EXHIBIT 10.2
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT (this "Agreement") is entered into as
of July 12, 2004 by and between CYPRESS COMMUNICATIONS, INC. and CYPRESS
COMMUNICATIONS OPERATING COMPANY, INC. (jointly and severally "Borrower") whose
address is 00 Xxxxxxxx Xxxxxx, Xxxxx 000 Xxxxxxx, Xxxxxxx 00000 and SILICON
VALLEY BANK ("Bank" or "Silicon") whose address is 0000 Xxxxxx Xxxxx, Xxxxx
Xxxxx, Xxxxxxxxxx 00000 and with a loan production office located at 0000
Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000.
RECITALS
A. The Borrower and Silicon have entered into that certain
Amended and Restated Loan and Security Agreement, dated March 17, 2004, and a
schedule of terms attached thereto (the "Schedule") (as both may be amended
from time to time, collectively, the "Loan Agreement").
B. Repayment of the Obligations is secured by the Collateral as
described in the Loan Agreement. Hereinafter all documents securing repayment
of the Obligations shall be referred to as the "Loan Documents".
C. As part of the Loans, Borrower has requested that Bank change
the Advance Rates and otherwise amend certain provisions of the Loan Agreement
and the Bank has agreed on the condition that, this Agreement be executed and
delivered by Borrower to Bank.
D. Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank do hereby agree as follows:
1. Recitals. The parties hereto acknowledge and agree that the
above Recitals are true and correct in all material respects and that the same
are incorporated herein and made a part hereof by reference.
2. Early Termination. Section 6.2 of the Loan Agreement is
amended and restated in its entirety as follows:
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business
Days after written notice of termination is given to Silicon; or (ii)
by Silicon at any time after the occurrence and during the continuance
of an Event of Default, without notice, effective immediately. If this
Agreement is terminated by Borrower or by Silicon under this Section
6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to one percent (1.0%) of the Maximum Credit Limit if such
termination occurs after the Closing Date and prior to January 12,
2005 and one half of one percent (.50%) of the Maximum Credit Limit if
such termination occurs after January 12, 2005, provided that no
termination fee shall be charged if the credit facility hereunder
is replaced with a new facility from another division of Silicon or
from the proceeds of an initial public offering or other equity event.
The termination fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the
highest rate applicable to any of the Obligations.
3. Definitions. The definitions of "Eligible Accounts" and
"Eligible Inventory" in Section 8 of the Loan Agreement are amended and
restated in their entirety as follows:
"Flexible Accounts" means Accounts and General Intangibles
arising in the ordinary course of Borrower's business from the sale of
goods or the rendition of services, or the non-
exclusive licensing of Intellectual Property, and includes deferred revenue of
Borrower, which Silicon, in its good faith business judgment, shall deem
eligible for borrowing. Without limiting the fact that the determination of
which Accounts are eligible for borrowing is a matter of Silicon's good faith
business judgment, the following (the "MINIMUM ELIGIBILITY REQUIREMENTS") are
the minimum requirements for a Account to be an Eligible Account: (i) the
Account must not be outstanding for more than 90 days from its invoice date
(the "ELIGIBILITY PERIOD"), (ii) the Account must not represent progress
xxxxxxxx, or be due under a fulfillment or requirements contract with the
Account Debtor, (iii) the Account must not be subject to any contingencies
(including Accounts arising from sales on consignment, guaranteed sale or other
terms pursuant to which payment by the Account Debtor may be conditional), (iv)
the Account must not be owing from an Account Debtor with whom Borrower has any
dispute (whether or not relating to the particular Account), (v) the Account
must not be owing from an Affiliate or Borrower, (vi) the Account must not be
owing from an Account Debtor which is subject to any insolvency or bankruptcy
proceeding, or whose financial condition is not acceptable to Silicon, or
which, fails or goes out of a material portion of its business, (vii) the
Account must not be owing from the United States or any department, agency or
instrumentality thereof (unless there has been compliance, to Silicon's
satisfaction, with the United States Assignment of Claims Act), (viii) the
Account must not be owing from an Account Debtor located outside the United
States or Canada (unless pre-approved by Silicon in its discretion in writing,
or backed by a letter of credit satisfactory to Silicon, or FCIA insured
satisfactory to Silicon), (ix) the Account must not be owing from an Account
Debtor to whom Borrower is or may be liable for goods purchased from such
Account Debtor or otherwise (but, in such case, the Account will be deemed not
eligible only to the extent of any amounts owed by Borrower to such Account
Debtor). Accounts owing from one Account Debtor will not be deemed Eligible
Accounts to the extent they exceed 25% of the total Accounts outstanding. In
addition, if more than 50% of the Accounts owing from an Account Debtor are
outstanding for a period longer than their Eligibility Period (without regard
to unapplied credits) or are otherwise not Eligible Accounts, then all Accounts
owing from that Account Debtor will be deemed ineligible for borrowing. In
addition, prior to including any Accounts acquired as part of the Acquired
Assets as Eligible Accounts, Silicon shall have completed a satisfactory
audit of such Accounts. Silicon may, from time to time, in its good faith
business judgment, revise the Minimum Eligibility Requirements, upon written
notice to Borrower.
"Eligible Inventory" means all Inventory of Borrower which is to be
placed under a contract of service in the ordinary course of business, valued
at market value, as verified by independent appraisal from an appraiser
acceptable to Silicon (to be performed on an annual basis hereafter). Eligible
Inventory shall exclude, any Inventory which consists of: (a) any Inventory
located outside of the United States; (b) any Inventory located outside of a
state in which Silicon has properly and unavoidably perfected the Liens of
Silicon under this Agreement, free and clear of all other Liens; (b) any
Inventory not in the actual possession of Borrower, except to the extent
provided in subsection (d) below; (c) any Inventory in the possession of a
bailee, warehouseman, consignee or any third party, except to the extent that
such bailee, warehouseman, consignee or such third party has entered into an
agreement with Silicon in which such bailee, warehouseman, consignee or similar
third party consents and agrees to Silicon's Lien on such Inventory and to such
other terms and conditions as may be required by Silicon, including without
limitation, Inventory held at The Source warehouse location; (d) any Inventory
located on premises leased or rented to Borrower or otherwise not owned by
Borrower, unless Silicon has received a waiver and consent from the lessor,
landlord and/or owner, in form and substance satisfactory to Silicon; (e) any
inventory the sale or other disposition of which has given rise to a Eligible
Account; (f) work-in-process, supplies, displays, packaging and promotional
materials; (g) any Inventory as to which Silicon determines in the exercise of
its sole and absolute discretion at any time and in good faith is not in good
condition or is defective, unmerchantable, post-seasonal, slow moving or
obsolete; and (h) any Inventory which in Silicon's good faith business
judgment has deemed to be ineligible because Silicon otherwise considers the
collateral value to Silicon to be impaired or its or their ability to realize
such value to be insecure. In the event of any dispute under the foregoing
criteria,
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as to whether inventory is, or has ceased to be, Eligible Inventory,
the decision of Silicon shall control.
4. CREDIT LIMIT. From and after the date hereof, the first
paragraph of Section 1.1 of the Schedule is amended and restated in its
entirety as follow:
An amount not to exceed the lesser of: (i)
$10,000,000 at any one time outstanding (the "Credit
Limit"); or (ii) the sum of (a) eighty five percent
(85%) (the "Advance Rate") of the amount of
Borrower's Eligible Accounts and (b) the lesser of
(i) fifteen percent (15%) of Eligible Inventory or
(ii) $1,000,000 (both as defined in Section 8 above),
provided, however, that Loans made on the basis of
Eligible Inventory can not at any time exceed thirty
percent (30%) of total Loans outstanding.
5. MATURITY DATE. From and after the date hereof, Section 5 of
the Schedule is amended and restated in its entirety as follows:
5. MATURITY DATE
(Section 6.1): The earlier of (i) July 10, 2005 or (ii) the earlier
maturity of the Bridge Loans or the Convertible
Notes. It being understood and agreed that the
Equipment Term Loans shall be due and payable in full
on such date unless the Maturity Date of the
Revolving Loans is extended.
6. MINIMUM TANGIBLE NET WORTH. From and after the date hereof,
the Minimum Tangible Net Worth Covenant and the definition of Tangible Net
Worth, each as set forth in Section 6 of the Schedule are amended and restated
in their entirety as follows:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible
Net Worth, tested as of the last day of each month
(on a consolidated basis) of not less than
$13,000,000, plus fifty percent (50%) of net income
(without regard to any loss) from each fiscal quarter
of the Borrower commencing with the fiscal quarter
ending June 30, 2004. For purposes of computing this
covenant, the use of the term "consolidated" shall be
deemed to include the Borrower's parent company,
Cypress Communications Holding Co., Inc.
"Tangible Net Worth" shall mean the excess of
Borrower's consolidated total assets over
consolidated total liabilities, determined in
accordance with GAAP, with the following adjustments:
(A) there shall be excluded from assets: (i) notes,
accounts receivable and other obligations owing to
Borrower from its officers or other Affiliates, and
(ii) all assets which would be classified as
intangible assets under GAAP, including without
limitation goodwill, licenses, patents, trademarks,
trade names, copyrights, capitalized software and
organizational costs, licenses and franchises;
(B) there shall be excluded from liabilities: all
indebtedness which is subordinated to the Obligations
under a subordination agreement in form specified by
Silicon or by language in the instrument evidencing
the indebtedness which Silicon agrees in writing is
acceptable to Silicon in its good faith business
judgment, including, without limitation, the Bridge
Loans and the Convertible Notes, including all
accrued interest thereon.
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7. DEBT SERVICE COVERAGE RATIO. From and after the Debt Service
Change Date, the definition of Debt Service Coverage Ratio set forth in Section
6 of the Schedule is amended and restated in its entirety as follows:
"Debt Service Coverage Ratio" shall mean a ratio
of (i) Borrower's earnings before interest, taxes
and depreciation expense for such period, minus
all Unfunded Capital Expenditures and cash taxes
for the specified period to (ii) current
maturities of long term debt, including all
capitalized leases, plus cash interest expense,
calculated on a three (3) month rolling basis.
8. COMPLIANCE CERTIFICATE. From and after the date hereof, all
references in the Loan Agreement to the "Compliance Certificate" shall mean
the Compliance Certificate attached hereto.
9. CONSISTENT CHANGES. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
10. PAYMENT OF FEES. In consideration of Bank's agreement to
enter into this Agreement, Borrower shall pay to Bank a non refundable fee in
the amount of Fifty Thousand Dollars ($50,000), and all Bank's out-of-pocket
expenses, in connection with this Agreement, including, Bank's attorney's fees
and expenses.
11. NO DEFENSES OF BORROWER. Borrower agrees that it has no
defenses against the obligations to pay any amounts under the Obligations.
12. 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 Loan
Documents. Except as expressly modified pursuant to this Agreement, the terms
of the Loan Documents remain unchanged and in full force and effect. Bank's
agreement to modifications to the existing Obligations pursuant to this
Agreement in no way shall obligate Bank to make any future modifications to the
Obligations. Nothing in this Agreement shall constitute a satisfaction of the
Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Agreement. The terms of this paragraph apply not
only to this Agreement, but also to all subsequent loan modification agreements.
13. GOVERNING LAW. This Agreement and all acts and transactions
hereunder and all rights and obligations of Bank and Borrower shall be governed
by the laws of the State of Georgia.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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This Loan Modification Agreement is executed as of the date first
written above.
BORROWER:
CYPRESS COMMUNICATIONS, INC.
By: /s/ Xxxx Xxxxxx
------------------------
Name: Xxxx Xxxxxx
Title: CFO
CYPRESS COMMUNICATIONS OPERATING COMPANY, INC.
By: /s/ Xxxx Xxxxxx
------------------------
Name: Xxxx Xxxxxx
Title: CFO
BANK:
SILICON VALLEY BANK
By:
------------------------
Name:
Title:
CONSENT
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The undersigned hereby (i) consents to terms of the attached Loan Modification
Agreement, (ii) hereby ratifies all the provisions of the Unconditional
Guaranty dated as of July 12, 2002 (the "Guaranty"), and (iii) confirms that
all provisions of that document are in full force and effect without offset or
defense of any kind or nature.
GUARANTOR:
CYPRESS COMMUNICATIONS HOLDINGS CO., INC. (formerly known as U.S. REALTEL, INC.)
By: /s/ Xxxxxxx X. XxXxxx
------------------------
Name: Xxxxxxx X. XxXxxx
Title: CEO
Date: July ___, 2004
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