EXHIBIT 10.1
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 21, 1998,
by and between Integrated Sensor Solutions, Inc. ("Borrower") and Silicon
Valley Bank ("Bank").
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, a Loan and Security Agreement, dated July 10, 1996,
as may be amended from time to time, (the "Loan Agreement"). The Loan
Agreement provided for, among other things, a Committed Line in the original
principal amount of One Million Dollars ($1,000,000)(the "Revolving
Facility"). The Loan Agreement has been modified pursuant to, among other
documents, a Amendment to Loan and Security Agreement dated August 22, 1997,
pursuant to, among other things, the Committed Line was increased to Two
Million Dollars ($2,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the
Indebtedness is secured by the Collateral as described in the Loan
Agreement. In addition, Borrower has agreed not to pledge any of its
Patents, Copyrights and Trademarks to a third party, pursuant to a Negative
Pledge Agreement, dated August 22, 1997, by and between Borrower and Bank.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security
Documents, together with all other documents evidencing or securing the
Indebtedness shall be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement
1. The following definitions are hereby amended and/or
incorporated into Section 1.1 entitled "Definitions":
"Committed Equipment 2 Line" means One Million Five
Hundred Thousand Dollars ($1,500,000).
"Committed Line" means Three Million Five Hundred
Thousand Dollars ($3,500,000).
"Credit Extension" is each Advance, Equipment Advance,
Equipment 2 Advance, Letter of Credit, Exchange
Contract or any other extension of credit by Bank for
Borrower's benefit.
Item "(e)" under "Eligible Accounts" shall read as:
Accounts with respect to which the account debtor is an
Affiliate of Borrower, except, up to 40% of inter-
company accounts shall be deemed Eligible Accounts;
Item "(i)" under "Eligible Accounts" shall read as:
Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all
Accounts, to the extent such obligations exceed the
aforementioned percentage, except, (i) Accounts with
respect to BLD Products, Inc., Breed Technologies,
Inc., IC Sensors, Inc. and Michelin N.A., for which the
applicable percentage shall be thirty-five percent
(35%), (ii) intercompany Accounts, for which the
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applicable percentage shall be forty percent (40%), and
(iii) as approved in writing by Bank;
"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 (i) that
Bank approves on a case-by-case basis, or (ii) that are
Accounts with respect to which the account debtor is
Omron Corporation, Nagano Keiki Seisakusho and Nippon
Precision Device Corporation.
"Equipment 2 Advance" is defined in Section 2.1.6.
"Equipment 2 Availability End Date" is defined in
Section 2.1.6.
"Equipment 2 Loan Maturity Date" is defined in Section
2.1.6.
"Revolving Maturity Date" means August 20, 1999.
2. Section 2.1.1 entitled "Advances" is hereby amended to
read as follows:
Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in
an aggregate amount not to exceed the Committed Line
minus (a) the Cash Management Services minus (b) the
amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), and minus
(c) the Foreign Exchange Reserve, provided, however,
that if the aggregate outstanding Advances plus (a) the
Cash Management Services plus (b) the amount of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and plus (c) the
Foreign Exchange Reserve equal to or exceed $1,000,000,
then the Aggregate outstanding Advances shall not
exceed the lesser of either the Committed Line minus
the Cash Management Services Sublimit or the Borrowing
Base, whichever is less, minus (i) the amount of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and minus (ii) the
Foreign Exchange Reserve. For purposes of this
Agreement, "Borrowing Base" shall mean an amount equal
to eighty percent (80%) of Eligible Accounts. Amounts
borrowed under this Section may be repaid and
reborrowed during the term of this Agreement.
To Obtain an Advance, Borrower must notify Bank by
facsimile or telephone by 3:00 p.m. Pacific time on the
Business Day the Advance is to be made. Borrower must
promptly confirm the notification by delivering to Bank
the Payment/Advance Form. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances
under this Agreement based on instructions from a
Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet
Obligations which have become due. Bank may rely on
any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. Borrower
will indemnify Bank for any loss Bank suffers due to
that reliance.
The Committed Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
3. The reference to "Two Million Dollars ($2,000,000)" in
Section 2.1.2 entitled "Letters of Credit" is hereby
amended to read "Three Million Five Hundred Thousand
Dollars ($3,500,000)".
4. The second sentence of Section 2.1.2 (a) entitled
"Letters of Credit" is amended to read as follows:
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Each such Letter of Credit shall have an expiry date
not later than the Revolving Maturity Date.
5. The following Sections are hereby incorporated into the
Loan Agreement:
2.1.4 Foreign Exchange Contract; Foreign Exchange
Settlements.
Borrower may enter foreign exchange contracts (the
"Exchange Contracts") not exceeding an aggregate amount
of $3,500,000 (the "Contract Limit"), under which Bank
will sell to or purchase from Borrower foreign currency
on a spot or future basis. Borrower may not request
any Exchange Contracts if it is out of compliance with
any provision of this Agreement. Exchange Contracts
must provide for delivery of settlement on or before
the Revolving Maturity Date. The amount available
under the Committed Line is reduced by the following
(the "Foreign Exchange Reserve") on any given day (the
"Determination Date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or
settlement allowed more than two business days after
the Determination Date, 10% of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding
Exchange Contracts on which delivery is to be effected
or settlement allowed within two business days after
the Determination Date, 100% of the gross amount of the
Exchange Contracts.
Bank may terminate the Exchange Contracts if (a) an
Event of Default occurs or (b) there is not sufficient
availability under the Committed Line and Borrower does
not have available funds in its deposit account for the
Foreign Exchange Reserve. If Bank terminates the
Exchange Contracts, Borrower will reimburse Bank for
all fees, costs and expenses in connection with the
Exchange Contracts.
Borrower may not permit the total of all Exchange
Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be
more than $3,500,000 (the "Settlement Limit") nor may
Borrower permit the total of all Exchange Contracts
outstanding at any one time, to exceed the Contract
Limit. However, the amount which may be settled in any
2 business day period may be increased above the
Settlement Limit if:
(i) there is sufficient availability under the
Committed Line in the amount of the Foreign Exchange
Reserve for each Determination Date, provided that Bank
in advance shall reserve the full amount of the Foreign
Exchange Reserve against the Committed Line; or
(ii) there is insufficient availability under the
Committed Line for settlements within any 2 business
day period, but Bank: (A) verifies good funds overseas
before crediting Borrower's deposit account (in the
case of Borrower's sale of foreign currency); or (B)
debits Borrower's deposit account before delivering
foreign currency overseas (in the case of Borrower's
purchase of foreign currency).
If Borrower purchases foreign currency, Borrower must
in advance instruct Bank either to treat the settlement
as an advance under the Committed Line, or to debit
Borrower's account for the amount settled.
Borrower will execute all Bank's standard applications
and agreements in connection with the Exchange
Contracts and pay all Bank's standard fees and charges.
Borrower will indemnify Bank and hold it harmless from
all claims, liabilities, demands, obligations, actions,
costs and expenses (including reasonable attorneys'
fees) which it
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incurs arising out of or in any way relating to any of
the Exchange Contracts or any contemplated
transactions.
2.1.5 Cash Management Sublimit. Borrower may use
up to $500,000 for Bank's Cash Management Services,
which may include merchant services, direct deposit of
payroll, business credit card, and check cashing
services identified in the Cash Management Services
Agreement (the "Cash Management Services"). All
amounts Bank pays for any Cash Management Services will
be treated as an Advance under the Line of Credit.
2.1.6 Equipment 2 Advances.
(a) Through September 28, 1999 (the "Equipment 2
Availability End Date"), Bank will make advances
("Equipment 2 Advance" and, collectively,"Equipment
2 Advances") not exceeding the Committed Equipment
2 Line. The Equipment 2 Advances may only be used
to purchase Equipment, software licenses and
leasehold improvements and may not exceed 100% of
the equipment, software and leaseholds, excluding
taxes, shipping, warranty charges, freight
discounts and installation expense. Notwithstanding
the foregoing, up to $1,000,000 in Equipment 2
Advances may be used to purchase Equipment and
software licenses which will be domiciled outside
the United States.
(b) Except as set forth in Section 2.3(b),
interest accrues from the date of each Equipment 2
Advance at a floating rate equal to the Prime Rate
plus one and one quarter (1.250) percentage points
per annum and is payable monthly until the
Equipment 2 Availability End Date occurs.
Equipment 2 Advances outstanding on the Equipment 2
Availability End Date are payable in 36 equal
monthly installments of principal, plus accrued
interest, beginning on the 21st of each month
following the Equipment 2 Availability End Date and
ending on September 28, 2002 (the "Equipment 2 Loan
Maturity Date"). Equipment 2 Advances when repaid
may not be reborrowed.
(c) To obtain an Equipment 2 Advance, Borrower
must notify Bank (the notice is irrevocable) by
facsimile no later than 3:00 p.m. Pacific time 1
Business Day before the day on which the Equipment
2 Advance is to be made. The notice in the form of
a Payment/Advance Form and must be signed by a
Responsible Officer or designee and include a copy
of the invoice for the Equipment, or software
licenses being financed or the leasehold
improvements being made.
6. Section 2.2 entitled "Overadvances" is hereby amended
to read as follows:
If, at any time or for any reason,
(A) the amount of Advances plus (a) the Cash Management
Services plus (b) the amount of all outstanding Letters
of Credit (including drawn but unreimbursed Letters of
Credit), and plus (c) the Foreign Exchange Reserve owed
by Borrower to Bank, is greater than the Committed Line,
or;
(B) the amount of Advances plus (i) the amount of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and plus (ii) the
Foreign Exchange Reserve owed by Borrower to Bank, is
greater than the Borrowing Base (provided that the
amount of Advances plus (a) the Cash Management Services
plus (b) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit),
and plus (c) the Foreign Exchange Reserve owed by
Borrower to Bank, is greater than $1,000,000),
then Borrower shall immediately pay to Bank, in cash,
the amount of such excess.
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7. Effective as of the date of this Loan Modification
Agreement, Section 2.3(a) entitled "Interest Rate" is
hereby amended to read as follows:
Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average Daily Balance, at a
rate equal to one half of one (0.500) percentage point
above the Prime Rate.
8. Section 6.3 entitled "Financial Statements, Reports,
Certificates" is hereby amended to read as follows:
(a) Borrower will deliver to Bank: (i) as soon as
available, but no later than 30 days after the last day
of each quarter, company prepared consolidating balance
sheet and income statement covering Borrower's
consolidated operations during the period, in a form
acceptable to Bank and certified by a Responsible
Officer; (ii) 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;
(iii) a prompt 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 $100,000 or more; and (iv) budgets, sales
projections, operating plans or other financial
information Bank requests.
(b) Immediately prior to Borrower's Obligations under
the Committed Line exceeding $1,000,000 and within 20
days after the last day of each month at such time as
Borrower's Obligations under the Committed Line exceed
$1,000,000, Borrower will deliver to Bank a Borrowing
Base Certificate signed by a Responsible Officer, with
aged listings of accounts receivable and accounts
payable.
(c) Within 30 days after the last day of each quarter,
Borrower will deliver to Bank with the quarterly
financial statements a Compliance Certificate signed by
a Responsible Officer.
(d) Bank has the right to audit Borrower's Accounts at
Borrower's expense. Such audits will be conducted prior
to Borrower's Obligations under the Committed Line
exceeding $1,000,000 and no more often than once every
year at such times as Borrower's Obligations under the
Committed Line exceed $1,000,000 unless an Event of
Default has occurred and is continuing.
9. Section 6.8 entitled "Quick Ratio" is hereby amended to
read as follows:
Beginning with the fiscal quarter ending September 30,
1998, Borrower shall maintain, as of the last day of
each fiscal quarter, a ratio of Quick Assets to Current
Liabilities of at least 2.00 to 1.00.
10. Section 6.9 entitled "Quick Ratio (Consolidated)" is
hereby deleted and replaced with the term,
"Intentionally left blank".
11. Section 6.10 entitled "Debt-Net Worth Ratio" is hereby
amended to read as follows:
Beginning with the fiscal quarter ending September 30,
1998, Borrower shall maintain, as of the last day of
each fiscal quarter, a ratio of Total Liabilities to
Tangible Net Worth plus Subordinated Debt of not more
than 1.00 to 1.00.
12. Section 6.11 entitled "Tangible Net Worth" is hereby
deleted and replaced with the term, "Intentionally left
blank".
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13. Section 6.12 entitled "Profitability" is hereby amended
to read as follows:
Borrower shall achieve minimum profitability of $1.00
for each fiscal quarter, provided, however, Borrower
shall be allowed a loss for the fiscal quarter ending
September 30, 1998, provided that such loss shall not
exceed $1,000,000.
14. Section 6.16 entitled "Debt Service Coverage" is hereby
amended to read as follows:
Beginning with the fiscal quarter ending September 30,
1998, Borrower shall maintain a minimum cash and cash
equivalents equal to or greater than two (2) times of
the aggregate outstanding Equipment Advances and
Equipment 2 Advances (the "Liquidity Ratio"). Upon two
(2) consecutive quarters of a Debt Service Coverage of
1.50 to 1.00, the Liquidity Ratio shall be replaced with
Borrower's requirement to maintain, as of the last day
of each fiscal quarter, a Debt Service Coverage of at
least 1.50 to 1.00. "Debt Service Coverage" means net
income plus depreciation and amortization plus interest
expense for the preceding fiscal quarter, divided by the
current portion of long term debt plus interest expense.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount
of Twelve Thousand Five Hundred Dollars ($12,500) (the "Committed Line Loan
Fee") plus Six Thousand Dollars ($6,000) (the "Equipment 2 Line Loan Fee")
plus all out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of the date hereof, it has no defenses
against the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor
signing below) understands and agrees that in modifying the existing
Indebtedness, 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 Indebtedness
pursuant to this Loan Modification Agreement in no way shall obligate Bank
to make any future modifications to the Indebtedness. Nothing in this Loan
Modification Agreement shall constitute a satisfaction of the Indebtedness.
It is the intention of Bank and Borrower to retain as liable parties all
makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor
will be released by virtue of this Loan Modification Agreement. The terms
of this paragraph apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Committed Line Loan Fee and the
Equipment 2 Line Loan Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
INTEGRATED SENSOR SOLUTIONS, INC. SILICON VALLEY BANK
By: By:
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Name: Name:
--------------------------- --------------------------
Title: Title:
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