LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of May 12, 1998, by and
between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, XX 00000 and with a loan
production office located at Wellesley Office Park, 00 Xxxxxxx Xxxxxx, Xxxxx
000, Xxxxxxxxx, XX 00000, doing business under the name "Silicon Valley East
("Bank"), and MAKER COMMUNICATIONS, INC., a Delaware corporation with its
principal place of business at 00 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxxx
00000 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, an Equipment Line Promissory Note dated February 18, 1997 in
the original principal amount of ONE MILLION AND NO/100THS DOLLARS ($1,000,000)
(the "Equipment Note"). The Equipment Note is governed by the terms of a Loan
and Security Agreement dated February 18, 1997 between Borrower and Bank, as
such Loan and Security Agreement may be amended from time to time (the "Loan
Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement and the
Equipment Note, together with all other documents securing payment of the
Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 Modifications to Definitions. Section 1.1 of the Loan Agreement is
hereby amended by substituting the following definitions for those set forth
therein for the same terms, and in the case of new definitions, by adding those
new definitions to that Section 1.1:
"Committed Revolving Line" means a credit extension of up to TWO
MILLION AND NO/100THS Dollars ($2,000,000).
"Credit Extension" means each Advance, Equipment Advance, 1998
Equipment Advance, Letter of Credit, Term Loan, Exchange Contract
or any other extension of credit by Bank for the benefit of
Borrower hereunder.
Subsection (d) of the definition of Eligible Accounts in the Loan
Agreement is hereby replaced in its entirety with the following:
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United
States or Canada except for Eligible Foreign Accounts;
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business
in the United States and Canada that Bank approves on a
case-by-case basis.
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"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.4.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.4.
"1998 Committed Equipment Line" means a credit extension of up to
ONE MILLION FIVE HUNDRED THOUSAND AND NO/100THS Dollars
($1,500,000).
"1998 Equipment Advance" has the meaning set forth in Section
2.1.3.
"Revolving Maturity Date" means May 11, 1999.
3.2 Modifications to Revolving Advance Provisions. Section 2.1 .1(a) of the
Loan Agreement is hereby replaced in its entirety with the following:
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). Subject to
the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1 may be repaid and reborrowed at any
time during the term of this Agreement.
3.3 Addition of 1998 Committed Equipment Line. Section 2.1.3 is hereby
added to the Loan Agreement as follows:
2.1.3 1998 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through May 11, 1999,
Bank agrees to make advances (each an "1998 Equipment Advance"
and collectively, the "1998 Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed
Equipment Line. To evidence the 1998 Equipment Advance or 1998
Equipment Advances, Borrower shall deliver to Bank, at the time
of each 1998 Equipment Advance request, an invoice for the
equipment to be purchased or financed. The 1998 Equipment
Advances shall be used only to purchase or finance Equipment
purchased on or after January 1,1997 and prior to January 1,
1999, and shall not exceed ONE HUNDRED Percent (100%) of the
invoice amount of such equipment approved from time to time by
Bank, excluding taxes, shipping, warranty charges, freight
discounts and installation expense, provided, however, that
tooling equipment may constitute no more than ONE HUNDRED
THOUSAND AND NO/100THS Dollars ($100,000) of aggregate 1998
Equipment Advances. Software may constitute up to FOUR HUNDRED
THOUSAND AND NO/100THS Dollars ($400,000) of aggregate 1998
Equipment Advances.
(b) Interest on 1998 Equipment Advances shall accrue from the
date of each 1998 Equipment Advance at a per annum rate equal to
ONE QUARTER (0.25) percentage points above the Prime Rate, and
shall be payable on the Payment Date of each month through MAY
5,1999. Any 1998 Equipment Advances that are outstanding on MAY
11, 1999 will be payable in THIRTY SIX (36) equal monthly
installments of principal, plus all accrued and unpaid interest
beginning on the Payment Date of each month starting JUNE 5, 1999
and ending on MAY 5, 2002.
(c) When Borrower desires to obtain an 1998 Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to
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be received no later than 3:00 p.m. Pacific time one (1) Business
Day before the day on which the 1998 Equipment Advance is to be
made. Such notice shall be substantially in the form of Exhibit
B. The notice shall be signed by a Responsible Officer or its
designee and include a copy of the invoice(s) for the Equipment
to be financed.
3.4 Addition of Letters of Credit Sublimit. Section 2.1.4 is hereby added
to the Loan Agreement as follows:
2.1.4 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not
to exceed (i) the lesser of the Committed Revolving Line or the
Borrowing Base, whichever is less, minus (ii) the then
outstanding principal balance of the Advances; provided that the
face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed FIVE HUNDRED THOUSAND AND NO/100THS
Dollars ($500,000). Each Letter of Credit shall have an expiry
date no later than one hundred eighty (180) days after the
Revolving Maturity Date provided that Borrowers Letter of Credit
reimbursement obligation shall be secured by cash on terms
acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank. All
Letters of Credit shall be in form and substance acceptable to
Bank in its sole discretion and shall be subject to the terms and
conditions of Banks form of standard Application and Letter of
Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of
Credit, under all circumstances whatsoever. Borrower shall
indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation,
reasonable attorneys' fees, arising out of or in connection with
any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable
transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of credit
against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such Letter of
Credit (the "Letter of Credit Reserve"). The amount of such
Letter of Credit Reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be
reduced by the amount of such Letter of Credit Reserve for so
long as such Letter of Credit remains outstanding.
3.5 Modifications to Overadvance Provisions. Section 2.2 of the Loan
Agreement is hereby replaced in its entirety with the following:
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2.2 Overadvances. If at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Sections 2.1.1
and 2.1.4 of this Agreement is greater than the lesser of (i) the
Committed Revolving Line or (ii) the Borrowing Base, Borrower
shall immediately pay to Bank, in cash, the amount of such
excess.
3.6 Modifications to Financial Reporting Covenants. Section 6.3 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.3 Financial Statements, Reports, Certificates. (i) Borrower
shall deliver to Bank:
(a) as soon as available, but in any event within twenty-five
(25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering
Borrowers consolidated operations during such period, in a form
and certified by an officer of Borrower reasonably acceptable to
Bank;
(b) as soon as available, but in any event within one hundred
twenty (120) days after the end of Borrowers fiscal year, audited
consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably
acceptable to Bank;
(c) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt
and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof a report of any legal
actions pending or threatened against Borrower or any Subsidiary
that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to
time.
(f) prior to any Advances, and within twenty-five (25) days after
the last day of each month in which any Advances are outstanding,
a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
(g) within twenty-five (25) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter to audit
Borrowers Accounts at Borrowers expense, provided that such
audits will be conducted no more often than every twelve (12)
months unless an Event of Default has occurred and is continuing.
3.7 Modifications to Adjusted Quick Ratio Covenant. Section 6.8 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.8 Adjusted Quick Ratio. Borrower shall maintain, as of the last
day of each calendar quarter, a ratio of (i) Quick Assets to (ii)
Current Liabilities less current deferred maintenance revenues of
at least 1.25 to 1.0.
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3.8 Modifications to Debt: Net-Worth Ratio. Section 6.9 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.9 Adjusted Debt-Net Worth Ratio. INTENTIONALLY DELETED.
3.9 Modifications to Tangible Net Worth Covenant. Section 6.10 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.10 Tangible Net Worth. Borrower shall maintain, as of the last
day of each calendar quarter a Tangible Net Worth of not less
than THREE MILLION FIVE HUNDRED THOUSAND AND NO/1OOTHS Dollars
($3,500,000), and intraquarterly, as of the last day of each
calendar month, a Tangible Net Worth of not less than THREE
MILLION AND NO/1OOTHS Dollars ($3,000,000).
3.10 Addition of Default Right and Remedy. Section 9.1(b.1) is hereby added
to the Loan Agreement as follows:
(b.1) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and Borrower shall
forthwith deposit and pay such amounts, and (ii) pay in advance
all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
3.11 Modifications to Exhibits. Exhibits C and D of the Loan Agreement are
hereby replaced in their entirety with Exhibits C and D, respectively, to this
Agreement.
4. FACILITY FEE. Borrower shall pay to Bank a variance fee of FIVE THOUSAND
DOLLARS ($5,000) as well as any out-of-pocket expenses incurred by the Bank
through the date hereof including reasonable attorneys' fees and expenses, and
after the date hereof all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to make
further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Loan Modification Agreement duly executed by Borrower;
(b) payment of the fees and Bank Expenses then due specified in
Section 4 hereof and
(c) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has no
defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 6 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the
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intention of Bank and Borrower to retain as liable parties all makers and
endorsers of the Existing Loan Documents1 unless a party is expressly released
by Bank in writing, (v) no maker, endorser or guarantor will be released by
virtue of this Loan Modification Agreement and (vi) the terms of this Section 8
apply not only to this Loan Modification Agreement but also to all subsequent
loan modification agreements, if any.
9. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER. The laws of the Commonwealth
of Massachusetts shall apply to this Agreement 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 AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA XXXXX COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it shall
have been executed by Borrower and Bank (provided, however, in no event shall
this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower' "Bank"
MAKER COMMUNICATIONS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Xxxxxxx Xxxxxxx, President By: [illegible]
------------------------------ -------------------------------
Xxxxxxx Xxxxxxx, President for Xxxxxx X. Xxxxxxxxx, VP
SILICON VALLEY BANK
By: /s/ Xxxxxxxx X. Xxxxxxxx
--------------------------------
Title: XXXXXXXX X. XXXXXXXX
-----------------------------
ASST. VICE PRES.
EXHIBITS C AND D FOLLOWS
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