EXHIBIT 10.14
SECOND MODIFICATION TO CREDIT AGREEMENT
This Second Modification to Credit Agreement (the "Second Modification")
is entered into as of September 30, 2002, by and among XXX, INC., a Delaware
corporation ("Borrower"), and U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"), as a
Lender (defined in the Credit Agreement defined below) and as agent (in such
capacity, "Agent"). U.S. Bank is currently the sole Lender. Except as otherwise
specifically provided herein, all capitalized terms used and not defined herein
shall have the meaning set forth in the Credit Agreement (defined below).
RECITALS
A. Pursuant to the terms of that certain Credit Agreement (as amended from
time to time, including hereby and by the First Modification described below,
the "Credit Agreement") dated as of August 28, 2000, by and among Borrower,
Lenders and Agent, Lenders and Agent agreed to provide Borrower the following:
(i) a Line of Credit not to exceed at any time the aggregate principal amount of
Twenty Million Dollars ($20,000,000.00); (ii) Term Loan A in the principal
amount of One Million One Hundred Ninety Thousand Dollars ($1,190,000.00); (iii)
Term Loan B in the principal amount of One Million Six Hundred Ten Thousand
Dollars ($1,610,000.00); (iv) Term Loan C in the principal amount of Three
Million Two Hundred Thousand Dollars ($3,200,000.00); and (v) a Letter of Credit
Facility.
B. Borrower and Agent entered into that certain Modification of Credit
Agreement (the "First Modification") dated December 31, 2001, in order to, among
other things, decrease the amount of the Line of Credit to $5,000,000.00, change
the interest rates applicable to the Credits and to extend the Line Maturity
Date.
C. As of June 30, 2002, Borrower defaulted under Section 6.9(d) of the
Credit Agreement by reason of Borrower's failure to maintain the Tangible Net
Worth required thereunder. As a result, Borrower and Agent wish to modify the
Credit Agreement to, among other things, amend the financial covenants and add
Additional Collateral (as defined below) to secure the Credits.
AGREEMENT
1. Recitals. The recitals set forth above are true, accurate and correct.
2. Reaffirmation of Credit Agreement. The Borrower reaffirms all of its
obligations under the Credit Agreement and the Borrower acknowledges that
as
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of the date hereof, it has no claims, offsets or defenses with respect to
the payment of sums due under the Notes or any other Loan Document.
3. Waiver of Covenant Default. Upon the effectiveness of this Second
Modification and satisfaction of the conditions precedent set forth
herein, Agent hereby waives any default by Borrower under Section 6.9(d)
of the Credit Agreement by reason of Borrower's failure to maintain the
Tangible Net Worth required thereunder prior to the date hereto.
4. Termination of Line of Credit and Term Loans. Pursuant to Section 2.8(a)
of the Credit Agreement, Borrower has elected to terminate the Line of
Credit and to repay in full the Term Loans. Effective herewith, Lender
shall no longer have any obligations to fund under the Line of Credit or
the Term Loans and within five (5) days after the date of this Second
Modification, Agent shall cause the Deeds of Trust encumbering the El
Monte Property and the Monterey Park Property to be reconveyed. Upon
effectiveness of this Second Modification, all representations, warranties
and covenants shall apply only to the Collateral remaining in effect after
such reconveyances occur.
5. Modifications to Credit Agreement. The Credit Agreement is hereby amended
as follows:
a. Permitted Indebtedness. The following subsection (j) is added to the
definition of "Permitted Indebtedness" in Section 1.1 of the Credit
Agreement: "(j) Indebtedness incurred by Borrower or any Subsidiary
which is secured by (i) Borrower's foreign receivables, provided
Agent and the receivables lender thereunder shall have entered into
an intercreditor agreement in form and substance satisfactory to
Agent and/or (ii) fixed assets of Borrower or its Subsidiaries
located in China."
b. Permitted Liens. The following subsection (k) is added to the
definition of "Permitted Indebtedness" in Section 1.1 of the Credit
Agreement: "(k) liens securing Indebtedness incurred by Borrower or
any Subsidiary which is secured by (i) Borrower's foreign
receivables, provided Agent and the receivables lender thereunder
shall have entered into an intercreditor agreement in form and
substance satisfactory to Agent and/or (ii) fixed assets of Borrower
or its Subsidiaries located in China."
c. Tangible Net Worth. The definition of "Tangible Net Worth" in
Section 1.1 of the Credit Agreement is amended in its entirety to
read as follows:
"'Tangible Net Worth' means, as of any date of determination, the
consolidated stockholder's equity as of that date determined in
accordance with GAAP, less (i) the [book] value of all assets that
are considered intangible assets under GAAP, including customer
lists,
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goodwill, covenants not to compete, copyrights, trade names,
trademarks and patents, less (ii) the book value of the common stock
Borrower owns in Finisar Corporation."
d. Line of Credit/Term Loans. Sections 2.1, 2.2, 2.4, 2.5(a)-(d), 2.6,
2.8, 2.9, 2.10, 2.11(a)-(c), 2.13 and Section 6.16 are deleted in
their entirety.
e. Letter of Credit Facility Fee. Section 2.5(e) of the Credit
Agreement is amended in its entirety to read as follows:
"Letter of Credit Facility Fee. Borrower shall pay to Agent a Letter
of Credit Facility fee (for itself) in an amount equal to one and
one-half of one percent (1.50%) per annum of the Stated Amount of
the Letter of Credit, payable quarterly in advance on the first day
of each quarterly period beginning December 1, 2002, until the
earlier of the termination or expiration of the Letter of Credit
Facility, which fee shall be non-refundable even if the Letter of
Credit is terminated or canceled before its stated expiration date."
f. Required Compensating Balances with Agent. Section 3.4 of the Loan
Agreement (added pursuant to the First Modification) is deleted in
its entirety.
g. Financial Statements. Section 6.3 of the Credit Agreement is amended
in its entirety to read as follows:
"FINANCIAL STATEMENTS. Provide to Agent all of the following,
in form and detail satisfactory to Agent:
a. not later than one hundred and twenty (120) days after and
as of the end of each fiscal year, an audited financial statement of
Borrower and each entity whose financial results are consolidated
with those of Borrower for reporting purposes, prepared by a
nationally recognized certified public accountant, to include a
balance sheet, income statement, statement of cash flows,
reconciliation of net worth and notes to financial statements,
together with Borrower's 10-K report;
b. not later than thirty (30) days prior to the end of each
fiscal year, an annual budget for Borrower, prepared by Borrower,
which shall include three-year
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projections of Borrower's operations and planned capital
expenditures and financial projections for Borrower and each entity
whose financial results are consolidated with those of Borrower for
reporting purposes for the next fiscal year;
c. not later than forty-five (45) days after and as of the end
of each fiscal quarter, (i) a financial statement of Borrower and
each entity whose financial results are consolidated with those of
Borrower for reporting purposes, prepared by Borrower, to include a
balance sheet and income statement; and (ii) Borrower's filed 10-Q
Statement;
d. not later than thirty (30) days after and as of the end of
each fiscal quarter, a certificate of the chief financial officer or
other executive officer of Borrower that Borrower is in compliance
with the financial covenant set forth in Section 6.9;
e. contemporaneously with each quarterly financial statement
of Borrower required under (c), above, a certificate of the chief
financial officer or other executive officer of Borrower that said
financial statements are accurate, calculating the financial
covenant set forth in Section 6.9 below and stating that Borrower is
in compliance with the financial covenant set forth in Section 6.9
below which Borrower is then required to comply with, and that there
exists no Event of Default nor any condition, act or event which,
with the giving of notice or the passage of time or both, would
constitute an Event of Default;
f. within thirty (30) days after the end of each month, a
report prepared by Borrower indicating the current market value of
all investments and brokerage accounts pledged to Agent as
collateral under any Security Agreement, respective advance rates as
approved by Agent, and the resulting collateral value as per Agent's
requirements and policies, and verifying that such collateral value
equals at least 100% of the amount of all obligations owed to Lender
under the Credit Agreement and otherwise and including copies of the
applicable brokerage statements for such accounts;
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g. any and all copies of any filing and report made by
Borrower with the Securities Exchange Commission; and
h. from time to time such other information as Agent may
reasonably request."
h. Financial Condition. Section 6.9 of the Credit Agreement is amended
in its entirety to read as follows:
"FINANCIAL CONDITION. Maintain Borrower's financial condition
as follows, based on the consolidated financial statements of
Borrower and each entity whose financial results are consolidated
with those of Borrower for reporting purposes, using generally
accepted accounting principles consistently applied and used
consistently with prior practices:
a. Maintain, as of the end of each fiscal quarter commencing
with the quarter ended September 30, 2002, a Tangible Net Worth not
less than One Hundred and Ten Million Dollars ($110,000,000.00)."
6. Additional Collateral. In consideration of Agent's waiver of Borrower's
default of the covenant provided for in Section 6.9(d) of the Credit
Agreement and in consideration of the modifications contained herein,
pursuant to that certain Security Agreement (the "Additional Collateral
Security Agreement") dated as of the date hereof and entered into by and
between Borrower and Agent, Borrower shall assign to Agent a security
interest in an investment account in the name of Borrower held within the
trust department of U.S. Bank (collectively, the "Additional Collateral")
which Additional Collateral shall at all times have a balance based on the
then-current marketable value of the securities held therein in excess of
Lender's Exposure (as defined below) when valued according to the advance
rates set forth in Exhibit A attached hereto. As used herein, "Exposure"
shall mean from time to time, the sum of all of Borrower's outstanding
obligations under the Loan Documents, including the amount of any undrawn
letters of credit issued by Agent for the benefit of Borrower, and all
non-credit commitments issued by Agent in favor of Borrower as detailed in
Exhibit B attached hereto, plus the aggregate related trailing six month
fee expense related thereto. If the balance of the Additional Collateral
shall at any time be less than Lender's Exposure, Borrower shall deliver
additional investments or cash into the Additional Collateral account
within two (2) business days after Agent's notice to Borrower of such
deficiency. Borrower shall deliver to Agent account statements and reports
for
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the Additional Collateral as is required under Section 6.3 of the Credit
Agreement and such other information related thereto as Agent may require.
The Additional Collateral shall at all times remain subject to a valid
control agreement in favor of Agent in form and substance satisfactory to
Agent. Borrower shall not be permitted to make withdrawals with respect to
the Additional Collateral except with Agent's prior consent.
7. Conditions Precedent. Before this Second Modification becomes effective
and any party becomes obligated under it, all of the following conditions
shall have been satisfied at the Borrower's sole cost and expense in a
manner acceptable to the Agent in the exercise of Agent's sole judgment:
a. The Agent shall have received fully executed and, where appropriate,
acknowledged originals of the following:
i. this Second Modification;
ii. a Reaffirmation of Guaranty and Security Agreement executed by
each Guarantor (the "Guarantor's Consent");
iii. a Closing Certificate executed by Borrower;
iv. an incumbency certificate for Borrower;
v. the Additional Collateral Security Agreement granting Borrower
a security interest in the Additional Collateral;
vi. a control agreement executed by Borrower, Agent and the holder
of the Additional Collateral, in form and substance
satisfactory to Agent;
vii. verification that the Additional Collateral has been
established with the trust department of U.S. Bank having a
balance (based on the current marketable value of the
securities held therein margined according to the advance
rates set forth in Exhibit A) in excess of Lender's current
Exposure of $10,678,885.00; and
viii. any other agreements or resolutions (including evidence of the
Borrower's and each Guarantor's authority to enter into this
Second Modification and the Guarantor Consent, respectively)
that the Agent may reasonably require or request in connection
with this Second Modification or the Credit Agreement.
b. Agent shall have filed a UCC-1 with the Secretary of State of
Delaware with respect to the Additional Collateral and Security
Agreement.
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c. The Term Loans have been repaid in full.
8. The Borrower's Representations and Warranties. The Borrower represents and
warrants to Lenders as follows:
a. Credit Agreement. All representations and warranties made and given
by the Borrower in the Credit Agreement are true, accurate and
correct.
b. No Default. Except for the default being waived hereunder, no Event
of Default has occurred and is continuing, and no event has occurred
and is continuing which, with notice or the passage of time or both,
would be an Event of Default.
c. Borrowing Entity. Borrower is a corporation which is duly organized,
validly existing and in good standing in the State of Delaware and
is duly qualified in each jurisdiction in which it is required to be
qualified, except where the failure to be so qualified would not
have a Material Adverse Effect. Except as otherwise disclosed or
delivered to Agent, there have been no changes in the formation
documents of Borrower or any Guarantor since the inception of the
Credit Agreement.
9. Incorporation. This Second Modification shall form a part of the Credit
Agreement, and all references to the Credit Agreement shall mean the
Credit Agreement as hereby modified.
10. No Prejudice; Reservation of Rights. Except as specifically amended by
this Second Modification, this Second Modification shall not effect or
limit any rights or remedies of the Agent or Lenders under the Credit
Agreement. The Agent and Lenders reserve, without limitation, all rights
which they have against any indemnitor, guarantor, or endorser of the
Credit Agreement.
11. No Impairment. Except as specifically hereby amended, the Credit Agreement
shall remain unaffected by this Second Modification and the Credit
Agreement shall remain in full force and effect.
12. Purpose and Effect of Approvals. In no event shall any approval of any
matter in connection with the Credit Agreement of the Agent or Lenders be
a representation of any kind with regard to the matter being approved or a
waiver of any rights under the Credit Agreement.
13. Reimbursement of Expenses. The Borrower agrees to reimburse the Agent for
all costs and expenses incurred by the Agent in connection with this
Second Modification, including reasonable legal fees and expenses of the
Agent's counsel.
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14. Integration. The Credit Agreement, including the First Modification and
the Second Modification: (a) integrate all the terms and conditions
mentioned in or incidental to the Credit Agreement; (b) supersede all oral
negotiations and prior and other writings with respect to their subject
matter; and (c) are intended by the parties as the final expression of the
agreement with respect to the terms and conditions set forth in those
documents and as the complete and exclusive statement of the terms agreed
to by the parties. If there is any conflict between the terms, conditions
and provisions of this Second Modification and those of any other
agreement or instrument, the terms, conditions and provisions of this
Second Modification shall prevail.
15. Miscellaneous. This Second Modification may be executed in counterparts,
and all counterparts shall constitute but one and the same document. If
any court of competent jurisdiction determines any provision of this
Second Modification, the First Modification or the Credit Agreement to be
invalid, illegal or unenforceable, that portion shall be deemed severed
from the rest, which shall remain in full force and effect as though the
invalid, illegal or unenforceable portion had never been a part of the
Credit Agreement. This Second Modification shall be governed by the laws
of the State of California, without regard to the choice of law rules of
that State. As used here, the word "include(s)" means "includes(s),
without limitation," and the word "including" means "including, but not
limited to."
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
"Borrower"
XXX, INC., a Delaware corporation
By /s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Chief Financial Officer
"Agent" and "Lender"
U.S. BANK NATIONAL ASSOCIATION
By /s/ Xxxx X. Xxxxxx
Xxxx X. Xxxxxx
Vice President
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EXHIBIT A
ADVANCE RATES AGAINST U.S. BANK DEPOSITS AND
FIXED INCOME SECURITIES
Investment Type Advance Rate
--------------- ------------
U.S. Bank Deposit Account 100%
U.S. Governments or Agencies Securities
with less than 5 years to maturity 90%
Commercial Paper A2/P2 or better 80%
Bonds BAA or better by Moodys 80%
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