIENS. Debtor shall pay when due all
taxes, assessments and liens or encumbrances due in connection with the
Collateral. Debtor may withhold any such payment or may elect to contest any of
the foregoing if Debtor is in good faith duly conducing an appropriate
proceeding to contest the obligation to pay such taxes, assessments and liens or
encumbrances. In any contest Debtor shall defend itself and Secured Party at
Debtor's sole expense and shall satisfy any final adverse judgment before
enforcement against the Collateral. Debtor shall name Secured Party as an
additional obligee or beneficiary but subordinated to Coast Business Credit as
may be applicable under any surety bond or letter of credit furnished in the
contest proceedings.
4.13 COMPLIANCE WITH LAW. Debtor shall comply promptly with all Laws
applicable to the Collateral, including but not limited to Laws applicable to
the development, production, disposition, and use of the Collateral. Debtor may
duly contest in good faith any such Law and withhold compliance during any
appropriate proceeding, including appropriate appeals.
4.14 MAINTENANCE OF INSURANCE. Debtor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability coverage
with respect to the Collateral, if such insurance be available to Debtor and if
obtaining such insurance is customary in Debtor's trade or industry. Debtor,
upon request of Secured Party, shall deliver to Secured Party from time to time
but not more than once each year copies of the policies or certificates of
insurance. In connection with all policies covering Collateral, Debtor will
cause Secured Party to be named as a subordinated additional insured and provide
Secured Party with such logs loss payable or other endorsements and certificates
as Secured Party may require to ensure subordinated payment of such insurance
proceeds to Secured Party and compliance by Debtor with this section.
4.15 APPLICATION OF INSURANCE PROCEEDS. Debtor shall promptly notify
Secured Party of any material loss or damage to the Collateral. Secured Party
may make proof of loss if Debtor fails to do so within fifteen (15) days of the
casualty. If Debtor is in default, all of Debtor's right title and interest in
all now or hereafter existing proceeds of any insurance on or relating to the
Collateral arc subject to the senior rights of Coast Business Credit, hereby
assigned as security to Secured Party, including accrued proceeds the and such
proceeds if any, after the claims of Coast Business Credit shall be held by
Secured Parry as part of the Collateral if Secured Party consents to repair or
replacement of the damaged or destroyed Collateral, Secured Party shall, upon
satisfactory proof of expenditure, pay or reimburse Debtor from the proceeds or
the reasonable cost of repair or restoration. If Secured Party does not consent
to repair or replacement of the Collateral, Secured Party shall retain a
sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay
the balance to Debtor. Any proceeds which have not been disbursed within six (6)
months after their receipt and which Debtor has not committed to the repair or
restoration of the Collateral shall be used to prepay the Indebtedness subject
to the senior claims of Coast Business Credit.
4.16 INSURANCE REPORTS. Debtor, upon request of Secured Patty, but not
more than once each year, shall furnish to Secured Party reports on each
existing policy of insurance
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showing such information as Secured Parry may reasonably request including the
following: (i) the name of the insurer; (ii) the risks insured; (iii) the amount
of the policy; (iv) the property insured; (v) the then current value on the
basis of which insurance has been obtained and the manner of determining that
value; and (vi) the expiration date of the policy.
5. POSSESSION; LICENSE TO COLLECT ACCOUNTS. Until Default and except as
otherwise provided below with respect to Income (as defined in Section 8.4 of
this Agreement), Debtor may possess and use the Collateral in any manner not
inconsistent with this Agreement.
Secured Party hereby grants Debtor a revocable license to collect any
of the Collateral consisting of Income. Subject to the Senior Rights of Coast
Business Credit, Secured Party may revoke this license in its discretion and the
license shall be automatically revoked without further notice upon any Event of
Default unless Secured Party gives contrary written notice to Debtor. Upon any
Event of Default. Secured Party may exercise its rights to collect the Income
and to notify Income debtors to make payments directly to Secured Party for
application to the Indebtedness. If Secured Party at any time has possession (or
deemed possession) of or title to any Collateral, whether before or after an
Event of Default, Secured Party shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral if Secured Party (a)
takes such action for such purpose as is routinely taken by Debtor and as Debtor
shall reasonably request in writing, or (b) takes such action as Secured Party
shall deem appropriate under the circumstances and in Secured Party's sole
discretion, but failure to honor any request by Debtor shall not of itself be
deemed to be a failure to exercise reasonable care subject to the Senior Rights
of Coast Business Credit Secured Parry shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior parties or
existing parties such as licensors or lessors of Debtor, nor to protect,
preserve or maintain any security interest given to secure the Collateral. Upon
default, and subject to the Senior Rights of Coast Business Credit, Secured
Party shall have the right to posses, use, or dispose of the Collateral pursuant
to terms hereof or applicable Laws, and Secured Party may exercise all rights of
Debtor in the Collateral, and may use or consume any inventory in connection
therewith.
6. EXPENDITURES BY SECURED PARTY. Subject to the Senior Rights of Coast Business
Credit if not discharged or paid when due, Secured Party may (but shall not be
obligated to) discharge or pay any amounts required to be discharged or paid by
Debtor under this Agreement, including without limitation taxes, liens, security
interests encumbrances, and other Claims, at any time levied or placed on the
Collateral.
7. EVENTS OF DEFAULT. Each of the following shall constitute a default or an
Event of Default under this Agreement:
7.1 DEFAULT ON INDEBTEDNESS. Failure of Debtor to make any payment when
due on the Indebtedness.
7.2 OTHER DEFAULTS. Failure of Debtor to comply with or to perform any
other material term, obligation, covenant or condition contained in this
Agreement, the Wafer Supply Agreement or in any other agreement between Secured
Party and Debtor. If any default, other
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than a Default on Indebtedness, is curable and if Debtor has not been given a
prior notice of a breach of the same provision of this Agreement, it may be
cured (and no Event of Default will have occurred) if Debtor, after Secured
Party sends written notice demanding cure of such default, (a) cures the default
within ten (10) business days; or (b) if the cure requires more than ten (10)
business days, immediately initiates such actions which Secured Party deems in
Secured Party's sole discretion to be sufficient to cure the default and
thereafter diligently continues and completes all reasonable and necessary steps
sufficient to produce compliance s soon as reasonably practical but in any event
by the 60th day after the date of said written notification.
7.3 FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Secured Parry by or on behalf Debtor under this Agreement, the
Wafer Supply Agreement is false or misleading in any material respect when made
or deemed made.
7.4 DEFECTIVE COLLATERALIZATION. This Agreement, the Wafer Supply
Agreement ceases TO be in full force and effect at any time and for any reason.
7.5 INSOLVENCY. The dissolution or termination of Debtor's existence as
a going business, the insolvency of Debtor, the appointment of a receiver for
any part of Debtor'. property, any assignment for the benefit of creditors, or
the commencement of any proceeding under any bankruptcy or insolvency laws by or
against Debtor.
7.6 CREDITOR OR FORFEITURE PROCEEDING. Commencement of foreclosure or
forfeiture proceedings, self-help, repossession or any other method, by any
creditor of Debtor or by any governmental agency against the Collateral or any
other collateral securing the Indebtedness. This includes a garnishment of or
levy upon Secured Party for obligations of Debtor. However, this Event of
Default shall not apply if there is a good faith dispute by Debtor as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Debtor gives Secured Party written notice of the
creditor or forfeiture proceeding.
8. RIGHTS AND REMEDIES ON DEFAULT. Subject to the Senior Rights of Coast
Business Credit if an Event of Default Occurs under this Agreement, at any time
thereafter, Secured Party shall have, in addition to all of its rights under
this Agreement, applicable Laws or in equity all the rights of a secured party
under the California Uniform Commercial Code, as amended from time to time and
whether or not such code actually applies to the Collateral in question. In
addition and subject to any limitations set forth in an Intercreditor Agreement
entered into between Secured Party and Coast Credit Bank, Secured Party may
exercise any one or more of the following rights and remedies in any order
(and/or simultaneously):
8.1 ASSEMBLE COLLATERAL. Secured Party may require Debtor to deliver to
Secured Party all or any portion of the Collateral and any and all original
licenses, leases, agreements, certificates of title and other documents relating
to the Collateral. Secured Party may require Debtor to assemble the Collateral
and make it available to Secured Party at a place to be designated by Secured
Party. Secured Party also shall have full power to enter upon all property OIL
which Collateral is located to take possession of arid remove the Collateral.
Debtor agrees to use its best efforts to cooperate with Secured Party in the
exercise by Secured Party of its right
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to take possession of the Collateral and the exercise of all other rights of
Secured Party under Part 5 of Article 9 of the California Uniform Commercial
Code and/or under any other applicable article of said code.
8.2 DISPOSE OF THE COLLATERal. Secured Party shall have full power to
assign, sell, lease or sublease, license or sublicense, transfer, or otherwise
dispose (collectively, "Dispose") of the Collateral in its Own name or that of
Debtor.
Secured Party may Dispose of all or any part of the Collateral at ore
or more public or private sales, auctions or other Dispositions, including
without limitation Disposition at the premises of Debtor (without any change to
Lender or its agents). Unless the Collateral threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Party
will give Debtor reasonable notice of the time after which any private sale or
any other intended Disposition of the Collateral is to be made. The requirements
of reasonable notice shall be met if such notice is given at least five (5) days
before the time of the Disposition or such shorter period as is appropriate
under the circumstances. All Costs and Fees relating to the enforcement of this
Agreement and/or Disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for Disposition and Disposing
of the Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Default Interest
Rate.
Debtor further agrees that Secured Party may be the transferee at any
Disposition of the Collateral and that it shall not be necessary, and Debtor
hereby waives any right to require, that the Collateral be present at any
Disposition or in view of the prospective transferees or that the persons
conducting the Disposition have possession of any or all of the Collateral.
Debtor agrees that all of Debtor's rights in the Collateral shall pass upon any
such Disposition with like effect as if the Collateral were present and in
possession of the person conducing the Disposition and that any possession by
Debtor shall be deemed to be the possession of the person conducting the
Disposition.
8.3 APPOINT RECEIVER. In addition to all rights permitted by applicable
Laws, Secured Party shall also have the following rights and remedies regarding
the appointment of a receiver: (i) Secured Party may have a receiver appointed
as a matter of right; (ii) the receiver may be an employee or agent of Secured
Party and may serve without bond; and (iii) all fees of the receiver and his or
her attorney shall become part of the Indebtedness secured by this Agreement and
shall he payable on demand, with interest at the default interest rate.
8.4 COLLECT REVENUES, APPLY ACCOUNTS. Secured Party, either itself or
through a receiver, may collect the accounts, payment, rents, royalties,
commissions, license fees, income, and revenues from the Collateral ("Income").
Secured Party may at any time in its sole discretion transfer any Collateral
into its own name or that of its nominee and receive the Income therefrom and
hold the same as security for the Indebtedness or apply it to payment of the
Indebtedness in such order as Secured Party may determine.
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8.5 OBTAIN DEFICIENCY. If Secured Party chooses to Dispose of any or
all of the Collateral, Secured Party may obtain a judgment against Debtor for
any deficiency remaining on the Indebtedness due to Secured Party. Subject to
California Law Debtor shall be liable for a deficiency even if the transaction
described in this subsection is a sale of accounts or chattel paper. If Secured
Party does not pay the deficiency upon demand, interest shall accrue on the
deficiency at the default interest rate.
8.7 CUMULATIVE REMEDIES. All of Secured Party's rights and remedies,
whether created or evidenced by this Agreement, the Wafer Supply Agreement or by
any other writing or record, shall be cumulative and may be exercised singularly
or concurrently, and shall be in addition to all other rights which Secured
Party may have by Laws or in equity. A decision by Secured Party to pursue any
remedy shall not exclude pursuit of any other remedy and shall not constitute an
election of remedies, and any decision to make expenditures or to take action to
perform an obligation of Debtor under this Agreement shall not affect Secured
Party's right to declare a default and to exercise its remedies.
9. MISCELLANEOUS PROVISIONS. The following additional provisions are a part of
this Agreement.
9.1 AMENDMENT. This Agreement constitutes the entire understanding and
agreement of the parties as to the matters set forth in this Agreement No
alteration of or amendment to this Agreement shall be effective unless given in
writing and signed by both parties.
9.2 ARBITRATION; APPLICABLE LAW. All disputes and differences will be
addressed pursuant to the terms of arbitration clause in Section 17.13 of the
Wafer Supply Agreement, except to the extent that Secured Party deems it
necessary or advisable to realize upon the security interest granted hereunder
in a court of law. If there is a lawsuit or other proceeding, Debtor agrees upon
Secured Party's request to submit to the jurisdiction of the federal or state
court selected by Secured Party in Santa Clara County, California. Except as
otherwise provided herein, this Agreement shall be governed by and ~ in
accordance with the law: of California, provided that, with respect to
perfection of the security interest, the laws of the state required under
Article 9-103 or other applicable article of the Uniform Commercial Code shall
apply (to the extent applicable).
9.3 ATTORNEYS' FEES; EXPENSES. Upon demand, Debtor agrees to pay all
coots and fees incurred by Secured Party in connection with collecting the
Indebtedness; realizing upon the Collateral; and/or enforcing this Agreement and
including but not limited to all costs and fees incurred in any foreign,
federal, state or local court action, in any bankruptcy (or state receivership
or other insolvency or similar proceedings or circumstances), in any forfeiture
or other proceeding, and for any post-judgment collection services. The costs
and fees shall be part of the Indebtedness secured by the security interest
glinted herein. All amounts due under this Agreement by Debtor to Secured Party
for costs and fees may be deducted from the proceeds of any disposition of
Collateral pursuant to CA UCC Section 9504(1)(a) and Section 9506.
-11-
<PAGE> 12
9.4 INDEMNITY. In addition to the other indemnities contained in this
Agreement, Debtor hereby agrees to indemnity and hold the Secured Party harmless
from all liability, loss, damage and expense, including without limitation Costs
and Fees, relating to or arising out of (i) the inaccuracy in whole or in part
of any representation or warranty made by Debtor in this Agreement or any
Related Document; or (ii) the breach or default by Debtor of any term or
condition of this Agreement or any Related Document; or (iii) any action (or
inaction) taken by Secured Party or its agents to enforce the terms of this
Agreement or the Indebtedness. The Section 9.4 shall survive termination of this
Agreement
9.5 CAPTION HEADING. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.
9.6 NOTICES. Except as otherwise provided in this Agreement or as
otherwise allowed to Secured Party by law, all notices, requests, demands or
other communications shall be in a writing addressed to the respective party at
the address shown below or to such other address as a party may from time to
time specify in writing. Notice shall be in a writing. Notice shall be in a
writing, or in a confirmed facsimile and shall be deemed duly given either: (i)
when delivered in person, or by telecopy machine to the recipient named below;
or (ii) alter placement in the U.S. mails as certified or registered, return
receipt requested, first class postage prepaid, and the receipt indicates
delivery or refusal or failure to accept delivery:
to Debtor: CATALYST SEMICONDUCTOR INC.
1250 Borregas Avenue
Sunnyvale, CA 94089
Attention: Chief Financial Officer
Fax: (408) 541-1405
to Secured Party: OKI ELECTRIC INDUSTRY CO., LTD.
7-12, Toranomon 1-chome, Minato-ku
Tokyo 105, Japan
Attention: General Manager
Silicon Foundry Marketing and Sales Division
Fax: (81-3) 5445-6065
For notice purposes, Debtor agrees to keep Secured Party informed at all times
of Debtor's current address(es). Either party may change the above information
by giving notice to the other party pursuant to this section.
9.7 POWER OF ATTORNEY. Subject to the Senior Rights of Coast Business
Credit:, Debtor hereby appoints Secured Party as its attorney-in-fact, with full
power of substitution, to execute from time to time any documents necessary to
amend, perfect or to continue the perfection of the security interest granted in
this Agreement, and to do the following on or after any Event of Default with
respect to any Collateral not subject to Senior Rights of Coast
-12-
<PAGE> 13
Business Credit: (i) to execute any document which Debtor is obligated to
execute under Section 4.1 of this Agreement upon Debtor's failure or inability
to execute such document, (ii) to demand, collect, receive, receipt for, sue and
recover all sums of money or other property which may now or hereafter become
due, from the Collateral; (iii) to execute, sign and endorse all Claims.
instruments, receipts, chicks, drafts or `warrants issued in payment for the
Collateral; (iv) to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Debtor, to execute and deliver its
release and settlement for the claim; (v) to file any Claim or Claims or to take
any action or institute or take part in any proceedings, either in its own name
or in the name of Debtor, or otherwise, which in the sole discretion of Secured
Party may seem to be necessary or advisable; (vi) to transfer to Secured Party
all right, title and interest of Debtor in Collateral (if any) retained by
Secured Party as discharge of Indebtedness under Article 9-505 of the Uniform
Commercial Code or other applicable law; and (vii) to transfer to any transferee
of a Disposition of Collateral made under Section 8 hereof all right, tide and
interest of Debtor in Collateral, and to execute such other documents or
instruments as necessary or advisable to register, record, or prove title to or
ownership of the Collateral. The Power of Attorney hereby conferred is and shall
be irrevocable and shall remain in full force and until renounced in writing by
Secured Party.
9.8 PREFERENCE PAYMENT. Any monies Secured Party pays because of an
asserted preference claim in Debtor's bankruptcy shall become a part of the
Indebtedness and, at Secured Party's option, shall be payable by Debtor as
provided above in Section 6.
9.9 SEVERABILITY. For purposes of protecting Secured Party, if a court
of competent jurisdiction finds any provision of this Act to be invalid or
unenforceable as to any person or circumstances, such finding shall not render
that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed to be
meddled to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be within and all other
provisions of this Agreement shall remain valid and enforceable to the extent
Secured Party is not damage by such continued enforcement (or does not waive any
such damage).
9.10 SUCCESSOR INTERESTS. This Agreement inures to the benefit of
Secured Party and shall bind all successors and assigns of Debtor. Debtor may
not assign its rights and obligations hereunder without the prior written
consent of Secured Party.
9.11 ENTIRE AGREEMENT; AMENDMENTS AND WAIVER; TIME OF ESSENCE;
COUNTERPARTS. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE
PARTIES REGARDING THE TERMS HEREOF AND SUPERSEDES ANY AND ALL OTHER AGREEMENTS
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT (EXCEPT THE RELATED DOCUMENTS),
ORAL OR WRITTEN, AMONG ANY OR ALL OF THE PARTIES. No amendment, waiver or
forbearance of any provision of this Agreement or any Related Document shall be
effective unless the same shall be in a writing signed by both parties. Any such
waiver or forbearance shall only be effective for tile s-lie purpose and in the
specific instance given and not for other or subsequent purposes or instances
-13-
<PAGE> 14
and no forbearance or waiver shall affect Secured Party's right to refuse
further forbearance or waivers. Time is of the essence of this Agreement and
each Related Document. This Agreement may be executed in any number of
counterparts each of which shall be deemed all original and as executed shall
constitute one agreement, binding on both parties even though both parties do
not sign the same counterpart.
9.12 WAIVER OF CO-OBLIGOR'S RIGHTS. If more than on. person is
obligated for the Indebtedness Debtor irrevocably waives, disclaims and
relinquishes all Claims against such other person which Debtor has or would
otherwise have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity, contribution
or exoneration.
9.13 FAIR CONSTRUCTION; NO DUAL COUNSEL. Counsel for each of the
undersigned has participated, or has had the opportunity to participate, in the
review and revision of this Agreement and each of the undersigned agrees that
rules of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement. Debtor and each other person consenting to or signing this Agreement
(collectively "Debtor's Affiliates") acknowledges and agrees that any legal
counsel retained or employed by Secured Party has acted solely on Secured
Party's behalf and not on Debtor or Debtor's Affiliates, and that Debtor and
each of Debtor's Affiliates has consulted or has had sufficient opportunity to
consult its own legal counsel with regard to this Agreement
If the person signing below purports to be an officer or agent of
Debtor, such person hereby represents and warrants that he or she is duly
authorized to legally bind the Debtor to all terms and conditions of this
Agreement This Agreement is effective as of _________ 1998.
SECURED PARTY: DEBTOR:
OKI ELECTRIC INDUSTRY CO., LTD. CATALYST SEMICONDUCTOR INC.
By /s/ Yoshiaki Inoue By /s/ Radu Vanco
------------------------------ -------------------------------------
Its General Manager 1 April, 1998 Its President & CEO 1 April, 1998
------------------------------ -------------------------------------
(Execution Date) (Executive Date)
-14-
<PAGE> 15
SCHEDULE 4.2
to Commercial Security Agreement between OKI ELECTRIC INDUSTRY CO., LTD.
("Secured Party") and CATALYST SEMICONDUCTOR INC. ("Debtor") dated as of January
___, 1998, of which this Schedule 4.2 is a part ("Agreement").
LOCATIONS OF DEBTOR AND COLLATERAL
DEBTOR'S CHIEF EXECUTIVE OFFICE:
1250 Borregas Avenue
Sunnyvale, California
94089 USA
Collateral [ ] is or will be [ ] is not and will not be kept at the
above location.
DEBTOR'S OTHER PLACES OF BUSINESS::
See Exhibit A, attached hereto for a complete ~ of other places of
business
* Collateral is or will be kept at each of the above locations marked
with an asterisk.
<PAGE> 16
SCHEDULE 4.9
to Commercial Security Agreement between OKI ELECTRIC INDUSTRY CO., LTD.
("Secured Party") and CATALYST SEMICONDUCTOR INC. ("Debtor") dated as of October
___ 1997~ of which this Schedule 4.9 is a part.
COLLATERAL JOINT OWNERSHIP OR ENCUMBRANCE SCHEDULE
1. Accounts Collateral Security Agreement executed on June 193 1997 between
Debtor and Coast Business Credit a Division of Southern Pacific Thrift &
Loan Association, a California Corporation.
2. CEFO Collateral Agreement executed on June 19~ 1997 between Debtor and
Coast Business Credit, a Division' of Southern Pacific Thrift & Loan
Association, a California Corporation (as amended by Amendment Number One
dated as of July 30, 1997).
-16-
<PAGE> 17
EXHIBIT A
SCHEDULE 4.2
Subsidiary and Branch Office Listing:
EASTERN US SALES OFFICE
23 5/unit B Plaza Drive
Oviedo, FL 32765
EASTERN US SALES OFFICE
1000 Mansell Exchange West, Suite 250
Alpharetta, GA 30022
CENTRAL US SALES OFFICE
3303 FM 1960 West, Suite 300-T
Houston, TX 77068
SOUTH WESTERN US SALES OFFICE
1201 South Alma School Road Office 14-2
Mesa, AZ 85210
TAIWAN SALES OFFICE
9F, No. 400g Sec 1
Kee-Lung Road
Taipei, Taiwan
SINGAPORE SALES OFFICE
Blk 446, #B1-1635
Hougang Ave 8
Singapore 530446
EUROPEAN SALES OFFICE
The Quorem, Bldg. 7200
Oxford Business Park
Oxford 0Z4 23Z
England
NIPPON CATALYST K.K.I. - JAPANESE SALES OFFICE
4th Fl., Shin Nakano FK Bldg.
6-16-12, Honcho
Nakano-Ku, Tokyo 164
Japan
-17-
<PAGE> 1
EXHIBIT 10.52
An agreement is made this 23RD day of MARCH 1998 by and among :
CATALYST SEMICONDUCTOR, INC ("CSI" ) a Delaware, U.S.A. corporation, having its
principle place of business at 1250 Borregas Avenue, Sunnyvale, California
94089, U.S.A. and
TRIO-TECH INTERNATIONAL PTE LTD ("TTI") having its principle place of business
at 5 Kian Teck Road, Singapore 628765
Whereas TTI is willing to supply OKI brand wafers to CSI from third
party supplier OKI Electronics Industry Co., Ltd ("OKI") with its principle
place of business at 4-10-3 Shibaura, Minato-ku, Tokyo, 108, Japan.
Whereas CSI is willing to purchase OKI brand wafers from TTI under the
following terms and conditions as agreed hereunder:
1. AGREEMENT
1.1. CSI will place orders with TTI for wafer purchases for amount not
exceeding US $300,000 ("principal sum" as defined under clause 2.3) per
month. Maximum total cumulative exposure to TTI shall be only US
$900,000 with maximum credit period being three (3) months.
1.2. In consideration for obtaining credit terms from OKI, TTI will issue a
standby letter of credit to OKI.
1.3 TTI will then place orders with OKI for same amount of wafers as placed
upon itself by CSI and give instructions to OKI similar shipping
details as per CSI' s instructions.
1.4. OKI will only ship out the wafers to CSI's designated locations upon
TTI's instructions and upon receiving the purchase orders from TTI.
1.5. CSI shall not in any way instruct OKI to proceed with any shipment for
orders secured through TTI.
1.6. OKI shall not in any case, activate shipment orders secured by TTI upon
instructions from CSI, whether verbal or written.
1.7. In the event that CSI gave direct instruction to OKI to ship the wafers
and OKI obliged to such instructions, TTI shall not be responsible for
the shipment and CSI will be liable to pay OKI for the wafers.
<PAGE> 2
1.8 CSI agrees to remain current on all other payments/invoices due to TTI
for services rendered besides the invoices for wafer purchases. These
services include reimbursements for advanced payment made by TTI on
behalf of CSI, advanced payroll for CSI's employees, burn-in services,
tape and reel services and all other business services as and when
incurred between TTI and CSI.
2. PAYMENT TERMS
2.1 CSI shall make payment to TTI within 90 days upon OKI's shipment of
goods to CSI.
2.2 TTI shall only forward payment to OKI after receiving full payment
which consists of the principal sum plus interest (as stipulated under
clause 2.5 and 2.6) from CSI.
2.3 The principal sum includes the cost of wafer plus whatever air freight,
handling charges, seaport charges, taxes, insurance or other expenses
incurred in bringing the wafers to CSI's specified locations. These
shall be stated clearly in the invoice from OKI to TTI and shall total
up to the credit limit of US $300,000 per month or cummulative US
$900,000 for three months.
2.4 TTI shall not be responsible for any other costs incurred besides that
stated in OKI's invoice to TTI. Any incidental expenses or costs
incurred will be charged to and fully responsible by CSI.
2.5 CSI will pay TTI the full payment which is the principal sum according
to clause 2.3 above plus interest rate of 12.125 percent per annum up
to ninety (90) days.
2.6 Interest of 2 percent per month or the highest allowable rate shall be
charged for any outstanding receivables unpaid after the 90 days
credit.
2.7 Should CSI's outstanding payments for all other services and goods
provided by TTI besides the wafer products (as stipulated in clause
1.8) exceed 30 days, TTI reserves the right to halt all wafer shipment
and instruct OKI to halt such shipment until the invoices are paid.
3. SECURITY
3.1 As a security to TTI, CSI shall hold a minimum of US$1 million (one
million dollars) worth of inventory at Trio-Tech's facilities in
Bangkok, Thailand at any point in time.
4. DEFAULTS
4.1 In the event that CSI shall default in its payments, and not cure any
such default within 30 days of written notification (Default date) from
TTI, TTI shall have the following options of 4.1a or 4.1b or a
combination of both 4.1a and 4.1b.:
<PAGE> 3
a. TTI will take possession of the inventories assigned to them
under clause 3.1 subject to the senior right of Coast Business
Credit.
b. TTI will convert all amounts due and payable to TTI to common
stocks of CSI, at 20 percent discount of the closing price
calculated based on the average of the last five (5) trading
days prior to default date (the "conversion price"). The
number of shares to be issued to TTI is determined by dividing
the said amount by the conversion price of CSI's common stock.
4.2 Under 4.1b., CSI must issue and TTI must receive the stock certificates
within two (2) weeks upon TTI's demand to convert the outstanding to
CSI common stocks. These shares must be FULLY transferable immediately
to any party without restrictions on the date of transfer, amount, and
category of buyers/transferees and shall be fully tradeable on the
stock exchange. If any such restrictions remain, CSI must take the
necessary steps to remove such restrictions before issuing the stocks
to TTI.
4.3 TTI shall appoint a valuer to conduct a valuation of the inventory
pledged to TTI
4.4 All valuations conducted and all charges and costs incurred to
determine the worth and value of the inventory shall be paid by TTI.
5. EVENTS OF DEFAULTS
5.1 The whole of the principal sum and interest thereon and any other
moneys covenanted to be paid by CSI under this agreement shall become
due and immediately repayable and the security hereby created shall
become enforceable in any of the following events:
a) if CSI shall commit a breach of any of the agreements,
stipulations, terms, covenants, conditions or undertakings
contained in this Agreement on its part to be observed and
performed and in the reasonable opinion of TTI has failed to
remedy it within fourteen (14) days after written notice
served by TTI.
b) if CSI ceases or threatens to cease to carry on its business.
c) if a petition shall be presented or an order be made or a
resolution be passed for winding up CSI,
d) if a distress or execution or other process of a Court of
competent jurisdiction be levied upon or issued against any
property of CSI and such distress execution or other process
as the case may be is not satisfied by CSI within seven (7)
days from the date thereof;
e) if in the reasonable opinion of TTI its security hereunder is
in jeopardy and notice thereof is given to CSI;
<PAGE> 4
g) if CSI is unable to pay its debts or any statutory
modification or renactment thereof or suspend the payment
thereof or enter into any arrangement or composition with its
or his creditors or there is declared by any competent court
or authority or moratorium on the payment of indebtedness;
h) if any legal proceedings suit or action shall be instituted
against CSI or event or events has or have occurred and a
situation exist and after review but TTI is of the reasonable
opinion that this will materially affect CSI's ability to
repay the principal and interest thereon and or to perform its
or other obligations under this agreement in accordance with
the terms thereof;
7. CANCELLATION OF ORDERS
7.1 Any cancellation of orders from CSI to TTI shall be made in writing and
communicated through facsimile. TTI shall forward the same to OKI
immediately.
7.2 If OKI in anyway, is not able to or refuse to cancel the order, CSI
undertakes to indemnify TTI from any losses and expenses arising from
cancellations orders from OKI by paying the full amounts so billed to
TTI by OKI.
7.3 TTI reserves the right to bill CSI 12.125 percent interest for any
outstanding payable for the cancelled orders and any reasonable
administrative charges deemed appropriate by TTI for handling the
cancelled orders.
8 WAIVER
8.1 No failure or delay on the part of TTI in exercising nor any omissions
to exercise any right, power, privilege or remedy accruing to TTI under
this agreement upon any default on the part of CSI shall impair any
such right, power, privilege or remedy or be construed to be a waiver
thereof or an acquiescence in such default, nor shall any action by TTI
in respect of any right, power, privilege or remedy or TTI in respect
of any other or subsequent default.
8.2 The security liabilities or obligations created by this agreement shall
continue to be valid and binding for all purposes whatsoever
notwithstanding:
a) any time or indulgence which TTI may from time to time grant
to CSI for the payment of moneys due to TTI or for the
observance or performance of any term, stipulation, covenant
or undertaking on the part of CSI to be observed and
performed:
b) any arrangement entered into or any composition accepted by
TTI modifying its rights and remedies by any alteration in the
obligations, terms, stipulations, covenants and undertakings
contained herein or by any forbearance whether as to payment
time performance or otherwise.
<PAGE> 5
9. COSTS
9.1 CSI shall pay to TTI or its solicitors on demand all reasonable fees
disbursements and expenses in connection with or incidental to this
agreement (including but not limited to TTI's solicitor's fees and
expenses on a solicitor and client basis) in connection with the
negotiation, preparation, execution, stamping and registration of this
agreement and the documents related thereto (not exceeding US $10,000
without the prior written consent of CSI) and shall further pay to TTI
or to its solicitors on demand all fees and expenses whatsoever
incurred payable to TTI in the maintenance, protection and enforcement
of its right under clauses 4.1b. and 4.2.
9.2 If obligations or any part thereof under this agreement shall be
required to be recovered through any process of law, or if the
obligation or any part thereof shall be placed in the hands of
solicitors for collection, CSI shall pay (in addition to the moneys
then due and payable hereunder) by TTI's solicitors' reasonable fees
and any other reasonable fees and expenses incurred in respect of such
collection.
10. EXPENSES INCURRED BY TTI FOR AND ON BEHALF OF CSI
10.1 All moneys expended by TTI hereunder from time to time for and on
behalf of CSI and for its account with interest thereon at the rate
aforesaid from the date of such payment, relating to airfreight,
handling charges, seaport charges, taxes, legal costs and reasonable
expenses incurred in bringing in the wafers to CSI's specified
locations shall be recoverable from CSI and shall be repaid on demand.
In default of payment such moneys shall be deemed to form part of the
principal and to be secured hereunder.
11. CHANGE IN CONSTITUTION
11.1 All security (ies), agreements (s), obligation (s) given or undertaken
by CSI shall continue to be valid and binding notwithstanding any
change in the constitution of CSI, if a corporation, by amalgamation,
consolidation, reconstruction, new shareholding or otherwise, and if a
firm, by retirement, expulsion, death, admission, accession or change
of any partners or otherwise.
12. WITHHOLDING TAX/CONSUMPTION TAX
12.1 All payments by CSI in respect of the goods shall be made in full,
without set-off, deductions or counterclaim and free of and without
deduction for or on account of tax unless CSI is required by law in any
jurisdiction to make any such payments subject to such withholdings or
deduction, in which case CSI shall pay such additional amount to TTI as
may be necessary in order that the actual amount received after such
withholding and deduction shall equal the amount that would have been
received if such withholding or deduction were not required.
<PAGE> 6
12.2 CSI shall pay in full to the appropriate taxing authority all taxes and
charges imposed by law in any jurisdiction on CSI and/or TTI with
regard to the credit given and promptly deliver to TTI the original or
certified copy of each receipt evidencing such payment. CSI shall fully
indemnify TTI from any liability with respect to the delay or failure
by CSI to pay such taxes or charges.
13 DISCLOSURE
13.1 CSI by acceptance of this agreement hereby authorises TTI to at any
time, disclose to any of its subsidiaries or companies and TTI's
appointed auditors, such information about CSI, the securities given to
TTI or any other information in connection with CSI or the arrangement
as TTI may in its absolute discretion think fit.
14 GOVERNING LAW
14.1 This Agreement shall be construed and have effect in all respects in
accordance with the laws of California. CSI and TTI hereby submits to
the jurisdiction of the U.S. Courts, but such submissions shall not be
construed so as to limit the right of TTI to commence proceedings in
the courts of any other country.
15 NOTICE
15.1 Any notice required or permitted to be given by any of the parties
under this agreement shall be deemed to have been given (1) at the time
it is delivered in person, or (2), five (5) days after despatch by
registered airmail or (3) on the business day immediately following the
day of despatch by facsimile, sent to the other party at the following
respective addresses or such new addresses as may from time to time be
supplied hereunder:
Catalyst Semiconductor Inc.
1250 Borregas Avenue, Sunnyvale, California 94089, USA
and
Trio-Tech International Pte Ltd
5 Kian Teck Road, Singapore 628765
16. INDEMNITY
16.1 CSI hereby indemnifies and holds TTI harmless from any and all
liability, costs,legal fees and damages by the purchase arrangement in
this agreement .
<PAGE> 7
17. TERM OF AGREEMENT
17.1. This Agreement shall be and continue to be in full force and effect for
a period of one (1) year from the date hereof unless sooner terminated
by either party hereto. If this agreement is found to be satisfactory
to both parties, this contract will be automatically extended from year
to year thereafter unless notice of termination be given in writing by
either party at least ninety (90) days prior to the termination date of
the original or any renewal period.
18. FORCE MAJEURE
18.1. TTI shall not be liable for loss, damage, detention, or delay resulting
from any cause whatsoever beyond its reasonable control or resulting
from such things as, but not limited to, fire, flood, strike, lockout,
civil or military authority, insurrection, riot, war, embargo,
transportation shortage or delay, wreck, or inability to obtain the
wafers, and delivery dates shall be extended to the extent of delays by
any of the foregoing or similar causes.
In witness hereof, the parties have caused this Agreement by their duly
authorized representatives as of the date first written above.
TRIO-TECH INTERNATIONAL PTE LTD
/s/ Victor Ting /s/ Yong Siew Wai
- ----------------------------------------- ----------------------------
Victor Ting Yong Siew Wai
Chief Financial Officer Chief Executive Officer
and Corporate Vice President and President
CATALYST SEMICONDUCTOR INC
/s/ Daryl Stemm /s/ Radu Vanco
- ----------------------------------------- ----------------------------
Daryl Stemm Radu Vanco
Vice President of Finance & Administration President and CEO
and Chief Financial Officer
<PAGE> 8
THIS VARIATION AGREEMENT is made the 16th day of April One Thousand
Nine Hundred and Ninety-Eight (1998) Between:-
A. CATALYST SEMICONDUCTOR, INC ("CSI") of Delaware, U.S.A. corporation,
having its principal place of business at 1250 Borregas Avenue,
Sunnyvale, California 94089, U.S.A. and
B. TRIO-TECH INTERNATIONAL PTE LTD ("TTI") having its principal place of
business at 5 Kian Teck Road, Singapore 628765
WHEREAS:
1. CSI and TTI have entered into an agreement on 23 March 1998 in
accordance the terms and conditions contained therein. A copy of the
said agreement is attached hereto marked as Annex A ("supply
agreement"). The said agreement is a back to back agreement with an
agreement which TTI is required to enter into with OKI Electronics
Industry Co. Ltd ("OKI") to procure the sale and supply of wafer to CSI
("purchase agreement"). Clause 2.1 of the purchase agreement provides
that TTI shall only forward payment to OKI after receiving full payment
from CSI. In consideration of TTI agreeing to vary the purchase
agreement with OKI by deleting clause 2.1 thereof, CSI has agreed to
enter into this variation agreement. A copy of the purchase agreement
containing clause 2.1 is attached hereto marked as Annex B. A copy of
the executed purchase agreement as amended by deleting clause 2.1 is
attached hereto marked as Annex C.
2. CSI and TTI have mutually agreed to vary the terms of the said
agreement in accordance with the terms and conditions hereunder.
IT IS HEREBY AGREED AS FOLLOW:
1. In consideration of TTI agreeing to vary the purchase agreement with
OKI by deleting clause 2.1 of the purchase agreement which reads "TTI
shall only forward payment to OKI after receiving full payment from
CSI", CSI hereby covenant that it will make full payment of all wafers
supplied to them by OKI regardless of any defect, damage, delay in
delivery or any discrepancy whatsoever relating to the wafers. CSI will
further indemnify TTI from and against all or any claim, damage or loss
which TTI may suffer by reason of any dispute CSI may have against OKI
in respect of the sale and supply of wafers. CSI will further hold TTI
harmless from any liability for any defect, damage, delay in delivery
or any discrepancy
<PAGE> 9
whatsoever arising from the supply of the wafers. For the avoidance of
doubt, TTI shall be entitled and shall not be in breach of the supply
agreement by releasing full payment to OKI of all wafers supplied by
them notwithstanding the presence of any defect, damage, delay in
delivery or any discrepancy whatsoever relating to the wafers.
2. Clause 3.1 of the supply agreement refers to U.S one million dollars
worth of "inventory at Trio-Tech's facilities in Bangkok, Thailand
..........." For the avoidance of doubt and for consistency, it is
hereby clarified that reference to "inventory" shall be reference to
"work-in-progress".
3. Clause 4.1(a) of the supply agreement provides as follow:-
"TTI will take possession of the inventories assigned to them under
clause 3.1 subject to the senior right of Coast Business Credit"
CSI is aware of the dilution of the above security. In consideration of
TTI agreeing to vary their contract with OKI in accordance with clause
1 above, the parties have therefore mutually agreed to vary the supply
agreement in accordance with the terms hereunder. CSI warrants that
they have legal title in the work in progress of the semiconductors
which are in the custody of Trio-Tech (Bangkok) Co. Ltd in Thailand.
CSI hereby agrees that in the event of any default by them under the
supply agreement and in particular to the failure by CSI to make
payment when due, TTI shall be entitled to sell, dispose or compel the
sale of the work in progress held by Trio-Tech (Bangkok) Co. Ltd for
the purpose of compensating them in respect of the loss sustained by
TTI by reason of CSI's default. CSI further covenants that in the event
that the right to sell the work in progress arises, they will do all
that is necessary for the purpose of transferring title in the work in
progress to any third party on the instructions of TTI and will in
addition authorise Trio-Tech (Bangkok) Co. Ltd to assist and effect the
sale or disposal. PROVIDED THAT, TTI shall only be entitled to sell
such work in progress as is necessary to compensate them for their loss
sustained by reason of CSI's default which said sum shall not exceed
US$1 million (US one million dollars).
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement by their
duly authorized representatives as of the date first written above.
TRIO-TECH INTERNATIONAL PTE LTD
/s/ Victor Ting /s/ Yong Siew Wai
- ----------------------------- --------------------------------
Victor Ting Yong Siew Wai
Chief Financial Officer Chief Executive Officer
and Corporate Vice President and President
CATALYST SEMICONDUCTOR INC
/s/ Daryl Stemm /s/ Radu Vanco
- ----------------------------- --------------------------------
Daryl Stemm Radu Vanco
Finance & Administration President and CEO
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.53
ADDENDUM
To the Employment Agreement ("Agreement") dated October 14, 1995 between Radu
Vanco ("Employee") and Catalyst Semiconductor, Inc. ("Corporation").
WHEREAS, the Corporation and the Employee desire to extend and modify the
mentioned Agreement.
NOW, THEREFORE, the Corporation and Employee agree to add to or modify
provisions of the Agreement as follows:
1. EMPLOYMENT AND TERM
The position will change to that of President and Chief Executive Officer. The
term will be extended for an additional four (4) years.
2. POSITION, DUTIES, RESPONSIBILITIES
The position will change to that of President and Chief Executive Officer
reporting to the Board of Directors. Area of responsibility will be exercising
day to day supervision of all of the Corporation's activities.
3. COMPENSATION
a) BASE SALARY will be $225,000 per annum or such larger amount the Board of
Directors will determine from time to time.
c) BONUSES. In addition to base compensation the Employee will be eligible for
an executive bonus plan as voted by the Board of Directors.
5. SEVERANCE BENEFITS FOR TERMINATION FOLLOWING A CHANGE OF CONTROL
(b) INVOLUNTARY TERMINATION. "Involuntary Termination" will include (iii) a
reduction in job responsibilities (if the Employee is removed from the position
of President and CEO).
6. SEVERANCE BENEFITS FOR TERMINATION APART FROM A CHANGE OF CONTROL
(b) INVOLUNTARY TERMINATION. Severance payment will be increased to one
time Employee's Current Compensation. Health and life insurance will be
provided until the "Benefits Termination Date" as defined in the
existing Agreement.
7. DEFINITION OF TERMS
First, Second, Third and Fourth Year should be counted from the date of
this Addendum.
<PAGE> 2
(c) CHANGE OF CONTROL SEVERANCE PAYMENT will increase to two times, one and
one-half times, one time and one time respectively for the First, Second, Third
and Fourth Year.
(e) CURRENT COMPENSATION will also include any guaranteed bonus if voted by the
Board of Directors.
(d) CAUSE. Anything contained in this section 7(d) notwithstanding, Employee
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
Board of Directors of the Corporation, after reasonable notice to Employee and
an opportunity for Employee, together with Employee's counsel, to be heard
before the Board, finding that in good faith opinion of the Board, Employee has
engaged in the conduct described in 7(d).
16. LEGAL FEES AND EXPENSES
In the event an action is brought to enforce any provision of this Agreement,
Employee's legal fees and expenses shall be paid by the Corporation as incurred
by the Employee, unless Employee brings a claim which is determined by the
arbitrator to be frivolous, in which case, Employee shall repay to the
Corporation all amounts advanced by the Corporation to Employee in connection
with such claim within thirty days of such determination.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
below:
Date: May 29, 1998
"Corporation" "Employee"
By: /s/ Hideyuki Tanigami /s/ Radu Vanco
---------------------------- ---------------------------------
Position: Chairman
-2-
<PAGE> 1
EXHIBIT 10.54
CATALYST SEMICONDUCTOR, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made as of this 28 day of April 1998
between Sorin Georgescu ("Employee") and Catalyst Semiconductor, Inc.
("Corporation").
WITNESSETH
WHEREAS, Employee is employed by the Corporation.
WHEREAS, the Corporation and Employee mutually desire to enter into a severance
agreement with respect to Employee's employment by the Corporation.
NOW, THEREFORE, in consideration of the mutual convents hereinafter contained,
the Corporation and Employee agree as follows:
1) INVOLUNTARY TERMINATION. If Employee's employment is terminated as a
result of Involuntary Termination other than for cause, at any time prior
to three years from this date, Employee will be entitled to consideration
as defined below:
2) SEVERANCE BENEFITS FOR TERMINATION FOLLOWING A CHANGE OF CONTROL.
a) Employee shall be entitled to fifty percent (50%) of his annual
base salary payable in six equal monthly installments, commencing
one month after the termination date.
b) All outstanding unvested stock options shall immediately vest as of
the date of termination and shall remain exercisable for a period
of three years after said date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation.
d) Change of control is defined as any sale of substantially all of
the Company's assets, a sale of a majority of its shares or a
merger or consolidation where the existing shareholders do not
control at least 50% of the total voting power after the event.
<PAGE> 2
3) SEVERANCE BENEFITS FOR TERMINATION APART FROM A CHANGE OF CONTROL.
a) Employee will be entitled to twenty-five percent (25%) of his
annual his base salary as of the termination date. Such payment
shall be paid in six equal monthly amounts commencing one month
after the termination date.
b) All outstanding vested options as of this date shall remain
exercisable for a period of one year after termination date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation pay.
4) CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Corporation and shall continue to comply with the terms and conditions of
the Confidentiality Agreement(s) between Employee and Corporation.
5) NON-DISPARGEMENT. Employee agrees not to disparage the Corporation or any
of its officers, directors, employees, products, vendors or customers.
6) RELEASE OF CLAIMS. Both parties agree that the foregoing consideration
represents settlement in full of all outstanding obligations owed by
Corporation to the Employee. Employee and his respective heirs,
executors, assigns and agents hereby fully and forever releases
Corporation and its officers, directors, employees, assigns and agents
from any claim, duty, obligation or cause of action relating to any
matters, known or unknown, arising from any omissions, acts or facts that
have occurred up until the termination date, including without
limitation:
a) Any claims relating to Employee's employment relationship with the
Corporation.
b) Any claims relating to Employee's receipt of options and/or
purchase or sales of shares of stock of the Corporation.
c) Any claims for violation of state, federal or municipal law.
7) CONFIDENTIALITY. The parties agree to use their best efforts to maintain
in confidence the existence, contents and terms of this Agreement except
as disclosure may be required by law.
8) TAX CONSEQUENCES. The Corporation makes no representations or warranties
with respect to the tax consequences of any consideration received by
Employee under the terms of this Agreement. Employee agrees that he is
solely responsible for payment, if any, of local, state or federal taxes
on all consideration received. Employee further agrees to indemnify the
Corporation for any claims due to his failure to pay any such taxes.
-2-
<PAGE> 3
9) ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Corporation and Employee concerning Employee's
relationships with the Corporation and supersedes any prior written or
oral agreements concerning Employee relationship with and compensation
from the Corporation and may not be changed except in written form signed
by both parties.
10) GOVERNING LAW: JURISDICTION. This Agreement shall be governed by the laws
of the State of California. Any disputes shall be resolved by binding
arbitration by JAMSENDISPUTE in Santa Clara County, to which binding
arbitration both parties consent.
11) NO LEGAL REPRESENTATION. Employee is advised to seek his own legal advice
in this matter and acknowledges that Venture Law Group and Lionel M.
Allan are acting solely as counsel for the Corporation and not for
Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Catalyst Semiconductor, Inc.
By:
/s/ Radu Vanco /s/ Sorin Georgescu
- ------------------------- ----------------------------------------
Radu Vanco In his individual capacity
President & CEO Sorin Georgescu
"Corporation" "Employee"
-3-
<PAGE> 1
EXHIBIT 10.55
CATALYST SEMICONDUCTOR, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made as of this 28 day of April 1998
between Gelu Voicu ("Employee") and Catalyst Semiconductor, Inc.
("Corporation").
WITNESSETH
WHEREAS, Employee is employed by the Corporation.
WHEREAS, the Corporation and Employee mutually desire to enter into a severance
agreement with respect to Employee's employment by the Corporation.
NOW, THEREFORE, in consideration of the mutual convents hereinafter contained,
the Corporation and Employee agree as follows:
1) INVOLUNTARY TERMINATION. If Employee's employment is terminated as a
result of Involuntary Termination other than for cause, at any time prior
to three years from this date, Employee will be entitled to consideration
as defined below:
2) SEVERANCE BENEFITS FOR TERMINATION FOLLOWING A CHANGE OF CONTROL.
a) Employee shall be entitled to fifty percent (50%) of his annual
base salary payable in six equal monthly installments, commencing
one month after the termination date.
b) All outstanding unvested stock options shall immediately vest as of
the date of termination and shall remain exercisable for a period
of three years after said date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation.
d) Change of control is defined as any sale of substantially all of
the Company's assets, a sale of a majority of its shares or a
merger or consolidation where the existing shareholders do not
control at least 50% of the total voting power after the event.
<PAGE> 2
3) SEVERANCE BENEFITS FOR TERMINATION APART FROM A CHANGE OF CONTROL.
a) Employee will be entitled to twenty-five percent (25%) of his
annual his base salary as of the termination date. Such payment
shall be paid in six equal monthly amounts commencing one month
after the termination date.
b) All outstanding vested options as of this date shall remain
exercisable for a period of one year after termination date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation pay.
4) CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Corporation and shall continue to comply with the terms and conditions of
the Confidentiality Agreement(s) between Employee and Corporation.
5) NON-DISPARGEMENT. Employee agrees not to disparage the Corporation or any
of its officers, directors, employees, products, vendors or customers.
6) RELEASE OF CLAIMS. Both parties agree that the foregoing consideration
represents settlement in full of all outstanding obligations owed by
Corporation to the Employee. Employee and his respective heirs,
executors, assigns and agents hereby fully and forever releases
Corporation and its officers, directors, employees, assigns and agents
from any claim, duty, obligation or cause of action relating to any
matters, known or unknown, arising from any omissions, acts or facts that
have occurred up until the termination date, including without
limitation:
a) Any claims relating to Employee's employment relationship with the
Corporation.
b) Any claims relating to Employee's receipt of options and/or
purchase or sales of shares of stock of the Corporation.
c) Any claims for violation of state, federal or municipal law.
7) CONFIDENTIALITY. The parties agree to use their best efforts to maintain
in confidence the existence, contents and terms of this Agreement except
as disclosure may be required by law.
8) TAX CONSEQUENCES. The Corporation makes no representations or warranties
with respect to the tax consequences of any consideration received by
Employee under the terms of this Agreement. Employee agrees that he is
solely responsible for payment, if any, of local, state or federal taxes
on all consideration received. Employee further agrees to indemnify the
Corporation for any claims due to his failure to pay any such taxes.
-2-
<PAGE> 3
9) ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Corporation and Employee concerning Employee's
relationships with the Corporation and supersedes any prior written or
oral agreements concerning Employee relationship with and compensation
from the Corporation and may not be changed except in written form signed
by both parties.
10) GOVERNING LAW: JURISDICTION. This Agreement shall be governed by the laws
of the State of California. Any disputes shall be resolved by binding
arbitration by JAMSENDISPUTE in Santa Clara County, to which binding
arbitration both parties consent.
11) NO LEGAL REPRESENTATION. Employee is advised to seek his own legal advice
in this matter and acknowledges that Venture Law Group and Lionel M.
Allan are acting solely as counsel for the Corporation and not for
Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Catalyst Semiconductor, Inc.
By:
/s/ Radu Vanco /s/ Gelu Voicu
- --------------------------- -----------------------------------
Radu Vanco In his individual capacity
President & CEO Gelu Voicu
"Corporation" "Employee"
-3-
<PAGE> 1
EXHIBIT 10.57
CATALYST SEMICONDUCTOR, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made as of this 28 day of April 1998
between Marc Cremer ("Employee") and Catalyst Semiconductor, Inc.
("Corporation").
WITNESSETH
WHEREAS, Employee is employed by the Corporation.
WHEREAS, the Corporation and Employee mutually desire to enter into a severance
agreement with respect to Employee's employment by the Corporation.
NOW, THEREFORE, in consideration of the mutual convents hereinafter contained,
the Corporation and Employee agree as follows:
1) INVOLUNTARY TERMINATION. If employee's employment is terminated by the
Corporation Involuntary Termination other than for cause, at any time
prior to three years from this date, employee will be entitled to
consideration as defined below:
2) SEVERANCE BENEFITS FOR INVOLUNTARY TERMINATION FOLLOWING A CHANGE OF
CONTROL.
a) Employee shall be entitled to fifty percent (50%) of his annual
base salary payable in six equal monthly installments, commencing
one month after the termination date.
b) All outstanding unvested stock options shall immediately vest as of
the date of termination and shall remain exercisable for a period
of three years after said date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation.
d) Change of control is defined as any sale of substantially all of
the Company's assets, a sale of a majority of its shares or a
merger or consolidation where the existing shareholders do not
control at least 50% of the total voting power after the event.
<PAGE> 2
3) SEVERANCE BENEFITS FOR INVOLUNTARY TERMINATION APART FROM A CHANGE OF
CONTROL.
a) Employee will be entitled to twenty-five percent (25%) of his
annual his base salary as of the termination date. Such payment
shall be paid in six equal monthly amounts commencing one month
after the termination date.
b) All outstanding vested options as of this date shall remain
exercisable for a period of one year after termination date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation pay.
4) CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Corporation and shall continue to comply with the terms and conditions of
the Confidentiality Agreement(s) between Employee and Corporation.
5) NON-DISPARGEMENT. Employee agrees not to disparage the Corporation or any
of its officers, directors, employees, products, vendors or customers.
6) RELEASE OF CLAIMS. Both parties agree that the foregoing consideration
represents settlement in full of all outstanding obligations owed by
Corporation to the Employee. Employee and his respective heirs,
executors, assigns and agents hereby fully and forever releases
Corporation and its officers, directors, employees, assigns and agents
from any claim, duty, obligation or cause of action relating to any
matters, known or unknown, arising from any omissions, acts or facts that
have occurred up until the termination date, including without
limitation:
a) Any claims relating to Employee's employment relationship with the
Corporation.
b) Any claims relating to Employee's receipt of options and/or
purchase or sales of shares of stock of the Corporation.
c) Any claims for violation of state, federal or municipal law.
7) CONFIDENTIALITY. The parties agree to use their best efforts to maintain
in confidence the existence, contents and terms of this Agreement except
as disclosure may be required by law.
8) TAX CONSEQUENCES. The Corporation makes no representations or warranties
with respect to the tax consequences of any consideration received by
Employee under the terms of this Agreement. Employee agrees that he is
solely responsible for payment, if any, of local, state or federal taxes
on all consideration received. Employee further agrees to indemnify the
Corporation for any claims due to his failure to pay any such taxes.
-2-
<PAGE> 3
9) ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Corporation and Employee concerning Employee's
relationships with the Corporation and supersedes any prior written or
oral agreements concerning Employee relationship with and compensation
from the Corporation and may not be changed except in written form signed
by both parties.
10) GOVERNING LAW: JURISDICTION. This Agreement shall be governed by the laws
of the State of California. Any disputes shall be resolved by binding
arbitration by JAMSENDISPUTE in Santa Clara County, to which binding
arbitration both parties consent.
11) NO LEGAL REPRESENTATION. Employee is advised to seek his own legal advice
in this matter and acknowledges that Venture Law Group and Lionel M.
Allan are acting solely as counsel for the Corporation and not for
Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Catalyst Semiconductor, Inc.
By:
/s/ Radu Vanco /s/ Marc Cremer
- --------------------------- ----------------------------------------
Radu Vanco In his individual capacity
President & CEO Marc Cremer
"Corporation" "Employee"
-3-
<PAGE> 1
EXHIBIT 10.58
CATALYST SEMICONDUCTOR, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made as of this 28 day of April 1998
between Bassam Khoury ("Employee") and Catalyst Semiconductor, Inc.
("Corporation").
WITNESSETH
WHEREAS, Employee is employed by the Corporation.
WHEREAS, the Corporation and Employee mutually desire to enter into a severance
agreement with respect to Employee's employment by the Corporation.
NOW, THEREFORE, in consideration of the mutual convents hereinafter contained,
the Corporation and Employee agree as follows:
1) INVOLUNTARY TERMINATION. If Employee's employment is terminated by the
Corporation Involuntary Termination other than for cause, at any time
prior to three years from this date, Employee will be entitled to
consideration as defined below:
2) SEVERANCE BENEFITS FOR INVOLUNTARY TERMINATION FOLLOWING A CHANGE OF
CONTROL.
a) Employee shall be entitled to fifty percent (50%) of his annual
base salary payable in six equal monthly installments, commencing
one month after the termination date.
b) All outstanding unvested stock options shall immediately vest as of
the date of termination and shall remain exercisable for a period
of three years after said date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation.
d) Change of control is defined as any sale of substantially all of
the Company's assets, a sale of a majority of its shares or a
merger or consolidation where the existing shareholders do not
control at least 50% of the total voting power after the event.
<PAGE> 2
3) SEVERANCE BENEFITS FOR INVOLUNTARY TERMINATION APART FROM A CHANGE OF
CONTROL.
a) Employee will be entitled to twenty-five percent (25%) of his
annual his base salary as of the termination date. Such payment
shall be paid in six equal monthly amounts commencing one month
after the termination date.
b) All outstanding vested options as of this date shall remain
exercisable for a period of one year after termination date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation pay.
4) CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Corporation and shall continue to comply with the terms and conditions of
the Confidentiality Agreement(s) between Employee and Corporation.
5) NON-DISPARGEMENT. Employee agrees not to disparage the Corporation or any
of its officers, directors, employees, products, vendors or customers.
6) RELEASE OF CLAIMS. Both parties agree that the foregoing consideration
represents settlement in full of all outstanding obligations owed by
Corporation to the Employee. Employee and his respective heirs,
executors, assigns and agents hereby fully and forever releases
Corporation and its officers, directors, employees, assigns and agents
from any claim, duty, obligation or cause of action relating to any
matters, known or unknown, arising from any omissions, acts or facts that
have occurred up until the termination date, including without
limitation:
a) Any claims relating to Employee's employment relationship with the
Corporation.
b) Any claims relating to Employee's receipt of options and/or
purchase or sales of shares of stock of the Corporation.
c) Any claims for violation of state, federal or municipal law.
7) CONFIDENTIALITY. The parties agree to use their best efforts to maintain
in confidence the existence, contents and terms of this Agreement except
as disclosure may be required by law.
8) TAX CONSEQUENCES. The Corporation makes no representations or warranties
with respect to the tax consequences of any consideration received by
Employee under the terms of this Agreement. Employee agrees that he is
solely responsible for payment, if any, of local, state or federal taxes
on all consideration received. Employee further agrees to indemnify the
Corporation for any claims due to his failure to pay any such taxes.
-2-
<PAGE> 3
9) ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Corporation and Employee concerning Employee's
relationships with the Corporation and supersedes any prior written or
oral agreements concerning Employee relationship with and compensation
from the Corporation and may not be changed except in written form signed
by both parties.
10) GOVERNING LAW: JURISDICTION. This Agreement shall be governed by the laws
of the State of California. Any disputes shall be resolved by binding
arbitration by JAMSENDISPUTE in Santa Clara County, to which binding
arbitration both parties consent.
11) NO LEGAL REPRESENTATION. Employee is advised to seek his own legal advice
in this matter and acknowledges that Venture Law Group and Lionel M.
Allan are acting solely as counsel for the Corporation and not for
Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Catalyst Semiconductor, Inc.
By:
/s/ Radu Vanco /s/ Bassam Khoury
- ----------------------- ------------------------------
Radu Vanco In his individual capacity
President & CEO Bassam Khoury
"Corporation" "Employee"
-3-
<PAGE> 1
EXHIBIT 10.59
CATALYST SEMICONDUCTOR, INC.
Severance Agreement
This Severance Agreement ("Agreement") is made as of this 1st day of June 1998
between Thomas E. Gay III ("Employee") and Catalyst Semiconductor, Inc.
("Corporation").
WITNESSETH
WHEREAS, Employee is employed by the Corporation.
WHEREAS, the Corporation and Employee mutually desire to enter into a severance
agreement with respect to Employee's employment by the Corporation.
NOW, THEREFORE, in consideration of the mutual convents hereinafter contained,
the Corporation and Employee agree as follows:
1) INVOLUNTARY TERMINATION. If Employee's employment is terminated as a
result of Involuntary Termination other than for cause, at any time prior
to three years from this date, Employee will be entitled to consideration
as defined below:
2) SEVERANCE BENEFITS FOR INVOLUNTARY TERMINATION FOLLOWING A CHANGE OF
CONTROL.
a) Employee shall be entitled to fifty percent (50%) of his annual
base salary payable in six equal monthly installments, commencing
one month after the termination date.
b) All outstanding unvested stock options shall immediately vest as of
the date of termination and shall remain exercisable for a period
of three years after said date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation.
d) Change of control is defined as any sale of substantially all of
the Company's assets, a sale of a majority of its shares or a
merger or consolidation where the existing shareholders do not
control at least 50% of the total voting power after the event.
<PAGE> 2
3) SEVERANCE BENEFITS FOR INVOLUNTARY TERMINATION APART FROM A CHANGE OF
CONTROL.
a) Employee will be entitled to twenty-five percent (25%) of his
annual his base salary as of the termination date. Such payment
shall be paid in six equal monthly amounts commencing one month
after the termination date.
b) All outstanding vested options as of this date shall remain
exercisable for a period of one year after termination date.
c) In addition, as of the termination date, Employee shall be entitled
to receive any unpaid salary and accrued vacation pay.
4) CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Corporation and shall continue to comply with the terms and conditions of
the Confidentiality Agreement(s) between Employee and Corporation.
5) NON-DISPARGEMENT. Employee agrees not to disparage the Corporation or any
of its officers, directors, employees, products, vendors or customers.
6) RELEASE OF CLAIMS. Both parties agree that the foregoing consideration
represents settlement in full of all outstanding obligations owed by
Corporation to the Employee. Employee and his respective heirs,
executors, assigns and agents hereby fully and forever releases
Corporation and its officers, directors, employees, assigns and agents
from any claim, duty, obligation or cause of action relating to any
matters, known or unknown, arising from any omissions, acts or facts that
have occurred up until the termination date, including without
limitation:
a) Any claims relating to Employee's employment relationship with the
Corporation.
b) Any claims relating to Employee's receipt of options and/or
purchase or sales of shares of stock of the Corporation.
c) Any claims for violation of state, federal or municipal law.
7) CONFIDENTIALITY. The parties agree to use their best efforts to maintain
in confidence the existence, contents and terms of this Agreement except
as disclosure may be required by law.
8) TAX CONSEQUENCES. The Corporation makes no representations or warranties
with respect to the tax consequences of any consideration received by
Employee under the terms of this Agreement. Employee agrees that he is
solely responsible for payment, if any, of local, state or federal taxes
on all consideration received. Employee further agrees to indemnify the
Corporation for any claims due to his failure to pay any such taxes.
-2-
<PAGE> 3
9) ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Corporation and Employee concerning Employee's
relationships with the Corporation and supersedes any prior written or
oral agreements concerning Employee relationship with and compensation
from the Corporation and may not be changed except in written form signed
by both parties.
10) GOVERNING LAW: JURISDICTION. This Agreement shall be governed by the laws
of the State of California. Any disputes shall be resolved by binding
arbitration by JAMSENDISPUTE in Santa Clara County, to which binding
arbitration both parties consent.
11) NO LEGAL REPRESENTATION. Employee is advised to seek his own legal advice
in this matter and acknowledges that Venture Law Group and Lionel M.
Allan are acting solely as counsel for the Corporation and not for
Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Catalyst Semiconductor, Inc.
By:
/s/ Radu Vanco /s/ Thomas E. Gay III
- ---------------------- ----------------------------------
Radu Vanco In his individual capacity
President & CEO Thomas E. Gay III
-3-
<PAGE> 1
EXHIBIT 10.60
AMENDMENT NO. 1
TO
PREFERRED SHARES RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO PREFERRED SHARES RIGHTS AGREEMENT dated as of May
22, 1998 (this "AMENDMENT") is made between CATALYST SEMICONDUCTOR, INC., a
Delaware corporation (the "COMPANY"), and BANKBOSTON, N.A., a national banking
association, formerly known as a The First National Bank of Boston, as rights
agent (the "RIGHTS AGENT").
RECITALS
A. The Company and the Rights Agent are parties to a Preferred Shares
Rights Agreement dated as of December 3, 1996 (the "RIGHTS AGREEMENT").
B. Elex N.V. ("ELEX") and the Company are entering into a Common Stock
Purchase Agreement (the "PURCHASE AGREEMENT") pursuant to which the Company will
issue and Elex will purchase shares of Common Stock of the Company (the
"INVESTMENT"). The Board of Directors of the Company has authorized and approved
the Purchase Agreement and the transactions contemplated thereby.
C. Pursuant to Section 27 of the Rights Agreement, the Board of Directors
of the Company has determined that an amendment to the Rights Agreement as set
forth herein is necessary and desirable to reflect the foregoing and the Company
and the Rights Agent desire to evidence such amendment in writing.
NOW, THEREFOR, the parties hereto agree as follows:
1. Amendment of Section 1(a). Section 1(a) of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary, Elex
N.V. ("ELEX") shall not be deemed to be an Acquiring Person solely by
virtue of the announcement, occurrence or continuance of (i) the execution
of the Common Stock Purchase Agreement dated as of May 26, 1998 between
Elex and the Company (the "PURCHASE AGREEMENT"), (ii) the issuance to Elex
of 1,500,000 shares of Common Stock of the Company in accordance with the
terms of the Purchase Agreement (the "PERMITTED SHARES"), (iii) the
consummation of any and all other transactions contemplated by the Purchase
Agreement, or (iv) Elex holding the Permitted Shares; provided, however,
that if Elex and its Affiliates, at any time after consumation of the
transactions contemplated by the Purchase Agreement and the issuance of the
Permitted Shares, collectively shall be or become the Beneficial Owner of
shares of Common Stock of the Company other than the Permitted Shares, then
Elex's exemption from being deemed an Acquiring Person contained in this
sentence shall not be applicable.
-1-
<PAGE> 2
2. Effectiveness. This Amendment shall be deemed effective as of May 22,
1998 as if executed on such date. Except as amended hereby, the Rights Agreement
shall remain in full force and effect and shall be otherwise unaffected hereby.
3. Miscellaneous. This Amendment shall be deemed to be a contract made
under the laws of the State of California and for all purposes shall be governed
by and construed in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state. This Amendment
may be executed in any number of counterparts, each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. If any provision, covenant
or restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, illegal or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
[REMAINDER OF PAGE LEFT BLANK]
-2-
<PAGE> 3
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 1 to
the Rights Agreement as of the date first above written.
CATALYST SEMICONDUCTOR, INC.
By: /s/ Radu Vanco
--------------------------------
Radu Vanco
President
ATTEST:
/s/ Daryl Stemm
- -------------------------------------------------
Name: Daryl Stemm
Title: Vice President and Chief Financial officer
BANKBOSTON N.A.
By: /s/ Michael J. Lapolla
--------------------------------
Name: Michael J. Lapolla
Title: Administration Manager
ATTEST:
- -------------------------------------------------
Name:
Title:
[SIGNATURE PAGE TO AMENDMENT NO.1 TO
PREFERRED SHARES RIGHTS AGREEMENT]
<PAGE> 4
CERTIFIED COPY OF
SPECIAL SIGNING AUTHORITY OF
BANKBOSTON, N.A.
(F/K/A THE FIRST NATIONAL BANK OF BOSTON)
I, the undersigned, Michael R. Garfield, DO HEREBY CERTIFY THAT:
1. I am an Assistant Secretary of the Board of Directors of BANK BOSTON, N.A.
(hereinafter called the "Bank") and in that capacity have authority to
certify to the documents and records of the Bank.
2. Pursuant to action taken in accordance with a Resolution adopted by the
Board of Directors of the Bank at a meeting held on April 23,1998, at which
a quorum was present and voting throughout, which Resolution is in full
force and effect, the officers and employees of Boston EquiServe, L.P.
whose names, titles and signatures appear below are authorized as follows:
To sign contracts for Shareholder Services accounts in the name of the
Bank.
To sign or countersign certificates of stock, scrip certificates,
subscription or exchange warrants, bonds, debentures, notes, and any and
all other certificates of interest of any kind on behalf of corporations,
associations and trusts for which the Bank has been or may be appointed as
trustee, transfer agent, registrar, exchange agent, distributing agent,
depository or as agent in any other similar capacity.
3. I hereby certify that each person named below has been authorized by this
resolution of the Board of Directors to exercise the foregoing authorities.
<TABLE>
<CAPTION>
Individual Title
- ---------- -----
<S> <C> <C>
Katherine Anderson Administration Manager /s/ Katherine Anderson
-------------------------
Lori Chamoun Administration Manager /s/ Lori Chamoun
-------------------------
Michael J. Lapolla Administration Manager /s/ Michael J. Lapolla
-------------------------
Carol Mulvey-Eori Administration Manager /s/ Carol Mulvey-Eori
-------------------------
Margaret Prentice Administration Manager /s/ Margaret Prentice
-------------------------
Tyler Haynes Administration Manager /s/ Tyler Haynes
-------------------------
Joshua McGinn Senior Account Manager /s/ Joshua McGinn
-------------------------
</TABLE>
4. The foregoing resolution and the authorizations granted are in full force
and effect on the date of this certificate.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed hereto the seal of
BANKBOSTON, N.A. this 26th day of May 1998.
[SEAL] Michael R. Garfield
--------------------------
Assistant Secretary
of the Board of Directors
[SIGNATURE PAGE TO AMENDMENT NO.1 TO
PREFERRED SHARES RIGHTS AGREEMENT]
<PAGE> 5
[SIGNATURE PAGE TO AMENDMENT NO.1 TO
PREFERRED SHARES RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 10.61
CATALYST SEMICONDUCTOR, INC.
COMMON STOCK PURCHASE AGREEMENT
BETWEEN
CATALYST SEMICONDUCTOR, INC.
AND
ELEX N.V.
MAY 26, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
1. Purchase and Sale of Common Stock ....................................................................1
1.1 Sale and Issuance of Common Stock...........................................................1
1.2 Closing; Delivery...........................................................................1
2. Representations and Warranties of the Company.........................................................1
2.1 Organization, Good Standing and Qualification...............................................1
2.2 Capitalization..............................................................................1
2.3 Authorization...............................................................................2
2.4 Valid Issuance of Securities................................................................2
2.5 Governmental Consents.......................................................................2
2.6 Litigation..................................................................................3
2.7 Corporate Documents.........................................................................3
3. Representations and Warranties of Purchaser...........................................................3
3.1 Authorization; Share Ownership..............................................................3
3.2 Purchase Entirely for Own Account...........................................................3
3.3 Disclosure of Information...................................................................3
3.4 Restricted Securities.......................................................................4
3.5 No Public Market............................................................................4
3.6 Legends.....................................................................................4
3.7 Accredited Investor; Sophistication.........................................................5
3.8 Foreign Investors...........................................................................5
4. Conditions of Purchaser's Obligations at Closing......................................................5
4.1 Representations and Warranties..............................................................5
4.2 Performance.................................................................................5
4.3 Compliance Certificate......................................................................5
4.4 Qualifications..............................................................................5
4.5 Amendment to Rights Agreement...............................................................5
5. Conditions of the Company's Obligations at Closing....................................................6
5.1 Representations and Warranties..............................................................6
5.2 Performance.................................................................................6
5.3 Qualifications..............................................................................6
5.4 Standstill Agreement........................................................................6
5.5 Nondisclosure Agreement.....................................................................6
5.6 Amendment to Rights Agreement...............................................................6
6. Repurchase Right......................................................................................6
6.1 Repurchase Right............................................................................6
6.2 Successors..................................................................................7
-i-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
7. Discussions Concerning Future Investments.............................................................7
8. Miscellaneous.........................................................................................7
8.1 Survival of Warranties......................................................................7
8.2 Transfer; Successors and Assigns............................................................7
8.3 Governing Law...............................................................................7
8.4 Counterparts................................................................................7
8.5 Titles and Subtitles........................................................................7
8.6 Notices.....................................................................................7
8.7 Finder's Fee................................................................................8
8.8 Attorney's Fees.............................................................................8
8.9 Amendments and Waivers......................................................................8
8.10 Severability...............................................................................9
8.11 Delays or Omissions........................................................................9
8.12 Entire Agreement...........................................................................9
8.13 Corporate Securities Law...................................................................9
ii
</TABLE>
<PAGE> 4
CATALYST SEMICONDUCTOR, INC.
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of
the 26th day of May, 1998 by and between CATALYST SEMICONDUCTOR, INC., a
corporation organized and existing under the laws of the State of Delaware (the
"COMPANY"), and ELEX N.V., a corporation organized and existing under the laws
of the Country of Belgium ("PURCHASER").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF COMMON STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms
and conditions of this Agreement, Purchaser agrees to purchase at the Closing
and the Company agrees to sell and issue to Purchaser at the Closing an
aggregate of 1,500,000 shares of Common Stock at a purchase price of US$1.00 per
share. The shares of Common Stock issued to Purchaser pursuant to this Agreement
shall be hereinafter referred to as the "STOCK."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take
place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California, at 10:00 a.m., on May __, 1998, or at such other time and place as
the Company and Purchaser mutually agree upon, orally or in writing (which time
and place are designated as the "CLOSING" and the date on which the Closing
occurs shall be the "CLOSING DATE").
(b) At the Closing, the Company shall deliver to
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check payable to the Company or by
wire transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser that, except as set forth on a Schedule of
Exceptions attached hereto as Exhibit A, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so to
qualify would have a material adverse effect on its business or properties.
2.2 CAPITALIZATION. The authorized capital of the Company
consists, or will consist, immediately prior to the Closing, of:
<PAGE> 5
(a) 2,000,000 shares of Preferred Stock, none of
which is issued and outstanding.
(b) 25,000,000 shares of Common Stock, 8,445,443
shares of which are issued and outstanding as of March 1, 1998. All of the
outstanding shares of Common Stock have been duly authorized, validly issued,
fully paid and are nonassessable and issued in compliance with all applicable
federal and state securities laws.
(c) Except for outstanding options, shares, rights or
other securities issued or granted pursuant to the Company's Stock Option Plan,
the Company's 1993 Directors Stock Option Plan, the Company's Employee Stock
Purchase Plan, the Company's Preferred Shares Rights Agreement dated as of
December 3, 1996 between the Company and First National Bank of Boston, as
Rights Agent (the "RIGHTS AGREEMENT"), and certain shares that the Company may
be required to issue to Trio-Tech in order to satisfy certain obligations to
such company, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
2.3 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Standstill
Agreement in the form attached hereto as Exhibit B (the "STANDSTILL AGREEMENT")
and the Nondisclosure Agreement in the form attached hereto as Exhibit C (the
"NONDISCLOSURE AGREEMENT" and together with this Agreement and the Standstill
Agreement, the "AGREEMENTS"), the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance and delivery of the
Stock has been taken or will be taken prior to the Closing, and the Agreements,
when executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.4 VALID ISSUANCE OF SECURITIES. The Stock that is being
issued to Purchaser hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Standstill Agreement and applicable state and federal securities laws. Based in
part upon the representations of Purchaser in this Agreement and subject to the
provisions of Section 2.5 below, the Stock will be issued in compliance with all
applicable federal and state securities laws.
2.5 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to
-2-
<PAGE> 6
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder, other applicable state securities laws and Regulation
D of the Securities Act of 1933, as amended (the "SECURITIES ACT") and filings
required to be made with the National Association of Securities Dealers, Inc.
and The Nasdaq National Market.
2.6 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
the Agreements or the right of the Company to enter into them, or to consummate
the transactions contemplated hereby or thereby, nor is the Company aware that
there is any basis for the foregoing. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality.
2.7 CORPORATE DOCUMENTS. The Restated Certificate of
Incorporation and Bylaws of the Company are in the form provided to Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to the Company that:
3.1 AUTHORIZATION; SHARE OWNERSHIP. Purchaser has full power
and authority to enter into the Agreements. The Agreements, when executed and
delivered by Purchaser, will constitute valid and legally binding obligations of
Purchaser, enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies.
Purchaser does not, and immediately prior to the Closing will not, beneficially
own any outstanding shares of Common Stock of the Company
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Purchaser in reliance upon Purchaser's representation to the Company, which
by Purchaser's execution of this Agreement, Purchaser hereby confirms, that the
Stock to be acquired by Purchaser will be acquired for investment for
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Purchaser further represents that
Purchaser does not presently have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Stock. Purchaser has
not been formed for the specific purpose of acquiring the Stock.
3.3 DISCLOSURE OF INFORMATION. Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's current
and past Chief Executive Officers and other management and has had an
opportunity to review the Company's facilities, public filings and all other
materials requested by Purchaser and believed by Purchaser to be material to its
investment decision. Purchaser understands that such discussions, as well as any
other written information
-3-
<PAGE> 7
delivered by the Company to Purchaser, were intended to describe the aspects of
the Company's business which it believes to be material. Purchaser has had the
ability and opportunity to discuss such matters with legal and other advisors of
its choosing.
3.4 RESTRICTED SECURITIES. Purchaser understands that the
Stock has not been, and will not be, registered under the Securities Act, by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of Purchaser's representations as
expressed herein. Purchaser understands that the Stock constitutes "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Securities indefinitely unless
they are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Securities for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Stock, and
on requirements relating to the Company which are outside of Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 NO PUBLIC MARKET. Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. Purchaser understands that the Securities and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SALE, PLEDGE OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN COMMON STOCK PURCHASE AGREEMENT, AS AMENDED, BY AND
BETWEEN THE SHAREHOLDER AND THE CORPORATION. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(c) Any legend set forth in the other Standstill
Agreement.
-4-
<PAGE> 8
(d) Any legend required by the Blue Sky laws of any
state or country to the extent such laws are applicable to the shares
represented by the certificate so legended.
3.7 ACCREDITED INVESTOR; SOPHISTICATION. Purchaser is an
accredited investor as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act. Purchaser has extensive experience with companies in the
industry conducted by the Company and is an experienced and sophisticated
investor with extensive experience investing in transactions similar to the
transactions contemplated by this Agreement.
3.8 FOREIGN INVESTORS. If Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), Purchaser hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Stock. Purchaser's
subscription and payment for and continued beneficial ownership of the Stock,
will not violate any applicable securities or other laws of Purchaser's
jurisdiction.
4. CONDITIONS OF PURCHASER'S OBLIGATIONS AT CLOSING. The obligations of
Purchaser to the Company under this Agreement are subject to the fulfillment, on
or before the Closing, of each of the following conditions, unless otherwise
waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to Purchaser at the Closing a certificate certifying that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (including the National Association of Securities Dealers, Inc. or
the National Market) that are required in connection with the lawful issuance
and sale of the Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
4.5 AMENDMENT TO RIGHTS AGREEMENT. The Company shall have
amended its Rights Agreement, so that Purchaser will not be an "Acquiring
Person" solely by virtue of the transactions contemplated by this Agreement.
-5-
<PAGE> 9
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Purchaser under this Agreement are subject to the fulfillment,
on or before the Closing, of each of the following conditions, unless otherwise
waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in Section 3 shall be true and correct in all
material respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by Purchaser on or prior to the
Closing shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (including the National Association of Securities Dealers, Inc. or
the National Market) that are required in connection with the lawful issuance
and sale of the Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
5.4 STANDSTILL AGREEMENT. The Company and Purchaser shall have
executed and delivered the Standstill Agreement.
5.5 NONDISCLOSURE AGREEMENT . The Company and Purchaser shall
have entered into the Nondisclosure Agreement.
5.6 AMENDMENT TO RIGHTS AGREEMENT. The Company shall have
amended its Rights Agreement so that Purchaser will not be an "Acquiring Person"
solely by virtue of the transactions contemplated by this Agreement.
6. REPURCHASE RIGHT.
6.1 REPURCHASE RIGHT. Upon not less than fifteen (15) days
advance written notice (the "REPURCHASE NOTICE") delivered at any time or from
time to time prior to the one (1) year anniversary of the Closing Date, the
Company shall hereby have the assignable right to repurchase all or any portion
of the Stock. The repurchase price to be paid in exchange for the repurchase of
the Stock (the "REPURCHASE PRICE") shall be as follows: (a) if the Repurchase
Notice is delivered not later than the 3 month anniversary of the Closing Date,
the Repurchase Price shall be $1.25 per share; (b) if the Repurchase Notice is
delivered after the 3 month anniversary of the Closing Date but not later than
the 6 month anniversary of the Closing Date, the Repurchase Price shall be $1.50
per share; (c) if the Repurchase Notice is delivered after the 6 month
anniversary of the Closing Date but not later than the 9 month anniversary of
the Closing Date, the Repurchase Price shall be $1.75 per share; and (d) if the
Repurchase Notice is delivered after the 9 month anniversary of the Closing Date
but not later than the 12 month anniversary of the Closing Date, the Repurchase
Price shall be $2.00 per share. Notwithstanding the foregoing the Repurchase
Price shall in no event exceed the average of the closing bid price for the
Common Stock for the ten (10) trading days preceding the date of the Repurchase
Notice.
-6-
<PAGE> 10
The Repurchase Notice shall state that the demand for repurchase is based on
this Section of this Agreement and shall specify the date of delivery of the
Repurchase Notice, the number of shares to be repurchased, and the price to be
paid therefor.
6.2 SUCCESSORS. This Agreement shall be binding on any
assignees or transferees of Purchaser and Purchaser shall not sell, assign,
pledge or transfer the Stock unless such assignee or transferee executes an
agreement agreeing to be bound by the terms of this Agreement.
7. DISCUSSIONS CONCERNING FUTURE INVESTMENTS. In the event the Company
is going to file a voluntary petition in bankruptcy or an assignment for the
benefit of creditors, the Company shall notify Purchaser, shall discuss its
plans with Purchaser and shall discuss with Purchaser the possibility of
Purchaser investing additional equity in the Company. Such discussions will also
encompass the necessity to amend the Rights Agreement.
8. MISCELLANEOUS.
8.1 WARRANTIES. Unless otherwise set forth in this Agreement,
the representations, warranties and covenants of the Company and Purchaser
contained in or made pursuant to this Agreement shall not survive the Closing.
8.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.3 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of California, and shall be binding upon the parties hereto in the
United States and worldwide. The federal and state courts within County of Santa
Clara in the State of California shall have exclusive jurisdiction to adjudicate
any dispute arising out of this Agreement.
8.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
8.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S.
-7-
<PAGE> 11
mail, as certified or registered mail, with postage prepaid, addressed to the
party to be notified at such party's address as set forth below:
(a) If to Purchaser, to:
Elex N.V.
Transportstraat 1
B 3980
Tessenderlo, Belgium
Attention: Chairman of the Board
Phone: 011+32 57 22 61 31
Fax: 011+32 13 67 21 34
(b) If to Catalyst, to:
Catalyst Semiconductor, Inc.
1250 Borregas Avenue
Sunnyvale, CA 94089
Attention: President and Chief Executive Officer
Phone: (408) 542-1060
Fax: (408) 542-1406
8.7 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction. Purchaser agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless Purchaser from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
8.8 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Stock. Any amendment or waiver effected in
accordance with this Section 7.9 shall be binding upon Purchaser and each
transferee of the Stock, each future holder of all such securities, and the
Company.
-8-
<PAGE> 12
8.10 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
8.11 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
8.12 ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements relating to the subject matter hereof existing between the parties
hereto are expressly canceled.
8.13 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
[Remainder of Page Intentionally Left Blank]
-9-
<PAGE> 13
The parties have executed this Common Stock Purchase Agreement as of
the date first written above.
COMPANY:
CATALYST SEMICONDUCTOR, INC.
By: /s/ Radu Vanco
---------------------------------------
Radu Vanco
President and Chief Executive Officer
PURCHASER:
ELEX N.V.
By: /s/ Roland Duchatelet
--------------------------------------
Roland Duchatelet
Chairman of the Board
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 14
EXHIBITS
Exhibit A - Schedule of Exceptions to Representations and Warranties
Exhibit B - Form of Standstill Agreement
Exhibit C - Form of Nondisclosure Agreement
<PAGE> 15
EXHIBIT A
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Section 2 of
the Common Stock Purchase Agreement dated as of May __, 1998 (the "AGREEMENT")
between Catalyst Semiconductor, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "COMPANY"), and Elex N.V., a corporation
organized and existing under the laws of the Country of Belgium ("PURCHASER").
Unless the context otherwise requires, all capitalized terms used herein shall
have the same meanings as set forth in the Agreement. All disclosures and
exceptions contained herein are intended to modify all of the Company's
representations and warranties contained in the Agreement, and the section
headings used below are for convenience only.
None.
-1-
<PAGE> 16
EXHIBIT B
FORM OF STANDSTILL AGREEMENT
<PAGE> 17
STANDSTILL AGREEMENT
This STANDSTILL AGREEMENT is made as of May 26, 1998 by and between
CATALYST SEMICONDUCTOR, INC., a corporation organized and existing under the
laws of the State of Delaware (the "CATALYST"), and ELEX N.V., a corporation
organized and existing under the laws of the Country of Belgium ("PURCHASER").
R E C I T A L S
In connection with negotiations relating to the proposed issuance by
Catalyst and purchase by Purchaser of shares of Catalyst's Common Stock,
Purchaser desires to make certain covenants to Catalyst so as to provide limits
on Purchaser's ownership of and voting of its capital stock of Catalyst.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties agree as follows:
A G R E E M E N T
1. Certain Definitions. Unless the context otherwise requires, the
following terms, for all purposes of this Agreement, shall have the meanings
specified in this Section 1:
"AFFILIATE" of any Person shall mean: (i) any entity which owns fifty
percent (50%) or more of such Person's Outstanding Voting Stock or which has the
power to appoint or elect a majority of the Board of Directors of such Person;
(ii) any entity in which such Person owns fifty percent (50%) or more of such
entity's Outstanding Voting Stock or for which such Person has the power to
appoint or elect a majority of the Board of Directors of such entity; (iii) any
entity having a common stockholder with such Person wherein such stockholder
owns fifty percent (50%) or more of such entity's Outstanding Voting Stock and
has the power to appoint a majority of the Board of Directors of such Person;
(iv) any entity having a common stockholder with such Person wherein such
stockholder owns fifty percent (50%) or more of such Person's Outstanding Voting
Stock and has the power to appoint a majority of the Board of Directors of such
entity; or (v) any entity having a common stockholder with such Person wherein
such stockholder has the power to appoint a majority of the Board of Directors
of such Person and such entity.
"OUTSTANDING VOTING STOCK" of Catalyst, or another entity as the
context requires, shall mean the Common Stock of Catalyst (or such other entity)
and any other securities convertible into Common Stock of Catalyst (or such
other entity) having the power to vote in the election of directors of Catalyst
(or such other entity) then outstanding, other than securities having such power
only upon the happening of a contingency which has not yet occurred.
"PERSON" shall mean any individual, partnership, joint venture,
corporation, trust or unincorporated organization, or any business entity or
governmental authority, in any case whether acting in an individual, fiduciary
or other capacity.
<PAGE> 18
"VOTING POWER" shall mean the number of votes entitled to then be cast
by the Outstanding Voting Stock of Catalyst at any election of directors of
Catalyst, provided that, for the purpose of determining Voting Power, each share
of Preferred Stock of Catalyst, if any (the "PREFERRED STOCK"), shall be deemed
to be entitled to the number of votes equal to the number of shares of Common
Stock of Catalyst (the "COMMON STOCK") into which such share of Preferred Stock
could then be converted.
"VOTING STOCK" shall mean the Common Stock outstanding, assuming the
exercise or conversion of all outstanding securities convertible into or
exercisable or exchangeable for Common Stock and further assuming the issuance
of all shares of Common Stock reserved for issuance pursuant to stock options
whether or not yet granted, and any other securities issued by Catalyst having
the power to vote in the election of directors of Catalyst, other than
securities having such power only upon the happening of a contingency which has
not yet occurred.
2. Covenants of Purchaser.
2.1. Standstill Provisions. Purchaser shall not (and shall not
permit any Affiliate to), directly or indirectly,
(a) acquire from other holders of Voting Stock or
other securities convertible into or exchangeable or exercisable for Voting
Stock, beneficial ownership of any Voting Stock, any securities convertible into
or exchangeable for Voting Stock, or any other right to acquire Voting Stock
(except, in any case, by way of stock dividends, stock splits or other
distributions made to holders of any Voting Stock generally), or authorize or
make a tender, exchange or other offer which would result in such an
acquisition, without the prior written consent of Catalyst approved by the Board
of Directors of Catalyst, if the effect of such acquisition would be to increase
the Voting Power of all Voting Stock then beneficially owned by Purchaser (and
its Affiliates), or which Purchaser (and its Affiliates) collectively have a
right to acquire, to more than 1,500,000 shares (as appropriately adjusted for
stock dividends, stock splits, recapitalizations, reclassifications and the
like);
(b) deposit any shares of Voting Stock in a voting
trust or subject any Voting Stock to any arrangement or agreement with respect
to the voting of such Voting Stock;
(c) otherwise act to seek to control the management,
Board of Directors, or policies of Catalyst (or any of its Affiliates), or,
except as required by law, make public statements with respect thereto;
(d) solicit, or induce others to solicit, "proxies"
to vote with respect to any securities issued by Catalyst or any of its
Affiliates, or become a "participant" or induce others to become a "participant"
in any solicitation of "proxies" to vote (as such terms are used in Regulation
14A under the Securities Exchange Act of 1934) securities issued by Catalyst (or
any of its Affiliates) or seek to advise or influence any Person with respect to
the voting of securities issued by Catalyst (or its Affiliates); or
-2-
<PAGE> 19
(e) otherwise act in any manner, whether by forming,
joining or participating with any Person or group, or aiding, advising,
encouraging or assisting any other Person or group, whether for the purpose of
acquiring, holding, voting or disposing of Voting Stock or accomplishing any of
the foregoing (a) through (d) above,, including inviting, encouraging,
soliciting or providing information to assist the submission of any proposal for
the acquisition, by purchase or otherwise, from Catalyst (or any of its
Affiliates) or any other Person of securities issued by Catalyst (or any of its
Affiliates) or assets of Catalyst (or any of its Affiliates) or any proposal
with respect to any form of restructuring, recapitalization or similar
transaction of Catalyst (or any of its Affiliates).
2.2. Notice of Purchases. Purchaser shall notify Catalyst in
writing as to Purchaser's (or any Affiliate's) acquisition of additional shares
of Voting Stock, or rights thereto within a reasonable time period not to exceed
ten (10) days after such acquisition.
2.3 Transferees. Purchaser shall not sell, assign or transfer
in excess of one hundred thousand (100,000) Common Shares to any other party (or
any Affiliate of such party) in a transaction or a series of related
transactions without such other party which purchases such shares having agreed
to and having become a party to this Agreement with the Company.
3. Voting of Stock. Purchaser (a) will execute all "proxies" solicited
by management or the Board of Directors of Catalyst or (b) will vote all Voting
Stock "FOR" all proposals submitted by Management or the Board of Directors of
Catalyst, for approval or a vote by the shareholders of Catalyst, including all
nominations for the Board of Directors of Catalyst.
4. Prohibited Transfer. Any purchase which causes Purchaser to be in
violation of the terms of Section 2 above ("PROHIBITED TRANSFER") shall not be
effected by Catalyst and shall be voidable at the option of Catalyst by their
giving written notice to the transferor, his transferee and Purchaser. Each
certificate representing Common Shares held by Purchaser shall be endorsed by
the Company with a legend reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A STANDSTILL AGREEMENT BY
AND BETWEEN THE COMPANY AND THE HOLDER HEREOF (A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY), AND NO TRANSFER OF THE SHARES EVIDENCED
HEREBY SHALL BE EFFECTIVE EXCEPT IN COMPLIANCE WITH THE TERMS THEREOF."
5. Miscellaneous.
5.1. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, and shall be binding upon the parties hereto in the
United States and worldwide. The federal and state courts within County of Santa
Clara in the State of California shall have exclusive jurisdiction to adjudicate
any dispute arising out of this Agreement.
-3-
<PAGE> 20
5.2. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successor and assigns of the parties hereto.
5.3. Entire Agreement; Amendment. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof. Neither this Agreement nor any provision
hereof may be amended, changed, waived, discharged or terminated other than by a
written instrument signed by the party against who enforcement of any such
amendment, change, waiver, discharge or termination is sought. Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities and Catalyst.
5.4. Notices, etc. All notices and other communications
required or permitted hereunder shall be effective upon receipt and shall be in
writing and may be delivered in person, by telecopy, electronic mail, express
delivery service or U.S. mail, in which event it may be mailed by first-class,
certified or registered, postage prepaid, addressed, to the party to be
notified, at the respective addresses set forth below, or at such other address
which may hereinafter be designated in writing:
(a) If to Purchaser, to:
Elex N.V.
Transportstraat 1
B 3980
Tessenderlo, Belgium
Belgium
Attention: Chairman of the Board
Phone: 011+32 57 22 61 31
Fax: 011+32 13 67 21 34
(b) If to Catalyst, to:
Catalyst Semiconductor, Inc.
1250 Borregas Avenue
Sunnyvale, CA 94089
Attention: President and Chief Executive Officer
Phone: (408) 542-1060
Fax: (408) 542-1406
5.5. Severability. If any provision of this Agreement shall be
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
-4-
<PAGE> 21
5.6. Titles and Subtitles. The titles of the Articles and
Sections of this Agreement are for convenience of reference only and in no way
define, limit, extend, or describe the scope of this Agreement or the intent of
any of its provisions.
5.7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
5.8. Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party upon any
breach or default of any other party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach or default, or any acquiescence therein, or of any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character of any breach or default under this Agreement,
or any waiver of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in
writing, and that all remedies, either under this Agreement, by law or
otherwise, shall be cumulative and not alternative.
5.9. Consents. Any permission, consent, or approval of any
kind or character under this Agreement shall be in writing or detrimentally
relied upon and proved by clear and convincing evidence (other than alleged
reliance) and shall be effective only to the extent specifically set forth in
such writing or proved.
5.10. Payment of Fees and Expenses. Each party shall be
responsible for paying its own fees, costs and expenses in connection with this
Agreement and the transactions herein contemplated.
5.11. Construction of Agreement. No provision of this
Agreement shall be construed against either party as the drafter thereof.
5.12. Section References. Unless otherwise stated, any
reference contained herein to a Section or subsection refers to the provisions
of this Agreement.
5.13. Variations of Pronouns. All pronouns and all variations
thereof shall be deemed to refer to the masculine, feminine, or neuter, singular
or plural, as the context in which they are used may require.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Standstill Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first written above.
CATALYST SEMICONDUCTOR, INC.
By: /s/ Radu Vanco
----------------------------------------------
Radu Vanco
President and Chief Executive Officer
ELEX N.V.
By: /s/ Roland Duchatelet
----------------------------------------------
Roland Duchatelet
Chairman of the Board
[SIGNATURE PAGE TO STANDSTILL AGREEMENT]
<PAGE> 23
EXHIBIT C
FORM OF NONDISCLOSURE AGREEMENT
<PAGE> 24
CATALYST SEMICONDUCTOR, INC.
NONDISCLOSURE AGREEMENT
This AGREEMENT is made as of May 26, 1998 between CATALYST
SEMICONDUCTOR, INC., a corporation organized and existing under the laws of the
State of Delaware ("CATALYST"), and ELEX N.V., a corporation organized and
existing under the laws of the Country of Belgium ("RECIPIENT").
1. Purpose. Catalyst and Recipient wish to explore a possible business
relationship regarding an investment in Catalyst by Recipient (the
"RELATIONSHIP") in connection with which Catalyst may disclose its Confidential
Information to Recipient.
2. Definition of Confidential Information. "CONFIDENTIAL INFORMATION"
means any information, technical data, or know-how, including, but not limited
to, that which relates to research, product plans, products, services,
customers, markets, software, developments, inventions, processes, designs,
drawings, engineering, hardware configuration information, marketing or finances
of the disclosing party, which Confidential Information is designated in writing
to be confidential or proprietary, or if given orally, is confirmed promptly in
writing as having been disclosed as confidential or proprietary. Confidential
Information does not include information, technical data or know-how which (i)
is in the possession of the receiving party at the time of disclosure as shown
by the receiving party's files and records immediately prior to the time of
disclosure, or (ii) prior to or after the time of disclosure becomes part of the
public knowledge or literature other than as a result of any improper inaction
or action of the receiving party, (iii) is approved by the disclosing party, in
writing, for release, or (iv) is required to be disclosed by applicable law or
proper legal, governmental or other competent authority (provided that Catalyst
shall be notified sufficiently in advance of such requirement so that it may
seek a protective order (or equivalent) with respect to such disclosure, which
Recipient shall fully comply with).
3. Nondisclosure of Confidential Information. Recipient agrees not to
use any Confidential Information disclosed to it by Catalyst for Recipient's own
use or for any purpose except to carry out discussions concerning, and the
undertaking of, the Relationship. Recipient will not disclose any Confidential
Information of Catalyst to third parties or employees of Recipient, except
employees who are required to have the information in order to carry out the
discussions regarding the Relationship. Recipient agrees that it will take all
reasonable measures to protect the secrecy of and avoid disclosure or use of
Confidential Information of Catalyst in order to prevent it from falling into
the public domain or the possession of persons other than those persons
authorized hereunder to have any such information. Such measures shall include,
but not be limited to, the highest degree of care that the Recipient utilizes to
protect its own Confidential Information of a similar nature. Recipient has had
or will have employees to whom Confidential Information of Catalyst is disclosed
or who have access to Catalyst's Confidential Information sign a nondisclosure
agreement in content substantially similar to this Agreement
-1-
<PAGE> 25
and, at the request of Catalyst, will promptly notify Catalyst in writing of the
names of the persons who have signed such agreements. Recipient agrees to notify
Catalyst in writing of any misuse or misappropriation of Confidential
Information of Catalyst which may come to the Recipient's attention.
4. Return of Materials. Any materials or documents which have been
furnished by Catalyst to the Recipient in connection with the Relationship will
be promptly returned by the Recipient, accompanied by all copies of such
documentation, within ten (10) days after (i) the Relationship has been
terminated or (ii) the written request of Catalyst.
5. No Rights Granted. Nothing in this Agreement is intended to grant
any rights under any patent or copyright of either party, nor shall this
Agreement grant Recipient any rights in or to Catalyst's Confidential
Information, except the limited right to review such Confidential Information in
connection with the proposed Relationship between the parties.
6. Term. The foregoing commitments of each party shall survive any
termination of the Relationship between the parties, and shall continue for a
period terminating on the later to occur of the date (i) five (5) years
following the date of this Agreement or (ii) three (3) years from the date on
which Confidential Information is last disclosed under this Agreement.
7. Miscellaneous. This Agreement shall be binding upon and for the
benefit of the undersigned parties, their successors and assigns, provided that
Catalyst's Confidential Information may not be assigned without Catalyst's prior
written consent. Failure to enforce any provision of this Agreement by a party
shall not constitute a waiver of any term hereof by such party.
8. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, and shall be binding upon the parties hereto in the United States
and worldwide. The federal and state courts within County of Santa Clara in the
State of California shall have exclusive jurisdiction to adjudicate any dispute
arising out of this Agreement.
9. Remedies. Each party agrees that its obligations provided herein are
necessary and reasonable in order to protect Catalyst and its business, and each
party expressly agrees that monetary damages would be inadequate to compensate
Catalyst for any breach by Recipient of its covenants and agreements set forth
herein. Accordingly, each party agrees and acknowledges that any such violation
or threatened violation will cause irreparable injury to Catalyst and that, in
addition to any other remedies that may be available, in law, in equity or
otherwise, Catalyst shall be entitled to obtain injunctive relief against the
threatened breach of this Agreement or the continuation of any such breach by
Recipient, without the necessity of proving actual damages.
[Remainder of Page Intentionally Left Blank]
-2-
<PAGE> 26
IN WITNESS WHEREOF, this Nondisclosure Agreement is executed as of the
date first above written.
<TABLE>
<S> <C>
CATALYST SEMICONDUCTOR, INC. ELEX N.V.
By: /s/ RADU VANCO By: /s/ ROLAND DUCHATELET
- ---------------------------------------------- -------------------------
Radu Vanco Roland Duchatelet
President and Chief Executive Officer Chairman of the Board
Address: Address:
1250 Borregas Avenue Transportstraat 1
Sunnyvale, CA 94089 B 3980
Tessenderlo, Belgium
Attn: President and Chief Executive Officer Attn: Chairman of the Board
Phone: 408/542-1060 Phone: 011+32 57 22 61 31
Fax: 408/542-1406 Fax: 011+32 13 67 21 34
</TABLE>
-1-
<PAGE> 1
Exhibit 10.62
August 6, 1998
Catalyst Semiconductor, Inc.
1250 Borregas Avenue
Sunnyvale, California
Attention: Tom Gay
Dear Mr. Gay:
Reference is hereby made to that certain Loan and Security Agreement,
dated June 19, 1997, by and between Catalyst Semiconductor, Inc., a Delaware
corporation ("Catalyst") and Coast Business Credit ("Coast"), (the "Agreement")
and that certain Loan and Security Agreement, CEFO Facility, dated June 19, 1997
between Catalyst and Coast (the "CEFO Agreement"). Initially capitalized terms
used in this forbearance letter which are not otherwise defined shall have the
meanings assigned to such terms in the Agreement and the CEFO Agreement, as
applicable.
Catalyst has failed to comply with Section 6.1(a), 6.1(c), 6.1(f),
6.l(g) and 6.l(n) (Catalyst's Defaults under 6.1(a), 6.1(c), 6.1(f), 6.1(g) and
6.1(n) through June 30, 1998 are, the "Existing Defaults") of the Agreement and
the CEFO Agreement, in that Catalyst has failed to accurately report on the
Collateral, failed to file its 1OQ and 10K reports as required under Section
4.2, failed to promptly notify Coast in writing of changes to its officers and
directors as required under Section 4.5, and failed to adequately protect the
Collateral from material decreases in value to the point that Coast deems itself
insecure.
The Existing Defaults constitute Events of Default under and as defined
in the Agreement and the CEFO Agreement. The occurrence of such Events of
Default entitles Coast, at its election and without demand, to immediately
terminate its obligations under the Agreement and the CEFO Agreement to make
Loans to Catalyst, or to declare the obligations to be due and payable, or both.
Catalyst has requested that Coast forbear taking action on the Existing
Defaults. Coast is willing to and does hereby forbear taking action on the
Existing Defaults until September 30, 1998, provided that a non-refundable fee
of $33,750 which is fully earned up front and paid to Coast no later than August
5, 1998. Any Event of Default that is not an Existing Default shall not be
subject to this forbearance.
<PAGE> 2
Tom Gay
August 6, 1998
Page 2
The forbearance set forth hereinabove shall be limited precisely as
written and shall not be deemed to (a) be a waiver or modification of any other
term or condition of the Agreement, the CEFO Agreement or any other loan
document or (b) prejudice any right or remedy which coast may now have or may
have in the future (except to the extent such right or remedy is based upon the
foregoing Existing Default) under or in connection with the Agreement, the CEFO
Agreement or any loan document.
Please acknowledge your receipt of this forbearance letter and
acceptance of the foregoing terms and conditions by signing and dating the
enclosed counterpart of this forbearance letter where indicated below and
returning same to the undersigned as soon as possible.
Very truly yours,
COAST BUSINESS CREDIT
By: /s/ JEFFREY CRISTOL
Name: Jeffrey Cristol
Title: Vice President
Acknowledged and Agreed to as of the
11th day of August, 1998.
CATALYST SEMICONDUCTOR, INC.
By: //s// T. E. Gay
Title: CFO
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-60132 and 333-10041) of Catalyst Semiconductor,
Inc. of our report dated July 27, 1998, appearing on page 21 of this Annual
Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 6,284
<SECURITIES> 0
<RECEIVABLES> 5,052
<ALLOWANCES> (326)
<INVENTORY> 4,194
<CURRENT-ASSETS> 16,019
<PP&E> 12,436
<DEPRECIATION> (9,602)
<TOTAL-ASSETS> 18,853
<CURRENT-LIABILITIES> 22,221
<BONDS> 0
0
0
<COMMON> 42,789
<OTHER-SE> (46,658)
<TOTAL-LIABILITY-AND-EQUITY> 18,853
<SALES> 34,579
<TOTAL-REVENUES> 34,579
<CGS> 39,025
<TOTAL-COSTS> 39,025
<OTHER-EXPENSES> 13,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 847
<INCOME-PRETAX> (18,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,866)
<EPS-PRIMARY> (2.28)
<EPS-DILUTED> (2.28)
</TABLE>
