Exhibit 10
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement (this "Loan Modification
Agreement") is entered into as of November 7, 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,
September 7, 2001, and March 10, 2002 (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 6.7 entitled "Financial Covenants"
"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."
and inserting in lieu thereof the following:
"6.7 FINANCIAL COVENANTS.
(a) Quick Ratio. Borrower shall maintain, as
of the last day of each quarter, a ratio of
Quick Assets to Current Liabilities of at
least 2.50 to 1.0.
(b) EBITDA. Borrower shall maintain, as of
the last day of each quarter a negative
EBITDA not greater than (i) Three Million
Five Hundred Thousand Dollars
($3,500,000.00) as of the quarter ending
December 31, 2002, and (ii) Three Million
One Hundred Thousand Dollars ($3,100,000.00)
as of the quarter ending March 31, 2003. For
purposes hereof, "EBITDA" shall mean
earnings before interest, taxes,
depreciation and amortization in accordance
with GAAP."
2. The Compliance Certificate appearing as EXHIBIT C to
the Loan Agreement is hereby replaced with the
Compliance Certificate attached hereto as EXHIBIT A.
B. WAIVERS.
1. Bank hereby waives Borrower's existing defaults under
the Loan Agreement by virtue of Borrower's failure to
comply with the financial covenants set forth in
Section 6.7 thereof as of the quarters ending June
30, 2002 and September 30, 2002. Bank's waiver of
Borrower's compliance of said affirmative covenant
shall apply only to the foregoing specific periods.
4. FEES. Borrower shall pay to Bank a modification fee for this Amendment in an
amount equal to Five Thousand Dollars ($5,000.00), 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.
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
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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 SETOFF. 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 affective 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: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------------------- --------------------------------------
Name: Xxxx Xxxxxxxxxx Name: Xxxxxxx X. Xxxxxxxx
Title: Vice President Title: Vice President
Finance and Administration
SILICON VALLEY BANK
By: /s/ Xxxxxx Xxxxxx
---------------------------------------------
Name: Xxxxxx Xxxxxx
Title: Loan Admin - Team Leader
------------------------------------------
(signed in Santa Xxxxx County, California)
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EXHIBIT A
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 Quick Ratio (quarterly) 2.5:1.0 _______:1.0 Yes No
Negative EBITDA (quarterly) Not greater than $3,500,000 $______ Yes No
for QE 12/31/02
Not greater than $3,100,000 $______ Yes No
for QE 3/31/03
COMMENTS REGARDING EXCEPTIONS: See Attached, if any.
Sincerely, BANK USE ONLY
Received by:
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SIGNATURE AUTHORIZED SIGNER
-------------------------- Date:
TITLE ---------------------------------
-------------------------- Verified:
DATE -----------------------------
AUTHORIZED SIGNER
Date:
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