BUSINESS FINANCING MODIFICATION AGREEMENT

 

This Business Financing Modification Agreement is entered into as of July 3,
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.            DESCRIPTION OF CHANGE IN TERMS.

 

              A.             Modification(s) to Business Financing Agreement:

 

i)The following subsection is hereby inserted into Section 2.2 entitled “Fees”:

 

(f)Fee in Lieu of Warrant. Borrower shall pay to Lender the Fee in Lieu of
Warrant as follows: (i) $25,000 due upon execution of the Business Financing
Modification Agreement dated July 3, 2013, and (ii) $50,000 due upon the
earliest of (x) the sale of substantially all of the assets of Borrower, (y)
receipt of the Initial Cash Infusion, or (z) termination of this Business
Financing Agreement.

 

ii)The following subsection of Section 4.8 is hereby amended as follows:

 

(a)Within 90 days of the fiscal year end, the annual financial statements of
Borrower, certified and dated by an authorized financial officer. These
financial statements must be audited (with an opinion satisfactory to the
Lender) by a Certified Public Accountant acceptable to Lender. The statements
shall be prepared on a consolidated basis.

 

iii)Section 4.9 is hereby amended as follows:

 

4.9Maintain all depository and operating accounts with Lender and, in the case
of any investment accounts not maintained with Lender, grant to Lender a first
priority perfected security interest in and “control” (within the meaning of
Section 9104 of the California Uniform Commercial Code) of such deposit account
pursuant to documentation acceptable to Lender.

 

iv)Section 4.11 is hereby amended in its entirety as follows:

 

4.11Maintain Borrower's financial condition as follows using generally accepted
accounting principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions herein):

 

(a)                 Asset Coverage Ratio as follows: (i) 1.50 to 1.00 for the
periods ending June 30, 2013 and July 31, 2013, and (ii) 2.00 to 1.00 for the
period ending August 31, 2013, and for each month thereafter.

 

(b)                 Revenues and net income/net loss shall not negatively
deviate by more than 25% of Borrower’s projected revenues and net income/net
loss, to be measured quarterly, beginning with the quarter ending September 30,
2013. Lender agrees that the initial evaluation will be made with the
board-approved projections provided to Lender on May 17, 2013.

 

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(c)                 On or before August 15, 2013, Borrower shall raise at least
$2,500,000 in equity or subordinated debt, from new or existing investors
(“Initial Cash Infusion”), and on or before December 31, 2013, Borrower shall
raise at least $2,500,000 in additional equity or subordinated debt from new or
existing investors (the “Additional Cash Infusion”).

 

v)The following defined terms in Section 12.1 entitled “Definitions” are hereby
added, amended, or restated as follows:

 

“Due Diligence Fee” means a payment of an annual fee equal to $600, due upon
each anniversary of the Business Financing Agreement so long as any Advance is
outstanding or available hereunder.

 

“Fee in Lieu of Warrant” means a payment of a fee equal to $75,000.

 

“Finance Charge Percentage” means a rate per year equal to the Prime Rate plus
1.75 percentage points plus an additional 5.00 percentage points during any
period that an Event of Default has occurred and is continuing.

 

“Maintenance Fee” means the amount equal to 0.25 percentage points per month of
the ending daily Account Balance for the relevant period.

 

“Maturity Date” means July 3, 2014, or such earlier date as Lender shall have
declared the Obligations immediately due and payable pursuant to Section 7.2.

 

vi)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;

 

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

 

4.            PAYMENT OF FEES. Borrower shall pay Lender the Facility Fee in the
amount of $50,000, the Due Diligence Fee in the amount of $600, and the first
installment of the Fee in Lieu of Warrant in the amount of $25,000, plus all
out-of-pocket expenses.

 

5.            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.

 

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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.

 

6.            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.

 

7.            CONDITIONS. The effectiveness of this Business Financing
Modification Agreement is conditioned upon payment of the Facility Fee, the Due
Diligence Fee, and the first installment of the Fee in Lieu of Warrant.

 

8.            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.

 

9.            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 Bosi   By: /s/ Anthony Crisci          
Name:   Robert Bosi   Name:   Anthony Crisci           Title: Chief Financial
Officer   Title: Vice President

 

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