AMENDMENT NO. 2 AND LIMITED WAIVER TO LOAN AND SECURITY AGREEMENT
Exhibit 99.1
AMENDMENT NO. 2 AND LIMITED WAIVER
TO
THIS AMENDMENT NO. 2 AND LIMITED WAIVER TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into this 12th day of August, 2008, by and among SILICON VALLEY BANK, a California corporation (“Bank”), and SUNRISE TELECOM INCORPORATED, a Delaware corporation (“Parent”), and SUNRISE TELECOM BROADBAND INC., a Georgia corporation (“Broadband”), (each individually a “Borrower” and collectively, “Borrowers”). Capitalized terms used herein without definition shall have the same meanings given them in the Loan Agreement (as defined below).
RECITALS
A. Borrowers and Bank have entered into that certain Loan and Security Agreement dated as of August 13, 2007 (as may be amended, restated, or otherwise modified, the “Loan Agreement”), pursuant to which the Bank has agreed to extend and make available to Borrowers certain advances of money.
B. Borrowers (a) are in default under Section 6.7(b) of the Loan Agreement due to their Tangible Net Worth being less than $50,000,000 for the fiscal quarter ending June 30, 2008 (the “Existing Default”), and (b) desire that Bank (i) provide the limited waiver of the Existing Default, and (ii) amend the Loan Agreement upon the terms and conditions more fully set forth herein.
C. Subject to the representations and warranties of Borrowers herein and upon the terms and conditions set forth in this Amendment, Bank is willing to provide the conditional limited waiver contained herein and so amend the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows:
1. LIMITED WAIVER. Bank hereby agrees, subject to the terms of Section 5 hereof, to waive the Existing Default.
2. AMENDMENT TO LOAN AGREEMENT.
2.1 Section 6.6(a) (Operating Accounts). Section 6.6(a) of the Loan Agreement is amended and restated in its entirety with the following:
(a) No later than November 30, 2008, maintain its primary domestic banking relationship with Bank or Bank’s affiliates.
2.2 Section 6.7 (Financial Covenants). Section 6.7 of the Loan Agreement is amended and restated in its entirety with the following:
(a) Quick Ratio. A ratio of Quick Assets to Current Liabilities minus Deferred Revenue of at least 0.80 to 1.00.
(b) Tangible Net Worth. A Tangible Net Worth of at least (a) for the fiscal quarters ending September 30, 2008 and December 31, 2008, (i) $44,000,000 plus (ii) 50% of positive quarterly Net Income earned after August 31, 2008 plus (iii) 50% of issuances of equity and the principal amount of Subordinated Debt incurred, in each case, after August 31, 2008, and (b) for the fiscal quarters ending March 31, 2009 and June 30, 2009, (i) $40,000,000, plus (ii) 50% of positive quarterly Net Income earned after August 31, 2008 plus (iii) 50% of issuances of equity and the principal amount of Subordinated Debt incurred, in each case, after August 31, 2008.
2.3 Clauses (c) and (d) of Section 7.1 (Dispositions). Clauses (c) and (d) of Section 7.1 of the Loan Agreement is amended and restated in its entirety with the following:
(c) Transfers of property for fair market value in an amount not to exceed $500,000 in any fiscal year;
(d) Transfers of property in connection with sale-leaseback transactions in an amount not to exceed $10,000,000 in any fiscal year;
2.4 Section 13.1 (Definitions). The definition of “Revolving Line Maturity Date” in Section 13.1 of the Loan Agreement is amended and restated in its entirety with the following:
“Revolving Line Maturity Date” is August 12, 2009.
2.5 Exhibit D of the Loan Agreement. Exhibit D (Compliance Certificate) of the Loan Agreement is amended and restated in its entirety with Exhibit A attached hereto.
3. BORROWERS’ REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants that:
(a) immediately upon giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (ii) no Event of Default has occurred and is continuing;
(b) each Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
(c) the certificate of incorporation or articles of incorporation (as applicable), bylaws and other organizational documents of each Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
(d) the execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary corporate action on the part of each Borrower;
(e) this Amendment has been duly executed and delivered by each Borrower and is the binding obligation of such Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights; and
(f) as of the date hereof, such Borrower has no defenses against the obligations to pay any amounts under the Obligations. Each Borrower acknowledges that Bank has acted in good faith and has conducted in a commercially reasonable manner its relationships with such Borrower in connection with this Amendment and in connection with the Loan Documents.
Each Borrower understands and acknowledges that Bank is entering into this Amendment in reliance upon, and in partial consideration for, the above representations and warranties, and agrees that such reliance is reasonable and appropriate.
4. LIMITATION. The limited waiver and amendments set forth in this Amendment shall be limited precisely as written and shall not be deemed (a) to be a forbearance, waiver or modification of any other term or condition of the Loan Agreement or of any other instrument or agreement referred to therein or, except for the waiver, consents and amendments provided herein, to prejudice any right or remedy which Bank may now have or may have in the future under or in connection with the Loan Agreement or any instrument or agreement referred to therein; (b) to be a consent to any future amendment or modification, forbearance or waiver to any instrument or agreement the execution and delivery of which is consented to hereby, or to any waiver of any of the provisions thereof; or (c) except for the waiver and amendments provided herein, to limit or impair Bank’s right to demand strict performance of all terms and covenants as of any date. Except as expressly amended hereby, the Loan Agreement shall continue in full force and effect.
5. EFFECTIVENESS. This Amendment shall become effective upon (a) the receipt by Bank of this Amendment duly executed by Borrowers, (b) Bank’s receipt of amendment fee of $25,000, and (c) payment by Borrowers of all Bank Expenses (including all reasonable attorneys’ fees and reasonable expenses) incurred through the date of this Amendment.
6. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment.
7. INTEGRATION. This Amendment and any documents executed in connection herewith or pursuant hereto contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, offers and
negotiations, oral or written, with respect thereto and no extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any, involving this Amendment; except that any financing statements or other agreements or instruments filed by Bank with respect to Borrowers shall remain in full force and effect.
8. GOVERNING LAW; VENUE. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Borrowers and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa ▇▇▇▇▇ County, California.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above.
BORROWERS:
| SUNRISE TELECOM INCORPORATED | ||
| By |
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇ | |
| Name: |
▇▇▇▇ ▇▇▇▇▇▇▇▇ | |
| Title: |
CLCO | |
| SUNRISE TELECOM BROADBAND INC. | ||
| By |
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇ | |
| Name: |
▇▇▇▇ ▇▇▇▇▇▇▇▇ | |
| Title: |
Director | |
| BANK: | ||
| SILICON VALLEY BANK | ||
| By | /s/ ▇▇▇ ▇▇▇▇▇▇▇ | |
| Name: |
▇▇▇ ▇▇▇▇▇▇▇ | |
| Title: |
RM | |
Effective Date: 8/12/08
EXHIBIT A
EXHIBIT D
COMPLIANCE CERTIFICATE
| TO: SILICON VALLEY BANK | Date: | |
| FROM: |
The undersigned authorized officer of (“Borrowers”) certifies that under the terms and conditions of the Loan and Security Agreement among Borrowers and Bank (the “Agreement”), (1) Borrowers are in complete compliance for the period ending with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrowers, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrowers except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against any Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrowers have not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with generally GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrowers are 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. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant |
Required |
Complies | ||
| Quarterly financial statements with Compliance Certificate |
Quarterly within 45 days | Yes No | ||
| Annual financial projections |
FYE within 45 days | Yes No | ||
| 10-Q, 10-K and 8-K (see 6.2(a)) |
Within 5 days after filing with SEC, but not later than 50 days after each quarter and 90 days after each FYE |
Yes No | ||
| Borrowing Base Certificate, A/R & A/P Agings and Deferred Revenue Report |
Monthly within 45 days when Credit Extensions in excess of $500,000 are outstanding; A/R and A/P agings monthly within 45 days otherwise |
Yes No | ||
| Cash Balance Report |
Monthly within 45 days | Yes No | ||
| Financial Covenant |
Required |
Actual | Complies | |||
| Maintain on a Quarterly Basis: |
||||||
| Minimum Quick Ratio |
0.80:1.00 | :1.00 | Yes No | |||
| Minimum Tangible Net Worth |
A Tangible Net Worth of at least (a) for the fiscal quarters ending September 30, 2008 and December 31, 2008, (i) $44,000,000 plus (ii) 50% of positive quarterly Net Income earned after August 31, 2008 plus (iii) 50% of issuances of equity and the principal amount of Subordinated Debt incurred, in each case, after August 31 2008, and (b) for the fiscal quarters ending March 31, 2008 and June 30, 2009, (i) $40,000,000, plus (ii) 50% of positive quarterly Net Income earned after August 31, 2008 plus (iii) 50% of issuances of equity and the principal amount of Subordinated Debt incurred , in each case, after August 31, 2008. | $ | Yes No | |||
The following financial covenant analys[is][es] and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.
The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)
| Sunrise Telecom Incorporated Sunrise Telecom Broadband Inc. |
BANK USE ONLY | |||
| Received by: AUTHORIZED SIGNER | ||||
| By: | Date: | |||
| Name: | Verified: AUTHORIZED SIGNER | |||
| Title: | Date: | |||
| Compliance Status: Yes No | ||||
Schedule 1 to Compliance Certificate
Financial Covenants of Borrowers
Dated:
| I. | Quick Ratio (Section 6.7(a)) |
Required: 0.80:1.00
Actual:
| A. Aggregate value of the unrestricted cash and cash equivalents |
$ | ||
| B. Aggregate value of the net billed accounts receivable |
$ | ||
| C. Aggregate value of the investments |
$ | ||
| D. Quick Assets (the sum of lines A through C) |
$ | ||
| E. Aggregate value of Obligations to Bank |
$ | ||
| F. Aggregate value of liabilities of Parent and its Subsidiaries (including all Indebtedness) that mature within one (1) year and current portion of Subordinated Debt permitted by Bank to be paid by Borrowers |
$ | ||
| G. Current Liabilities (the sum of lines E and F) |
$ | ||
| H. Aggregate value of all amounts received or invoiced by Borrowers in advance of performance under contracts and not yet recognized as revenue |
$ | ||
| I. Quick Ratio (line D divided by line G, less Line H) |
|||
Is line I equal to or greater than 0.80:1:00?
| No, not in compliance | Yes, in compliance |
| VII. | Tangible Net Worth (Section 6.7(b)) |
Required: A Tangible Net Worth of at least (a) for the fiscal quarters ending September 30, 2008 and December 31, 2008, (i) $44,000,000 plus (ii) 50% of positive quarterly Net Income earned after August 31, 2008 plus (iii) 50% of issuances of equity and the principal amount of Subordinated Debt incurred, in each case, after August 31, 2008, and (b) for the fiscal quarters ending March 31, 2009 and June 30, 2009, (i) $40,000,000, plus (ii) 50% of positive quarterly Net Income earned after August 31, 2008 plus (iii) 50% of issuances of equity and the principal amount of Subordinated Debt incurred, in each case, after August 31, 2008.
Actual:
| A. Aggregate value of total assets of Borrowers and their Subsidiaries |
$ | ||
| B. Aggregate value of goodwill of Borrowers [and their Subsidiaries] |
$ | ||
| C. Aggregate value of intangible assets of Borrowers [and their Subsidiaries] |
$ | ||
| D. Aggregate value of any reserves not already deducted from assets |
$ | ||
| E. Aggregate value of liabilities of Parent and its Subsidiaries (including all Indebtedness) and current portion of Subordinated Debt permitted by Bank to be paid by Borrowers (but no other Subordinated Debt) |
$ | ||
| F. Tangible Net Worth (line A minus line B minus line C minus line D minus line E) |
$ | ||
| G. 50% of quarterly Net Income (cumulative since August 31, 2008) |
$ | ||
| H. 50% of new equity or debt (cumulative since August 31, 2008) |
$ | ||
Is line F plus Line G plus Line H equal to or greater than the amounts required above?
| No, not in compliance | Yes, in compliance |