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EXHIBIT 10.12
THIRD AMENDMENT TO LOAN DOCUMENTS
THIS THIRD AMENDMENT TO LOAN DOCUMENTS ("Third Amendment") is made and
entered into as of December 15, 1998, by and among BROCADE COMMUNICATIONS
SYSTEMS, INC., a California corporation ("Borrower"), and IMPERIAL BANK
("Bank").
RECITALS
A. Bank agreed to extend (1) a revolving credit facility to Borrower in
the maximum principal amount of $4,000,000.00 (the "Facility-A Commitment"), (2)
a term equipment credit facility to Borrower in the maximum principal amount of
$3,000,000.00 (the "Facility-B Commitment") and (3) a term equipment credit
facility to Borrower in the maximum principal amount of $2,000,000.00 (the
"Facility-C Commitment") pursuant to the terms of that certain Security and Loan
Agreement dated as of June 19, 1997 (the "Security and Loan Agreement"), entered
into between Borrower and Bank.
B. Pursuant to the terms of that certain Amendment to Loan Documents
dated as of January 30, 1998 (the "First Amendment"), entered into between
Borrower and Bank, Bank increased the amount of the Facility-B Commitment and
modified certain other financial covenants and reporting requirements.
C. Pursuant to the terms of a certain letter agreement dated June 23,
1998 (the "Extension Letter"), the maturity date of the Facility-A Commitment
was extended to August 17, 1998.
D. Pursuant to the terms of that certain Second Amendment to Loan
Documents dated as of August 17, 1998 (the "Second Amendment"), entered into
between Borrower and Bank, Bank (1) extended the Facility-A Maturity Date to
August 16, 1999 and (2) extended the Facility-C Commitment to Borrower. The
Security and Loan Agreement, the First Amendment, the Extension Letter and the
Second Amendment are sometimes hereinafter collectively refer-red to as the
"Loan Agreement."
E. Borrower has requested and Bank has agreed to amend certain financial
covenants and other terms of the Loan Agreement, subject to all of the terms and
conditions set forth in this Third Amendment.
F. The Loan Agreement, the First Amendment, the Extension Letter, the
Second Amendment, this Third Amendment and the other Loan Documents (as defined
in the Loan Agreement), together with all other documents entered into or
delivered pursuant to any of the foregoing, in each case as originally executed
or as the same may from time to time be modified, amended, supplemented,
restated or superseded are hereinafter collectively referred to as the "Loan
Documents."
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants herein set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound, and to induce Bank to enter into this Third Amendment,
Borrower and Bank hereby agree to amend the Loan Agreement as follows:
1. DEFINITIONS. Unless otherwise defined herein, all terms defined in
the Loan Agreement have the same meaning when used herein.
2. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby amended as
follows:
2.1 SECTION 13-B. of the Loan Agreement is hereby deleted in its
entirety and the following section substituted therefor:
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"B. Permit representatives of Bank to conduct an audit of
Borrower's books and records relating to the Collateral and make
extracts therefrom with results satisfactory to Bank, provided that Bank
shall use its best efforts to not interfere with the conduct of
Borrower's business, and to the extent possible, to arrange for
verification and audit of the Accounts directly with the Persons
obligated thereon or otherwise, all under reasonable procedures
acceptable to Bank and at Borrower's sole expense; provided further
that, prior to an Event of Default, Borrower shall not be responsible
for the expense of more than two such audits in any fiscal year, the
cost for each such audit of which shall not exceed $1,500.00. Borrower
hereby acknowledges and agrees that upon completion of any such audit,
Bank shall have the right to adjust the Facility-A Borrowing Base
percentage, in its sole and reasonable discretion, based on its review
of the results of such Collateral audit;"
2.2 SECTIONS 15.A. through 15.D. of the Loan Agreement are hereby
deleted in their entirety and the following sections substituted therefor:
"A. Maintain a minimum Quick Ratio of not less than 1.15
to 1.00. As used herein, "Quick Ratio" shall mean all unrestricted cash
and cash equivalents plus Accounts divided by current liabilities less
warranty reserves and prepaid royalties.
B. Maintain either (1) a minimum Tangible Net Worth of not
less am $6,500,000.00 (as used herein, "Tangible Net Worth" shall mean
all assets, excluding any value for goodwill, trademarks, patents,
copyrights, organization expense and other similar intangible items,
less all liabilities plus long term Subordinated Debt), or (2) a minimum
of unrestricted cash and cash equivalents of not less than
$4,500,000.00.
C. Maintain a minimum Liquidity Ratio of not less dm 1.50
to 1.00. As used herein, "Liquidity Ratio" shall mean all unrestricted
cash and cash equivalents plus the. net availability under the
Facility-A Commitment divided by the sum of the outstanding principal
balances under the Facility-B Loan Account and the Facility-C Loan
Account."
2.3 SECTIONS 15.E. through 15.1. of the Loan Agreement are hereby
renumbered as SECTIONS 15.D. through 15.H., respectively. Any reference in the
Loan Agreement to a specific section or subsection therein shall be deemed to
mean those Sections or subsections as amended and renumbered by the terms of
this SECTION 2.3.
2.4 The definition of "APPROVED ACCOUNTS" under EXHIBIT A to the
Loan Agreement is hereby deleted in its entirety and the following definition
substituted therefor:
"APPROVED ACCOUNTS" means the account debtors, Sequent
Computer Systems, Inc. ("Sequent"), Compaq Computer Corporation, Dell
Computer Corporation, McDATA Corporation and any other account debtor as
shall be approved by Bank in its sole and reasonable discretion."
2.5 EXHIBIT A to the Loan Agreement is hereby amended to add the
following definition thereunder:
"PERSON" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public
benefit corporation, firm, joint stock company, estate, entity or
governmental agency."
2.6 EXHIBIT C to the Loan Agreement is hereby deleted in its
entirety and replaced with the Exhibit C attached hereto and incorporated herein
by this reference.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that
its representations and warranties in the Loan Documents continue to be true and
complete in all material respects as of the date hereof after giving effect to
this Third Amendment (except to the extent such specifically relate to another
date or as specifically
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described on Schedule 1 attached hereto and incorporated herein by this
reference) and that the execution, delivery and performance of this Third
Amendment are duly authorized, do not require the consent or approval of any
governmental body or regulatory authority and are not in contravention of or in
conflict with any law or regulation or any term or provision of any other
agreement entered into by Borrower.
4. CONDITIONS PRECEDENT. The legal effectiveness of this Third Amendment
is subject to the satisfaction of all of the following conditions precedent:
(a) EXECUTED AMENDMENT. Bank shall have received this
Third Amendment duly executed and delivered by Borrower.
(b) RESOLUTIONS AND OTHER CORPORATE DOCUMENTS OF BORROWER.
If requested by Bank, Bank shall have received resolutions of the Board of
Directors of Borrower authorizing Borrower to enter into this Third Amendment
and to deliver such other corporate documents as Bank shall reasonably request.
(c) FINANCIAL CONDITION. There shall have occurred no
Material Adverse Change in the financial condition or prospects of Borrower as
shown on the most recent financial statements submitted to Bank or disclosed to
Bank, respectively, and relied upon by Bank in entering into this Third
Amendment.
(d) NO DEFAULT. There shall have occurred no Event of
Default that remains uncured and is continuing under any of the Loan Documents.
(e) PAYMENT OF FEES. Bank shall have received
reimbursement from Borrower of its costs and expenses incurred (including,
without limitation, its attorneys' fees and expenses) in connection with this
Third Amendment and the transactions contemplated hereby.
(f) OTHER DOCUMENTS. Bank shall have received such other
documents, information and items from Borrower as it shall reasonably request to
effectuate the transactions contemplated hereby.
5. RELEASE AND WAIVER.
(a) Borrower hereby acknowledges and agrees that: (1) it
has no claim or cause of action against Bank or any parent, subsidiary or
affiliate of Bank, or any of Bank's officers, directors, employees, attorneys or
other representatives or agents (all of which parties other than Bank being,
collectively, "Bank's Agents") in connection with the Loan Documents, the loans
thereunder or the transactions contemplated therein and herein, (2) it has no
offset or defense against any of its respective obligations, indebtedness or
contracts in favor of Bank; and (3) it recognizes that Bank has heretofore
properly performed and satisfied in a timely manner all of its obligations to
and contracts with Borrower.
(b) Although Bank regards its conduct as proper and does
not believe Borrower to have any claim, cause of action, offset or defense
against Bank or any of Bank's Agents in connection with the Loan Documents, the
loans thereunder or the transactions contemplated therein, Bank wishes and
Borrower agrees to eliminate any possibility that any past conditions, acts,
omissions, events, circumstances or matters could impair or otherwise affect any
rights, interests, contracts or remedies of Bank. Therefore, Borrower
unconditionally releases and waives (1) any and all liabilities, indebtedness
and obligations, whether known or unknown, of any kind to Bank or of any of
Bank's Agents to Borrower, except the obligations remaining to be performed by
Bank as expressly stated in the Loan Agreement, this Third Amendment and the
other Loan Documents executed by Bank; (2) any legal, equitable or other
obligations or duties, whether known or unknown, of Bank or of any of Bank's
Agents to Borrower (and any rights of Borrower against Bank) besides those
expressly stated in the Loan Agreement, this Third Amendment and the other Loan
Documents; (3) any and all claims under any oral or implied agreement,
obligation or understanding with Bank or any of Bank's Agents, whether known or
unknown, which is different from or in addition to the express terms of the Loan
Agreement, this Third Amendment or any of the other Loan Documents; and (4) all
other claims, causes of action
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or defenses of any kind whatsoever (if any), whether known or unknown, which
Borrower might otherwise have against Bank or any of Bank's Agents, on account
of any condition, act omission, event, contract, liability, obligation,
indebtedness, claim, cause of action, defense, circumstance or matter of any
kind whatsoever which existed, arose or occurred at any time prior to the
execution and delivery of this Third Amendment or which could arise concurrently
with the effectiveness of this Third Amendment.
(c) Borrower agrees that it understands the meaning and
effect of Section 1542 of the California Civil Code, which provides:
Section 1542. Certain Claims Not Affected by
General Release. A general release does not extend
to claims that the creditor does not know or
suspect to exist in his favor at the time of
executing the release, which if known by him must
have materially affected his settlement with the
debtor.
BORROWER AGREES TO ASSUME THE RISK OF ANY AND ALL UNKNOWN, UNANTICIPATED OR
MISUNDERSTOOD DEFENSES, CLAIMS, CAUSES OF ACTION, CONTRACTS, LIABILITIES,
INDEBTEDNESS AND OBLIGATIONS WHICH ARE RELEASED BY THIS THIRD AMENDMENT IN FAVOR
OF BANK AND BANK'S AGENTS, AND BORROWER HEREBY WAIVES AND RELEASES ALL RIGHTS
AND BENEFITS WHICH IT MIGHT OTHERWISE HAVE UNDER THE AFOREMENTIONED SECTION 1542
OF THE CALIFORNIA CIVIL CODE WITH REGARD TO THE RELEASE OF SUCH UNKNOWN,
UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CAUSES OF ACTION, CONTRACTS,
LIABILITIES, INDEBTEDNESS AND OBLIGATIONS. TO THE EXTENT (IF ANY) WHICH ANY SUCH
LAWS MAY BE APPLICABLE, BORROWER WAIVES AND RELEASES (TO THE MAXIMUM EXTENT
PERMITTED BY LAW) ANY RIGHT OR DEFENSE WHICH IT MIGHT OTHERWISE HAVE UNDER ANY
OTHER LAW OF ANY APPLICABLE JURISDICTION WHICH MIGHT LIMIT OR RESTRICT THE
EFFECTIVENESS OR SCOPE OF ANY OF ITS WAIVERS OR RELEASES UNDER THIS THIRD
AMENDMENT.
6. FULL FORCE AND EFFECT; ENTIRE AGREEMENT. Except to the extent
expressly provided in this Third Amendment, the terms and conditions of the Loan
Agreement and the other Loan Documents shall remain in full force and effect.
This Third Amendment and the other Loan Documents constitute and contain the
entire agreement of the parties hereto and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
between the parties, whether written or oral, respecting the subject matter
hereof. The parties hereto further agree that the Loan Documents comprise the
entire agreement of the parties thereto and supersede any and all prior
agreements, negotiations, correspondence, understandings and other
communications between the parties thereto, whether written or oral respecting
the extension of credit by Bank to Borrower and/or its affiliates.
11. COUNTERPARTS; EFFECTIVENESS. This Third Amendment may be executed
in any number of counterparts, each of which when so delivered shall be deemed
an original, but all such counterparts taken together shall constitute but one
and the same instrument. Each such agreement shall become effective upon the
execution of a counterpart hereof or thereof by each of the parties hereto and
telephonic notification that such executed counterparts has been received by
Borrower and Bank.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Third
Amendment to be executed and delivered by its duly authorized officer as of the
date first written above.
BORROWER
BROCADE COMMUNICATIONS SYSTEMS, INC.,
a California corporation
By: /s/ B. Xxxx Xxx
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Name: B. Xxxx Xxx
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Title: VP & CFO
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BANK
IMPERIAL BANK
By:
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Xxxxxxx X. Le Deit
Vice President and Team Leader
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SCHEDULE 1
Schedule of Exceptions to Representations and Warranties
(List or indicate "NONE")
Schedule 1
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EXHIBIT C
COMPLIANCE CERTIFICATE
(TO BE ATTACHED BY BANK)
Schedule C
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3. Compliance Certificate
COMPLIANCE CERTIFICATE
PLEASE SEND ALL REQUIRED REPORTING TO: Imperial Bank-Special Markets Div.
Loan Compliance Department
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Phone: (000) 000-0000
FROM:BROCADE COMMUNICATIONS SYSTEMS, INC. Fax: (000) 000-0000
The undersigned authorized Officer of BROCADE COMMUNICATIONS SYSTEMS
("Borrower"), hereby certifies that in accordance with the terms and conditions
of the Loan Agreement, as modified from time to time, the Borrower is in
complete compliance for the period ending _________________________________ with
all required terms and conditions, except as noted below. Attached herewith are
the required documents supporting the above certification. The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistent from one period to the next,
except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
REPORTING COVENANTS REQUIRED COMPLIES
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Company prepared F/S Monthly, within 25 days YES NO
Compliance Certificate Monthly, within 25 days YES NO
CPA Audited, Unqualified F/S Annually, within 90 days of FYE YES NO
A/R Aging Monthly, within 15 days YES NO
A11P Aging Monthly, within 15 days YES NO
Borrowing Bass Certificate Monthly, within 15 days YES NO
FINANCIAL COVENANTS REQUIRED ACTUAL COMPLIES
------------------- -------- ------ --------
TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
Minimum TNW -or- Minimum Cash $6,500,000 -or- $4.500,000 $________ YES NO
Minimum Quick Ratio 1.15:1.00 ________:1.00 YES NO
Minimum Liquidity Ratio 1.50:1.00 ________:1.00 YES NO
Please Enter Below Comments Regarding Covenant Violations:
On behalf of Borrower, the Officer further acknowledges that at any such time as
Borrower is out of compliance with any of the terms set forth in the Loan
Agreement including, without limitation, any of the financial covenants,
Borrower cannot receive any advances.
BANK USE ONLY
____________________________
Authorized Signer Rec'd by: __________________
Date: ______________________
Reviewed by: _______________
Name:_______________________ Date: ______________________
Financial Compliance Status: YES/NO
Title: _______________________
