**Exhibit 10.1**

 

**NINTH LOAN MODIFICATION AGREEMENT**

 

This Ninth Loan Modification Agreement (this “Agreement”)is entered into as of March 9, 2006 by and between **WITNESSSYSTEMS, INC.**, a Delaware corporation (“Borrower”), whoseaddress is 300 Colonial Center Parkway, Roswell, Georgia 30076, and **SILICON VALLEY BANK** (“Lender”), a California-chartered bankwith a principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054and with a loan production office located at 3353 Peachtree Road, Suite M-10,Atlanta, GA 30326.

 

WHEREAS, among other indebtedness which may beowing by Borrower to Lender, Borrower is indebted to Lender pursuant to, amongother documents, a Loan and Security Agreement, dated April 3, 2002, as may beamended from time to time, in the original principal amount of Fifteen MillionDollars ($15,000,000) (the “Loan Agreement”; the Loan Agreement together withall other documents evidencing or securing the indebtedness shall be referredto as the “Existing Loan Documents”);

 

WHEREAS, the Loan Agreement provides for,among other things, a Committed Revolving Line in the original principal amountof Fifteen Million Dollars ($15,000,000) (hereinafter, all indebtedness owingby Borrower to Lender shall be referred to as the “Indebtedness”); and

 

WHEREAS, Borrower has requested that Lenderamend the Loan Agreement, and Lender is willing to do so, subject to the termsand conditions set forth herein.

 

NOW, THEREFORE, in consideration of theforegoing premises, and other good and valuable consideration, the receipt andlegal sufficiency of which is hereby acknowledged, the parties hereto herebyagree as follows:

 

1.             DEFINITIONS.All capitalized terms used herein and not otherwise defined shall have themeanings given to such terms in the Loan Agreement.

 

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

 

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2.1.          FinancialCovenant. The Loan Agreement is hereby amended by deleting Section 6.7(ii) inits entirety and by substituting therefore a new Section 6.7(ii) toread as follows:

 

(ii)           **EBITDA** Quarterly EBITDA, as of the end of any fiscal quarterof the Borrower, averaged for the period of the fiscal quarter then ending andthe immediately preceding three fiscal quarters, of not less than $4,000,000.

 

2.2           Definitions.The Loan Agreement is hereby further amended by deleting the definitions of “**EBITDA**”, “**Eligible Accounts**”and “**Revolving Maturity Date**” contained in Section 13.1of the Loan Agreement in their entirety, and by substituting the following newdefinitions:

 

“**EBITDA**” is, for any period of determination thereof, netincome before (a) interest, taxes, depreciation and amortization expense; (b) merger-relatedand restructuring costs during any fiscal year of the Borrower in an amount notto exceed $2,000,000; (c) in-process research and development expenseassociated with acquisitions; and (d) other non-cash expenses of Borrower,all as determined on a consolidated basis in accordance with GAAP.

 

**“Eligible**Accounts**”** are Accounts in the ordinary course of Borrower’s businessthat meet all Borrower’s representations and warranties in Section 5; butBank may change eligibility standards by giving Borrower thirty (30) daysprior written notice. Unless Bank agrees otherwise in writing, EligibleAccounts will not include:

 

(a)           Accountsthat the account debtor has not paid within 90 days of invoice date;

 

(b)           Accountsfor an account debtor, 50% or more of whose Accounts have not been paid within90 days of invoice date;

 

(c)           Creditbalances over 90 days from invoice date;

 

(d)           Accountsfor an account debtor, including Affiliates, whose total obligations toBorrower exceed 25% of all Accounts, for the amounts that exceed thatpercentage, unless the Bank approves in writing;

 

(e)           Accountsfor which the account debtor does not have its principal place of business inthe United States (other than Eligible Foreign Accounts);

 

(f)            Accountsfor which the account debtor is a federal, state, or local government entity orany department, agency, or instrumentality;

 

(g)           Accountsfor which Borrower owes the account debtor, but only up to the amount owed(sometimes called “contra” accounts, accounts payable, customer deposits orcredit accounts);

 

(h)           Accountsfor demonstration or promotional equipment, or in which goods are consigned, salesguaranteed, sale or return, sale on approval, bill and hold, or other terms ifaccount debtor’s payment may be conditional;

 

(i)            Accountsfor which the account debtor is Borrower’s Affiliate, officer, employee, oragent;

 

(j)            Accountsin which the account debtor disputes liability or makes any claim and Bankbelieves there may be a basis for dispute (but only up to the disputed orclaimed amount), or if the Account Debtor is subject to an InsolvencyProceeding, or becomes insolvent, or goes out of business;

 

(k)           Accountsnot yet earned by the final delivery of goods or rendition of

 

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services, as applicable, by the Borrower tothe customer, including progress billings, and that portion of Accounts forwhich an invoice has not been sent to the applicable account debtor; and

 

(l)            Accountsfor which Bank reasonably determines collection to be doubtful.

 

“**Revolving Maturity Date**” is March 8, 2007.

 

2.3           ComplianceCertificate. The Loan Agreement is hereby further amended by deleting Exhibit Dthereto in its entirety, and by substituting there for a new Exhibit D inthe form of Exhibit D to this Agreement.

 

3.             ADDITIONALCONDITION TO ELIGIBILITY OF ELIGIBLE FOREIGN ACCOUNTS. The Borrower herebyacknowledges and agrees that, notwithstanding anything to the contrarycontained in the Loan Agreement, any other Loan Document, or any otheragreement or arrangement between the Borrower and the Lender, the Borrower may notinclude any Accounts otherwise constituting Eligible Foreign Accounts in theBorrowing Base, and the Lender shall have no obligation to make any Advancesunder the Loan Agreement against any Eligible Foreign Accounts, until such timeas Lender has completed a full audit of such Eligible Foreign Accounts and thebooks and records of the Borrower related thereto and the Lender has notifiedthe Borrower that the results of such audit are in all respects in form andsubstance satisfactory to the Lender in its sole discretion.

 

4.             LOANFEE. To induce Lender to execute and deliver this Agreement and to agree tothe modifications to the Loan Agreement contained herein, Borrower shall pay toLender a loan fee in the amount of up to Thirty Thousand Dollars ($30,000) (the“Loan Fee”), which shall be payable as follows: Ten Thousand Dollars ($10,000) of the Loan Fee shall accrue be payableupon the execution and delivery of this Agreement by Borrower, and theremaining Twenty Thousand Dollars ($20,000) of such Loan Fee shall accrue andbe payable on the date of the first Advance occurring after the date hereof underSection 2.1.1(a) of the Loan Agreement. The Loan Fee, once and to theextent accrued, shall be fully earned and shall not be subject to rebate orreduction for any reason.

 

5.             CONSISTENTCHANGES. The Existing Loan Documents are hereby amended wherever necessaryto reflect the changes described above.

 

6.             NODEFENSES OF BORROWER. Borrower agrees that it has no defenses against theobligations to pay any amounts under the Indebtedness.

 

7.             CONTINUINGVALIDITY. Borrower understands and agrees that in modifying the existingIndebtedness, Lender is relying upon Borrower’s representations, warranties,and agreements, as set forth in the Existing 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 tomodifications to the existing Indebtedness pursuant to this Agreement in no wayshall obligate Lender to make any future modifications to the Indebtedness. Nothingin this Agreement shall constitute a satisfaction of the Indebtedness. It isthe intention of Lender and Borrower to retain as liable parties all makers andendorsers of Existing Loan Documents, unless the party is expressly released byLender in writing. No maker, endorser, or guarantor will be released by virtueof this Agreement. The terms of this paragraph apply not only to thisAgreement, but also to all subsequent loan modification agreements.

 

8.             EXPENSES.Borrower shall reimburse Lender for all out-of-pocket expenses, including, butnot limited to, reasonable attorneys’ fees and expenses, incurred by Lender inconnection with this Agreement.

 

9.             NEGATIVEPLEDGE. Borrower and Lender are parties to that certain Negative PledgeAgreement, dated as of April 3, 2002 (the “Negative Pledge Agreement”). Borrowerhereby acknowledges and agrees that the Negative Pledge Agreement, and Borrower’sobligations thereunder,

 

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remain in full force and effect, without release, diminution orimpairment, notwithstanding the execution and delivery of this Agreement.

 

10.           LIMITATION.This Agreement is limited to the matters expressly set forth above and shallnot be deemed to waive or modify any other term of the Loan Agreement or LoanDocuments, each of which is hereby ratified and reaffirmed, or to consent toany subsequent failure of Borrower to comply with any term or provision of theLoan Agreement or the Loan Documents, each of which shall remain in full forceand effect.

 

11.           CONDITIONS.The effectiveness of this Agreement is conditioned upon:  (a) Borrower’s execution and delivery ofthis Agreement, (b) Borrower’s payment of the Loan Fee payable on the datehereof pursuant to Section 3 hereof and all outstanding legal fees andexpenses and (c) such other instruments, documents and agreements asLender or its counsel shall request.

 

[signatures appear on followingpage]

 

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This Loan Modification Agreement is executedas 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**

**COMPLIANCECERTIFICATE**

 

TO:                         SILICONVALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054

 

FROM:                   Witness Systems, Inc.

 

The undersigned authorized officer of WitnessSystems, Inc. (“Borrower”) certifies that under the terms and conditionsof the Loan and Security Agreement between Borrower and Bank (the “Agreement”),(i) Borrower is in complete compliance for the period 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. Attached are the required documents supportingthe certification. The Officer certifies that these are prepared in accordancewith Generally Accepted Accounting Principles (GAAP) consistently applied fromone period to the next except as explained in an accompanying letter orfootnotes. The Officer acknowledges that no borrowings may be requested atany time or date of determination that Borrower is not in compliance with anyof the terms of the Agreement, and that compliance is determined not just atthe date this certificate is delivered.

 

**Please indicate compliance status by circlingYes/No under “Complies” column.**

 
| **Reporting Covenant**         | ** ** | **Required**                       | ** ** | **Complies** |
|-------------------------------------|------------|------------------------------------|------------|--------------|
|                                |       |                               |       |         |
| Quarterly financial statements + CC |       | Quarterly** **within  45 days |       |         |
|                                |       | (monthly 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 Quarterly EBITDA:      |       | $4,000,000   |       | $_________ |       | Yes No       |

 

Have there been updates to Borrower’s intellectual property, ifappropriate?                                                                        Yes / No

 

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| **Comments Regarding Exceptions:**  See Attached. | ** ** | **BANK USE ONLY**  |
|---------------------------------------------------|------------|--------------------|
|                                              |       |               |
|                                              |       | Received by:       |   |   |
| Sincerely,                                        |       |               | AUTHORIZED SIGNER |   |
|                                              |       |               |
|                                              |       | Date:              |   |   |
|                                              |       |               |   |
|                                              |       | Verified:          |   |   |
|                                              |       |               |   | AUTHORIZED SIGNER |   |
| SIGNATURE                                         |       |               |
|                                              |       | Date:              |   |   |
|                                              |       |               |   |
| TITLE                                             |       | Compliance Status: | Yes | No |
|                                              |       |               |
|                                              |       |               |   |
| DATE                                              |       |               |
|                                                   |            |                    |  |  |  |  |  |  |  |  |

 

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