EXHIBIT 10.5
LOAN MODIFICATION AGREEMENT
BETWEEN: WatchGuard Technologies, Inc., a Delaware corporation ("Borrower"),
whose address is 000 Xxxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, XX
00000
AND: Silicon Valley Bank ("Silicon"), whose address is 0000 Xxxxxx Xxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000
DATE: September 18, 1998
This Loan Modification Agreement is entered into on the above date by
Borrower and Silicon.
1. Background
Borrower entered into a Loan and Security Agreement with Silicon in August,
1997, and an Amended and Restated Loan and Security Agreement dated as of March
20, 1998 (as amended from time to time, the "Loan Agreement"). Capitalized
terms used in this Loan Modification Agreement shall, unless otherwise defined
in this Agreement, have the meaning given to such terms in the Loan Agreement.
Silicon and Borrower are entering into this Agreement to state the terms
and conditions of certain modifications to the Loan Agreement and the Schedule,
as amended prior to the date of this Agreement.
2. Modification to Loan Agreement and Schedule
2.1 The Schedule to the Loan Agreement is hereby deleted and replaced by
the Amended and Restated Schedule to Loan and Security Agreement attached to
this Agreement.
2.2 Borrower acknowledges and agrees that all Obligations, including
without limitation Borrower's obligation to repay amounts advanced by Silicon to
Borrower on the terms of the Loan Agreement and Schedule as modified by this
Loan Modification Agreement, are secured by all liens and security interests
granted by Borrower to Silicon in the Loan Agreement.
3. Conditions Precedent
This Loan Modification Agreement shall not take effect until Borrower
delivers to Silicon a Certified Resolution of Borrower and such other documents
as Silicon shall reasonably require to give effect to the terms of this Loan
Modification Agreement.
4. No Other Modifications
Except as expressly modified by this Loan Modification Agreement, the terms
of the Loan Agreement, as amended prior to the date of this Loan Modification
Agreement, shall remain unchanged and in full force and effect. Silicon's
agreement to modify the Loan Agreement pursuant to this Loan Modification
Agreement shall not obligate Silicon to make any future modifications to the
Loan Agreement or any other loan document. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of any indebtedness of any Borrower to
Silicon. It is the intention of Silicon and Borrower to retain as liable
parties all makers and endorsers of the Loan Agreement or any other loan
document. Except as provided in the Amended and Restated Schedule to Loan and
Security Agreement attached to this Agreement, no maker, endorser, or guarantor
shall be released by virtue of this Loan Modification Agreement. The terms of
this paragraph shall apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
5. Representations and Warranties
5.1 The Borrower represents and warrants to Silicon that the execution,
delivery and performance of this Agreement are within the Borrower's corporate
powers, and have been duly authorized and are not in contravention of law or the
terms of the Borrower's articles of incorporation, bylaws or of any undertaking
to which the Borrower is a party or by which it is bound.
5.2 The Borrower understands and agrees that in entering into this
Agreement, Silicon is relying upon the Borrower's representations, warranties
and agreements as set forth in the Loan Agreement and other loan documents.
Borrower hereby reaffirms all representations and warranties in the Loan
Agreement, all of which are true as of the date of this Agreement.
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Borrower:
WATCHGUARD TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxx
-------------------------
Title: Chief Financial Officer
--------------------------
Silicon:
SILICON VALLEY BANK
By: [signature illegible]
---------------------------
Title: Silicon Valley Bank
----------------------
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AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower: WatchGuard Technologies, Inc.
Date: September _____, 1998
QUICK START LINE OF CREDIT
Credit Limit: Silicon previously extended a Quick Start Line of Credit to
Borrower in the maximum amount of $750,000.
Interest Rate: The interest rate applicable to this Loan was a rate equal to
the "Prime Rate" in effect from time to time, plus 1.50% per
annum. Interest calculations were made on the basis of a 360-
day year and the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by Silicon as its
"prime rate"; it 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.
Commitment Fee: Previously collected.
Maturity Date: August 31, 1998. At that time, this Loan was terminated and
all amounts outstanding under this Loan were deemed to be
advanced under the Secured Accounts Receivable Line of
Credit.
SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT
Credit Limit: An amount not to exceed the lesser of: (i) $3,000,000 at any
one time outstanding; or (ii) the amount of the "Borrowing
Base", as defined below. For purposes of this Schedule, the
"Borrowing Base" shall mean the sum of (i) 75% of the Net
Amount of Borrower's eligible domestic accounts receivable,
and (ii) 50% of the Net Amount of Borrower's eligible foreign
accounts receivable. With respect to
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Borrower's accounts, "Net Amount" means the gross amount of
the account, minus all applicable sales, use, excise and
other similar taxes and minus all discounts, credits and
allowances of any nature granted or claimed. Silicon allowed
Borrower to exceed their availability under the Borrowing
Base by up to $114,000, to an aggregate outstanding balance
under the Secured Accounts Receivable Line of Credit of
$1,000,000, through June 29, 1998; however, as of June 30,
1998, the entire amount outstanding under the Secured
Accounts Receivable Line of Credit was required to be fully
secured and supported by the Borrowing Base. In addition, the
gross value of Borrower's accounts receivable were required
to exceed $1,750,000 through August 31, 1998.
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: accounts in which Silicon does not have a first
priority, perfected security interest; accounts outstanding
for more than 90 days from the invoice date, accounts subject
to any contingencies, accounts owing from an account debtor
outside the United States (except as approved in writing by
Silicon), accounts owing from governmental agencies, accounts
owing from one account debtor to the extent they exceed 25%
of the total eligible accounts outstanding, accounts owing
from an affiliate of the Borrower, and accounts owing from an
account debtor to whom the Borrower is or may be liable for
goods purchased from such account debtor or otherwise.
Accounts owing from Otsuka Shokai and SYSCOM will be eligible
as foreign accounts receivable for Borrowing Base purposes,
with an advance rate of 50%. In addition, if more than 50% of
the accounts owing from an account debtor are outstanding
more than 90 days from the invoice date or are otherwise not
eligible accounts, then all accounts owing from that account
debtor shall be deemed ineligible for borrowing.
Interest Rate: The interest rate applicable to this Loan shall be a rate
equal to the "Prime Rate" in effect from time to time, plus
1.00%
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per annum. Interest calculations shall be made on the basis
of a 360-day year and the actual number of days elapsed.
"Prime Rate" means the rate announced from time to time by
Silicon as its "prime rate"; it 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.
Commitment Fee: No new fee.
Maturity Date: March 23, 1999, at which time all unpaid principal and
accrued but unpaid interest shall be due and payable.
SECURED EQUIPMENT TERM LOAN
Credit Limit: An amount not to exceed the lesser of (i) $250,000 at any one
time outstanding; or (ii) the amount of the "Equipment
Borrowing Base", as defined below. For purposes of this
Schedule, the "Equipment Borrowing Base" meant 80% of the
invoice value of equipment purchased by Borrower. Silicon had
no obligation to advance against taxes, freight charges,
installation charges or other similar amounts relating to
Borrower's equipment, whether or not such amounts are
identified on the invoices submitted to Silicon. Equipment
included in the Equipment Borrowing Base were required to be
new equipment, at the time of purchase by Borrower, owned by
Borrower, in good working order, were required to be subject
to any liens in favor of any person or entity other than
Silicon, and were required to be subject to a first priority,
perfected security interest in favor of Silicon. Silicon had
no obligation to make advances against non-standard
equipment, such as tooling, software and custom equipment.
Silicon had no obligation to make advances on this Secured
Equipment Term Loan after March 5, 1998. The Borrower's
indebtedness to Silicon with respect to this Secured
Equipment Term Loan shall be evidenced by this Schedule and
the Loan Agreement, not by a separate
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promissory note unless required by Silicon.
Borrower shall not have the right to reborrow any amount on
this Secured Equipment Term Loan that has been repaid by
Borrower. The unpaid principal balance owing on this Secured
Equipment Term Loan at any time may be evidenced by Silicon's
internal records, including daily computer print-outs (which
Silicon shall provide to Borrower periodically).
Purpose: Borrowers used the proceeds of this Secured Equipment Term
Loan to finance the purchase of new equipment.
Interest Rate: The interest rate applicable to the Secured Equipment Term
Loan shall be a rate equal to the "Prime Rate" (as defined
above) in effect from time to time, plus 1.5% per annum.
Interest calculations shall be made on the basis of a 360-day
year and the actual number of days elapsed. The interest rate
applicable to the Obligations shall change on each date there
is a change in the Prime Rate.
Amortization: Borrower shall pay Silicon monthly payments of interest only
on the last day each month. In addition, Borrower shall pay
Silicon on the last day of each month, commencing with April
5, 1998, the amount necessary to repay fully the amount of
the Secured Equipment Term Loan in 36 equal monthly payments.
Maturity Date: March 5, 2001, at which time all unpaid principal and accrued
but unpaid interest, fees and other charges shall be due and
payable.
Commitment Fee: No new fee.
SECURED EQUIPMENT TERM LOAN NO. 2
Credit Limit: An amount not to exceed the lesser of (i) $500,000 at
any one time outstanding; or (ii) the amount of the
"Equipment Borrowing Base", as defined below. For
purposes of this Schedule, the "Equipment Borrowing
Base" shall mean 90% of the invoice value of equipment
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purchased by Borrower. Silicon shall have no obligation to
advance against taxes, freight charges, installation charges
or other similar amounts relating to Borrower's equipment,
whether or not such amounts are identified on the invoices
submitted to Silicon. However, in the case of the $140,000
ONYX System purchase, the Equipment Borrowing Base shall
include software, installation and costs. Equipment to be
included in the Equipment Borrowing Base must be new
equipment, at the time of purchase by Borrower, owned by
Borrower, in good working order, must not be subject to any
liens in favor of any person or entity other than Silicon,
and must be subject to a first priority, perfected security
interest in favor of Silicon. Silicon shall have no
obligation to make advances against non-standard equipment,
such as tooling, software and custom equipment. Silicon shall
have no obligation to make advances on this Secured Equipment
Term Loan No. 2 after December 31, 1998. Silicon shall make
advances under this Secured Equipment Term Loan No. 2 from
time to time, based on invoices and other documentation as
shall be requested by Silicon to support such advances. The
Borrower's indebtedness to Silicon with respect to this
Secured Equipment Term Loan No. 2 shall be evidenced by this
Schedule and the Loan Agreement, not by a separate promissory
note unless required by Silicon.
Borrower shall submit to Silicon such invoices, advance
requests and other information, in form acceptable to
Silicon, as Silicon shall reasonably require from time to
time.
Once the maximum amount of the principal has been advanced
under this Secured Equipment Term Loan No. 2, Borrower is no
longer entitled to further advances on this Loan. Borrower
shall not have the right to reborrow any amount on this
Secured Equipment Term Loan No. 2 that has been repaid by
Borrower. Advances may be requested in writing by Borrower or
an authorized person. Silicon may, but need not, require that
all oral
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requests be confirmed in writing. The unpaid principal
balance owing on this Secured Equipment Term Loan No. 2 at
any time may be evidenced by Silicon's internal records,
including daily computer print-outs (which Silicon shall
provide to Borrower periodically).
Purpose: Borrowers shall use the proceeds of this Secured Equipment
Term Loan No. 2 to finance the purchase of new equipment.
Interest Rate: The interest rate applicable to the Secured Equipment Term
Loan No. 2 shall be a rate equal to the "Prime Rate" (as
defined above) in effect from time to time, plus 1.00% per
annum. Interest calculations shall be made on the basis of a
360-day year and the actual number of days elapsed. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
Amortization: Borrower shall pay Silicon monthly payments of interest only
on the last day each month. In addition, Borrower shall pay
Silicon on the last day of each month, commencing with
January 31, 1999, the amount necessary to repay fully the
amount of the Secured Equipment Term Loan No. 2 in 36 equal
monthly payments.
Maturity Date: December 31, 2002, at which time all unpaid principal and
accrued but unpaid interest, fees and other charges shall be
due and payable.
Commitment Fee: $5,000, which is fully earned and payable at closing.
Prior Names of
Borrower: See attached Exhibit B
Trade Names of
Borrower: See attached Exhibit B
Trademarks of
Borrower: See attached Exhibit B
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Other Locations
and Addresses: See attached Exhibit B
Material Adverse
Litigation: See attached Exhibit B
Financial
Covenants: The Borrower shall at all times comply with all of the
following covenants, all of which shall be determined and
measured on a monthly basis in accordance with generally
accepted accounting principles, on a consolidated basis with
any subsidiary of Borrower, except as otherwise stated below:
Tangible Net
Worth: Borrower shall at all times maintain a Tangible Net Worth of
not less than $2,000,000.
Profitability: Borrower shall not incur a loss (as defined below) in
excess of $1,750,000 for the quarters ending June 30,
1998 and September 30, 1998, and a loss in excess of
$1,000,000 for the quarter ending December 31, 1998.
For purposes of this paragraph, "loss" means net income
after taxes of less than $0.00, as reported on
Borrower's financial statements.
Quick Ratio: Borrower shall maintain a ratio of Quick Assets (defined
below) to current liabilities less deferred revenue of
not less than 1.50:1.0.
Liquidity: Borrower shall at all times maintain a minimum Term Liquidity
Coverage of at least 1.75:1.0.
Definitions: "Quick Assets" means cash on hand or on deposit in banks,
readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-I" by Standard &
Poor's Corporation (or a similar rating by a similar rating
organization), certificates of deposit and banker's
acceptances, and accounts receivable (net of allowance for
doubtful accounts).
"Tangible Net Worth" means stockholders' equity plus debt, if
any, that has been subordinated to the Loans in a
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written subordination agreement on terms satisfactory to
Silicon, and accrued interest thereon, less goodwill,
patents, capitalized software costs, deferred organizational
costs, tradenames, trademarks, and all other assets which
would be classified as intangible assets under generally
accepted accounting principles.
"Term liquidity coverage" means (a) cash + cash equivalents
(readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-I" by Standard &
Poors Corporation or a similar rating by a similar rating
organization, certificates of deposit and banker's
acceptances) + availability under the Secured Accounts
Receivable Line of Credit divided by (b) the outstanding
Secured Equipment Term Loan and Secured Equipment Term Loan
No. 2 balances.
Other Covenants: Borrower shall at all times comply with all of the following
additional covenants:
Banking Relationship. Borrower and its subsidiaries shall at
all times maintain their primary banking relationship with
Silicon. Neither Borrower nor its subsidiaries shall
establish any deposit accounts of any type with any bank or
other financial institution other than Silicon without
Silicon's prior written consent.
Financial Statements and Reports. The Borrower shall provide
Silicon: (a) within 30 days after the end of each month, a
monthly financial statement (consisting of a income statement
and a balance sheet) prepared by the Borrower in accordance
with generally accepted accounting principles; (b) within 20
days after the end of each month, an accounts receivable
aging report and an accounts payable aging report, in such
form as Silicon shall reasonably specify; (c) within 20 days
after the end of each month, a Borrowing Base Certificate in
the form attached to this Agreement as Exhibit A, as Silicon
may reasonably modify such Certificate from time to time,
signed by the Chief Financial Officer of the Borrower; (d)
within 30 days after the end of each month, a
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Compliance Certificate in such form as Silicon shall
reasonably specify, signed by the Chief Financial Officer of
the Borrower, setting forth calculations showing compliance
(at the end of each such calendar month) with the financial
covenants set forth on the Schedule, and certifying that
throughout such month the Borrower was in full compliance
with all other terms and conditions of this Agreement and the
Schedule, and providing such other information as Silicon
shall reasonably request; and (e) within 90 days following
the end of the Borrower's fiscal year, complete annual CPA-
audited financial statements, such audit being conducted by
independent certified public accountants reasonably
acceptable to Silicon, together with an unqualified opinion
of such accountants.
Conditions to
Closing: Without in any way limiting the discretionary nature of
advances under this Agreement, before requesting any such
advance, the Borrower shall satisfy each of the following
conditions:
1. Loan
Documents: Silicon shall have received this Agreement, the Schedule, a
Warrant in a form satisfactory to Silicon, executed by the
Borrower, and such other loan documents as Silicon shall
require, each duly executed and delivered by the parties
thereto.
2. Documents
Relating
to Authority,
Etc.: Silicon shall have received each of the following in form and
substance satisfactory to it:
(a) Certified Copies of the Articles of Incorporation
and Bylaws of the Borrower;
(b) A Certificate of Good Standing issued by the
Secretary of State of the Borrower's state of incorporation
and such other states as Silicon may reasonably request with
respect to the Borrower;
(c) A certified copy of a Resolution adopted by the
Board of Directors of the Borrower authorizing the execution,
delivery and performance of this Agreement, and any other
documents or certificates to be
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executed by the Borrower in connection with this transaction;
and
(d) Incumbency Certificates describing the office and
identifying the specimen signatures of the individuals
signing all such loan documents on behalf of the Borrower.
3. Perfection
and Priority
of Security: Silicon shall have received evidence satisfactory to it that
its security interest in the Collateral has been duly
perfected and that such security interest is prior to all
other liens, charges, security interests, encumbrances and
adverse claims in or to the Collateral other than Permitted
Liens, which evidence shall include, without limitation, a
certificate from the appropriate state agencies showing the
due filing and first priority of the UCC Financing Statements
to be signed by the Borrower covering the Collateral.
4. Insurance: Silicon shall have received evidence satisfactory to it that
all insurance required by this Agreement is in full force and
effect, with loss payee designations and additional insured
designations as required by this Agreement.
5. Other
Information: Silicon shall have received such other statements, opinions,
certificates, documents and information with respect to
matters contemplated by this Agreement as it may reasonably
request, all of which must be acceptable to Silicon.
Silicon shall have conducted an examination of the Borrower's
books, records, ledgers, journals, and registers, as Silicon
may deem necessary, and shall be satisfied with the results
of such examination in its sole discretion.
Silicon and the Borrower agree that the terms of this Schedule supplement
the Loan and Security Agreement between Silicon and the Borrower and agree to be
bound by the terms of this Schedule.
Borrower:
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WATCHGUARD TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxx
-------------------
Title: Chief Financial Officer
-----------------------
Silicon:
SILICON VALLEY BANK
By: [Signature Illegible]
---------------------
Title: SVP
---
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EXHIBIT A
BORROWING BASE CERTIFICATE
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Borrower: WatchGuard Technologies, Inc. Lender: Silicon Valley Bank
000 Xxxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000 0000 Xxxxxx Xxxxx
Xxxxxxx, XX 00000 Xxxxx Xxxxx, XX 00000
Commitment Amount: $3,000,000
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ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _______ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE* $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________
5. Balance of 50% over 90 day accounts $__________
6. Credit balances $__________
7. Concentration Limits $__________
8. Foreign Accounts $__________
9. Governmental Accounts $__________
10. Contra Accounts $__________
11. Promotion or Demo Accounts $__________
12. Intercompany/Employee Accounts $__________
13. Other (please explain on reverse) $__________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
15. Eligible Accounts (#3 minus #14) $__________
16. LOAN VALUE OF ACCOUNTS (75% of #15) $__________
BALANCES
17. Maximum Loan Amount $__________
18. Total Funds Available [Lesser of #17 or #16] $__________
19. Present balance owing on Line of Credit $__________
20. RESERVE POSITION (#18 minus #19) $__________
*Borrower's gross accounts receivable (#3 above) were required to exceed
$1,750,000 at all times through August 31, 1998.
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
WATCHGUARD TECHNOLOGIES, INC.
By:__________________________
Name:________________________
Title:_______________________
Exhibit B
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Tradenames
----------
WatchGuard Technologies (registered, waiting for final notification)
WatchGuard Firebox (accepted and reviewed, waiting for final notification)
Prior Names
-----------
Seattle Software Labs
Trademarks
----------
[WatchGuard Logo]
Other Locations and Addresses
-----------------------------
None
Material Adverse Litigation
---------------------------
None
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