EXHIBIT 10.24
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement (this "Loan Modification Agreement")
is entered into as of March 10, 2002, 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 NETSCOUT SYSTEMS, INC., a Delaware corporation with offices at 000
Xxxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxxxx 00000-0000 ("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 certain loan arrangement dated as of March 12,
1998, evidenced by, among other documents, a certain Amended and Restated Loan
and Security Agreement dated as of March 12, 1998 between Borrower and Bank, as
amended by certain Loan Modification Agreements between Borrower and Bank dated
March 11, 1999, March 10, 2000, June 27, 2000, March 9, 2001, August 14, 2001
and September 7, 2001 (as may be amended from time to time, the "Loan
Agreement"). The Loan Agreement established a working capital line of credit in
favor of Borrower in the maximum principal amount of Ten Million Dollars
($10,000,000.00) (the "Committed Revolving Line"). 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 (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.
A. Modifications to Loan Agreement.
1. The Loan Agreement shall be amended by deleting
Section 2.1.1(a) and inserting in lieu thereof the
following:
"(a) Bank shall make Advances not exceeding
(i) the Committed Revolving Line or the
Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters
of Credit (including drawn but unreimbursed
Letters of Credit), minus (iii) the FX
Reserve, and minus (iv) the aggregate
outstanding Advances hereunder (including
any Cash Management Services). Amounts
borrowed under this Section may be repaid
and reborrowed during the term of this
Agreement."
2. The Loan Agreement shall be amended by deleting
Section 2.1.2 entitled "Letters of Credit" and
inserting in lieu thereof the following:
"2.1.2 Letters of Credit Sublimit. If there
is availability for Credit Extensions under
Section 2.1.1(a), Bank shall issue or have
issued Letters of Credit for Borrower's
account not exceeding (i) the lesser of the
Committed Revolving Line or the Borrowing
Base, minus (ii) the outstanding principal
balance of any Advances (including any Cash
Management Services), minus (iii) the FX
Reserve, minus (iv) the amount of all
Letters of Credit (including drawn but
unreimbursed Letters of Credit). The face
amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of
Credit) may not exceed $5,000,000.00. Each
Letter of Credit shall be secured by cash on
terms acceptable to Bank on and after
(i) the Revolving Maturity Date if the term
of the Committed Revolving Line is not
extended by Bank, or (ii) the occurrence of
an Event of Default hereunder. 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 Bank's form of standard
Application and Letter of Credit Agreement.
Borrower agrees to execute any further
documentation in connection with the Letters
of Credit as Bank may reasonably request.
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."
3. The Loan Agreement shall be amended by incorporating
the following text as Section 2.1.4 to appear
immediately following Section 2.1.3 thereof:
"2.1.4 Foreign Exchange Sublimit. If there
is availability for Credit Extensions under
Section 2.1.1(a), then Borrower may enter
into foreign exchange forward contracts with
the Bank under which Borrower commits to
purchase from or sell to Bank a set amount
of foreign currency more than one business
day after the contract date (the "FX Forward
Contract"). Bank shall subtract 10% of each
outstanding FX Forward Contract from the
foreign exchange sublimit, which sublimit is
a maximum of $1,000,000.00 (the "FX
Reserve"). The total FX Forward Contracts at
any one time may not exceed 10 times the
amount of the FX Reserve. Bank may terminate
the FX Forward Contracts if an Event of
Default occurs."
4. The Loan Agreement shall be amended by deleting
Section 2.2 entitled "Overadvances" and inserting in
lieu thereof the following:
"Overadvances. If Borrower's Obligations
under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4
exceed the lesser of either (i) the
Committed Revolving Line or (ii) the
Borrowing Base, Borrower must immediately
pay in cash to Bank the excess."
5. The Loan Agreement shall be amended by deleting the
following text appearing in paragraph (a) of Section
6.2 thereof entitled "Financial Statements, Reports,
Certificates":
"(iii) (upon Borrower's successful initial
public offering) within 5 days of filing,
copies of all statements, reports and
notices made available to Borrower's
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;"
and inserting in lieu thereof the following:
"(iii) within 5 days of filing, copies of
all statements, reports and notices made
available to Borrower's 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
(copies of such SEC filings furnished to
Bank shall serve as the Bank's Compliance
Certificate described herein);"
6. The Loan Agreement shall be amended by deleting the
following text appearing as Section 6.2(c) thereof
entitled "Financial Statements, Reports,
Certificates":
"(c) within 45 days of the last day of each
quarter, Borrower will deliver to Bank with
the quarterly financial statements a
Compliance Certificate signed by a
Responsible Officer."
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7. The Loan Agreement shall be amended by deleting
Section 6.2(d) and inserting in lieu thereof the
following:
"(d) The Bank shall have the right to audit
Borrower's Collateral at Borrower's expense,
but such audit shall be conducted no more
often than once every twelve (12) months and
only when Advances were requested or
outstanding (other than the issuance of
Letters of Credit and Cash Management
Services) during the preceding twelve (12)
month period. Notwithstanding the foregoing,
the Bank may audit Borrower's Collateral at
any time during the continuance of an Event
of Default. Notwithstanding the foregoing,
until the Bank has completed an audit of
Borrower's Collateral, with results
satisfactory to the Bank in its sole
discretion, no new Advances shall be made to
Borrower under the Committed Revolving Line
(other than the issuance of Letters of
Credit and Cash Management Services)."
8. Effective as of the quarter ending December 31, 2001,
the Loan Agreement shall be amended by deleting
Section 6.7 entitled "Financial Covenants" and
inserting in lieu thereof the following:
"6.7 Financial Covenants.
(a) Adjusted Quick Ratio. Borrower shall
maintain, as of the last day of each
quarter, a ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance
Revenue of at least 1.50 to 1.0. For
purposes hereof, "Deferred Maintenance
Revenue" is all amounts received in advance
of performance under maintenance contracts
and not yet recognized as revenue.
(b) EBITDA. Borrower shall maintain, as of
the last day of each quarter: (i) a negative
EBITDA not greater than Two Hundred Thousand
Dollars ($200,000.00) as of the quarter
ending December 31, 2001, and (ii) a
positive EBITDA not less than One Dollar
($1.00) as of the quarter ending March 31,
2002 and as of the last day of each quarter
thereafter. For purposes hereof, "EBITDA"
shall mean earnings before interest, taxes,
depreciation and amortization in accordance
with GAAP."
9. The Loan Agreement shall be amended by deleting the
definition of "Revolving Maturity Date" appearing in
Section 13.1 and inserting in lieu thereof the
following:
""Revolving Maturity Date" is March 8,
2003."
10. The Compliance Certificate appearing as Exhibit C to
the Loan Agreement is hereby replaced with the
Compliance Certificate attached hereto as Exhibit C.
4. FEES. Borrower shall pay to Bank a modification fee for this Amendment in an
amount equal to Twenty-Five Thousand Dollars ($25,000.00), which fee shall be
due on the date hereof and shall be deemed fully earned as of the date hereof.
The Borrower shall also reimburse Bank for all legal fees and expenses incurred
in connection with this amendment to the Existing Loan Documents.
5. ADDITIONAL COVENANTS: RATIFICATION OF PERFECTION CERTIFICATE. Borrower shall
not, without providing the Bank with thirty (30) days prior written notice: (i)
relocate its principal executive office or keep any Collateral in any additional
locations, or (ii) change its jurisdiction of organization, or (iii) change its
organizational structure or type, (iv) change its legal name, or (v) change any
organizational number (if any) assigned by its jurisdiction of organization.
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6. AUTHORIZATION TO FILE. Borrower hereby authorizes Bank to file financing
statements without notice to Borrower, with all appropriate jurisdictions, as
Bank deems appropriate, in order to further perfect or protect Bank's interest
in the Collateral.
7. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
8. 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.
9. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Obligations.
10. 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.
11. RIGHT OF SET-OFF. In consideration of Bank's agreement to enter into this
Loan Modification Agreement, Borrower and any guarantor hereby reaffirm and
hereby grant to Bank, a lien, security interest and right of setoff as security
for all Obligations to Bank, whether now existing or hereafter arising upon and
against all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under the
control of Silicon Valley Bank or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower and any guarantor even though unmatured
and regardless of the adequacy of any other collateral securing the Obligations.
ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH
RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.
12. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the 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.
NOTWITHSTANDING THE FOREGOING, THE BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION
OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION WHICH THE BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE
ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE BANK'S RIGHTS AGAINST THE BORROWER
OR ITS PROPERTY.
13. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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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: BANK:
NETSCOUT SYSTEMS, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Xxxx Xxxxxxxxxx By:
-------------------------------- ----------------------------------
Name: Xxxx Xxxxxxxxxx Name:
------------------------------ --------------------------------
Title: V.P. of Finance and Title:
Administration -------------------------------
and Chief Accounting Officer
SILICON VALLEY BANK
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxx
--------------------------------
Title: Administrative Vice President
-------------------------------
(signed in Santa Xxxxx County,
California)
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EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: NETSCOUT SYSTEMS, INC.
The undersigned authorized officer of NETSCOUT SYSTEMS, INC. certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below and (ii) all representations and warranties of the Borrower in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer acknowledges that
no borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
BBC and A/R Agings Monthly w/in 30 days when borrowing Yes No
Quarterly w/in 45 days when not borrowing Yes No
Form 10-K, 10-Q and 8-K Within 5 days of filing Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain:
Minimum Adjusted Quick Ratio (quarterly) 1.5:1.0 _______:1.0 Yes No
Negative EBITDA (quarterly) Not greater than $200,000 $__________ Yes No
for QE 12/31/01
Positive EBITDA (quarterly) Not less than $1.00 $__________ Yes No
for QE 3/31/02 and thereafter
COMMENTS REGARDING EXCEPTIONS: See Attached, if any.
Sincerely,
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SIGNATURE
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TITLE
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DATE
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BANK USE ONLY
Received by: _____________________
AUTHORIZED SIGNER
Date: ____________________________
Verified: ________________________
AUTHORIZED SIGNER
Date: ____________________________
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