**Exhibit10.1**

 

**SEVENTH LOAN MODIFICATIONAGREEMENT**

 

This Seventh LoanModification Agreement (this “Agreement”) is entered into as of March 10, 2005by and between **WITNESS SYSTEMS, INC.**, a Delawarecorporation (“Borrower”), whose address is 300 Colonial Center Parkway,Roswell, Georgia 30076, and **SILICON VALLEY BANK**(“Lender”), a California-chartered bank with a principal place of business at3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production officelocated at 3353 Peachtree Road, Suite M-10, Atlanta, GA 30326.

 

WHEREAS, among otherindebtedness which may be owing by Borrower to Lender, Borrower is indebted toLender pursuant to, among other documents, a Loan and Security Agreement, datedApril 3, 2002, as may be amended from time to time, in the original principalamount of Fifteen Million Dollars ($15,000,000) (the “Loan Agreement”; the LoanAgreement together with all other documents evidencing or securing theindebtedness shall be referred to as the “Existing Loan Documents”);

 

WHEREAS, the LoanAgreement provides for, among other things, a Committed Revolving Line in theoriginal principal amount of Fifteen Million Dollars ($15,000,000)(hereinafter, all indebtedness owing by Borrower to Lender shall be referred toas the “Indebtedness”); and

 

WHEREAS, Borrower hasrequested that Lender amend the Loan Agreement, and Lender is willing to do so,subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, inconsideration of the foregoing premises, and other good and valuable consideration,the receipt and legal sufficiency of which is hereby acknowledged, the partieshereto hereby agree as follows:

 

1.             DEFINITIONS.  All capitalized terms used herein and nototherwise defined shall have the meanings given to such terms in the Loan Agreement.

 

2.             MODIFICATIONSTO LOAN AGREEMENT.  The LoanAgreement is hereby amended as follows:

 

2.1           Advances.    The Loan Agreement is hereby amended bydeleting Section 2.1.1(a) thereof in its entirety and by substituting therefora new Section 2.1.1(a) to read as follows:

 

(a)           Bankwill make Advances not exceeding (i) the lesser of (A) the CommittedRevolving Line or (B)** **theBorrowing Base, minus (ii) the amount of all outstanding Letters of Credit(including drawn but unreimbursed Letters of Credit), minus (iii) the CashManagement Sublimit and minus (iv) the FX Reserve; provided, however,that on any day on which Borrower meets the Unrestricted Cash Threshold, therestriction in clause (i)(B) above shall not apply. Amounts borrowed under thisSection may be repaid and reborrowed during the term of this Agreement. Alladvances shall be evidenced by the Revolving Promissory Note to be executed anddelivered by Borrower to Bank and shall be repaid in accordance with the termsof the Revolving Promissory Note.

 

2.2           TheLoan Agreement is hereby further amended by deleting Section 2.2 in itsentirety and by substituting therefor a new Section 2.2 to read as follows:

 

**2.2****          Overadvances.**

 

IfBorrower’s Obligations under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed theCommitted Revolving Line or, on any day that Borrower does not meet the

 

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Unrestricted CashThreshold, the Borrowing Base, Borrower shall upon notice from Bank,immediately pay such excess or secure such excess with a pledge of cashmaintained at Bank.

 

2.3           QuickRatio Covenant.  The Loan Agreementis hereby further amended by deleting Section 6.7(i) in its entirety and bysubstituting therefor a new Section 6.7(i) to read as follows:

 

(i)            **Quick Ratio.**  A QuickRatio of at least 1.50 to 1.0; provided, however, at any time that the QuickRatio is less than 2.0 to 1.0 than this covenant will be tested on a monthlybasis.

 

2.4           RevolvingMaturity Date Definition.  The LoanAgreement is hereby further amended by deleting the definitions of “**EBITDA**” and **“Revolving Maturity Date”**in Section 13.1 thereof in their entirety, and by substituting therefor thefollowing new definitions:

 

“**EBITDA**” is, for any period of determination thereof, netincome before interest, taxes, depreciation, amortization expense and non-cashcompensation expense, all as determined on a consolidated basis in accordancewith GAAP.

 

**“RevolvingMaturity Date”** is March 9, 2006.

 

2.5           Definitions.  The Loan Agreement is hereby further amendedby adding the following definitions of “**Quick Ratio**”and “**Unrestricted Cash Threshold**” to Section13.1 thereof in appropriate alphabetical order:

 

“**Quick Ratio**” means the ratio of Borrower’s Quick Assets toCurrent Liabilities, less Deferred Maintenance Revenue, calculated on aconsolidated basis in accordance with GAAP.

 

“**Unrestricted Cash Threshold**” means, on any day, thatBorrower has unrestricted cash and cash equivalents in an amount of not lessthan $20,000,000 on deposit with Bank or its Affiliates and in which Bank has afirst priority perfected security interest.

 

2.6           ComplianceCertificate. The Loan Agreement is hereby further amended by deletingExhibit D thereto in its entirety, and by substituting therefor a new Exhibit Din the form of Exhibit D to this Agreement.

 

3.             LOANFEE.  To induce Bank to execute anddeliver this Agreement, Borrower shall pay to Lender a loan fee in the amountof up to Thirty Thousand Dollars ($30,000) (the “Loan Fee”) which shall bepayable as follows: Ten Thousand Dollars ($10,000) of the Loan Fee shall accrueand be payable upon the execution and delivery of this Agreement by Borrowerand Twenty Thousand Dollars ($20,000) of the Loan Fee shall accrue and bepayable on the date of the first Advance made after the date hereof underSection 2.1.1(a) of the Loan Agreement. The Loan Fee, once and to the extent accrued, shall be fully earned andshall not be subject to rebate or reduction for any reason.

 

4.             CONSISTENTCHANGES.  The Existing Loan Documentsare hereby amended wherever necessary to reflect the changes described above.

 

5.             NODEFENSES OF BORROWER.  Borroweragrees that it has no defenses against the obligations to pay any amounts underthe Indebtedness.

 

6.             CONTINUINGVALIDITY.  Borrower understands andagrees that in modifying the existing Indebtedness, Lender is relying uponBorrower’s representations, warranties, and agreements, as set forth in theExisting Loan Documents.  Except asexpressly modified pursuant to this Agreement, the terms of the Existing LoanDocuments remain unchanged and in full force and effect.  Lender’s agreement to modifications to theexisting Indebtedness pursuant to this Agreement in no way shall obligateLender to make any future modifications to the Indebtedness.  Nothing in this Agreement shall

 

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constitute a satisfactionof the Indebtedness.  It is the intentionof Lender and Borrower to retain as liable parties all makers and endorsers ofExisting Loan Documents, unless the party is expressly released by Lender inwriting.  No maker, endorser, orguarantor will be released by virtue of this Agreement.  The terms of this paragraph apply not only tothis Agreement, but also to all subsequent loan modification agreements.

 

7.             EXPENSES.  Borrower shall reimburse Lender for allout-of-pocket expenses, including, but not limited to, reasonable attorneys’fees and expenses, incurred by Lender in connection with this Agreement.

 

8.             NEGATIVEPLEDGE.  Borrower and Lender areparties to that certain Negative Pledge Agreement, dated as of April 3, 2002(the “Negative Pledge Agreement”). Borrower hereby acknowledges and agrees that the Negative PledgeAgreement, and Borrower’s obligations thereunder, remain in full force andeffect, without release, diminution or impairment, notwithstanding theexecution and delivery of this Agreement.

 

9.             LIMITATION.  This Agreement is limited to the mattersexpressly set forth above and shall not be deemed to waive or modify any otherterm of the Loan Agreement or Loan Documents, each of which is hereby ratifiedand reaffirmed, or to consent to any subsequent failure of Borrower to complywith any term or provision of the Loan Agreement or the Loan Documents, each ofwhich shall remain in full force and effect.

 

10.           CONDITIONS.  The effectiveness of this Agreement isconditioned upon:  (a) Borrower’sexecution and delivery of this Agreement, (b) Borrower’s payment of the LoanFee payable on the date hereof pursuant to Section 2.6 hereof and alloutstanding legal fees and expenses and (c) such other instruments, documentsand agreements as Lender or its counsel shall request.

 

 

[signatures appear onfollowing page]

 

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This Loan ModificationAgreement is executed as of the date first written above.

 
| ** ** | **LENDER:**               |
|------------|---------------------------|
|       |                      |
| ** ** | **SILICON VALLEY BANK**   |
|       |                      |
|       |                      |
|       | By:                       |   |
|       | Name:                     |   |
|       | Title:                    |   |
|       |                      |
|       |                      |
| ** ** | **BORROWER:**             |
|       |                      |
| ** ** | **WITNESS SYSTEMS, INC.** |
|       |                      |
|       |                      |
|       | By:                       |   |
|       | Name:                     |   |
|       | Title:                    |   |
|            |                           |  |  |  |  |  |

 

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**EXHIBIT D**

**COMPLIANCE CERTIFICATE**

 
| TO:    |   | SILICON VALLEY BANK   |
|--------|--------|-----------------------|
|   |   | 3003 Tasman Drive     |
|   |   | Santa Clara, CA 95054 |
|   |   |                  |
| FROM:  |   | Witness Systems, Inc. |

 

 

The undersignedauthorized officer of Witness Systems, Inc. (“Borrower”) certifies that underthe terms and conditions of the Loan and Security Agreement between Borrowerand Bank (the “Agreement”), (i) Borrower is in complete compliance for theperiod ending                               with all required covenants except as noted below and (ii) allrepresentations and warranties in the Agreement are true and correct in allmaterial respects on this date.  Attachedare the required documents supporting the certification.  The Officer certifies that these are preparedin accordance with Generally Accepted Accounting Principles (GAAP) consistentlyapplied from one period to the next except as explained in an accompanyingletter or footnotes.  The Officeracknowledges that no borrowings may be requested at any time or date ofdetermination that Borrower is not in compliance with any of the terms of theAgreement, and that compliance is determined not just at the date thiscertificate is delivered.

 

**Please indicate compliance statusby circling Yes/No under “Complies” column.**

 
| **Reporting  Covenant**              | ** ** | ** ** | ** ** | **Required**                                            | ** ** | **Complies** | ** ** |
|--------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|--------------|------------|
|                                 |       |       |       |                                                    |       |         |       |
| Quarterly  financial statements + CC |       |       |       | Quarterly** **within 45 days  (if QR below 2 to 1) |       | Yes  No |       |
| Annual  (Audited)                    |       |       |       | FYE within 90 days                                      |       | Yes  No |       |
| 10-K  & 10Q                      |       |       |       | Within 5 days of filing                                 |       | Yes  No |       |
| A/R  Agings                          |       |       |       | Monthly within 30 days  (if Advances outstanding)       |       | Yes  No |       |
| A/R  Audit                           |       |       |       | Annual                                                  |       | Yes  No |       |
| Borrowing  Base Certificate          |       |       |       | Monthly within 30 days  (if Advances outstanding)       |       | Yes  No |       |

 
| **Financial  Covenant**                                         | ** ** | ** **     | ** ** | **Required** | ** ** | **Actual**                                            | ** ** | **Complies** | ** ** |
|-----------------------------------------------------------------|------------|----------------|------------|--------------|------------|-------------------------------------------------------|------------|--------------|------------|
| Maintain  on a quarterly Basis:                                 |       |           |       |         |       |                                                  |       |         |       |
| Minimum  Quick Ratio                                            |       |           |       | 1.5:1.00     |       |         :1.00 |       | Yes  No |       |
| Average  QuarterlyEBITDA:                                       |       | as of 3/31/05  |       | $            | (500,000   | )                                                     |       |         |       |   |
|                                                            |       | as of 6/30/05  |       | $            | 1,500,000  |                                                  |       |         |       |   |
|                                                            |       | as of 9/30/05  |       | $            | 3,000,000  |                                                  |       |         |       |   |
|                                                            |       | as of 12/31/05 |       | $            | 4,000,000  |                                                  | $          |         |       | Yes  No |   |
| Maintain  on a monthly basis when QR is less than 2.0:1.00 |       |           |       |         |       |                                                  |       |         |       |
| Minimum  Quick Ratio                                            |       |           |       | 1.5:1.00     |       |         :1.00 |       | Yes  No |       |
|                                                                 |            |                |            |              |            |                                                       |            |              |            |  |  |

 

Have there been updatesto Borrower’s intellectual property, if appropriate?                        Yes / No

 

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| **Comments Regarding Exceptions:**  See Attached. |   | **BANK  USE ONLY** |
|---------------------------------------------------|--------|--------------------|
|                                              |   |               |
|                                              |   | Received by:       |   |   |
| Sincerely,                                        |   | authorized signer  |
|                                              |   |               |
|                                              |   |               | Date: |   |   |
|                                              |   |               |
|                                              |   | Verified:          |   |   |
| Signature                                         |   | authorized signer  |
|                                              |   |               |
|                                              |   | Date:              |   |   |
| Title                                             |   |               |
|                                              |   | Compliance Status: | Yes   No |
|                                              |   |               |
| Date                                              |   |               |
|                                                   |        |                    |  |  |  |  |  |  |  |  |  |

 

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