Exbibit 99.2
MCDATA SYNTHETIC LEASE
THIRD AMENDMENT TO PARTICIPATION AGREEMENT
This THIRD AMENDMENT TO PARTICIPATION AGREEMENT (this "Amendment")
dated as of January 24, 2002, is by and among MCDATA CORPORATION, a
Delaware corporation, as Lessee and Construction Agent (in its capacity as
Lessee, the "Lessee" and in its capacity as Construction Agent, the
"Construction Agent"); DEUTSCHE BANK AG, NEW YORK BRANCH, a duly licensed
branch of Deutsche Bank AG, a German corporation, as Agent Lessor for the
Lessors (in such capacity, the "Agent Lessor"), and as a Lessor (together
with any permitted successors and assigns, each a "Lessor" and collectively
the "Lessors"); and DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS
BRANCH, as a Lender (together with the other financial institutions as may
from time to time become lenders, the "Lenders") under the Credit Agreement
and as Agent for the Lenders (in such capacity, the "Agent"). Capitalized
terms used herein and not otherwise defined shall have the meanings
assigned such terms in Annex A to the Participation Agreement (as defined
below).
RECITALS:
A. The Lessee, the Agent Lessor, the Lessor, the Lender, the Agent
and the Arranger are parties to that certain Participation Agreement, dated
as of February 9, 2001 (as amended, restated, supplemented or otherwise
modified from time to time, the "Participation Agreement").
B. Section 9.5(g) of the Participation Agreement contains a
covenant of the Lessee to maintain at all times a minimum Consolidated
Fixed Charge Coverage Ratio. In the Lessee's fourth fiscal quarter of 2001,
the Lessee booked one-time charges relating to: a write down of inventory;
a charge related to accelerated obsolescence of certain demonstration and
evaluation equipment and a charge related to facility lease losses ("Fourth
Quarter 2001 Charges").
C. The Lessee has requested certain amendments to the
Participation Agreement to recognize the effect of these Fourth Quarter
2001 Charges.
D. The parties signatory hereto are willing to agree to those
amendments on the terms, and subject to the conditions, hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Amendment to Annex A to the Participation Agreement. Subject to
the satisfaction of the conditions set forth in Section 4 below, Annex A to
the Participation Agreement is hereby amended as follows:
The term "Consolidated Fixed Charge Ratio" is hereby amended by
deleting the same in its entirety and replacing it with the following:
"'Consolidated Fixed Charge Ratio' shall mean for the Lessee and
its Subsidiaries on a consolidated basis at any date, the quotient of (a)
the sum of (i) Consolidated Net Income, plus (ii) Consolidated Interest
Expense, plus (iii) Consolidated Income Tax Expense, plus (iv) Consolidated
Lease Rental Expense, plus (v) depreciation expense, divided by (b) the sum
of (x) CMLTD, plus (y) Consolidated Interest Expense plus (z) Consolidated
Lease Rental Expense. For purposes of determining the Consolidated Fixed
Charge Ratio (i) as of any date of determination, each of the items
utilized in the formula set forth in the previous sentence shall be based
on the results of the two fiscal quarters ending on the date of
determination, except for CMLTD which shall be determined as of the most
recently completed fiscal quarter for which financial results are
available; (ii) for the Lessee's fiscal quarter ending September 30, 2001,
in calculating Consolidated Net Income: (A) the Lessee may exclude up to
$14,700,000 in non-recurring non-cash charges for excess and obsolete
inventory; (B) the Lessee may exclude up to $2,100,000 in non-recurring
cash acquisition charges relating to the acquisition of SANavigator, Inc.;
and (C) the Lessee may exclude up to $7,200,000 in non-recurring non-cash
charges for the write-off of in-process research and development in
connection with the acquisition of SANavigator, Inc.; (iii) for the
Lessee's fiscal quarter ending December 31, 2001, in calculating
Consolidated Net Income, the Lessee may exclude up to a maximum of
$11,500,000 in the aggregate for charges relating to inventory,
demonstration and evaluation equipment and facility lease losses and (iv)
for the Lessee's fiscal quarters ending December 31, 2001 and March 31,
2002, in calculating Consolidated Net Income, the Lessee may exclude up to
$1,100,000 in non-recurring non-cash acquisition charges relating to the
acquisition of SANavigator, Inc., in each quarter."
2. Amendment to Exhibit K to the Participation Agreement. Subject
to satisfaction of the conditions set forth in Section 4 below, Exhibit K
to the Participation Agreement is hereby amended by deleting Annex A
thereto in its entirety and replacing it with Annex A attached hereto.
3. Representation and Warranties. The Lessee hereby represents and
warrants to the Agent Lessor, the Lessor, the Lender and the Agent that the
following are true and correct on the date of this Amendment and that,
after giving effect to the amendments set forth in Section 1 and 2 above,
the following will be true and correct on the Effective Date (as defined
below):
(a) The representations and warranties of the Lessee and the
Construction Agent set forth in Sections 7.3 and 7.4 of the
Participation Agreement are true and correct in all material
respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be
true and correct in all material respects as of such date);
(b) No Default or Event of Default has occurred and is
continuing; and
(c) Each of the Operative Agreements to which the Lessee or
the Construction Agent is a party is in full force and effect as
to such Person.
4. Effective Date. The amendments effected by Sections 1 and 2
above shall become effective as of December 31, 2001 (the "Effective
Date"), subject to (i) receipt by McGuireWoods LLP, counsel to the Agent
and the Agent Lessor, of a copy of this Amendment duly executed by the
Lessee, the Agent Lessor, the Lessor, the Lender and the Agent and (ii)
receipt by Agent, for the account of the Participants, of an amendment fee
in the amount of $75,000 (the "Amendment Fee"). In the event that the
Lessee exercises the Purchase Option under Section 20.1 of the Lease and
purchases the Property prior to April 1, 2002, the Participants will refund
$25,000 of the Amendment Fee to the Lessee upon receipt of all amounts
required to be paid under such Section.
5. Miscellaneous.
(a) Except as specifically waived above, the Participation
Agreement and each of the Annex, Schedules and Exhibits thereto
shall remain in full force and effect, and the Participation
Agreement is hereby ratified and confirmed in all respects.
(b) Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose.
(c) This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately
constitute one agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective
as delivery of a manually executed counterpart of this Agreement.
(d) The Lessee agrees to pay the legal fees of McGuireWoods
LLP, counsel to the Agent and the Agent Lessee, in connection with
this Amendment upon presentation of an invoice therefor.
6. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, each party hereto has caused this Amendment to
be duly executed and delivered by its proper and duly authorized officer as
of the date first written above.
MCDATA CORPORATION,
as Lessee and Construction Agent
By: /s/ Xxxxx X. Xxxxxx
-------------------
Name: Xxxxx X. Xxxxxx
Title: SVP and CFO
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Agent Lessor for the Lessors and
as a Lessor
By: /s/ Xxxx X.X. Xxxxxx
--------------------
Name: Xxxx X.X. Xxxxxx
Title: Vice President
By: /s/ Xxxxxxx X. X'Xxxxxxxxx
--------------------------
Name: Xxxxxxx X. X'Xxxxxxxxx
Title: Vice President
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCH, as a
Lender and as Agent for the Lenders
By: /s/ Xxxx X.X. Xxxxxx
--------------------
Name: Xxxx X.X. Xxxxxx
Title: Vice President
By: /s/ Xxxxxxx X. X'Xxxxxxxxx
--------------------------
Name: Xxxxxxx X. X'Xxxxxxxxx
Title: Vice President
Annex A to THIRD Amendment to Participation Agreement
ANNEX A TO
COMPLIANCE CERTIFICATE
FOR THE FISCAL QUARTER ENDING ________________, _________
($ in 000's)
Calculation Required
Ratio or Figure
1. Consolidated Tangible Net Worth (i)-(ii)
(i) The sum of Consolidated Total
Assets of the Lessee and its
Subsidiaries; $__________
(ii) The sum of: $__________
(i) the Consolidated Total
Liabilities of the Lessee
and its Subsidiaries; $__________
(ii) all Intangible Assets
of Lessee and its Subsidiaries. $__________
Consolidated Tangible Net Worth $__________ $200,000,000
2. Consolidated Fixed Charge Ratio (i)/(ii)
(a) the sum of
(i) Consolidated Net Income(1) $__________
(ii) Consolidated Interest Expense $__________
(iii) Consolidated Income Tax Expense $__________
(iv) Consolidated Depreciation Expense $__________
(v) Consolidated Lease Rental Expense $__________
(b) the sum of
(i) CMLTD $__________
(ii) Consolidated Interest Expense $__________
(iii) Consolidated Lease Rental Expense $__________
The Ratio ___ to ___ 2.0 to 1.0(2)
___ to ___ 1.75 to 1.0(3)
___ to ___ 2.0 to 1.0(4)
___ to ___ 2.5 to 1.0(5)
___ to ___ 3.0 to 1.0(6)
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1 Specify the amount of each of the following non-recurring, non-cash
(exception (B) below) charges being excluded from the calculation of
Consolidated Net Income for the applicable quarter: (i) for the fiscal
quarter ending September 30, 2001, (A) $___________ for excess and
obsolete inventory (may not exceed $14,700,000); (B) $____________ for
cash acquisition charges relating to the acquisition of SANavigator,
Inc. (may not exceed $2,100,000); and (C) $_________ for in-process
research and development in connection with the acquisition of
SANavigator, Inc. (may not exceed $7,200,000); (ii) for the fiscal
quarter ending December 31, 2001, $_________ for charges relating to
inventory, demonstration and evaluation equipment and facility lease
losses (may not exceed $11,500,000), and (iii) for the fiscal quarters
ending December 31, 2001 and March 31, 2002, $_______ for acquisition
charges relating to the acquisition of SANavigator, Inc. (may not
exceed $1,100,000 in each quarter).
2 Applicable for reporting periods from the Closing Date through 9/30/01.
3 Applicable for reporting periods from 10/01/01 through 3/31/02.
4 Applicable for reporting periods from 4/01/02 to 12/31/02.
5 Applicable for reporting periods from 1/01/03 through 12/31/03.
6 Applicable for reporting periods from 1/01/04 forward.
