Exhibit 10.2

 

FOURTH LOAN MODIFICATION AGREEMENT

 

This Fourth Loan Modification Agreement (this “Loan Modification Agreement”) is
entered into as of                                  , but is effective as of
June 30, 2012, by and between SILICON VALLEY BANK, a California corporation,
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at 275 Grove Street,
Suite 2-200, Newton, Massachusetts 02466 (“Bank”) and NETWORK ENGINES, INC., a
Delaware corporation with its chief executive office located at 25 Dan Road,
Canton, Massachusetts 02021 (“Borrower”).

 

1.             DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other
indebtedness and obligations which may be owing by Borrower to Bank, Borrower is
indebted to Bank pursuant to a loan arrangement dated as of February 5, 2010,
evidenced by, among other documents, a certain Amended and Restated Loan and
Security Agreement dated as of February 5, 2010, between Borrower and Bank, as
amended by a certain Consent and First Loan Modification Agreement dated as of
January 18, 2011, between Borrower and Bank, as further  amended by a certain
Second Loan Modification Agreement dated as of December 13, 2011, between
Borrower and Bank, and as further  amended by a certain Third Loan Modification
Agreement dated as of March 28, 2012, between Borrower and Bank (as amended, the
“Loan Agreement”).  Capitalized terms used but not otherwise defined herein
shall have the same meaning as in the Loan Agreement.

 

2.             DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is
secured by the Collateral as described in the Loan Agreement (together with any
other collateral security granted to Bank, the “Security Documents”). 
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Obligations shall be referred to as the “Existing
Loan Documents”.

 

3.             DESCRIPTION OF CHANGE IN TERMS.

 

A.                                    Modifications to Loan Agreement.

 

1                                         The Loan Agreement shall be amended by
deleting the following definitions appearing in Section 13.1 thereof:

 

“              “Adjusted Quick Ratio” is the ratio of (a) Quick Assets to
(b) (i) Current Liabilities minus (ii) Deferred Revenue.”

 

“              “Current Liabilities” are all obligations and liabilities of
Borrower to Bank, including, without limitation, Borrower’s reimbursement
obligations to Bank, whether actual or contingent, under any Letter of Credit or
Letter of Credit Application, including, without limitation, the Dell Letter of
Credit, and all of Borrower’s Included Indebtedness, plus, without duplication,
the aggregate amount of Borrower’s Total Liabilities that mature within one
(1) year.”

 

“             “Quick Assets” is, on any date, Borrower’s consolidated
unrestricted cash maintained with Bank plus net billed accounts receivable,
determined according to GAAP.”

 

“             “Revolving Line Maturity Date” is June 30, 2012.” and inserting in
lieu thereof the following:

 

“              “Adjusted Quick Ratio” is the ratio of (a) Quick Assets to
(b) Current Liabilities.”

 

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“              “Current Liabilities” are all obligations and liabilities of
Borrower to Bank, including, without limitation, Borrower’s reimbursement
obligations to Bank, whether actual or contingent, under any Letter of Credit or
Letter of Credit Application, including, without limitation, the Dell Letter of
Credit, and all of Borrower’s Included Indebtedness.”

 

“             “Quick Assets” is, on any date, Borrower’s consolidated
unrestricted cash maintained with Bank plus gross billed accounts receivable,
determined according to GAAP.”

 

“             “Revolving Line Maturity Date” is September 30, 2012.”

 

2                                         The Compliance Certificate appearing
as Exhibit B to the Loan Agreement is hereby replaced with the Compliance
Certificate attached as Exhibit A hereto.

 

4.             FEES.  Borrower shall pay to Bank a modification fee equal to Ten
Thousand Dollars ($10,000.00), which fee shall be due on the date hereof and
shall be deemed fully earned as of the date hereof.  Borrower shall also
reimburse Bank for all legal fees and expenses incurred in connection with this
amendment to the Existing Loan Documents.

 

5.             RATIFICATION OF PERFECTION CERTIFICATE.  Borrower hereby
ratifies, confirms and reaffirms, all and singular, the terms and disclosures
contained in a certain Perfection Certificate dated as of February 5, 2010
between Borrower and Bank (the “Perfection Certificate”), and acknowledges,
confirms and agrees the disclosures and information above Borrower provided to
Bank in the Perfection Certificate has not changed, as of the date hereof.

 

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

 

7.             RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies,
confirms, and reaffirms all terms and conditions of all security or other
collateral granted to the Bank, and confirms that the indebtedness secured
thereby includes, without limitation, the Obligations.

 

8.             NO DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees
that Borrower has no offsets, defenses, claims, or counterclaims against Bank
with respect to the Obligations, or otherwise, and that if Borrower now has, or
ever did have, any offsets, defenses, claims, or counterclaims against Bank,
whether known or unknown, at law or in equity, all of them are hereby expressly
WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

 

9.             CONTINUING VALIDITY.  Borrower understands and agrees that in
modifying the existing Obligations, 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 Obligations
pursuant to this  Loan Modification Agreement in no way shall obligate Bank to
make any future modifications to the Obligations.  Nothing in this Loan
Modification Agreement shall constitute a satisfaction of the Obligations.  It
is the intention of Bank and Borrower to retain as liable parties all makers of
Existing Loan Documents, unless the party is expressly released by Bank in
writing.  No maker will be released by virtue of this Loan Modification
Agreement.

 

10.          COUNTERSIGNATURE.  This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank.

 

[The remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the date first written above.

 

 

BORROWER:

 

 

 

NETWORK ENGINES, INC.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

BANK:

 

 

 

SILICON VALLEY BANK

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

The undersigned, NETWORK ENGINES INTERNATIONAL, INC. (“Guarantor”),  ratifies,
confirms and reaffirms, all and singular, the terms and conditions of a certain:
(i) Unlimited Guaranty dated January 18, 2011 (the “Guaranty”), (ii) Security
Agreement dated February 11, 2011, between Guarantor and Bank (the “Security
Agreement”), and (iii) Stock Pledge Agreement dated February 11, 2011, between
Guarantor and Bank (the “ Stock Pledge Agreement”) and acknowledges, confirms
and agrees that the Guaranty, the Security Agreement, and the Stock Pledge
Agreement shall remain in full force and effect and shall in no way be limited
by the execution of this Loan Modification Agreement, or any other documents,
instruments and/or agreements executed and/or delivered in connection herewith.

 

 

GUARANTOR:

 

 

 

NETWORK ENGINES INTERNATIONAL, INC.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

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EXHIBIT A

 

COMPLIANCE CERTIFICATE

 

TO: 

SILICON VALLEY BANK

 

Date:

 

FROM:  

NETWORK ENGINES, INC.

 

 

 

The undersigned authorized officer of NETWORK ENGINES, INC. (“Borrower”)
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (1) Borrower is 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) Borrower, 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 Borrower 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 Borrower or any of its
Subsidiaries, if any, relating to unpaid employee payroll or benefits of which
Borrower has 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 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 Borrower is 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

 

 

 

 

 

Monthly consolidated plus consolidating financial statements with Compliance
Certificate

 

Monthly within 30 days

 

Yes o  No o

Annual consolidated plus consolidating financial statement (CPA Audited)

 

FYE within120 days

 

Yes o  No o

10-Q, 10-K and 8-K and other public filings

 

Within 5 days after filing with SEC

 

Yes o  No o

A/R & A/P Agings, Deferred Revenue reports and Inventory Sell-Through Reports

 

Monthly within 15 days

 

Yes o  No o

Transaction Reports

 

As set forth in Section 6.2 of the Agreement

 

Yes o  No o

Budgets and Projections

 

45 days after FYE

 

Yes o  No o

 

The following Intellectual Property was registered after the Effective Date (if
no registrations, state “None”)

 

Financial Covenant

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Adjusted Quick Ratio (to be tested on the last day of each month)

 

*

 

          :1.0

 

Yes o  No o

Operating Cash Flow (as of the last day of each calendar quarter)

 

$              **

 

$

 

Yes o  No o

 

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*As set forth in Section 6.9(a) of the Agreement.

*As set forth in Section 6.9(b) of the Agreement.

 

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The following financial covenant analyses 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.”)

 

 

 

 

Network Engines, Inc.

BANK USE ONLY

 

 

 

Received by:

 

By:

 

 

 

AUTHORIZED SIGNER

Name:

 

 

Date:

 

Title:

 

 

 

 

 

Verified:

 

 

 

AUTHORIZED SIGNER

 

Date:

 

 

 

 

Compliance Status:

Yes o  No  o

 

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Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

Dated:

 

In the event of a conflict between this Schedule and the Agreement, the terms of
the Agreement shall control.

 

I.             Adjusted Quick Ratio (Section 6.9(a))

 

Required:              *

Actual:                              :1.00

 

A.

 

Aggregate value of the unrestricted cash of Borrower and its Subsidiaries at
Bank

 

$

 

 

 

 

 

B.

 

Aggregate value of the gross billed accounts receivable of Borrower and its
Subsidiaries

 

$

 

 

 

 

 

C.

 

Quick Assets (the sum of lines A through B)

 

$

 

 

 

 

 

D.

 

Aggregate value of Obligations, including, without limitation, Borrower’s
reimbursement obligations to Bank, whether actual or contingent, under any
Letter of Credit or Letter of Credit Application, including, without limitation,
the Dell Letter of Credit, to Bank plus (a) indebtedness for borrowed money,
(b) obligations evidenced by notes, bonds, debentures or similar instruments,
and (c) capital lease obligations

 

$

 

 

 

 

 

E.

 

Aggregate value of liabilities of Borrower and its Subsidiaries (including all
Indebtedness) that matures within one (1) year and current portion of
Subordinated Debt permitted by Bank to be paid by Borrower

 

$

 

 

 

 

 

F.

 

Current Liabilities (the sum of lines D and E)

 

$

 

 

 

 

 

G.

 

Adjusted Quick Ratio (line C divided by line F)

 

 

 

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*As set forth in Section 6.9(a) of the Agreement.

 

Is line G equal to or greater than the required amount?

 

 

             No, not in compliance

 

        Yes, in compliance

 

II.            Operating Cash Flow (Section 6.9(b))

 

Required:              Operating Cash Flow of at least  (i) ($2,000,000.00) as
of December 31, 2009, (ii) ($5,000,000.00) as of each of March 31, 2010 and
June 30, 2010, (iii) ($4,000,000.00) as of September 30, 2010,
(iv) ($3,000,000.00) as of December 31, 2010, (v) ($2,000,000.00) as of
March 31, 2011, (vi) ($1,000,000.00) as of June 30, 2011, (vii) $0.00 as of
September 30, 2011, and (viii) $3,500,000.00 as of December 31, 2011, and as of
the last day of each quarter thereafter.

 

Actual:                   $              

 

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A.

 

Net Income (as defined in the Agreement) for prior 12 month period

 

$

 

 

 

 

 

B.

 

Interest Expense (as defined in the Agreement) for prior 12 month period

 

$

 

 

 

 

 

C.

 

Depreciation expense and amortization expense for prior 12 month period

 

$

 

 

 

 

 

D.

 

Income tax expense for prior 12 month period

 

$

 

 

 

 

 

E.

 

non-stock compensation and other one-time non-cash expenses approved by Bank in
writing on a case-by-case basis for prior 12 month period

 

$

 

 

 

 

 

F.

 

EBITDA (the sum of lines A through E)

 

$

 

 

 

 

 

G.

 

Capital Expenditures (as defined in the Agreement) for prior 12 month period

 

$

 

 

 

 

 

H.

 

Borrower’s cash taxes for prior 12 month period

 

$

 

 

 

 

 

I.

 

Operating Cash Flow (line F minus line G minus line H)

 

$

 

Is Line I greater than or equal to the applicable amount above?

 

 

         No, not in compliance

 

        Yes, in compliance

 

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