<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended August 2, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
---- -------
COMMISSION FILE NUMBER: 0-21488
CATALYST SEMICONDUCTOR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0083129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 BORREGAS AVENUE,
SUNNYVALE, CALIFORNIA 94089
(Address, including zip code, of
Registrant's principal executive offices)
(408) 542-1000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of
September 15, 1998 was 9,961,722
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Page 1 of 15
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets
at July 31, 1998 and April 30, 1998........................................................................ Page 3
Unaudited Condensed Consolidated Statements of Operations for the three month
periods ended July 31, 1998 and 1997....................................................................... Page 4
Unaudited Condensed Consolidated Statements of Cash Flows for the three month periods
ended July 31, 1998 and 1997............................................................................... Page 5
Notes to Unaudited Condensed Consolidated Financial Statements.............................................. Pages 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION ......................................................................... Pages 7-13
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
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ITEM 5. OTHER INFORMATION........................................................................................... Page 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................................ Page 14
SIGNATURES........................................................................................................... Page 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31, April 30,
1998 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,997 $ 534
Restricted cash........................................................... 5,750 5,750
Accounts receivable, net ................................................. 3,930 4,726
Inventories............................................................... 3,716 4,194
Other assets.............................................................. 1,035 815
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Total current assets.................................................. 16,428 16,019
Property and equipment, net.................................................. 2,501 2,834
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$18,929 $18,853
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank and other short-term debt............................................ $ 2,192 $ 3,225
Accounts payable.......................................................... 14,011 13,400
Accrued expenses.......................................................... 3,183 3,650
Deferred gross profit on shipments to distributors........................ 647 475
Current portion of long-term debt and capital lease obligations........... 1,439 1,471
------- -------
Total current liabilities............................................. 21,472 22,221
Long-term debt and capital lease obligations................................. 472 501
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Total liabilities..................................................... 21,944 22,722
Total stockholders' equity................................................... (3,015) (3,869)
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$18,929 $18,853
======= =======
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
3
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
July 31, 1998 July 31, 1997
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<S> <C> <C>
Net revenues.............................................................. $ 7,305 $ 9,548
Cost of revenues.......................................................... 5,065 7,173
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Gross profit ............................................................. 2,240 2,375
Research and development.................................................. 567 1,180
Selling, general and administrative ...................................... 2,096 1,792
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Loss from operations ..................................................... (423) (597)
Interest income (expense), net............................................ (222) (185)
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Loss before income taxes ................................................. $ (645) $ (782)
============= =============
Income tax provision ..................................................... --- ---
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Net loss ................................................................. $ (645) $ (782)
============= =============
Net loss per share:
Basic................................................................... $ (0.06) $ (0.10)
============= =============
Diluted................................................................. $ (0.06) $ (0.10)
============= =============
Weighted average common shares:
Basic................................................................... 9,942 8,008
============= =============
Diluted................................................................. 9,942 8,008
============= =============
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
4
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
July 31, 1998 July 31, 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................... $ (645) $ (782)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization....................................... 348 459
Changes in assets and liabilities:
Accounts receivable................................................ 796 (1,307)
Inventories........................................................ 478 575
Other assets....................................................... (220) (92)
Accounts payable................................................... 611 506
Accrued expenses................................................... (467) 318
Deferred gross profit on shipments to distributors................. 172 25
------------- -------------
Net cash used in operating activities............................ 1,073 (298)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for the acquisition of equipment............................. (15) (676)
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Cash used in investing activities................................ (15) (676)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock .................................................. 1,499 46
Net payments on line of credit......................................... (1,033) 10
Payment of long-term debt and capital lease obligations............... (61) (171)
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Cash provided by (used in) financing activities.................. 405 (115)
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Net increase (decrease) in cash and cash equivalents...................... 1,463 (1,089)
Cash and cash equivalents at beginning of the period...................... 534 2,695
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Cash and cash equivalents at end of the period............................ $ 1,997 $ 1,606
============= =============
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
5
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CATALYST SEMICONDUCTOR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the unaudited condensed consolidated interim
financial statements included herein have been prepared on the same basis as the
April 30, 1998 audited consolidated financial statements and include all
adjustments, consisting of only normal recurring adjustments, necessary to
fairly state the information set forth herein. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission,
but omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended April 30, 1998. The results of operations for the three month period
ended July 31, 1998 are not necessarily indicative of the results to be expected
for the entire year.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998, the market for certain FLASH and EEPROM
devices, which comprise the majority of Catalyst's business, experienced an
excess market supply relative to demand which resulted in a significant downward
trend in prices. The Company could continue to experience a downward trend in
product pricing which could further adversely affect the Company's operating
results.
The Company's operating results in the past year have consumed substantial
amounts of cash. The reduction in cash has also placed restrictions on wafer
purchases which, during the fourth quarter of 1998, resulted in the cancellation
of some customer sales orders. In May 1998, the Company received net proceeds of
$1.5 million from the sale of 1,500,000 shares of its Common Stock in a private
placement. In September 1998, the Company negotiated the sale of 4,000,000
additional shares of its Common Stock to the same investor for $1.0 million.
Management believes, however, that it will require additional cash from similar
or related private placements or other sources of liquidity to meet the
Company's projected working capital and other cash requirements for fiscal 1999,
and is currently pursuing other sources of liquidity.
As a result of these circumstances, the Company's independent
accountants' opinion on the Company's April 30, 1998 consolidated financial
statements includes an explanatory paragraph indicating that these matters raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's fiscal year and its first, second and third fiscal quarters
end the Sunday closest to April 30, July 31, October 31 and January 31,
respectively. For purposes of financial statement presentation, the year end
date is expressed as April 30 and the quarter end dates are expressed as July
31, October 31 or January 31.
NOTE 2 - INCOME (LOSS) PER SHARE
During the quarter ended January 31, 1998, the Company adopted SFAS No.
128, "Earnings Per Share". SFAS No. 128 requires presentation of both basic and
diluted net income per share on the face of the income statement. All prior
period net income per share data presented has been restated in accordance with
SFAS No. 128. Basic net income per share is computed by dividing net income
available to common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period and excludes the
dilutive effect of stock options. Diluted net income per share gives effect to
all dilutive potential common shares outstanding during a period. In computing
diluted net income per share, the average stock price for the period is used in
determining the number of shares assumed to be purchased from exercise of stock
options.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
July 31, 1998 July 31, 1997
------------- -------------
(in thousands)
<S> <C> <C>
Net loss $ (645) $ (742)
Shares calculation:
Average shares outstanding-basic 9,942 8,008
Effect of Dilutive securities:
Stock options - -
============= =============
Average shares outstanding-diluted 9,942 8,008
============= =============
</TABLE>
Options to purchase 2,466,000 shares of common stock at prices ranging from
$0.69 to $6.30 per share outstanding during the quarter ended July 31, 1998 and
options to purchase 2,702,000 shares of common stock at prices from $1.08 to
$6.30 per share outstanding during the quarter ended July 31, 1997 were not
included in the computation of diluted EPS because the inclusion of such options
would have been antidilutive.
NOTE 3 - BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
July 31, April 30,
1998 1998
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<S> <C> <C>
Accounts receivable:
Accounts receivable .......................................... $ 4,373 $ 5,052
Less: Allowance for doubtful accounts........................ (443) (326)
-------- ---------
$ 3,930 $ 4,726
======== =========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
July 31, April 30,
1998 1998
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<S> <C> <C>
Inventories:
Work-in-process............................................... $ 1,213 $ 2,410
Finished goods................................................ 2,503 1,784
-------- ---------
$ 3,716 $ 4,194
======== =========
Property and equipment:
Engineering and test equipment ............................... $ 7,691 $ 7,691
Computer hardware and software ............................... 3,485 3,470
Furniture and office equipment................................ 1,275 1,275
-------- ---------
12,451 12,436
Less: accumulated depreciation and amortization .............. (9,950) (9,602)
-------- ---------
$ 2,501 $ 2,834
======== =========
</TABLE>
NOTE 4 - DEBT:
Under the terms of a bank revolving line of credit, the Company can borrow
the lesser of $13.5 million or an amount determined by a formula applied to
eligible accounts receivable, local inventory and backlog from certain foreign
customers, at a variable interest rate of prime plus 5.25% (13.75% at July 31,
1998). The revolving line of credit is subject to compliance with loan
covenants. At July 31, 1998, the Company was not in compliance with certain of
the loan covenants and the bank has agreed in a letter of forbearance not to
enforce certain of its rights to which it is entitled under such condition. Such
forbearance is granted until March 31, 1999 for each condition of non-compliance
on July 31, 1998. As a result of such non-compliance with the terms of the loan,
the Company cannot currently borrow any additional funds under the line without
the permission of the bank. During the quarter ended July 31, 1998, the bank has
continued to loan amounts in accordance with the loan agreement.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same. The
loan which bears interest at 18%, was due and payable on May 15, 1998. An
agreement has been made for the Company to satisfy the obligation by making
monthly payments of $0.1 million principle and interest beginning on October 15,
1998 until paid in full.
NOTE 5 - SALE OF COMMON STOCK:
In May 1998, a private investor purchased 1,500,000 shares of the Company's
common stock in a private placement for $1.00 per share. The offer and sale of
the securities was exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) of such Act. In connection with such issuance,
the investor agreed to various standstill and voting provisions including not
acquiring additional shares of Company Stock or taking actions to control the
Company. The Company also has repurchase rights with respect to the shares sold
over the twelve months from the date of issuance.
In September 1998, the shareholder agreed to purchase 4,000,000 shares of
the Company's common stock for $.25 per share. The terms and conditions
applicable to this additional purchase are the same as the shares purchased in
May 1998. In addition, for a period of twelve months following the closing of
the foregoing sale of shares, the Company has the right to require the
shareholder to purchase up to 4,000,000 additional shares of common stock at a
purchase price of $.25 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED IN THIS REPORT. IN ADDITION, THE COMPANY DESIRES TO TAKE ADVANTAGE OF
THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. SPECIFICALLY, THE COMPANY WISHES TO ALERT READERS THAT THE FACTORS SET
FORTH IN "CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS" AS SET
FORTH BELOW IN THIS ITEM 2, AS WELL AS OTHER FACTORS, IN THE PAST HAVE AFFECTED
AND IN THE FUTURE COULD AFFECT THE COMPANY'S ACTUAL RESULTS, AND COULD CAUSE THE
COMPANY'S RESULTS FOR FUTURE QUARTERS TO DIFFER MATERIALLY FROM THOSE EXPRESSED
IN ANY FORWARD LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY.
OVERVIEW
Catalyst Semiconductor, Inc., incorporated October 8, 1985, designs,
develops and markets 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 and through the quarter ended July 31,
1998, the market for certain FLASH and EEPROM devices, which comprise the
majority of Catalyst's business, experienced an excess market supply relative to
demand which resulted in a significant downward trend in prices. The Company
could continue to experience a downward trend in product pricing which could
further adversely affect the Company's operating results.
The Company's operating results in the past year have consumed substantial
amounts of cash. The reduction in cash has also placed restrictions on wafer
purchases which, during the fourth quarter of fiscal 1998 and the first quarter
of fiscal 1999, resulted in the cancellation of some customer sales orders. In
May 1998, the Company received net proceeds of $1.5 million from the sale of
1,500,000 shares of its Common Stock in a private placement. In September 1998,
the Company negotiated the sale of 4,000,000 additional shares of its Common
Stock for $1.0 million. Management believes, however, that it may require
additional cash from similar or related private placements or other sources of
liquidity to meet the Company's projected working capital and other cash
requirements for fiscal 1999, and is currently pursuing these sources of
liquidity.
As a result of these circumstances, the Company's independent accountants'
opinion on the Company's April 30, 1998 consolidated financial statements
includes an explanatory paragraph indicating that these matters raise
substantial doubt about the Company's ability to continue as a going concern.
RESULTS OF OPERATIONS
Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales has been made through independent
distributors. Revenue from product sales to original equipment manufacturers and
from sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the distributor
sells the product to the end customer. Total revenues decreased by 23% to $7.3
million for the quarter ended July 31, 1998 from $9.5 million for the quarter
ended July 31, 1997. The decrease was primarily attributable to price erosion
caused by excess supply and other adverse industry-wide conditions. Total
revenues of $7.3 million for the quarter ended July 31, 1998 increased by 52% to
from $4.8 million for the quarter ended April 30, 1998. The increase is
primarily attributable to the fact that the Company was unable to purchase
sufficient wafers during the fourth quarter of fiscal 1998 due to insufficient
working capital. The Company is reliant upon receiving and fulfilling orders
within the same quarter to meet or exceed its current revenue levels. A
continuation of weak demand, capital deficiencies and price erosion for the
Company's products could lead to continued poor operating results. In May and
June of 1998, the Company received substantial cancellations of the backlog
existing at fiscal year end. Approximately 32% of the Company's revenues were
derived from shipments to international customers compared with 64% and 63% of
net product sales in fiscal 1998 and 1997, respectively.
Gross Profit (Loss). Gross profit for the quarter ended July 31, 1998 was
$2.2 million, or 30% of revenues, compared to gross profit of $2.4 million, or
25% of revenues, for the quarter ended July 31, 1997. The gross profit for the
quarter ended July 31, 1998 includes $0.5 million benefit as a result of
negotiating the reduction of amounts owed under a product licensing agreement.
Gross margins were also adversely affected by excess supply of competitive
products and other adverse industry-wide conditions.
7
<PAGE> 8
CATALYST SEMICONDUCTOR, INC.
Research and Development. Research and development (R&D) expenses consist
principally of salaries for engineering, technical and support personnel,
depreciation of equipment, and the cost of wafers used to evaluate new products
and new versions of current products. R&D expenses decreased by 50% to $0.6
million, or 8% of revenues, for the quarter ended July 31, 1998 from $1.2
million, or 13% of revenues, for the quarter ended July 31, 1997. The primary
reason for the decreases in absolute dollars spent was lower material costs for
wafers being evaluated for new products and new versions of current products and
reductions in headcount and reductions in headcount and the transfer of portions
of the engineering expenses to lower cost offshore sources.
Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses consist principally of salaries for sales, marketing and
administrative personnel, commissions and promotional activities. SG&A expenses
increased by 17% to $2.1 million, or 29% of revenues, for the quarter ended July
31, 1998 from $1.8 million, or 19% of revenues, for the quarter ended July 31,
1997. The primary reason for the increases in absolute dollars spent was
increased expenditures for outside services.
Net Interest Income (Expense.) Net interest expense increased by 20% to
$222,000 for the quarter ended July 31, 1998 from $185,000 for the quarter ended
July 31, 1997. The changes were primarily attributable to increased average
outstanding borrowings and higher interest rates.
Income Tax Provision. As a result of the Company's losses, the provision
for income taxes remained at zero for the quarter ended July 31, 1998.
As of April 30, 1998 the Company had available net operating loss
carryforwards of approximately $37.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, which begin to expire in
2001. Availability of the net operating loss and general business credit
carryforwards may potentially be reduced in the event of substantial changes in
equity ownership.
LIQUIDITY AND CAPITAL RESOURCES
Total cash (including $5.8 million of restricted cash) increased $1.4
million to $7.7 million as of July 31, 1998 from $6.3 million as of April 30,
1998. The increase was primarily attributable to $1.5 million received from the
sale of common stock to an investor. As of July 31, 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.
Under the terms of a bank revolving line of credit, the Company can borrow
the lesser of $13.5 million or an amount determined by a formula applied to
eligible accounts receivable, local inventory and backlog from certain foreign
customers, at a variable interest rate of prime plus 5.25% (13.75% at July 31,
1998). The revolving line of credit is subject to compliance with loan
covenants. At July 31, 1998, the Company was not in compliance with certain of
the loan covenants and the bank has agreed in a letter of forbearance not to
enforce certain of its rights to which it is entitled under such condition. Such
forbearance was granted until March 31, 1999 for each condition of
non-compliance on July 31, 1998. As a result of such non-compliance with the
terms of the loan, the Company cannot currently borrow any additional funds
under the line without the permission of the bank. During the quarter ended July
31, 1998, the bank has continued to loan amounts in accordance with the loan
agreement. Due to continued losses by the Company, the borrowings against the
backlog from certain foreign customers have been reduced substantially and may
be discontinued entirely.
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. An
arrangement has been made for the Company to satisfy the obligation with monthly
payments of $0.1 million applied to principle and interest beginning on October
15, 1998 until paid in full. There can be no assurance that the Company will be
able to make such payments to the satisfaction of the vendor or, if the Company
fails to comply with the agreement that the vendor will not seek to enforce its
right to collect the unpaid balance.
The Company has been seeking additional equity or debt financing to address
its working capital needs and to provide funding for capital expenditures. In
September 1998, the Company entered into an agreement to issue Common Stock in
exchange for $1.0 million with the right to obtain an additional $1.0 million of
equity financing on the same terms and conditions. There can be no assurances,
however, that further financing will be available on terms acceptable to the
Company, if at all. If the Company is not successful in raising additional
capital, in view of the uncertainties relating to arrangements with its bank and
other lenders, the Company can not reasonably assess how long its current cash
balances, cash generated from operations and borrowings available under any
remaining loans or lines of credit and from equipment financing, even with
substantial reductions in operating expenses and capital expenditures, will
permit the Company to continue operations.
8
<PAGE> 9
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 OCTOBER 31, 1998, AND
FUTURE FISCAL YEARS AND QUARTERS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN
ANY FORWARD-LOOKING STATEMENTS, ORAL OR WRITTEN, MADE BY OR ON BEHALF OF THE
COMPANY.
The Company's business and future operating results are subject to
potential fluctuations due to a number of factors including the following:
Defaults under Outstanding Loans; Risk of Bankruptcy. The Company has
approximately $2.2 million of secured loans owing to its bank. As a result of
the Company's financial condition and results of operations, the bank has
determined that the Company is in default under various provisions of the loan
agreement entitling the bank to terminate the loan agreement and declare the
loans immediately due and payable. Although the Company has obtained letters of
forbearance from the bank taking any action with respect to existing defaults,
such forbearance only extends until March 31, 1999 and only as to the specified
defaults claimed through September 21, 1998. The Company is seeking to persuade
the bank not to take action on the events of default and not to declare the loan
due and payable. In that regard the Company has signed an agreement to obtain
$1.0 million equity financing and a twelve month right to obtain up to an
additional $1.0 million of equity financing. There can be no assurance that
efforts to obtain additional funding will be successful or, if successful, that
the bank will continue to forbear action on or otherwise waive the existing
defaults. If the Company's efforts are unsuccessful, the bank is likely to
declare the loans due and payable. Under such circumstances the Company would be
unable to continue operations which would result in bankruptcy. The Company is
also indebted to other creditors in the amount of approximately $14.0 million.
Continued operation of the Company would also require such other lenders to
forbear taking action or waiving defaults under such other debt. Moreover, it is
anticipated that any continued forbearance by the bank would require such other
lenders to take similar action under the other loans. In addition, although the
Company is current on its lease payments under the lease of its headquarters
facility, as a result of its financial condition, the Company is in violation of
certain terms of its lease. Similar violations have resulted under certain
equipment lease agreements.
Need for Additional Capital. The Company has incurred significant losses
and experienced significant negative cash flow from operations for over two
years. Such negative cash flow has significantly reduced the Company's available
capital. The Company has thus far been successful in having its lenders agree to
waive or forbear actions on defaults under existing loans or to renegotiate the
terms of such loans to enable the Company to keep such loans outstanding but
there can be no assurance that such lenders will continue to agree to such
favorable actions. The Company may, as a condition to such waivers or
forbearances, need to obtain additional capital. If the Company is not
successful in raising additional capital, in view of the uncertainties relating
to arrangements with its bank and other lenders, the Company can not reasonably
assess how long its current cash balances, cash generated from operations and
borrowings available under any remaining loans or lines of credit and from
equipment financing, even with substantial reductions in operating expenses and
capital expenditures, will permit the Company to continue operations. There can
be no assurance that the Company will generate sufficient revenue to fund its
operations in the absence of additional funding sources. The Company has pursued
and continues to pursue measures designed to reduce expenses and conserve cash
such as deferring payments to vendors and other suppliers, headcount reductions,
deferrals of planned expenditures, other expense reductions and other measures.
Although such activities help preserve cash and enable the Company to continue
operations, the lack of available capital hinders the Company's ability to
continue manufacturing, sales, product development and other ongoing operational
activities necessary to generating revenues. Such activities can have a
material, adverse affect on the Company's business, financial condition and
operating results. Furthermore, to the extent the Company suffers further
adverse effects to its revenues or margins because of delays in new product
introductions, price competition or other competitive factors, the Company's
cash position and its business, operating results and financial condition could
be further adversely affected.
The Company obtained additional capital of $1.5 million in the quarter
ended July 31, 1998. In September 1998 the Company signed an agreement to obtain
$1.0 million equity financing and a twelve month right to obtain up to an
additional $1.0 million of equity financing. The Company may seek additional
equity or debt financing to address its working capital needs and to provide
funding for capital expenditures. There can be no assurance that additional
funding will continue to be available at acceptable terms, if at all. If the
Company is successful in raising additional funds through the issuance of equity
securities, existing stockholders of the Company would likely experience
substantial dilution, or the securities may have rights, preferences or
privileges senior to those of the Company's Common Stock. If adequate funds are
not available or are not available on acceptable terms, further reductions in
its operating expenses and capital expenditures would be required to continue
operations either of which could have a material adverse effect on the Company's
business, operating results and financial condition.
9
<PAGE> 10
Recent Operating Results; Anticipated Future Losses. The Company's recent
operating results reflect an increase in revenues from the previous quarter but
continue to result in a net loss. Total revenues for the quarter ended July 31,
1998 were $7.3 million compared to revenues of $4.8 million in the quarter ended
April 30, 1998 and revenues of $9.5 million for the comparable period of the
prior year. In addition, the Company incurred net losses for the quarter ended
July 31, 1998 of $.6 million compared to a loss for the quarter ended April 30,
1998 of $10.1 million and to a net loss of $.8 million for the comparable period
in the prior year. The Company lost $18.9 million in the fiscal year ended April
30, 1998 and the Company's last profitable year was the fiscal year ended April
30, 1996. For over two years, the Company has experienced significant negative
cash flow from operations. The Company has taken many steps to reduce its
operating expenses including reducing its headcount from 71 in December, 1996 to
40 in July 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.
10
<PAGE> 11
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,
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 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
11
<PAGE> 12
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 the quarter ended July 31, 1998 and fiscal
1998, 1997 and 1996 international sales accounted for approximately 32%, 64%,
63% and 60%, respectively, of the Company's product sales. The Company expects
that international sales will continue to represent a significant portion of its
product sales in the future. The Company's international operations may be
adversely affected by fluctuations in exchange rates, imposition of government
controls, political and financial instability, trade restrictions, changes in
regulatory requirements, difficulties in staffing international operations and
longer payment cycles. In particular, recent adverse developments in the
economic environment in the Far East may have a material adverse effect on the
Company's subcontractors. There can be no assurance these or other factors
related to international operations will not have a material adverse affect on
the Company's business, financial condition and results of operations.
New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence. The timely introduction of new products at competitive
price/performance levels is a key factor to the success of the Company's
business. In particular, the Company's future success will depend on its ability
to develop and implement new design and process technologies which enable the
Company to achieve higher product densities and thereby reduce product costs.
For example, most of the Company's products are currently designed and
manufactured using a 0.8 micron CMOS EEPROM process or a 0.5 micron Flash memory
process. There can be no assurance that the Company will be able to select and
develop new products and technologies and introduce them to the market in a
timely manner and with acceptable fabrication yields and production costs.
Furthermore, there can be no assurance that the Company's products will achieve
market acceptance. The failure of the Company to complete and introduce new
products at competitive price/performance levels could materially and adversely
affect the Company's business, financial condition and operating results. Delays
in developing new products, achieving volume production of new products,
successfully completing technology transitions with acceptable yields and
reliability or the lack of commercial acceptance of new products introduced by
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Flash Memory Market. A significant amount of the Company's net revenues
during the quarter ended July 1998 and the fiscal year ended April 1998 were
derived from sales of Flash memory products. The market for Flash memory
products has been characterized by intense price competition, long production
cycles, inconsistent yields, competing technologies, rapidly declining average
selling prices, declines in gross margins and intense overall competition. The
Company's 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, fiscal 1998 and the first quarter of fiscal 1999
operating results to adversely affect the Company's future operating results.
Semiconductor Industry. The semiconductor industry is highly cyclical and
has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and gross margins, and production overcapacity. Accordingly, the
Company may experience substantial period to period fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. For example, the Company experienced and
continues to experience accelerated erosion of average selling prices caused by
adverse industry-wide conditions in fiscal 1997 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 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
12
<PAGE> 13
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 the quarter ended July 31, 1998 no customers represented more than 10% of
the Company's revenues. 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 uses a wide variety of computer software
programs and operating systems in its day to day operations, including
applications used for financial, order processing and manufacturing systems. The
failure of computer software programs to accurately calculate and interpret
dates for the year 2000 could cause systems to inadvertently cause operating
problems, including interruption of business operations. The Company is
analyzing its internal systems to identify potential problems and implement
solutions that may be necessary. Based on information currently available, the
Company believes that the expenditures required to correct internal systems are
not expected to be material to the Company's business, operations or financial
condition. However, the Company may be vulnerable to year 2000 issues faced by
major suppliers, customers and financial organizations. Management is in the
process of assessing the impact that any such third parties may have on the
operations of the Company.
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.
13
<PAGE> 14
CATALYST SEMICONDUCTOR, INC.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In May 1998, a private investor purchased 1,500,000 shares of the Company's
common stock in a private placement for $1.00 per share. The offer and sale of
the securities was exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) of such Act. In connection with such issuance
the investor agreed to various standstill and voting provisions including not
acquiring additional shares of Company stock or taking actions to control the
Company. The Company also has repurchase rights with respect to the shares sold
over the twelve months from the date of issuance.
In September 1998, the shareholder agreed to purchase 4,000,000 shares of
the Company's common stock for $.25 per share. The term and conditions
applicable to this additional purchase are the same as the shares purchased May
1998. In addition, for a period of twelve months following the closing of the
foregoing sale of shares, the Company has the right to require the shareholder
to purchase up to 4,000,000 additional shares of common stock at a purchase
price of $.25 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<S> <C>
10.64 Common Stock Purchase Agreement dated as of September 14, 1998 between
Registrant and Elex N.V. ("Elex") with Standstill Agreement dated as
of September 14,1998 between Registrant and Elex.
10.65 Letter Agreement dated September 21, 1998 between Coast and Registrant
concerning forbearance under the Company's bank agreements.
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended July
31, 1998.
14
<PAGE> 15
CATALYST SEMICONDUCTOR, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Sunnyvale and State of
California.
Date: September 21, 1998 By: /s/ Radu Vanco
------------------ ------------------------------
Radu Vanco
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: September 21, 1998 By: /s/ Thomas E. Gay III
------------------ ------------------------------
Thomas E. Gay III
Vice President of Finance and
Administration and
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
10.64 Common Stock Purchase Agreement dated as of September 14, 1998 between
Registrant and Elex N.V. ("Elex") with Standstill Agreement dated as
of September 14,1998 between Registrant and Elex.
10.65 Letter Agreement dated September 21, 1998 between Coast and Registrant
concerning forbearance under the Company's bank agreements.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.64
CATALYST SEMICONDUCTOR, INC.
COMMON STOCK PURCHASE AGREEMENT
BETWEEN
CATALYST SEMICONDUCTOR, INC.
AND
ELEX N.V.
SEPTEMBER 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purchase and Sale of Common Stock.....................................................1
1.1 First Sale and Issuance of Common Stock.....................................1
1.2 First Closing; Delivery.....................................................1
1.3 Second Sale and Issuance of Common Stock....................................1
1.4 Second Closing; Delivery....................................................2
2. Representations and Warranties of the Company.........................................2
2.1 Organization, Good Standing and Qualification...............................2
2.2 Capitalization..............................................................2
2.3 Authorization...............................................................3
2.4 Valid Issuance of Securities................................................3
2.5 Governmental Consents.......................................................3
2.6 Litigation..................................................................3
2.7 Corporate Documents.........................................................3
3. Representations and Warranties of Purchaser...........................................3
3.1 Authorization; Share Ownership..............................................4
3.2 Purchase Entirely for Own Account...........................................4
3.3 Disclosure of Information...................................................4
3.4 Restricted Securities.......................................................4
3.5 No Public Market............................................................5
3.6 Legends.....................................................................5
3.7 Accredited Investor; Sophistication.........................................5
3.8 Foreign Investors...........................................................5
4. Conditions of Purchaser's Obligations at Closing......................................6
4.1 Representations and Warranties..............................................6
4.2 Performance.................................................................6
4.3 Compliance Certificate......................................................6
4.4 Qualifications..............................................................6
4.5 Amendment to Rights Agreement...............................................6
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........................................................7
5.5 Amendment to Rights Agreement...............................................7
5.6 Fairness Opinion............................................................7
6. Repurchase Right......................................................................7
6.1 Repurchase Right............................................................7
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
6.2 Successors..................................................................7
6.3 Amendment of Prior Agreement................................................8
7. Discussions Concerning Future Investments.............................................8
7.1 Future Additional Investments...............................................8
7.2 Investments by Management...................................................8
8. Miscellaneous.........................................................................8
8.1 Survival of Warranties......................................................8
8.2 Transfer; Successors and Assigns............................................8
8.3 Governing Law...............................................................8
8.4 Counterparts................................................................8
8.5 Titles and Subtitles........................................................9
8.6 Notices.....................................................................9
8.7 Finder's Fee................................................................9
8.8 Attorney's Fees.............................................................9
8.9 Amendments and Waivers.....................................................10
8.10 Severability..............................................................10
8.11 Delays or Omissions.......................................................10
8.12 Entire Agreement..........................................................10
8.13 Nondisclosure Agreement...................................................10
8.14 Corporate Securities Law..................................................10
</TABLE>
-ii-
<PAGE> 4
CATALYST SEMICONDUCTOR, INC.
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of
the 14th day of September 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 FIRST SALE AND ISSUANCE OF COMMON STOCK. Subject to the
terms and conditions of this Agreement, Purchaser agrees to purchase at the
First Closing (as defined below) and the Company agrees to sell and issue to
Purchaser at the First Closing an aggregate of 4,000,000 shares of Common Stock
at a purchase price of US$0.25 per share. The shares of Common Stock issued to
Purchaser pursuant to this Section 1.1 shall be hereinafter referred to as the
"FIRST CLOSING STOCK."
1.2 FIRST CLOSING; DELIVERY.
(a) The purchase and sale of the First Closing Stock
shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo
Park, California, at 10:00 a.m., on September 14th, 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 "FIRST CLOSING" and the date on
which the Closing occurs shall be the "FIRST CLOSING DATE").
(b) At the Closing, the Company shall deliver to
Purchaser a certificate representing the First Closing 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.
1.3 SECOND SALE AND ISSUANCE OF COMMON STOCK. At any time
during the twelve (12) month period following the First Closing Date, the
Company shall have the right to require Purchaser to purchase up to an
additional 4,000,000 shares of Common Stock of the Company. The Company may
exercise such right by giving Purchaser fifteen (15) days advance written notice
(the "EXERCISE NOTICE") of the Company's exercise of such right which Exercise
Notice shall specify (a) the number of shares to be purchased pursuant to this
Section 1.3 (the "SECOND CLOSING STOCK"), (b) the aggregate purchase price, and
(c) the scheduled closing date for the purchase and sale of the Second Closing
Stock, which shall be no later than the 12-month anniversary of the First
Closing Date. Upon delivery of the Exercise Notice and subject to the terms and
conditions of this Agreement, Purchaser agrees to purchase at the Second Closing
(as defined below) and the Company agrees to sell and issue to Purchaser at the
<PAGE> 5
Second Closing the Second Closing Stock at a purchase price of US$0.25 per
share. The First Closing Stock and the Second Closing Stock shall collectively
be referred to as the "STOCK."
1.4 SECOND CLOSING; DELIVERY.
(a) The purchase and sale of the Second Closing Stock
shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo
Park, California, at 10:00 a.m., on the scheduled closing date specified in the
Exercise Notice pursuant to Section 1.3(c), 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 "SECOND CLOSING" and the date on which the
Closing occurs shall be the "SECOND CLOSING DATE").
(b) At the Second Closing, the Company shall deliver
to Purchaser a certificate representing the Second Closing 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:
(a) 2,000,000 shares of Preferred Stock, none of
which is issued and outstanding.
(b) 25,000,000 shares of Common Stock, 9,961,722
shares of which are issued and outstanding as of August 14, 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, and except as provided in Section 7.2, there are no outstanding
options, warrants,
-2-
<PAGE> 6
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 Amended and
Restated Standstill Agreement in the form attached hereto as Exhibit B (the
"STANDSTILL AGREEMENT" and together with this Agreement, the "AGREEMENTS"), the
performance of all obligations of the Company hereunder and thereunder 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 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").
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:
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<PAGE> 7
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 (including the
Company's Form 10-K for the fiscal year ended April 30, 1998) 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 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
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<PAGE> 8
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.
(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
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<PAGE> 9
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. 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
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<PAGE> 10
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 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 and the
Common Stock Purchase Agreement dated as of May 26, 1998.
5.6 FAIRNESS OPINION. The Company shall have obtained an
opinion of Sutter Securities or other financial advisors to the Company of
recognized standing, as to the fairness to the Company of the sale and issuance
of the Stock from a financial point of view.
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 be less than the average of the closing bid price for
the Common Stock for the ten (10) trading days preceding the date of the
Repurchase Notice. 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. The Company and Elex hereby amend the third
sentence of Section 6.1 of that certain Common Stock Purchase Agreement dated as
of May 26, 1998 between the Company and Purchaser to provide as follows:
"Notwithstanding the foregoing the Repurchase Price shall in no event be less
than the average of the closing bid price for the Common Stock for the ten (10)
trading days preceding the date of the Repurchase Notice."
6.2 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.
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<PAGE> 11
6.3 AMENDMENT OF PRIOR AGREEMENT. The Company and Elex hereby
amend and restate the third sentence of Section 6.1 of that certain Common Stock
Purchase Agreement dated as of May 26, 1998 between the Company and Purchaser to
provide in its entirety as follows: "Notwithstanding the foregoing the
Repurchase Price shall in no event be less than the average of the closing bid
price for the Common Stock for the ten (10) trading days preceding the date of
the Repurchase Notice."
7. DISCUSSIONS CONCERNING FUTURE INVESTMENT; INVESTMENT BY MANAGEMENT.
7.1 FUTURE ADDITIONAL 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.
7.2 INVESTMENTS BY MANAGEMENT. The Company will seek to sell
to certain of the members of management of the Company up to 4,500,000 shares of
the Company's Common Stock at a price of not less than $0.30 per share. The
payment for such shares shall be such consideration as shall be determined by
the Board of Directors of the Company which may be nonrecourse promissory notes
delivered by such individuals. In exchange for such members of management
maintaining below market salaries for a period of not less than three years, the
nonrecourse promissory notes will be forgiven in equal monthly, quarterly or
annual installments over a period of not less than three years.
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-
<PAGE> 12
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. 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 13 67 07 74
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.
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<PAGE> 13
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.
8.10 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 NONDISCLOSURE AGREEMENT. The parties reaffirm and
acknowledge the terms and conditions of that certain Nondisclosure Agreement
dated as of May 26, 1998.
8.14 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]
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<PAGE> 14
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> 15
EXHIBITS
Exhibit A - Schedule of Exceptions to Representations and Warranties
Exhibit B - Form of Amended and Restated Standstill Agreement
<PAGE> 16
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 September 14, 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.
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<PAGE> 17
EXHIBIT B
FORM OF AMENDED AND RESTATED STANDSTILL AGREEMENT
<PAGE> 18
AMENDED AND RESTATED
STANDSTILL AGREEMENT
This AMENDED AND RESTATED STANDSTILL AGREEMENT is made as of September
14, 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"). This Agreement amends and restates that certain
Standstill Agreement dated as of May 26, 1998 (the "PRIOR AGREEMENT") between
the Company and 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 and the Company wish to amend and restate the Prior Agreement such
that Purchaser makes certain covenants to Catalyst so as to provide limits on
Purchaser's ownership of and voting of the Company's 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.
<PAGE> 19
"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
"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 5,500,000 shares (as appropriately adjusted for
stock dividends, stock splits, recapitalizations, reclassifications and the
like) or, following the Second Closing contemplated by the Common Stock Purchase
Agreement dated as of May 26, 1998 between the Company and Purchaser, to more
than 9,500,000 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;
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<PAGE> 20
(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
(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
-3-
<PAGE> 21
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.
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.
-4-
<PAGE> 22
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.
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-
<PAGE> 23
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]
-6-
<PAGE> 24
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
-1-
<PAGE> 1
EXHIBIT 10.65
September 21, 1998
Catalyst Semiconductor, Inc.
1250 Borregas Avenue
Sunnyvale, California 94089
Attention: Tom Gay
Dear Mr. Gay:
References 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), 6.1(g)
and 6.1(n) (Catalyst's Defaults under 6.1(a), 6.1(c), 6.1(f), 6.1(g) and 6.1(n)
through July 31, 1998 are hereinafter referred to as the "Existing Defaults") of
the Agreement and the CEFO Agreement due to the fact that Catalyst has failed to
accurately report on the Collateral, failed to file its 10Q and 10K reports as
required under Section 4.2, failed to maintain the required Tangible Net Worth,
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 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
cease makings loans to Catalyst, to enforce Coast's rights against the
Collateral, and to declare the Obligations to be due and payable.
Catalyst has requested that Coast forbear from taking action on the
Existing Defaults. Coast is willing to and does hereby agree to forbear taking
action the Existing Defaults until March 31, 1999, provided that a
non-refundable fee of $10,000, fully earned upon delivery hereof, payable to
Coast on or before September 21, 1998. Any Event of Default other than an
Existing Default shall not be subject to this forbearance.
The forbearance set forth hereinabove is limited as set forth above and
shall not be deemed to (a) be a waiver or modification of any other term or
condition of the Agreement,
<PAGE> 2
the CEFO Agreement or any other loan documents or (b) prejudice any right
or remedy which Coast may now have or may have in the future under or in
connection with the Agreement, the CEFO Agreement or any loan document. Coast
reserves the right to rely upon, declare and enforce remedies based upon the
Existing Defaults: (a) on or after March 31, 1999, or (b) upon the occurrence of
any other Event of Default.
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
Acknowledge and Agreed to as of the
21st day of September, 1998
CATALYST SEMICONDUCTER, INC.
By: /s/ Thomas E. Gay III
---------------------------------
Title: VP & CFO
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
UNAUDITED FINANCIAL RESULTS FOR THE FIRST FISCAL QUARTER ENDED AUGUST 2, 1998
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<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
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<RECEIVABLES> 4,249
<ALLOWANCES> (443)
<INVENTORY> 3,716
<CURRENT-ASSETS> 16,304
<PP&E> 12,451
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<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 222
<INCOME-PRETAX> (645)
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