LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of June 6, 1997, by
and between Faroudja Laboratories, Inc. ("Borrower") whose address is ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and Silicon Valley Bank ("Lender") whose
address is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness
which may be owing by Borrower to Lender, Borrower is indebted to Lender
pursuant to, among other documents, a Promissory Note, dated April 5, 1997,
in the original principal amount of One Million and 00/100 Dollars
($1,000,000.00), as may be amended from time to time (the "Line of Credit")
and being executed concurrently herewith, a Promissory Note, dated June 6,
1997, in the original principal amount of Five Hundred Thousand and 00/100
Dollars ($500,000.00) as may be amended from time to time (the "Term Note").
The Line of Credit and the Term Note shall be referred to collectively herein
as the "Notes." The Notes, together with other promissory notes from
Borrower to Lender, are governed by the terms of a Business Loan Agreement,
dated April 5, 1997, as such agreement may be amended from time to time,
between Borrower and Lender (the "Loan Agreement"). 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 Lender shall be
referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the
Indebtedness is secured by a Commercial Security Agreement, dated April 5,
1997. Additionally, repayment of the Indebtedness is guaranteed by Faroudja,
Inc. (the "Guarantor") pursuant to a Commercial Guaranty (the "Guaranty").
The Guaranty is secured by a Commercial Security Agreement, dated April 5,
1997, executed by Guarantor. In addition, both Borrower and Guarantor have
agreed not to further encumber any of their intellectual property, pursuant
to two (2) Negative Pledge Agreements, each dated April 5,1997.
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 LINE OF CREDIT.
1. The principal amount is hereby increased to Two Million and
00/100 Dollars ($2,000,000.00).
B. MODIFICATION(S) TO LOAN AGREEMENT.
1. The first sentence of the paragraph entitled "Borrowing Base
Formula" is hereby amended in its entirety to read as
follows:
Funds shall be advanced under the Line of Credit facility
according to a Borrowing Base Formula, as determined by
Lender, defined as follows: the lesser of
(a) $2,000,000.00, minus the Cash Management Services
Sublimit or (b) seventy five percent (75%) of Eligible
Accounts Receivable, minus (i) the face amount of all
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), minus (ii) the Foreign
Exchange Reserve.
2. The following paragraphs are hereby incorporated, and shall
read as follows:
LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, Lender agrees to issue or cause to be issued
Letters of Credit for the account of Borrower in an
aggregate face amount not to exceed (i) the lesser of
$2,000,000.00 or the Borrowing Base Formula minus (ii) the
then outstanding principal balance of the Line of Credit
facility; PROVIDED that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters
of Credit) shall not in any case exceed Two Million and
00/100 Dollars ($2,000,000.00). Each such Letter of Credit
shall have an expiry date no later than one hundred eighty
(180) days after the maturity date of the Line of Credit
facility, provided that Borrower's Letter of Credit
reimbursement obligation shall be secured by cash on terms
acceptable to Lender at any time after the maturity date if
the term of the Line of Credit facility is not extended by
Lender. All such Letters of Credit shall be, in form and
substance, acceptable to Lender in its sole discretion and
shall be subject to the terms and conditions of Lender's
form of application and Letter of Credit agreement.
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Borrower shall indemnify, defend and hold Lender 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.
Borrower may request that Lender 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, Lender 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.
Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Lender shall
create a reserve (the "Letter of Credit Reserve") under the
Line of Credit facility 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 amount of such reserve may be amended by Lender
from time to time to account for fluctuations in the
exchange rate. The availability of funds under the Line of
Credit facility shall be reduced by the amount of such
reserve for so long as such Letter of Credit remains
outstanding.
FOREIGN EXCHANGE SUBLIMIT. Subject to the terms and
conditions of this Agreement, Borrower may utilize up to the
lesser of (i) $2,000,000.00 or (ii) the Borrowing Base
Formula for spot and future foreign exchange contracts (the
"Exchange Contracts"). Borrower shall not request an
Exchange Contract at any time it is not in compliance with
any of the terms of this Agreement. All Exchange Contracts
must provide for delivery of settlement on or before the
maturity date of the Line of Credit facility. The limit
available at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on each 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 from 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. In lieu of the
Foreign
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Exchange Reserve for 100% of the gross amount of any
Exchange Contract, the Borrower may request that Lender
debit Borrower's bank account with Lender for such amount,
provided Borrower has immediately available funds in such
amounts in its bank account.
Lender may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or
(b) that there is not sufficient availability under the Line
of Credit facility and Borrower does not have available
funds in its bank account to satisfy the Foreign Exchange
Reserve. If Lender terminates the Exchange Contracts, and
without limitation of the FX Indemnity Provisions (as
referred to below), Borrower agrees to reimburse Lender for
any and all fees, costs and expenses relating thereto or
arising in connection therewith.
Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be more
than $2,000,000.00 nor shall Borrower permit the total gross
amount of all Exchange Contracts to which Borrower is a
party, outstanding at any one time, to exceed $2,000,000.00.
Borrower shall execute all standard form applications and
agreements of Lender in connection with the Exchange
Contracts, and without limiting any of the terms of such
applications and agreements, Borrower will pay all standard
fees and charges of Lender in connection with the Exchange
Contracts.
Without limiting any of the other terms of this Agreement or
any such standard form applications and agreement of Lender,
Borrower agrees to indemnify Lender and hold it harmless,
from and against any and all claims, debts, liabilities,
demands, obligations, actions, costs and expenses
(including, without limitation, attorneys' fees of counsel
of Lender's choice), of every nature and description which
it may sustain or incur, based upon, arising out of, or in
any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby
(collectively referred to as the "FX Indemnity Provisions").
CASH MANAGEMENT SERVICES SUBLIMIT. Subject to the terms and
conditions of this Agreement, Borrower may utilize up to the
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lesser of (i) $2,000,000.00 or (ii) the Borrowing Base
Formula for Cash Management Services provided by Lender,
which services may include, but are not limited to, merchant
services, PC-ACH, direct deposit of payroll, Business Visa,
Firstax, and other related check cashing services as defined
in that certain Cash Management Services Agreement provided
to Borrower in connection herewith (a "Cash Management
Service," or the "Cash Management Services"). All amounts
actually paid by Lender in respect of a Cash Management
Service or Cash Management Services shall, when paid,
constitute an advance under the Line of Credit facility.
3. Notwithstanding anything to the contrary contained in the
paragraph entitled "Loan Advances" the aggregate total of
(a) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus
(b) the Foreign Exchange Reserve plus (c) the Cash
Management Services Sublimit shall not, at any one time,
exceed $2,000,000.00.
4. The following covenant is hereby added to the paragraph
entitled "Financial Covenants" and shall read as follows:
Maintain on a quarterly and annual basis, a minimum Cash
Flow Coverage ratio of 1.50 to 1.00, provided, however, that
in the event Borrower incurs one quarterly loss equal to or
less than $500,000.00, the Cash Flow Coverage ratio for such
quarter will not be tested.
For purposes of the foregoing, "Cash Flow" shall be defined
as net income plus depreciation and amortization. For
purposes of quarterly evaluation, "Cash Flow Coverage" shall
be defined as quarterly Cash Flow divided by one-fourth of
the current portion of long term debt. For purposes of
annual evaluation, "Cash Flow Coverage" shall be defined as
annual Cash Flow divided by the current portion of long term
debt.
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 Lender a fee in the
amount of Seven Thousand Five Hundred and 00/100 Dollars ($7,500.00) (the
"Loan Fee") plus all out-of-pocket expenses.
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6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that 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, Lender 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.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender 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 Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released
by Lender 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 Loan Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: LENDER:
FAROUDJA LABORATORIES, INC. SILICON VALLEY BANK
By: /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /S/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: VP - CFO Title: Asst. Vice President
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The undersigned hereby consents to the modifications to the Indebtedness
pursuant to this Loan Modification Agreement, hereby ratifies all the
provisions of the Guaranty and Security Agreement and confirms that all
provisions of those documents are in full force and effect.
GUARANTOR/GRANTOR:
FAROUDJA, INC.
By: /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Date:
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: VP - CFO
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