BUSINESS FINANCING MODIFICATION AGREEMENT

 

This Business Financing Modification Agreement is entered into as of April 10,
2013, by and between TRANSWITCH CORPORATION (“Borrower”) and Bridge Bank,
National Association (“Lender”).

 

1.            DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness
which may be owing by Borrower to Lender, Borrower is indebted to Lender
pursuant to, among other documents, an Amended and Restated Business Financing
Agreement, dated April 4, 2011 by and between Borrower and Lender, as may be
amended from time to time (the “Business Financing Agreement”). Capitalized
terms used without definition herein shall have the meanings assigned to them in
the Business Financing Agreement.

 

Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the “Indebtedness” and the Business Financing Agreement and any and all other
documents executed by Borrower in favor of Lender shall be referred to as the
“Existing Documents.”

 

2.            ACKNOWLEDGEMENT OF DEFAULT.

 

Borrower hereby acknowledges that as of the date hereof, the following Event of
Default (the “Existing Default”) has occurred and remains uncured under the
Business Financing Agreement:

 

a.Failure to maintain an Asset Coverage Ratio of at least 1.75 to 1.00 for the
months ended January 31, 2013 and February 28, 2013, as set forth in Section
4.11(a).

 

3.            ANTICIPATED DEFAULT.

 

Borrower hereby acknowledges that as of the date hereof, Borrower may be unable
to maintain compliance with Section 4.11(a) of the Business Financing Agreement
for the month ending March 31, 2013 (the “Anticipated Default”).

 

4.            FORBEARANCE OF EXISTING DEFAULT AND ANTICIPATED DEFAULT.

 

Lender hereby agrees to forbear any exercise of its rights and remedies under
the Existing Documents with respect to the Existing Default and the Anticipated
Default under Section 4.11(a) from the month ended January 31, 2013 through the
month ending March 31, 2013 (the “Forbearance Periods”), provided, and only so
long as, Borrower maintains a monthly Asset Coverage Ratio of at least 1.30 to
1.00 through the Forbearance Periods, and Borrower complies in all respects with
the Business Financing Agreement and with the Existing Documents, as amended
herein. Nothing contained herein shall constitute or effect a waiver of the
Existing Default for the month ended January 31, 2013 or the Anticipated Default
for the month ended March 31, 2013.

 

5.            WAIVER OF EXISTING DEFAULT.

 

Lender hereby agrees to waive the Existing Default under Section 4.11(a) for the
month ended February 28, 2013, provided, and only so long as, Borrower complies
in all respects with the Business Financing Agreement and with the Existing
Documents, as amended hereof. Nothing contained herein shall constitute or
effect a continuing waiver or a course of conduct waiving these or any other
provision of the Business Financing Agreement.

 

6.            DESCRIPTION OF CHANGE IN TERMS.

 

A.      Modification(s) to Business Financing Agreement:

 

 

 

 

i)Effective as of March 1, 2013, the following subsections of Section 4.8 are
hereby amended as follows:

 

(b) No later than 45 days after the end of each month (including the last period
in each fiscal year), monthly financial statements of Borrower, certified and
dated by an authorized financial officer. The statements shall be prepared on a
consolidating basis.

 

(f) Within 45 days of the end of each month, a compliance certificate of
Borrower, signed by an authorized financial officer and setting forth (i) the
information and computations (in sufficient detail) to establish compliance with
all financial covenants at the end of the period covered by the financial
statements then being furnished and (ii) whether there existed as of the date of
such financial statements and whether there exists as of the date of the
certificate, any default under this Agreement and, if any such default exists,
specifying the nature thereof and the action Borrower is taking and proposes to
take with respect thereto. Borrower shall provide to Lender a deferred revenue
report along with each compliance certificate.

 

(g) Within 10 days of the 15th and last day of each calendar month, a roll
forward borrowing base certificate in form and substance satisfactory to Lender,
setting forth Eligible Receivables and Receivable Amounts thereof as of the last
day of the preceding reporting period.

 

(h) Within 10 days of the 15th and last day of each calendar month, a detailed
aging of Borrower’s receivables by invoice or a summary aging by account debtor,
together with payable aging, inventory analysis, sales or billing journals, cash
receipts journal, and credit memo journal.

 

ii)The following clause to subsection (j) of the defined term “Eligible
Receivable” in Section 12.1 entitled “Definitions” is hereby amended as follows:

 

(i)the Receivable is not paid within 90 days from its invoice date (other than
the invoice #64849 from Alcatel-Lucent USA Inc. which shall be in default if it
is not paid within 270 days from the invoice date);

 

(iii)Effective as of April 4, 2013, the following defined term in Section 12.1
entitled “Definitions” is hereby amended as follows:

 

“Maturity Date” means July 3, 2013 or such earlier date as Lender shall have
declared the Obligations immediately due and payable pursuant to Section 7.2

 

7.            EQUITY INFUSION. On or before April 4, 2013, Borrower shall raise
at least $4,000,000 in addition equity, from new or existing investors (the
“Equity Infusion”).

 

8.            CONSISTENT CHANGES. The Existing Documents are each hereby amended
wherever necessary to reflect the changes described above.

 

9.            PAYMENT OF FEES. Borrower shall pay Lender a fee in the amount of
$26,000 (the “Success Fee”), a fee in the amount of $10,000 (the “Forbearance
Fee”), a fee in the amount of $10,000 (the “Waiver Fee”), and a fee in the
amount of $12,500 (the “Prorated Facility Fee”), plus all out-of-pocket
expenses.

 

10.          NO DEFENSES OF BORROWER/GENERAL RELEASE. Borrower agrees that, as
of this date, it has no defenses against the obligations to pay any amounts
under the Indebtedness. Each of Borrower and Guarantor (each, a “Releasing
Party”) acknowledges that Lender would not enter into this Business Financing
Modification Agreement without Releasing Party’s assurance that it has no claims
against Lender or any of Lender’s officers, directors, employees or agents.
Except for the obligations arising hereafter under this Business Financing
Modification Agreement, each Releasing Party releases Lender, and each of
Lender’s and entity’s officers, directors and employees from any known or
unknown claims that Releasing Party now has against Lender of any nature,
including any claims that Releasing Party, its successors, counsel, and advisors
may in the future discover they would have now had if they had known facts not
now known to them, whether founded in contract, in tort or pursuant to any other
theory of liability, including but not limited to any claims arising out of or
related to the Agreement or the transactions contemplated thereby. Releasing
Party waives the provisions of California Civil Code section 1542, which states:

 

 

 

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

The provisions, waivers and releases set forth in this section are binding upon
each Releasing Party and its shareholders, agents, employees, assigns and
successors in interest. The provisions, waivers and releases of this section
shall inure to the benefit of Lender and its agents, employees, officers,
directors, assigns and successors in interest. The provisions of this section
shall survive payment in full of the Obligations, full performance of all the
terms of this Business Financing Modification Agreement and the Agreement,
and/or Lender’s actions to exercise any remedy available under the Agreement or
otherwise.

 

11.          CONTINUING VALIDITY. Borrower understands and agrees that in
modifying the existing Indebtedness, Lender is relying upon Borrower’s
representations, warranties, and agreements, as set forth in the Existing
Documents. Except as expressly modified pursuant to this Business Financing
Modification Agreement, the terms of the Existing Documents remain unchanged and
in full force and effect. Lender’s agreement to modifications to the existing
Indebtedness pursuant to this Business Financing Modification Agreement in no
way shall obligate Lender to make any future modifications to the Indebtedness.
Nothing in this Business Financing Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Lender and Borrower to
retain as liable parties all makers and endorsers of Existing Documents, unless
the party is expressly released by Lender in writing. No maker, endorser, or
guarantor will be released by virtue of this Business Financing Modification
Agreement. The terms of this paragraph apply not only to this Business Financing
Modification Agreement, but also to any subsequent Business Financing
modification agreements.

 

12.          CONDITIONS. The effectiveness of this Business Financing
Modification Agreement is conditioned upon payment of the Success Fee, the
Forbearance Fee, the Waiver Fee and the Prorated Facility Fee.

 

13.          NOTICE OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY
REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY
EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
UNDERSTANDINGS OF THE PARTIES.

 

14.          COUNTERSIGNATURE. This Business Financing Modification Agreement
shall become effective only when executed by Lender and Borrower.

 

BORROWER: LENDER:     TRANSWITCH CORPORATION BRIDGE BANK, NATIONAL ASSOCIATION  
  By: /s/ Robert A. Bosi By: /s/ Anthony Crisci     Name: Robert A. Bosi Name:
Anthony Crisci     Title:  Vice President – Chief Financial Officer Title:  Vice
President