Fifth Loan Modification Agreement



 





Exhibit 10.1




FIFTH LOAN MODIFICATION
AGREEMENT




     THIS FIFTH LOAN MODIFICATION AGREEMENT (this “Agreement”) is entered into
as of May 28, 2004 by and between SILICON VALLEY BANK (“Bank”), whose address
is 3003 Tasman Drive, Santa Clara, California 95054 and having a loan
production office at One North Clematis Street, Suite 510, West Palm Beach,
Florida 33401 and THE ULTIMATE SOFTWARE GROUP, INC., a corporation organized
and in good standing in the State of Delaware (“Borrower”), whose address is
2000 Ultimate Way, Weston, Florida 33326.


1. DESCRIPTION OF EXISTING OBLIGATIONS: Among other Obligations which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated November 29, 2001 (as may
be amended from time to time, the “Loan Agreement”). The Loan Agreement
provides for, among other things, a Committed Revolving Line, with a sublimit
for Equipment Advances (the “Equipment Advance Sublimit”). Hereinafter, all
obligations owing by Borrower to Bank shall be referred to as the
“Obligations.”



2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the
Collateral as described in the Loan Agreement. Hereinafter, the Loan
Agreement, 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. Borrower has requested that Bank modify the
Committed Revolving Line and provide a supplemental equipment line of credit
(the “Supplemental Term Loan”) and Bank has agreed, in accordance with the
terms of this Agreement.




     A. Defined Terms. The definitions of “Committed Revolving Loan”, “Credit
Extension”, “Eligible Accounts”, “Loan Documents”, “Revolving Loan Maturity
Date” and “Revolving Promissory Note” set forth in Section 13.1 of the Loan
Agreement are amended and restated in their entirety as follows:




     “Committed Revolving Line” is Advances of up to Three Million Dollars
($3,000,000) and includes all Equipment Advances, Letters of Credit and
the amount of all Cash Management Services.




     “Credit Extension” is each Advance, Equipment Advance, Letter of
Credit, Cash Management Service, Supplemental Equipment Advance or any
other extension of credit by Bank for Borrower’s benefit.




     “Eligible Accounts” are Accounts in the ordinary course of Borrower’s
business that meet all Borrower’s representations and warranties in
Section 5; but Bank may change eligibility standards by giving Borrower
notice. Unless Bank agrees otherwise in writing, Eligible Accounts will
not include:




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




     (b) Accounts for an account debtor, 50% or more of whose Accounts
have not been paid within 90 days of invoice date, other than Accounts for
which payment is not yet due as of the date of the Borrowing Base
Certificate;




     (c) Credit balances over 90 days from invoice date;




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




     (e) Accounts for which the account debtor does not have its principal
place of business in the United States;



1









 






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




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




     (h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor’s payment may be
conditional;




     (i) Accounts for which the account debtor is Borrower’s Affiliate,
officer, employee, or agent;




     (j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;




     (k) Accounts for which Bank reasonably determines collection to be
doubtful.




     “Loan Documents” are, collectively, this Agreement, the Revolving
Promissory Note, the Equipment Term Note, the Supplemental Equipment Term
Note, any other note, or notes or guaranties executed by Borrower, and any
other present or future agreement between Borrower and/or for the benefit
of Bank in connection with this Agreement, all as amended, extended or
restated.




     “Revolving Maturity Date” is May 27, 2005.




     “Revolving Promissory Note” means that certain Revolving Promissory
Note dated May 28, 2004 in the maximum principal amount of Three Million
Dollars ($3,000,000) from Borrower in favor of Bank, together with all
renewals, amendments, modifications and substitutions, therefor.



     From and after the date hereof, the following definitions terms are added
to Section 13.1 of the Loan Agreement:




     “Supplemental Committed Equipment Line” is a Credit Extension of up
to Two Million Dollars ($2,000,000).




     “Supplemental Equipment Advance” has the meaning set forth in Section
2.1.5.




     “Supplemental Equipment Availability End Date” means February 28,
2005.




     “Supplemental Equipment Term Note” means that certain Equipment Term
Note dated May ___, 2004 in the principal amount of Two Million Dollars
($2,000,000) from Borrower in favor of Bank, together with all renewals,
amendments, modifications and substitutions therefor.



     B. Letter of Credit Sublimit. Section 2.1.2 of the Loan Agreement is
amended and restated in its entirety as follows:




     2.1.2 Letters of Credit Sublimit.




     Bank will issue or have issued Letters of Credit for Borrower’s
account not exceeding the lesser of the Committed Revolving Line or the
Borrowing Base; minus (i) the outstanding principal balance of the
Advances, minus (ii) the outstanding principal balance of the Equipment
Advances; however, the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) and Cash Management
Services may not at any time exceed Five Hundred Thousand Dollars
($500,000). Each Letter of Credit will



2









 






have an expiry date of no later
than one hundred eighty (180) days after the Revolving Maturity Date, but
Borrower’s obligations to reimburse Bank under the Letters of Credit will
be secured by cash on terms acceptable to Bank at any time after the
Revolving Maturity Date if the term of this Agreement is not extended by
Bank. Prior to or simultaneously with the opening of each Letter of
Credit, Borrower shall pay to Bank, a letter of credit fee (each a “Letter
of Credit Fee” and collectively the “Letter of Credit Fees”) in an amount
equal to one and one half percent (1.5%) per annum of the face amount of
the Letter of Credit. Such Letter of Credit Fees shall be paid in advance
upon the issuance of the Letter of Credit and upon each anniversary
thereof, if any. In addition, Borrower shall pay to Bank any and all
additional customary issuance, negotiation, processing, transfer or other
fees to the extent and as and when required by Bank. Borrower agrees to
execute any further documentation in connection with the Letters of Credit
as Bank may reasonably request.



     C. Cash Management Sublimit. The following Section is added to the Loan
Agreement immediately after Section 2.1.3, as Section 2.1.4:




     2.1.4 Cash Management Services Sublimit.




     Borrower may use up to Five Hundred Thousand Dollars ($500,000) of
the Committed Revolving Line for Bank’s Cash Management Services (as
hereinafter defined), which may include merchant services, direct deposit
of payroll, business credit card, and check cashing services identified in
various cash management services agreements related to such services (the
“Cash Management Services”). Such aggregate amounts utilized under the
Cash Management Services Sublimit will at all times reduce the amount
otherwise available to be borrowed under the Committed Revolving Line.
Any amounts Bank pays on behalf of Borrower or any amounts that are not
paid by Borrower for any Cash Management Services will be treated as
Advances under the Committed Revolving Line and will accrue interest at
the rate for Advances.



     D. Audits. In addition to any provisions under the Loan Agreement with
respect o audits of Borrower’s Books and Records, Borrower agrees that prior to
permitting the outstanding Obligations under the Committed Revolving Line
(including drawn but unreimbursed Letters of Credit and Cash Management
Services) to exceed Five Hundred Thousand Dollars ($500,000), Bank shall have
performed at Borrower’s expense an audit of Borrower’s Books and Records and
the Collateral, the results of which shall be satisfactory in all respect to
Bank.



     E. Supplemental Equipment Term Loan. The following provisions are added
to the Loan Agreement immediately after Section 2.1.4 as Section 2.1.5:




     2.1.5 Supplemental Equipment Term Loan.




     (a) Through the Supplemental Equipment Availability End Date,
Bank will make advances (“Supplemental Equipment Advance” and,
collectively, “Supplemental Equipment Advances”) under the
Supplemental Committed Equipment Line. The first Supplemental
Equipment
under the Supplemental Committed Equipment Line may be used to
purchase Eligible Equipment purchased by Borrower on or after
February 29, 2004, thereafter Supplemental Equipment Advances may be
used to finance Other Equipment and Eligible Equipment purchased on
or after ninety (90) days before the date of such Supplemental
Equipment Advance. Each Supplemental Equipment Advance may only be
used to finance Other Equipment and Eligible Equipment and may not
exceed one hundred percent (100%) of the Equipment invoice,
excluding the cost of Other Equipment. Up to twenty five percent
(25%) of the Supplemental Committed Equipment Line may be used to
finance Other Equipment. Each Supplemental Equipment Advance must be
for a minimum of One Hundred Thousand Dollars ($100,000). The
number of Equipment Advances is limited to six (6).




     (b) Supplemental Equipment Advances are payable in thirty six
(36) equal monthly installments of principal, plus accrued interest,
beginning on the first (1st) day of each month following the date of
the Supplemental Equipment Advance and ending on the date which is
thirty six (36) months after the date of such Supplemental Equipment
Advance. All Supplemental Equipment



3









 






     Advances shall be evidenced by
the Supplemental Equipment Term Note to be executed and delivered by
Borrower to Bank. Supplemental Equipment Advances when repaid may
not be reborrowed.




     (c) To obtain a Supplemental Equipment Advance, Borrower must
notify Bank (the notice is irrevocable) by facsimile no later than
3:00 p.m. Eastern time one (1) Business Day before the day on which
the Equipment Advance is to be made. The notice in the form of
Exhibit B (Payment/Advance Form) must be signed by a Responsible
Officer or designee and include a copy of the invoice for the
Equipment being financed.




     (d) Borrower may voluntarily prepay all or any portion of any
Supplemental Equipment Advance upon not less than five (5) Business
Days notice to Bank, provided any such prepayment is accompanied by
a prepayment fee equal to (i) three percent (3%) of the amount
prepaid if the prepayment occurs within the first twelve (12) months
from the date of the Supplemental Equipment Advance; (ii) two
percent (2%) of the amount prepaid if the prepayment occurs after
the first twelve (12) months, and prior to the twenty fourth (24th)
month from the date of the Supplemental Equipment Advance; and (iii)
one percent (1%) of the amount prepaid at all times after the first
twenty four (24) months from the date of the Supplemental Equipment
Advance. In addition to the above prepayment fee, at the time of
any such prepayment, Borrower must pay, on the date of the
prepayment (A) all unpaid accrued interest to the date of the
prepayment; and (B) all other sums, if any, that shall have become
due and payable hereunder with respect to this Agreement. This
provision does not apply to any prepayment which results from an
Event of Default.




     (e) All Supplemental Equipment Advances shall accrue at a fixed
rate of interest as of the date of each Supplemental Equipment
Advance, equal to the higher of (y) one percent per annum in excess
of the Prime Rate as of the date of such Supplemental Equipment
Advance or (z) five percent (5.0%) per annum.



     F. Overadvances. From and after the date hereof, Section 2.2 of the Loan
Agreement is amended and restated in its entirety as follows:



2.2 Overadvances.




If at any time, including, without limitation, after the Revolving
Maturity Date, Borrower’s Obligations under Sections 2.1.1, 2.1.2,
2.1.3 and 2.1.4 exceed the lesser of either (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower shall
immediately pay Bank the excess.



     G. Financial Covenants. From and after the date hereof, Section 6.7 of
the Loan Agreement is amended and restated in its entirety as follows:



4









 





     6.7 Financial Covenants.



     Borrower will maintain as of the last day of each month:




     (i) Quick Ratio. A ratio of (a) Quick Assets to (b) Current
Liabilities, plus all long term debt to Bank, (including issued but
undrawn Letters of Credit), less deferred revenue of at least 1.75
to 1.00.




     (ii) Quarterly Revenue. Minimum revenue as of the end of each
quarter of not less than the following amounts at the following
times:



	 	 	 
	Period Ending:
	 	Quarterly Revenue:
	 	 	 	 
	March 31, 2004
	 	$13,400,000;
	June 30, 2004
	 	$13,600,000;
	September 30, 2004
	 	$13,900,000;
	December 31, 2004
	 	$14,500,000; and
	Thereafter
	 	As set by Bank, based on projections provided
	 
	 	to Bank within 120 days of each fiscal year end.






4. COMPLIANCE CERTIFICATE. Exhibit C (Compliance Certificate) to the Loan
Agreement is replaced in its entirety with Exhibit C attached hereto.



5. BORROWING BASE CERTIFICATE. Exhibit D (Borrowing Base Certificate) to the
Loan Agreement is replaced in its entirety with Exhibit D attached hereto.



6. REPLACEMENT NOTE. The Borrower shall execute and deliver to Bank on the
date hereof a second amended and restated revolving promissory note (the
“Replacement Promissory Note”) in substitution for and not satisfaction of, the
issued and outstanding Revolving Promissory Note and the Replacement Promissory
Note shall be the “Revolving Promissory Note” for all purposes of the Loan
Documents. The Replacement Promissory Note shall not operate as a novation of
the Obligations of the Borrower, or nullify, discharge, or release any such
Obligations or the continuing contractual relationship of the Borrower in
accordance with the provisions of the Loan Documents. All references in the
Loan Documents to the “Revolving Promissory Note” shall be deemed to refer to
the Replacement Promissory Note.



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



8. PAYMENT OF LOAN FEE. In consideration of Bank’s agreement to enter into
this Agreement, and amend and extend the Committed Revolving Line, the Borrower
shall pay to Bank a non refundable loan fee in the amount of Fifteen Thousand
Dollars ($15,000) (the “Revolving Loan Fee”), which Revolving Loan Fee is
earned as of the date hereof, and is payable as follows: $7,500 of the
Revolving Loan Fee shall be due and payable on the date of the execution and
delivery of this Agreement, and the balance ($7,500) shall be due and payable
at the time of the first Advance after the date hereof. In addition, Borrower
shall pay to Bank a non refundable loan fee in connection with the Supplemental
Equipment Loan on the date hereof in the amount of Ten Thousand Dollars
($10,000) (the “Supplemental Term Loan Fee”). In addition, Borrower shall pay
on the date hereof all out-of-pocket expenses, including, without limitation,
Bank’s attorneys’ fees. The Revolving Loan Fee and the Supplemental Loan Fee
each are considered earned on the date hereof and are not refundable.



9. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses against
the obligations to pay any amounts under the Obligations.




5









 







10. 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 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
Agreement in no way shall obligate Bank to make any future modifications to the
Obligations. Nothing in this Agreement shall constitute a satisfaction of the
Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party
is expressly released by Bank in writing. No maker, endorser, or guarantor
will be released by virtue of this Agreement. The terms of this paragraph
apply not only to this Agreement, but also to all subsequent loan modification
agreements.



11. CONDITIONS. This Agreement shall not become effective until Bank receives
the following, each of which shall be satisfactory in form and substance to
Bank:




     (a) The Replacement Promissory Note;



     (b) The Supplemental Equipment Term Note;



     (c) proof that the Borrower has paid all fees, costs and expenses to Bank
in connection with this Agreement, including but not limited to all the Bank’s
attorneys fees and expenses; and



     (d) such other information, instruments, opinions, documents, certificates
and reports as Bank may deem necessary.



[SIGNATURES APPEAR ON THE FOLLOWING PAGE]




6









 








     This Agreement is executed as of the date first written above.



	 	 	 
	BORROWER:

	 	BANK:
	 
	 	 
	THE ULTIMATE SOFTWARE GROUP, INC.

	 	SILICON VALLEY BANK
	 
	 	 
	By: /s/ Mitchell K. Dauerman

	 	By: /s/ Steve DiPasquale
	
 

	 	
 
	Name: Mitchell K. Dauerman

	 	Name: Steve DiPasquale
	Title: Executive Vice President, Chief Financial Officer
and Treasurer

	 	Title: Vice President and Relationship Manager







7









 






EXHIBIT C

BORROWING BASE CERTIFICATE










	 	 	 	 	 	 	 	 	 
	Borrower:

	 	The Ultimate Software Group, Inc.

2000 Ultimate Way

Weston, Florida 33326
	 	Bank:
	 	Silicon Valley Bank

3003 Tasman Drive

Santa Clara, CA 95054
	 
	 	 	 	 	 	 	 	 
	Commitment Amount:

	 	$3,000,000	 	 	 	 	 	 













ACCOUNTS RECEIVABLE




	 	 	 	 	 
	1.

	 	Accounts Receivable Book Value as of 
	 	$______
	2.

	 	Additions (please explain on reverse)
	 	$______
	3.

	 	TOTAL ACCOUNTS RECEIVABLE
	 	$______







ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)




	 	 	 	 	 
	4.

	 	Amounts over 90 days due
	 	$______
	5.

	 	Balance of 50% over 90 day accounts
	 	$______
	6.

	 	Credit balances over 90 days
	 	$______
	7.

	 	Concentration Limits
	 	$______
	8.

	 	Foreign Accounts
	 	$______
	9.

	 	Governmental Accounts
	 	$______
	10.

	 	Contra Accounts
	 	$______
	11.

	 	Promotion or Demo Accounts
	 	$______
	12.

	 	Intercompany/Employee Accounts
	 	$______
	13.

	 	Extended Term Accounts
	 	$______
	14.

	 	Other (please explain on reverse)
	 	$______
	15.

	 	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
	 	$______
	16.

	 	Eligible Accounts (#3 minus #15)
	 	$______
	17.

	 	LOAN VALUE OF ACCOUNTS (75% of # 16)
	 	$______







BALANCES




	 	 	 	 	 
	18.

	 	Maximum Loan Amount
	 	$	3,000,000
	19.

	 	Total Funds Available [Lesser of # 17 or # 18]
	 	$	______	 
	20.

	 	Present balance owing on Line of Credit
	 	$	______	 
	21.

	 	Outstanding under Sublimits (LC, Equipment Advances, Cash Management)
	 	$	______	 
	22.

	 	RESERVE POSITION (# 19 minus #20 and #21)
	 	$	______	 






The undersigned represents and warrants that this is true, complete and
correct, and that the information in this Borrowing Base Certificate complies
with the representations and warranties in the Loan and Security Agreement
between the undersigned and Silicon Valley Bank.




COMMENTS:




	 	 	 	 	 
	
 





The Ultimate Software Group, Inc.





By:

Authorized Signer

	 	 	
      BANK USE ONLY



Rec’d By:

          Auth. Signer

Date:

Verified:

          Auth. Signer

Date:














8









 






EXHIBIT D

COMPLIANCE CERTIFICATE




	 	 	 
	TO:

	 	SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054
	 
	 	 
	FROM:

	 	The Ultimate Software Group, Inc.

2000 Ultimate Way

Weston, Florida 33326







     The undersigned authorized officer of The Ultimate Software Group, Inc.
(“Borrower”) certifies that under the terms and conditions of 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) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
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.



     Please indicate compliance status by circling Yes/No under “Complies” column.



	 	 	 	 	 	 	 
	Reporting Covenant
	 	Required
	 	Complies

	Monthly financial statements + CC
	 	Monthly within 30 days	 	Yes	 	No
	Annual (Audited)
	 	FYE within 120 days	 	Yes	 	No
	A/R Agings (when borrowing)
	 	Monthly within 30 days	 	Yes	 	No
	Borrowing Base Certificate (when borrowing)
	 	Monthly within 30 days	 	Yes	 	No







	 	 	 	 	 	 	 	 	 	 	 
	Financial Covenant
	 	Required
	 	Actual
	 	Complies
	 
	Maintain on a Monthly Basis:
	 	 	 	 	 	 	 	 	 	 
	Minimum Quick Ratio
	 	 	 	1.75:1.00	 	_____:1.00 Yes	 	No
	 
	 	 	 	 	 	 	 	 	 	 
	Maintain on a Quarterly Basis:
	 	 	 	 	 	 	 	 	 	 
	Minimum Revenue
	 	 	 	 	 	 	 	 	 	 
	March 31, 2004
	 	$13,400,000	 	$—	 	Yes	 	No
	June 30, 2004
	 	$13,600,000	 	$—	 	Yes	 	No
	September 30, 2004
	 	$13,900,000	 	$—	 	Yes	 	No
	December 31, 2004
	 	$14,500,000	 	$—	 	Yes	 	No
	Thereafter
	 	as set by the Bank	 	$—	 	Yes	 	No







	 	 	 	 	 
	Have there been updates to Borrower’s intellectual property, if appropriate?

	 	Yes
	 	No
	 
	 	 	 	 
	Has Borrower added any new offices or business locations since the prior
compliance certificate?

	 	Yes
	 	No







9









 






Comments Regarding Exceptions: See Attached.




	 	 	 
	Sincerely,











SIGNATURE





TITLE





DATE
	 	                         BANK USE ONLY




Received by:


                  AUTHORIZED SIGNER

Date:


Verified:


                  AUTHORIZED SIGNER

Date:


Compliance Status:                  Yes   No










10