EXHIBIT 10.11
LOAN MODIFICATION AGREEMENT
BETWEEN: Watchguard Technologies, Inc., a Delaware corporation ("Borrower"),
whose address is 000 Xxxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, XX
00000;
AND: Silicon Valley Bank ("Silicon"), whose address is 0000 Xxxxxx Xxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000;
DATE: May 26, 1999
This Loan Modification Agreement is entered into on the above date by
Borrower and Silicon.
1. Background. Borrower entered into a Loan and Security Agreement with
Silicon in August, 1997, an Amended and Restated Loan and Security Agreement
dated as of March 20, 1998 and a Loan Modification Agreement dated as of
September, 1998 (as amended from time to time, the "Loan Agreement").
Capitalized terms used in this Loan Modification Agreement shall, unless
otherwise defined in this Agreement, have the meaning given to such terms in the
Loan Agreement.
Silicon and Borrower are entering into this Agreement to state the terms
and conditions of certain modifications to the Loan Agreement and the Schedule,
as amended prior to the date of this Agreement.
2. Modifications to Loan Agreement and Schedule.
2.1. The Schedule to the Loan Agreement is hereby deleted and replaced
by the Amended and Restated Schedule to Loan and Security Agreement
attached to this Agreement.
3. Conditions Precedent. This Loan Modification Agreement shall not take
effect until Borrower delivers to Silicon (i) a Certified Resolution of
Borrower, (ii) such other documents as Silicon shall reasonably require to give
effect to the terms of this Loan Modification Agreement, and (iii) payment for
all fees and expenses associated with the modifications, including, but not
limited to, all outstanding legal fees.
4. No Other Modifications. Except as expressly modified by this Loan
Modification Agreement, the terms of the Loan Agreement, as amended prior to the
date of this Loan Modification Agreement, shall remain unchanged and in full
force and effect. Silicon's agreement to modify the Loan Agreement pursuant to
this Loan Modification Agreement shall not obligate Silicon to make any future
modifications to the Loan Agreement or any other loan document. Nothing in this
Loan Modification Agreement shall constitute a satisfaction of any indebtedness
of any Borrower to Silicon. It is the intention of Silicon and Borrower to
retain as liable parties all makers and endorsers of the Loan Agreement or any
other loan document. Except as provided in the Amended and Restated Schedule to
Loan and Security Agreement attached to this Agreement, no maker, endorser, or
guarantor shall be released by virtue of this Loan Modification Agreement. The
terms of this paragraph shall apply not only to this Loan Modification
Agreement, but also to all subsequent loan modification agreements.
5. Representations and Warranties.
5.1. The Borrower represents and warrants to Silicon that the
execution, delivery and
Page 1 - LOAN MODIFICATION AGREEMENT
performance of this Agreement are within the Borrower's corporate powers,
and have been duly authorized and are not in contravention of law or the
terms of the Borrower's articles of incorporation, bylaws or of any
undertaking to which the Borrower is a party or by which it is bound.
5.2. The Borrower understands and agrees that in entering into this
Agreement, Silicon is relying upon the Borrower's representations, warranties
and agreements as set forth in the Loan Agreement and other loan documents.
Borrower hereby reaffirms all representations and warranties in the Loan
Agreement, all of which are true as of the date of this Agreement.
Borrower:
WATCHGUARD TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxx
Title: CFO
Silicon:
SILICON VALLEY BANK
By: [signature illegible]
Title: Vice President
Page 2 - LOAN MODIFICATION AGREEMENT
AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower: WatchGuard Technologies, Inc.
Date: May 26, 1999
SECURED BRIDGE LOAN FACILITY
Credit Limit: This Bridge Loan shall be available in two tranches:
1. "Tranche One" in the amount of $1,000,000 shall be
available immediately upon closing of this Loan
Modification; and
2. "Tranche Two" in the amount of $1,250,000 shall be
available upon receipt of comments from the Securities and
Exchange Commission regarding Borrower's registration
statement, provided that such comments are deemed
satisfactory to Silicon, in its sole discretion.
This is a revolving credit facility and Borrower may borrow,
repay and re-borrow under this facility so long as the amount
outstanding does not exceed the credit limit, the Borrower is
not in default, and the facility has not matured.
Interest Rate: The interest rate applicable to this Loan shall be a rate equal
to the "Prime Rate" in effect from time to time, plus 2.00%.
Interest calculations shall be made on the basis of a 360-day
year and the actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as its "prime
rate"; it is a base rate upon which other rates charged by
Silicon are based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable to the
Obligations shall change on each date there is a change in the
Prime Rate.
Commitment Fee: 1.5% of each tranche funded ($33,750 in the aggregate), with
such amount to be due and payable in full upon the initial
advance under each tranche.
Maturity Date: The earlier of (i) two (2) business days after the date of
closing and funding of Borrower's initial public offering
("IPO"), or (ii) ninety (90) days from the date of execution of
this Loan Modification Agreement.
Warrants: A warrant to purchase common shares in the following amounts:
(i) 2,250 shares to be granted, contemporaneous with "Tranche
One" at either the IPO price, or, if the IPO is not closed by
July 31, 1999, the current option price; and (ii) 2,750 shares
to be granted, contemporaneous with "Tranche Two: at either the
IPO price, or, if the IPO is not closed by July 31, 1999, the
current option price. If this Secured Bridge Loan Facility is
not paid in full by the Maturity Date, in addition to any other
remedies Silicon may have, Silicon shall receive an additional
warrant to purchase 1,000 shares for the "Tranche One" loan,
and if "Tranche Two" is utilized, an additional 1,250 shares,
with all post-maturity warrants priced at either the IPO price
per share, or, if the IPO does not close by July 31, 1999, the
current option price per share. Borrower shall exercise and
deliver such warrant to Silicon
Page 1 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
upon execution of the Loan Modification Agreement, and it shall
be returned to Borrower unexercised if the Secured Bridge Loan
Facility is paid in full by the Maturity Date.
SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT
Credit Limit: An amount not to exceed the lesser of: (i) $3,500,000 at any
one time outstanding; or (ii) the amount of the "Borrowing
Base," as defined below. The maximum amount as provided in (i)
above shall be increased to $4,500,000 upon closing of
Borrower's initial public offering ("IPO"). ("Closing," for
purposes of this Agreement, shall mean the date upon which the
proceeds of Borrower's IPO are disbursed to Borrower.) For
purposes of this Schedule, the "Borrowing Base" shall mean (i)
75% of the Net Amount of Borrower's eligible domestic accounts
receivable, and (ii) 50% of the Net Amount of Borrower's
eligible foreign accounts receivable. With respect to
Borrower's accounts, "Net Amount" means the gross amount of the
account, minus all applicable sales, use, excise and other
similar taxes and minus all discounts, credits and allowances
of any nature granted or claimed.
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: accounts in which Silicon does not have a first
priority, perfected security interest; accounts outstanding for
more than 90 days from the invoice date, accounts subject to
any contingencies, accounts owing from an account debtor
outside the United States, accounts owing from governmental
agencies, accounts owing from one account debtor to the extent
they exceed 25% of the total eligible accounts outstanding,
accounts owing from an affiliate of the Borrower, and accounts
owing from an account debtor to whom the Borrower is or may be
liable for goods purchased from such account debtor or
otherwise. Accounts owing from About Communications, Data
Construction, Wick Hill (operations in France, Germany, and
Great Britain), Otsuka Shokai, and Unitech shall be eligible as
foreign accounts receivable for Borrowing Base purposes,
subject to an advance rate of 50%. In addition, if more than
50% of the accounts owing from an account debtor are
outstanding more than 90 days from the invoice date or are
otherwise not eligible accounts, then all accounts owing from
that account debtor shall be deemed ineligible for borrowing.
Interest Rate: The interest rate applicable to this Loan shall be a rate equal
to the "Prime Rate" in effect from time to time, plus 0.50% per
annum.
Interest calculations shall be made on the basis of a 360-day
year and the actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as its "prime
rate"; it is a base rate upon which other rates charged by
Silicon are based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable to the
Obligations shall change on each date there is a change in the
Prime Rate.
Commitment Fee: $5,000, which is fully earned and payable at closing.
Page 2 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Maturity Date: September 30, 1999, at which time all unpaid principal and
accrued but unpaid interest shall be due and payable.
SECURED EQUIPMENT TERM LOAN
Credit Limit: An initial amount not to exceed the lesser of (i) $250,000 at
any one time outstanding; or (ii) the amount of the "Equipment
Borrowing Base", as defined below. For purposes of this
Schedule, the "Equipment Borrowing Base" meant 80% of the
invoice value of equipment purchased by Borrower. Silicon had
no obligation to advance against taxes, freight charges,
installation charges or other similar amounts relating to
Borrower's equipment, whether or not such amounts were
identified on the invoices submitted to Silicon. Equipment
included in the Equipment Borrowing Base was required to be new
equipment, at the time of purchase by Borrower, owned by
Borrower, in good working order, was required to be subject to
any liens in favor of any person or entity other than Silicon,
and was required to be subject to a first priority, perfected
security interest in favor of Silicon. Silicon had no
obligation to make advances against non-standard equipment,
such as tooling, software and custom equipment. Silicon had no
obligation to make advances on this Secured Equipment Term Loan
after March 5, 1998. The Borrower's indebtedness to Silicon
with respect to this Secured Equipment Term Loan shall be
evidenced by this Schedule and the Loan Agreement, not by a
separate promissory note unless required by Silicon. There was
approximately $164,500 in principal outstanding under this
facility as of March 31, 1999.
Borrower shall not have the right to reborrow any amount on
this Secured Equipment Term Loan that has been repaid by
Borrower. The unpaid principal balance owing on this Secured
Equipment Term Loan at any time may be evidenced by Silicon's
internal records, including daily computer print-outs (which
Silicon shall provide to Borrower periodically).
Purpose: Borrowers used the proceeds of this Secured Equipment Term Loan
to finance the purchase of new equipment.
Interest Rate: The interest rate applicable to the Secured Equipment Term Loan
shall be a rate equal to the "Prime Rate" (as defined above) in
effect from time to time, plus 1.5% per annum. Interest
calculations shall be made on the basis of a 360-day year and
the actual number of days elapsed. The interest rate applicable
to the Obligations shall change on each date there is a change
in the Prime Rate.
Amortization: Borrower shall pay Silicon monthly payments of interest only on
the last day each month. In addition, Borrower shall pay
Silicon on the last day of each month, commencing with April 5,
1998, the amount necessary to repay fully the amount of the
Secured Equipment Term Loan in 36 equal monthly payments.
Maturity Date: March 5, 2001, at which time all unpaid principal and accrued
but unpaid interest, fees and other charges shall be due and
payable.
Page 3 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Commitment
Fee: No new fee.
SECURED EQUIPMENT TERM LOAN NO. 2
Credit Limit: An initial amount not to exceed the lesser of (i) $500,000 at
any one time outstanding; or (ii) the amount of the "Equipment
Borrowing Base", as defined below. For purposes of this
Schedule, the "Equipment Borrowing Base" meant 90% of the
invoice value of equipment purchased by Borrower. Silicon had
no obligation to advance against taxes, freight charges,
installation charges or other similar amounts relating to
Borrower's equipment, whether or not such amounts were
identified on the invoices submitted to Silicon. However, in
the case of the $140,000 ONYX System purchase, the Equipment
Borrowing Base included software, installation and costs.
Equipment included in the Equipment Borrowing Base was required
to be new equipment at the time of purchase by Borrower, owned
by Borrower, in good working order, not subject to any liens in
favor of any person or entity other than Silicon, and subject
to a first priority, perfected security interest in favor of
Silicon. Silicon had no obligation to make advances against
non-standard equipment, such as tooling, software and custom
equipment. Silicon had no obligation to make advances on this
Secured Equipment Term Loan No. 2 after December _____, 1998.
The Borrower's indebtedness to Silicon with respect to this
Secured Equipment Term Loan No. 2 shall be evidenced by this
Schedule and the Loan Agreement, not by a separate promissory
note unless required by Silicon. There was approximately
$419,800 in principal outstanding under this facility as of
March 31, 1999.
Borrower shall not have the right to reborrow any amount on
this Secured Equipment Term Loan No. 2 that has been repaid by
Borrower. The unpaid principal balance owing on this Secured
Equipment Term Loan No. 2 at any time may be evidenced by
Silicon's internal records, including daily computer print-outs
(which Silicon shall provide to Borrower periodically).
Purpose: Borrowers used the proceeds of this Secured Equipment Term Loan
No. 2 to finance the purchase of new equipment.
Interest Rate: The interest rate applicable to the Secured Equipment Term Loan
No. 2 shall be a rate equal to the "Prime Rate" (as defined
above) in effect from time to time, plus 1.00% per annum.
Interest calculations shall be made on the basis of a 360-day
year and the actual number of days elapsed. The interest rate
applicable to the Obligations shall change on each date there
is a change in the Prime Rate.
Amortization: Borrower shall pay Silicon monthly payments of interest only on
the last day each month. In addition, Borrower shall pay
Silicon on the last day of each month, commencing with January
31, 1999, the amount necessary to repay fully the amount of the
Secured Equipment Term Loan No. 2 in 36 equal monthly payments.
Page 4 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Maturity Date: December 31, 2001, at which time all unpaid principal and
accrued but unpaid interest, fees and other charges shall be
due and payable.
Commitment
Fee: No new fee.
Prior Names of
Borrower: See attached Exhibit B
Trade Names of
Borrower: See attached Exhibit B
Trademarks of
Borrower: See attached Exhibit B
Other Locations
and Addresses: See attached Exhibit B
Material Adverse
Litigation: See attached Exhibit B
Financial
Covenants: The Borrower shall at all times, beginning upon the earlier of
(i) July 31, 1999, or (ii) the Closing of Borrower's IPO,
comply with all of the following covenants, all of which shall
be determined and measured on a monthly basis in accordance
with generally accepted accounting principles, on a
consolidated basis with any subsidiary of Borrower, except as
otherwise stated below:
Tangible Net
Worth: Borrower shall at all times maintain a Tangible Net Worth of
not less than $4,000,000.
Profitability: Borrower shall not incur a loss (as defined below) in excess of
$1,500,000 for each month. For purposes of this paragraph,
"loss" means net income after taxes of less than $0.00, as
reported on Borrower's financial statements.
Quick Ratio: Borrower shall maintain a ratio of Quick Assets (defined below)
to current liabilities less deferred revenue of not less than
1.50:1.0.
Liquidity: Borrower shall at all times maintain a minimum Term Liquidity
Coverage of at least 1.75:1.0.
Definitions: "Quick Assets" means cash on hand or on deposit in banks,
readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-I" by Standard &
Poor's Corporation (or a similar rating by a similar rating
organization), certificates of deposit and banker's
acceptances, and accounts receivable (net of allowance for
doubtful accounts).
Page 5 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
"Tangible Net Worth" means stockholders' equity plus debt, if
any, that has been subordinated to the Loans in a written
subordination agreement on terms satisfactory to Silicon, and
accrued interest thereon, less goodwill, patents, capitalized
software costs, deferred organizational costs, tradenames,
trademarks, and all other assets which would be classified as
intangible assets under generally accepted accounting
principles.
"Term Liquidity coverage" means (a) cash + cash equivalents
(readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-I" by Standard &
Poors Corporation or a similar rating by a similar rating
organization, certificates of deposit and banker's acceptances)
+ availability under the Secured Accounts Receivable Line of
Credit divided by (b) the outstanding Secured Equipment Term
Loan and Secured Equipment Term Loan No. 2 balances.
Other Covenants: Borrower shall at all times comply with all of the following
additional covenants:
Banking Relationship. Borrower and its subsidiaries shall at
all times maintain their primary banking relationship with
Silicon. Neither Borrower nor its subsidiaries shall establish
any deposit accounts of any type with any bank or other
financial institution other than Silicon without Silicon's
prior written consent.
Financial Statements and Reports. The Borrower shall provide
Silicon: (a) within 30 days after the end of each month, a
monthly financial statement (consisting of a income statement
and a balance sheet) prepared by the Borrower in accordance
with generally accepted accounting principles; (b) within
twenty business days after the end of each month, an accounts
receivable aging report, an accounts payable aging report, and
an inventory schedule in such form as Silicon shall reasonably
specify; (c) within five business days after the end of each
month, a Borrowing Base Certificate in the form attached to
this Agreement as Exhibit A, as Silicon may reasonably modify
such Certificate from time to time, signed by the Chief
Financial Officer of the Borrower; (d) within 30 days after the
end of each month, a Compliance Certificate in such form as
Silicon shall reasonably specify, signed by the Chief Financial
Officer of the Borrower, setting forth calculations showing
compliance (at the end of each such calendar month) with the
financial covenants set forth on the Schedule, and certifying
that throughout such month the Borrower was in full compliance
with all other terms and conditions of this Agreement and the
Schedule, and providing such other information as Silicon shall
reasonably request; and (e) within 90 days following the end of
the Borrower's fiscal year, complete annual CPA-audited
financial statements, such audit being conducted by independent
certified public accountants reasonably acceptable to Silicon,
together with an unqualified opinion of such accountants.
Conditions to
Closing: Without in any way limiting the discretionary nature of
advances under this Agreement, before requesting any such
advance, the Borrower shall satisfy each of the following
conditions:
1. Loan Documents:
Page 6 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Silicon shall have received this Agreement, the Schedule, a
Warrant in a form satisfactory to Silicon, executed by the
Borrower, and such other loan documents as Silicon shall
require, each duly executed and delivered by the parties
thereto.
2. Documents Relating
to Authority, Etc.:
Silicon shall have received each of the following in form and
substance satisfactory to it:
(a) Certified Copies of the Articles of Incorporation and
Bylaws of the Borrower;
(b) A Certificate of Good Standing issued by the Secretary of
State of the Borrower's state of incorporation and such other
states as Silicon may reasonably request with respect to the
Borrower;
(c) A certified copy of a Resolution adopted by the Board of
Directors of the Borrower authorizing the execution, delivery
and performance of this Agreement, and any other documents or
certificates to be executed by the Borrower in connection with
this transaction; and
(d) Incumbency Certificates describing the office and
identifying the specimen signatures of the individuals signing
all such loan documents on behalf of the Borrower.
3. Perfection and
Priority of Security:
Silicon shall have received evidence satisfactory to it that
its security interest in the Collateral has been duly perfected
and that such security interest is prior to all other liens,
charges, security interests, encumbrances and adverse claims in
or to the Collateral other than Permitted Liens, which evidence
shall include, without limitation, a certificate from the
appropriate state agencies showing the due filing and first
priority of the UCC Financing Statements to be signed by the
Borrower covering the Collateral.
4. Insurance: Silicon shall have received evidence satisfactory to it that
all insurance required by this Agreement is in full force and
effect, with loss payee designations and additional insured
designations as required by this Agreement.
5. Other Information:
Silicon shall have received such other statements, opinions,
certificates, documents and information with respect to matters
contemplated by this Agreement as it may reasonably request,
all of which must be acceptable to Silicon.
Silicon shall have conducted an examination of the Borrower's
books, records, ledgers, journals, and registers, as Silicon
may deem necessary, and shall be satisfied with the results of
such examination in its sole discretion.
Page 7 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
Silicon and the Borrower agree that the terms of this Schedule supplement
the Loan and Security Agreement between Silicon and the Borrower and agree to be
bound by the terms of this Schedule.
Borrower:
WATCHGUARD TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxx
Title: CFO
Silicon:
SILICON VALLEY BANK
By: [signature illegible]
Title: Vice President
Page 8 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
EXHIBIT A
BORROWING BASE CERTIFICATE
-------------------------------------------------------------------------------------------------------------------
Borrower: WatchGuard Technologies, Inc. Lender: Silicon Valley Bank
000 Xxxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000 0000 Xxxxxx Xxxxx
Xxxxxxx, XX 00000 Xxxxx Xxxxx, XX 00000
Commitment Amount:
-------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _______ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________
5. Balance of 50% over 90 day accounts $__________
6. Credit balances $__________
7. Concentration Limits $__________
8. Foreign Accounts $__________
9. Governmental Accounts $__________
10. Contra Accounts $__________
11. Promotion or Demo Accounts $__________
12. Intercompany/Employee Accounts $__________
13. Other (please explain on reverse) $__________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
15. Eligible Accounts (#3 minus #14) $__________
16. LOAN VALUE OF ACCOUNTS (75% of #15) $__________
BALANCES
17. Maximum Loan Amount $__________
18. Total Funds Available [Lesser of #17 or #16] $__________
19. Present balance owing on Line of Credit $__________
20. RESERVE POSITION (#18 minus #19) $__________
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
WATCHGUARD TECHNOLOGIES, INC.
By:__________________________
Name:________________________
Title:_______________________
Exhibit B
---------
Tradenames
----------
WatchGuard Technologies (registered, waiting for final notification)
WatchGuard Firebox (accepted and reviewed, waiting for final notification)
Prior Names
-----------
Seattle Software Labs
Trademarks
----------
[WatchGuard Logo]
Other Locations and Addresses
-----------------------------
None
Material Adverse Litigation
---------------------------
None
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