EXHIBIT 10.2
FIFTH LOAN MODIFICATION AGREEMENT
This Fifth Loan Modification Agreement (this "Loan Modification
Agreement") is entered into as of this 31st day of March, 2004, by and between
SILICON VALLEY BANK, a California-chartered bank, with its principal place of
business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan
production office located at One Newton Executive Park, Suite 200, 0000
Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, doing business under the name
"Silicon Valley East" ("Bank") and SCANSOFT, INC., a Delaware corporation with
offices at 0 Xxxxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxxxxxxx 00000 ("Borrower").
1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other
indebtedness and obligations which may be owing by Borrower to Bank,
Borrower is indebted to Bank pursuant to a loan arrangement dated as of
October 31, 2002, evidenced by, among other documents, (i) a certain
Loan and Security Agreement dated as of October 31, 2002 between
Borrower and Bank, as amended by a certain First Loan Modification
Agreement dated May 7, 2003, effective as of March 31, 2003, as further
amended by a certain Second Loan Modification Agreement dated as of
June 18, 2003, as further amended by a certain Third Loan Modification
Agreement dated as of August 11, 2003, as further amended by a certain
Fourth Loan Modification Agreement dated as of September 30, 2003 (as
may be further amended from time to time, the "Loan Agreement"), and
(ii) a certain Negative Pledge Agreement dated as of October 31, 2002
(the "Negative Pledge Agreement"). Capitalized terms used but not
otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness and obligations owing by Borrower to Bank
shall be referred to as the "Obligations".
2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by
the Collateral as described in the Loan Agreement and a certain Pledge
Agreement dated October 31, 2002 (together with any other collateral
security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Obligations shall be referred to as the
"Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
Modifications to Loan Agreement.
i. Effective as of the date of this Loan Modification
Agreement, the Loan Agreement shall be amended by
adding the following new Sections 1.6 and 1.7
therein:
"1.6 FOREIGN EXCHANGE SUBLIMIT. In addition
to Section 1.5 and Section 1.7, Borrower may
use up to the amount set forth on the
Schedule in connection with foreign exchange
forward contracts with Silicon under which
Borrower commits to purchase from or sell to
Silicon a set amount of foreign currency
more than one business day after the
contract date. Silicon may terminate the
foreign exchange contracts if an Event of
Default occurs.
1.7 CASH MANAGEMENT SERVICES SUBLIMIT. In
addition to Section 1.5 and Section 1.6
above, Borrower may also use up to the
amount set forth on the Schedule for Cash
Management Services. Such aggregate amounts
utilized under the Cash Management Services
Sublimit shall at all times reduce the
amount otherwise available for Loans,
letters of credit, foreign exchange
contracts or other credit accommodations
hereunder. Any amounts Silicon pays on
behalf of Borrower or any amounts that are
not paid by Borrower for any Cash Management
Services will be treated as Loans hereunder
and will accrue interest at the interest
rate applicable to Loans."
ii. Effective as of the date of this Loan Modification
Agreement, in Section 4.4 of the Loan Agreement,
entitled "Collection of Receivables", shall be as
follows:
"4.4 COLLECTION OF RECEIVABLES. Borrower
shall direct the Account Debtors to remit
all Receivables to Borrower's lockbox
account maintained at Silicon and Silicon
shall transfer such funds to Borrower's
operating account."
iii. Effective as of the date of this Loan Modification
Agreement, the definition of "Eligible Receivables"
appearing in Section 8 of the Loan Agreement,
entitled "Definitions", shall be as follows:
""Eligible Receivables" means Receivables
arising in the ordinary course of Borrower's
business from the sale of goods or rendition
of services, which Silicon, in its
commercially reasonable judgment, shall deem
eligible for borrowing, based on such
considerations as Silicon may from time to
time deem appropriate. Without limiting the
fact that the determination of which
Receivables are eligible for borrowing is a
matter of Silicon's commercially reasonable
discretion, the following (the "Minimum
Eligibility Requirements") are the minimum
requirements for a Receivable to be an
Eligible Receivable: (i) the Receivable must
not be outstanding for more than 90 days
from its invoice date or outstanding for
more than 30 days from its due date, (ii)
the Receivable must not represent progress
xxxxxxxx, or be due under a fulfillment or
requirements contract with any party other
than Digital River, Inc. (or any successor
agreed upon between Borrower and Silicon),
or any other deferred revenue basis
(provided, however, in the event Borrower
maintains a quarterly Adjusted Quick Ratio
of greater than or equal to 1.85 to 1.00,
any deferred revenue offset will not result
in an exclusion of an otherwise Eligible
Receivable) with the Account Debtor, (iii)
the Receivable must not be subject to any
contingencies (including Receivables arising
from sales on consignment, guaranteed sale
or other terms pursuant to which payment by
the Account Debtor may be conditional,
except as may otherwise be acceptable to
Silicon in its discretion), (iv) the
Receivable must not be owing from an Account
Debtor with whom the Borrower has any
material dispute (whether or not relating to
the particular Receivable), (v) the
Receivable must not be owing from an
Affiliate of Borrower, (vi) the Receivable
must not be owing from an Account Debtor
which is subject to any insolvency or
bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or
which, fails or goes out of a material
portion of its business, (vii) the
Receivable must not be owing from the United
States or any department, agency or
instrumentality thereof (unless there has
been compliance, to Silicon's satisfaction,
with the United States Assignment of Claims
Act), (viii) the Receivable must not be
owing from an Account Debtor located outside
the United States (unless pre-approved by
Silicon in its discretion in writing, or
backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to
Silicon) provided, however, in the event
Borrower maintains a quarterly Adjusted
Quick Ratio of greater than or equal to 1.85
to 1.00, up to $2,000,000 of such foreign
Receivables billed and collected from the
United States will not be excluded if such
Receivables otherwise constitute Eligible
Receivables, (ix) the Receivable must not be
owing from an Account Debtor to whom
Borrower is or may be liable for goods
purchased from such Account Debtor or
otherwise and (x) credit balance over ninety
(90) days from invoice date or thirty days
from due date. Receivables owing from one
Account Debtor will not be deemed Eligible
Receivables to the extent they exceed 25%
(33% with respect to Xxxxxx Micro, Inc. in
the event Borrower maintains a quarterly
Adjusted Quick Ratio of greater than or
equal to 1.85 to 1.00) of the
total Receivables outstanding. In addition,
if more than 50% of the Receivables owing
from an Account Debtor are outstanding more
than 90 days from their invoice date
(without regard to unapplied credits) or are
otherwise not eligible Receivables, then all
Receivables owing from that Account Debtor
will be deemed ineligible for borrowing."
iv. Effective as of the date of this Loan Modification
Agreement, Section 1 of the Schedule to the Loan
Agreement, entitled "Credit Limit" shall be as
follows:
"1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the
lesser of (A) or (B), below:
(A)
(i) $20,000,000 (the "Maximum
Credit Limit"); minus
(ii) the aggregate amounts then
undrawn on all outstanding letters
of credit, cash management
services, 10% of all forward
foreign exchange contracts, or any
other accommodations issued or
incurred, or caused to be issued or
incurred by Silicon for the account
and/or benefit of the Borrower;
minus
(iii) the aggregate amounts then
undrawn on all outstanding letters
of credit under the SpeechWorks
Loan.
(B)
(i) 70% (80% in the event Borrower
maintains a quarterly Adjusted
Quick Ratio of at least 1.85 to
1.00) of the amount of the
Borrower's Eligible Receivables;
minus
(ii) 80% (40% in the event Borrower
maintains an quarterly Adjusted
Quick Ratio of at least 1.85 to
1.00) of Distributor Inventory
Reserves;
minus
(iii) the aggregate amounts then
undrawn on all outstanding letters
of credit, cash management
services, 10% of all forward
foreign exchange contracts, or any
other accommodations issued or
incurred, or caused to be issued or
incurred by Silicon for the account
and/or benefit of the Borrower;
minus
(iv) the aggregate amounts then
undrawn on all outstanding letters
of credit under the SpeechWorks
Loan.
LETTER OF CREDIT/FOREIGN EXCHANGE
CONTRACT/CASH MANAGEMENT SERVICES
(Section 1.5, 1.6, 1.7):
$10,000,000"
v. Effective as of the date of this Loan Modification
Agreement, Section 2 of the Schedule to the Loan
Agreement, entitled "Interest" shall be as follows:
"2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the Prime Rate plus 0.0% per
annum; provided, however, in the event that
Borrower's monthly Adjusted Quick Ratio is
less than 1.85 to 1.00 for any month, the
applicable interest rate shall increase to a
rate equal to the Prime Rate plus 0.75% per
annum, effective as of such month and
thereafter. Interest shall be calculated on
the basis of a 360-day year for the actual
number of days elapsed. As used herein,
"Prime Rate" means the greater of (i) the
rate announced from time to time by Silicon
as its "prime rate", or (ii) 4.0% per annum,
and is a base rate upon which other rates
charged by Silicon are based, and it is not
necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date there
is a change in the Prime Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not applicable."
vi. Effective as of the date of this Loan Modification
Agreement, the Unused Line Fee set forth in Section 3
of the Schedule to the Loan Agreement shall be as
follows:
"Unused Line Fee: In the event, in any
calendar quarter, the average daily
principal balance of the Loans outstanding
during the quarter is less than the amount
of the Maximum Credit Limit, Borrower shall
pay Silicon an unused line fee in an amount
equal to 0.125% per annum on the difference
between the amount of the Maximum Credit
Limit and the average daily principal
balance of the Loans outstanding during the
quarter, which unused line fee shall be
computed and paid quarterly, in arrears, on
the first day of the following quarter."
vii. Effective as of the date of this Loan Modification
Agreement, Section 4 of the Schedule to the Loan
Agreement, entitled "Maturity Date" shall be as
follows:
"4. MATURITY DATE
(Section 6.1): March __, 2006"
viii. Effective as of the date of this Loan Modification
Agreement, Section 5 of the Schedule to the Loan
Agreement, entitled "Financial Covenants", shall be
as follows:
"5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with
each of the following covenants:
a. MINIMUM ADJUSTED QUICK RATIO:
Borrower shall maintain a minimum monthly
Adjusted Quick Ratio of 1.50 to 1.00, to be
tested as of the end of each month in which
Loans are outstanding or requested
hereunder.
b. MINIMUM TANGIBLE NET WORTH:
Borrower shall maintain at all times, to be
tested as of the last day of each quarter,
Tangible Net Worth of not less (i)
$10,000,000.00 plus (ii) 35.0% of all
consideration received after March 1, 2004
from proceeds from the issuance of any
equity securities of Borrower and/or
subordinated debt incurred by Borrower.
DEFINITIONS. For purposes of the foregoing
financial covenants and as used elsewhere in
this Agreement, the following terms shall
have the following meanings:
"Adjusted Quick Ratio" is a ratio of Quick
Assets to Current Liabilities minus Deferred
Maintenance Revenue.
"Current Liabilities" are the aggregate
amount of Borrower's Total Liabilities which
mature within one (1) year, including,
without duplication, all obligations and
liabilities of Borrower and SpeechWorks to
Silicon.
"Deferred Maintenance Revenue" is all
amounts received in advance of performance
under maintenance contracts and not yet
recognized as revenue.
"Quick Assets" is, on any date, the
Borrower's consolidated, unrestricted cash,
cash equivalents, net billed accounts
receivable and investments with maturities
of fewer than 12 months determined according
to GAAP.
"Subordinated Debt" is debt incurred by
Borrower subordinated to Borrower's debt to
Silicon (pursuant to a subordination
agreement entered into between Silicon, the
Borrower and the subordinated creditor), on
terms acceptable to Silicon.
"Total Liabilities" is on any day,
obligations that should, under GAAP, be
classified as liabilities on Borrower's
consolidated balance sheet, including all
Indebtedness, and current portion of
Subordinated Debt permitted by Silicon to be
paid by Borrower, but excluding all other
Subordinated Debt.
"Tangible Net Worth" shall mean the excess
of total assets over Total Liabilities,
determined in accordance with generally
accepted accounting principles, with the
following adjustments:
(A) there shall be excluded from
assets: (i) notes, accounts receivable and
other obligations owing to the Borrower from
its officers or other Affiliates, (ii) all
assets which would be classified as
intangible assets under generally accepted
accounting principles, including without
limitation goodwill, licenses, patents,
trademarks, trade names, copyrights,
capitalized software and organizational
costs, licenses and franchises, and (iii)
all assets associated with a certain
Licensing Agreement entered into on March
31, 2003 by the Borrower and IBM (the "IBM
Licensing Agreement").
(B) there shall be excluded from
liabilities: (i) all indebtedness which is
subordinated to the Obligations under a
subordination agreement in form specified by
Silicon or by language in the instrument
evidencing the indebtedness which is
acceptable to Silicon in its discretion, and
(ii) liabilities up to $12,950,000
associated with the IBM Licensing
Agreement."
ix. Effective as of the date of this Loan Modification
Agreement, Section 5 of the Schedule to the Loan
Agreement, entitled "Reporting", shall be as follows:
"6 REPORTING.
Borrower shall deliver to Silicon: (i) as
soon as available, but no later than thirty
(30) days after the last day of each month
(or, in the event that no Obligations are
outstanding hereunder and no Loan requests
have been made, no later than forty-five
(45) days after the last of each quarter), a
company prepared consolidated balance sheet
and income statement covering Borrower's
consolidated operations during the period
and in a form acceptable to Silicon; (ii) as
soon as available, but no later than one
hundred twenty (120) days after the last day
of Borrower's fiscal year, audited
consolidated financial statements prepared
under GAAP, consistently applied, together
with an unqualified opinion on the financial
statements from an independent certified
public accounting firm reasonably acceptable
to Silicon; (iii) within thirty (30) days
after the last day of each month in which
Obligations are outstanding or a Loan
request has been made, Borrower shall
deliver to Silicon a Borrowing Base
Certificate in the form of Exhibit A, along
with an aged listing of accounts receivable
(by invoice date) and a schedule of deferred
revenue, (iv) together with its monthly (or
quarterly, as appropriate) and annual
financial statements, Borrower shall deliver
to Silicon a Compliance Certificate in the
form of Exhibit B and (v) budgets, sales
projections, operating plans or other
financial information reasonably requested
by Silicon."
x. The Loan Agreement shall be amended by adding Exhibit
A thereto, in the form of Exhibit A hereto.
xi. The Loan Agreement shall be amended by adding Exhibit
B thereto, in the form of Exhibit B hereto.
4. FEES. Borrower shall pay to Bank a modification fee equal to One
Hundred Thousand Dollars ($100,000)[TO BE ADJUSTED FOR THE ACTUAL
CLOSING DATE, PER TERM SHEET], which fee shall be due on the date
hereof and shall be deemed fully earned as of the date hereof. Borrower
shall also reimburse Bank for all legal fees and expenses incurred in
connection with this amendment to the Existing Loan Documents.
5. RATIFICATION OF NEGATIVE PLEDGE AGREEMENT. Borrower hereby ratifies,
confirms and reaffirms, all and singular, the terms and conditions of
the Negative Pledge Agreement and acknowledges, confirms and agrees
that the Negative Pledge Agreement remains in full force and effect.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
7. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral
granted to the Bank, and confirms that the indebtedness secured thereby
includes, without limitation, the Obligations.
8. NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that
Borrower has no offsets, defenses, claims, or counterclaims against
Bank with respect to the Obligations, or otherwise, and that if
Borrower now has, or ever did have, any offsets, defenses, claims, or
counterclaims against Bank, whether known or unknown, at law or in
equity, all of them are hereby expressly WAIVED and Borrower hereby
RELEASES Bank from any liability thereunder.
9. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and agreements, as set forth in the
Existing Loan Documents. Except as expressly modified pursuant to this
Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Obligations pursuant to this Loan
Modification Agreement in no way shall obligate Bank to make any future
modifications to the Obligations. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Obligations. It is the
intention of Bank and Borrower to retain as liable parties all makers
of Existing Loan Documents, unless the party is expressly released by
Bank in writing. No maker will be released by virtue of this Loan
Modification Agreement.
10. JURISDICTION/VENUE. Borrower accepts for itself and in connection with
its properties, unconditionally, the non-exclusive jurisdiction of any
state or federal court of competent jurisdiction in the Commonwealth of
Massachusetts in any action, suit, or proceeding of any kind against it
which arises out of or by reason of this Loan Modification Agreement;
provided, however, that if for any reason Bank cannot avail itself of
the courts of the Commonwealth of Massachusetts, then venue shall lie
in Santa Xxxxx County, California.
11. COUNTERSIGNATURE/EFFECTIVENESS. This Loan Modification Agreement shall
become effective only when it shall have been executed by Borrower and
Bank.
This Loan Modification Agreement is executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER:
SCANSOFT, INC.
By: /s/ Xxxxx X. Xxxxx
-------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
BANK:
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By: /s/ Xxxxxx Xxxxxx
-------------------------
Name: Xxxxxx Xxxxxx
Title: Vice President
SILICON VALLEY BANK
By: /s/ XX Xxxxxxx
-------------------------
Name: XX Xxxxxxx
Title: Supervisor
The undersigned ratifies, confirms and reaffirms, all and singular, the
terms and conditions of a certain Unconditional Guaranty dated October 31, 2002
(the "Guaranty") and a certain Security Agreement dated October 31, 2002 (the
"Security Agreement") and acknowledges, confirms and agrees that the Guaranty
and the Security Agreement shall remain in full force and effect and shall in no
way be limited by the execution of this Loan Modification Agreement, or any
other documents, instruments and/or agreements executed and/or delivered in
connection herewith.
CAERE CORPORATION
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
The undersigned each hereby ratifies, confirms and reaffirms, all and
singular, the terms and conditions of certain Unconditional Guarantees each
dated September 30, 2003 (collectively, the "Guaranty") and acknowledges,
confirms and agrees that the Guaranty shall remain in full force and effect and
shall in no way be limited by the execution of this Loan Modification Agreement,
or any other documents, instruments and/or agreements executed and/or delivered
in connection herewith.
SPEECHWORKS SECURITIES CORP.
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
SPEECHWORKS INTERNATIONAL HOLDINGS, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
SPEECHWORKS ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
SPEECHWORKS INTERNATIONAL, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
