EXHIBIT 10.4
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of April 9, 1999, by
and between Pixelworks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated August 14,1998, as may be
amended from time to time (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Equipment Line in the original principal
amount of One Million Five Hundred Dollars ($1,500,000). Defined terms used but
not otherwise defined herein shall have the same meanings as in the Loan
Agreement
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness
is secured by the Collateral as described in the Loan Agreement. Additionally,
Borrower has agreed not to mortgage, pledge, hypothecate, or otherwise encumber
any of its Intellectual Property, pursuant to that certain Negative Pledge
Agreement dated August 14, 1998.
Hereinafter, the above-described security documents and guaranties,
together with all other documents securing repayment of the Indebtedness shall
be referred to as the "Security Documents." Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT
1. The following Sections are hereby incorporated into the
Loan Agreement to read as follows:
2.1.2 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the
Committed Revolving Line or the Borrowing Base, whichever is less, minus (ii)
the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and minus (iii) the Foreign Exchange Reserve.
Amounts borrowed under this Section may be repaid and reborrowed during the term
of this Agreement.
1
(b) To obtain an Advance, Borrower must notify Bank by
facsimile or telephone by 3:00 p.m. Pacific time on the Business Day the Advance
is to be made. Borrower must promptly confirm the notification by delivering to
Bank the Payment/Advance Form attached as Exhibit B. Bank will credit Advances
to Borrower's deposit account. Bank may make Advances under this Agreement based
on instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to that reliance.
(c) The Committed Revolving Line terminates on the
Revolving Maturity Date, when all Advances are immediately payable.
2.1.3 LETTERS OF CREDIT
Bank will issue or have issued Letters of Credit for
Borrower's account not exceeding (i) the lesser of the Committed Revolving Line
or the Borrowing Base minus (ii) the outstanding principal balance of the
Advances, but the face amount of outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not
exceed $3,000,000. Each Letter of Credit will expire no later than one hundred
eighty (180) days after the Revolving Maturity Date provided Borrower's Letter
of Credit reimbursement obligation is secured by cash on terms acceptable to
Bank at any time after the Revolving Maturity Date if the term of this Agreement
is not extended by Bank.
2.1.4 FOREIGN EXCHANGE CONTRACT; FOREIGN EXCHANGE
SETTLEMENTS.
Borrower may enter foreign exchange contracts (the
"Exchange Contract") not exceeding an aggregate amount of $3,000,000 (the
"Contract Limit"), under which Bank will sell to or purchase from Borrower
foreign currency on a spot or future basis. Borrower may not request any
Exchange Contracts if it is out of compliance with any provision of this
Agreement. Exchange Contracts must provide for delivery of settlement on or
before Revolving Maturity Date. The amount available under the Committed
Revolving Line is reduced by the following (the "Foreign Exchange Reserve") on
any given day (the "Determination Date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed more than
two business days after the Determination Date, 10% of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed within two business days after
the Determination Date, 100% of the gross amount of the Exchange Contracts.
Bank may terminate the Exchange Contracts if (a) an Event
of Default occurs or (b) there is not sufficient availability under the
Committed Revolving Line and Borrower does not have available funds in its
deposit account for the Foreign Exchange Reserve.
2
If Bank terminates the Exchange Contracts, Borrower will reimburse Bank for
all fees, costs and expenses in connection with the Exchange Contracts.
Borrower may not permit the total of all Exchange Contracts
on which delivery is to be effected and settlement allowed in any two business
day period to be more than $3,000,000 (the "Settlement Limit") nor may Borrower
permit the total of all Exchange Contracts outstanding at any one time, to
exceed the Contract Limit. However, the amount which may be settled in any 2
business day period may be increased above the Settlement Limit if:
(i) there is sufficient availability under the Committed
Revolving Line in the amount of the Foreign Exchange Reserve for each
Determination Date, provided that Bank in advance shall reserve the full amount
of the Foreign Exchange Reserve against the Committed Revolving Line; or
(ii) there is insufficient availability under the
Committed Revolving Line for settlements within any 2 business day period, but
Bank: (A) verifies good funds overseas before crediting Borrower's deposit
account (in the case of Borrower's sale of foreign currency); or (B) debits
Borrower's deposit account before delivering foreign currency overseas (in the
case of Borrower's purchase of foreign currency).
If Borrower purchases foreign currency, Borrower must in
advance instruct Bank either to treat the settlement as an advance under the
Committed Revolving Line, or to debit Borrower's account for the amount settled.
Borrower will execute all Bank's standard applications and
agreements in connection with the Exchange Contracts and pay all Bank's standard
fees and charges.
Borrower will indemnity Bank and hold it harmless from all
claims, liabilities, demands, obligations, actions, costs and expenses
(including reasonable attorneys' fees) which it incurs arising out of or in any
way relating to any of the Exchange Contracts or any contemplated transactions.
2.1.5 OVERADVANCES.
If Borrower's Obligations under Section 2.1.2, 2.1.3 and
2.1.4 exceed the lesser of either (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower must immediately pay in cash to Bank the excess.
6.8 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
3
(i) QUICK RATIO. A ratio of Quick Assets to Current
Liabilities of at least 1.00 to 1.00.
(ii) DEBT/NET WORTH RATIO. A ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than 2.00 to 1.00.
(iii) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$3,700,000, decreasing to $2,900,000, beginning with the month ending July 31,
1999.
2. Sub-Sections (a) and (b) of Section 2.2 entitled "Interest
rate, Payments" is hereby amended in its entirety to read as follows:
(a) Interest Rate. Advances accrue interest on the
outstanding principal balance at a per annum rate 0.25 percentage points above
the Prime Rate and Equipment Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.5 percentage points above the Prime
Rate. After an Event of Default, Obligations accrue interest at 5 percent above
the rate effective immediately before the Event of Default. The interest rate
increases or decreases when the Prime Rate changes. Interest is computed on a
360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Equipment Advances is
payable on the 15th of each month. Interest due on the Committed Revolving Line
is payable the 8th of each month. Bank may debit any of Borrower's deposit
accounts including Account Number 3300044668 for principal and interest payments
or any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payment received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
3. Section 6.2 entitled "Financial Statements, Reports" is
hereby amended in its entirety to read as follows:
(a) Borrower will deliver to Bank: (i) as soon as
available, but no later than 30 days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period, in a form acceptable to Bank and
certified by a Responsible Officer; (ii) as soon as available, but no later than
120 days after the end of Borrower's fiscal year, audited, consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank (if such financial statements are not
audited, then such non-audited financial statements together with copies of tax
returns filed with Internal Revenue Services, for the year ended); (iii) a
prompt report of any legal actions pending or threatened against Borrower or any
Subsidiary that could
4
result in damages or costs to Borrower or any Subsidiary of $100,000 or more;
and (iv) budgets, sales projections, operating plans or other financial
information Bank requests.
(b) Within 20 days after the last day of each month,
Borrower will deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts
receivable and accounts payable.
(c) Within 30 days after the last day of each month,
Borrower will deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Collateral at
Borrower's expense, but the audits will be conducted after the initial Advance
and if an Event of Default has occurred and is continuing.
4. The following definitions are hereby incorporated into
Section 13.1 entitled "Definitions" to read as follows:
"ADVANCE" or "ADVANCES" is a loan advance (or advances)
under the Committed Revolving Line.
"BORROWING BASE" is 80% of Eligible Accounts, as determined
by Bank from Borrower's most recent Borrowing Base Certificate.
"COMMITTED REVOLVING LINE" is a Credit Extension of up to
$3,000,000.
"CREDIT EXTENSION" is each Advance, Equipment Advance,
Letter of Credit, Exchange Contract or any other extension of credit by Bank for
Borrower's benefit.
"CURRENT ASSETS" are amounts that under GAAP should be
included on that date as current assets on Borrower's consolidated balance
sheet.
"CURRENT LIABILITIES" are the aggregate amount of
Borrower's Total Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.2; but Bank may change eligibility standards by giving Borrower
notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not
include:
(a) Accounts that the account debtor has not paid within
90 days of invoice date;
5
(b) Accounts for an account debtor, 50% or more of whose
Accounts have not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including
Affiliates, whose total obligations to Borrower exceed 25% of all Accounts,
except for Tokyo Electron Devices, for which the percentage may be 50% for the
amounts that exceed that percentage through September 30, 1999, unless Bank
approves in writing;
(e) Accounts for which the account debtor does not have
its principal place of business in the United States except for Eligible Foreign
Accounts;
(f) Accounts for which the account debtor is a federal,
state or local government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor,
but only up to the amount owed (sometimes called "contra" accounts, accounts
payable, customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment,
or in which goods are consigned, sales guaranteed, sale or return, sale on
approval, ▇▇▇▇ and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's
Affiliate, officer, employee, or agent;
(j) Accounts in which the account debtor disputes
liability or makes any claim and Bank believes there may be a basis for dispute
(but only up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(k) Accounts for which Bank reasonably determines
collection to be doubtful.
"ELIGIBLE FOREIGN ACCOUNTS" are (i) ▇▇▇▇▇▇▇▇, Siemens and
Tokyo Electron Devices, (ii) those Accounts for which the account debtor does
not have its principal place of business in the United States but are supported
by letter(s) of credit acceptable to Bank; or (iii) such other accounts that
Bank approves in writing.
"QUICK ASSETS" is, on any date, the Borrower's
consolidated, unrestricted cash, cash equivalents, net billed accounts
receivable and investments with maturities of less than 12 months determined
according to GAAP.
6
"REVOLVING MATURITY DATE" is April 8, 2000.
"TANGIBLE NOT WORTH" is, on any date, the consolidated
total assets of Borrower and its Subsidiaries minus (i) any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
Fifteen Thousand Dollars ($15,000) (the "Loan Fee") plus all out-of-pocket
expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, 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 Indebtedness pursuant to this Loan Modification Agreement in no way
shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
PIXELWORKS, INC. SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------ --------------------------------
7
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President & CEO Title: Vice President
8