EXHIBIT 10.1

FIRST LOAN MODIFICATION AGREEMENT

This First Loan Modification Agreement (this “Loan Modification Agreement”) is
entered into as of August 2, 2006, 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 One Newton Executive Park, Suite 200, 2221 Washington Street, Newton,
Massachusetts 02462 (“Bank”) and DATAWATCH CORPORATION, a Delaware corporation,
and DATAWATCH TECHNOLOGIES CORPORATION, a Delaware corporation, each with its
chief executive office located at 271 Mill Road, Quorum Office Park, Chelmsford,
Massachusetts 01824-4105 (individually, collectively, jointly and severally,
“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 APRIL 20, 2006,
EVIDENCED BY, AMONG OTHER DOCUMENTS, A CERTAIN LOAN AND SECURITY AGREEMENT DATED
AS OF APRIL 20, 2006, 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, INCLUDING, WITHOUT LIMITATION, THE IP
SECURITY AGREEMENT, 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 SECTION 2.1.1(A)  THEREOF, ENTITLED “AVAILABILITY,” IN
ITS ENTIRETY:

“(a)         Availability.  Subject to the terms and conditions of this
Agreement, Bank shall make Advances not exceeding the Availability Amount. 
Amounts borrowed under the Revolving Line may be repaid and, prior to the
Maturity Date, reborrowed, subject to the applicable terms and conditions
precedent herein.”

and inserting in lieu thereof the following:

“(a)         Availability.  Subject to the terms and conditions of this
Agreement, Bank shall make Advances not exceeding the Availability Amount. 
Amounts borrowed under the Revolving Line may be repaid and, prior to the
Maturity Date, reborrowed, subject to the applicable terms and conditions
precedent herein. Notwithstanding the foregoing, no Credit Extensions shall be
requested or made during the Covenant Suspension Period.”

2.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
DELETING THE FOLLOWING SECTION 2.2 THEREOF, ENTITLED “OVERADVANCES,” IN ITS
ENTIRETY:

“2.2        Overadvances.  If, at any time, the Credit Extensions under Sections
2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the lesser of either (a) the Formula Line
or (b) the Borrowing Base, Borrower shall immediately pay to Bank in cash such
excess.”

and inserting in lieu thereof the following:

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“2.2        Overadvances.  If, at any time, the Credit Extensions under Sections
2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the lesser of either (a) the Formula Line
or (b) the Borrowing Base, Borrower shall immediately pay to Bank in cash such
excess. In addition, if, at any time, Borrower fails to maintain EBITDA less
Capital Expenditures of at least Two Hundred Fifty Thousand Dollars
($250,000.00) for the three month period ending on the last day of any month,
Borrower shall, at Borrower’s option, either, (y) immediately pay to Bank all
outstanding Obligations pursuant to the Non-Formula Line, or (z) subject to the
Availability Amount, immediately request a Formula Line Advance to be used by
Bank to repay all outstanding Obligations pursuant to the Non-Formula Line.”

3.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
DELETING THE FOLLOWING SECTION 2.3(A) THEREOF, ENTITLED “INTEREST RATE,” IN ITS
ENTIRETY:

“(a)         Interest Rate.  Subject to Section 2.3(b), the principal amount of
Advances outstanding under the Formula Line shall accrue interest at a floating
per annum rate equal to one half of one percentage point (0.5%) above the Prime
Rate, which interest shall be payable monthly in accordance with Section 2.3(f)
below. Subject to Section 2.3(b), the principal amount of Advances outstanding
under the Non-Formula Line shall accrue interest at a floating per annum rate
equal to one percentage point (1.0%) above the Prime Rate, which interest shall
be payable monthly in accordance with Section 2.3(f) below.”

and inserting in lieu thereof the following:

“(a)         Interest Rate.  Subject to Section 2.3(b), the principal amount of
Advances outstanding under the Formula Line shall accrue interest at a floating
per annum rate equal to one half of one percentage point (0.5%) above the Prime
Rate, which interest shall be payable monthly in accordance with Section 2.3(f)
below. Notwithstanding the foregoing, during the Covenant Suspension Period and
through the date which is five (5) days after the termination of the Covenant
Suspension Period, subject to Section 2.3(b), the principal amount of Advances
outstanding under the Formula Line shall accrue interest at a floating per annum
rate equal to one and one half of one percentage point (1.5%) above the Prime
Rate, which interest shall be payable monthly in accordance with Section 2.3(f)
below. Subject to Section 2.3(b), the principal amount of Advances outstanding
under the Non-Formula Line shall accrue interest at a floating per annum rate
equal to one percentage point (1.0%) above the Prime Rate, which interest shall
be payable monthly in accordance with Section 2.3(f) below.”

4.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
DELETING THE FOLLOWING SECTION 6.6(C) THEREOF, IN ITS ENTIRETY:

“(c)         Provided that the Initial Non-Formula Advance has been made, (i)
if, prior to June 30, 2006, the amount of unrestricted cash maintained by
Borrower at Bank is less than the aggregate amount of outstanding Obligations
with respect to the Non-Formula Line, and (ii) if, on and after June 30, 2006,
the amount on unrestricted cash maintained by Borrower at Bank is less than
$1,500,000.00 (each, a “Trigger Event”), Borrower shall, within thirty (30) days
of the Trigger Event, deliver to Bank a first priority security interest in all
assets of each of the UK Guarantors, as evidenced by documentation acceptable to
Bank, including, without limitation, a fixed charge debenture with respect to
each UK Guarantor.”

and inserting in lieu thereof the following:

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“(c)         Provided that the Initial Non-Formula Advance has been made, (i)
if, prior to June 30, 2006, the amount of unrestricted cash maintained by
Borrower at Bank is less than the aggregate amount of outstanding Obligations
with respect to the Non-Formula Line, and (ii) if, on and after June 30, 2006,
the amount on unrestricted cash maintained by Borrower at Bank is less than
$1,500,000.00 (each, a “Trigger Event”), Borrower shall, within thirty (30) days
of the Trigger Event, deliver to Bank a first priority security interest in all
assets of each of the UK Guarantors, as evidenced by documentation acceptable to
Bank, including, without limitation, a fixed charge debenture with respect to
each UK Guarantor. Notwithstanding the foregoing, Borrower shall maintain, at
all times, unrestricted cash at Bank in an amount of no less than $500,000.00.”

5.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
DELETING THE FOLLOWING SECTION 6.7(A) THEREOF, IN ITS ENTIRETY:

“(a)         Adjusted Quick Ratio.  A ratio of Quick Assets to Current
Liabilities minus the current portion of Deferred Revenue of at least 1.25 to
1.0.”

and inserting in lieu thereof the following:

“(a)         Adjusted Quick Ratio.  A ratio of Quick Assets to Current
Liabilities minus the current portion of Deferred Revenue of at least 1.25 to
1.0. Notwithstanding the foregoing, Borrower shall not be required to comply
with the financial covenant set forth in this Section 6.7(a) for the months
ending July 31, 2006 and August 31, 2006.”

6.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
DELETING THE FOLLOWING SECTION 6.7(B) THEREOF, IN ITS ENTIRETY:

“(b)         Minimum Consolidated Cash Flow. EBITDA less Capital Expenditures of
at least (i) One Dollar ($1.00) for the three month period ending March 31,
2006, (ii) Two Hundred Fifty Thousand Dollars ($250,000.00) for each of the
three month periods ending April 30, 2006, May 31, 2006, and June 30, 2006, and
(iii) Five Hundred Thousand Dollars ($500,000.00) for the three month period
ending July 31, 2006 and for each of the three month periods ending on last day
of each month thereafter.”

and inserting in lieu thereof the following:

“(b)         Minimum Consolidated Cash Flow. EBITDA less Capital Expenditures of
at least (i) One Dollar ($1.00) for the three month period ending March 31,
2006, (ii) Two Hundred Fifty Thousand Dollars ($250,000.00) for each of the
three month periods ending April 30, 2006, May 31, 2006, and June 30, 2006,
(iii) Five Hundred Thousand Dollars ($500,000.00) for each of the three month
periods ending July 31, 2006 and August 31, 2006, (iv) One Dollar ($1.00) for
each of the three month periods ending September 30, 2006, October 31, 2006,
November 30, 2006, and December 31, 2006, (v) Two Hundred Fifty Thousand Dollars
($250,000.00) for each of the three month periods ending January 31, 2007,
February 28, 2007, and March 31, 2007, and (vi) Five Hundred Thousand Dollars
($500,000.00) for the three month period ending April 30, 2007, and for each of
the three month periods ending on last day of each month thereafter.
Notwithstanding the foregoing, Borrower shall not be required to comply with the
financial covenant set forth in this Section 6.7(b) for the months ending July
31, 2006 and August 31, 2006.”

7.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
DELETING THE FOLLOWING DEFINITIONS APPEARING IN SECTION 13.1 THEREOF:

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“Formula Line” is a Formula Advance or Formula Advances in an aggregate amount
of up to One Million Five Hundred Thousand Dollars ($1,500,000.00) outstanding
at any time.

“Non-Formula Line” is a Non-Formula Advance or Non-Formula Advances in an
aggregate amount of up to One Million Five Hundred Thousand Dollars
($1,500,000.00) outstanding at any time.”

and inserting in lieu thereof the following:

“Formula Line” is a Formula Advance or Formula Advances in an aggregate amount
of up to One Million Five Hundred Thousand Dollars ($1,500,000.00) outstanding
at any time; provided, however, that during the Covenant Suspension Period, the
maximum aggregate amount of the Formula Line shall be One Million Dollars
($1,000,000.00).”

 “Non-Formula Line” is a Non-Formula Advance or Non-Formula Advances in an
aggregate amount of up to One Million Five Hundred Thousand Dollars
($1,500,000.00) outstanding at any time; provided, however, that during the
Covenant Suspension Period, the maximum aggregate amount of the Non-Formula Line
shall be Zero Dollars ($0.00). Notwithstanding the foregoing, Non-Formula
Advances may only be requested by Borrower and shall only be made by Bank during
periods in which Borrower maintains EBITDA less Capital Expenditures of at least
Two Hundred Fifty Thousand Dollars ($250,000.00) for the three month period
ending on the last day of any month.”

8.                                       THE LOAN AGREEMENT SHALL BE AMENDED BY
INSERTING THE FOLLOWING DEFINITION, IN ALPHABETICAL ORDER, IN SECTION 13.1
THEREOF:

“Covenant Suspension Period” is the period commencing on July 31, 2006 and
ending on the date on which Bank receives Borrower’s financial reporting
pursuant to Section 6.2 hereof for the month ending September 30, 2006, which
financial reporting evidences, in Bank’s sole discretion, Borrower’s compliance
with the financial covenants set forth in Section 6.7 hereof as of the month
ending September 30, 2006.”

9.                                       THE COMPLIANCE CERTIFICATE APPEARING AS
EXHIBIT D TO THE LOAN AGREEMENT IS HEREBY REPLACED WITH THE COMPLIANCE
CERTIFICATE ATTACHED AS EXHIBIT A HERETO.

B.                                    WAIVERS.

1.                                       BANK HEREBY WAIVES BORROWER’S EXISTING
DEFAULTS UNDER THE LOAN AGREEMENT BY VIRTUE OF BORROWER’S FAILURE TO COMPLY WITH
THE FINANCIAL COVENANT SET FORTH IN: (I) SECTION 6.7(A) THEREOF (ADJUSTED QUICK
RATIO) AS OF THE MONTH ENDING MAY 31, 2006, AND (II) SECTION 6.7(B) THEREOF
(MINIMUM CONSOLIDATED CASH FLOW) AS OF THE MONTHS ENDING MAY 31, 2006 AND JUNE
30, 2006. BANK’S WAIVER OF BORROWER’S COMPLIANCE OF SAID FINANCIAL COVENANT
SHALL APPLY ONLY TO THE FOREGOING SPECIFIC PERIODS.

4.             FEES.  BORROWER SHALL PAY TO BANK A MODIFICATION FEE EQUAL TO
$5,500.00, 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 INTELLECTUAL PROPERTY SECURITY AGREEMENT. 
BORROWER HEREBY RATIFIES, CONFIRMS AND REAFFIRMS, ALL AND SINGULAR, THE TERMS
AND CONDITIONS OF A CERTAIN INTELLECTUAL PROPERTY SECURITY AGREEMENT DATED AS OF
APRIL 20, 2006 BETWEEN BORROWER AND BANK (THE “IP SECURITY AGREEMENT”), AND
ACKNOWLEDGES, CONFIRMS AND

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AGREES THAT THE IP SECURITY AGREEMENT CONTAINS AN ACCURATE AND COMPLETE LISTING
OF ALL INTELLECTUAL PROPERTY COLLATERAL AS DEFINED IN THE IP SECURITY AGREEMENT,
AND SHALL REMAIN IN FULL FORCE AND EFFECT.

6.             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 APRIL 20, 2006 BETWEEN
BORROWER AND BANK, 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.

7.             AUTHORIZATION TO FILE.  BORROWER HEREBY AUTHORIZES BANK TO FILE
UCC FINANCING STATEMENTS WITHOUT NOTICE TO BORROWER, WITH ALL APPROPRIATE
JURISDICTIONS, AS BANK DEEMS APPROPRIATE, IN ORDER TO FURTHER PERFECT OR PROTECT
BANK’S INTEREST IN THE COLLATERAL, INCLUDING A NOTICE THAT ANY DISPOSITION OF
THE COLLATERAL, BY EITHER THE BORROWER OR ANY OTHER PERSON, SHALL BE DEEMED TO
VIOLATE THE RIGHTS OF THE BANK UNDER THE CODE.

8.             CONSISTENT CHANGES.  THE EXISTING LOAN DOCUMENTS ARE HEREBY
AMENDED WHEREVER NECESSARY TO REFLECT THE CHANGES DESCRIBED ABOVE.

9.             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.

10.           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.

11.           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.

12.           JURISDICTION/VENUE.  BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS LOAN MODIFICATION AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY
REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA. 
NOTWITHSTANDING THE FOREGOING,  THE BANK SHALL HAVE THE RIGHT TO BRING ANY
ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION WHICH THE BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO
REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE BANK’S RIGHTS AGAINST THE
BORROWER OR ITS PROPERTY.

13.           COUNTERSIGNATURE.  THIS LOAN MODIFICATION AGREEMENT SHALL BECOME
EFFECTIVE ONLY WHEN IT SHALL HAVE BEEN EXECUTED BY BORROWER AND BANK.

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This Loan Modification Agreement is executed as a sealed instrument under the
laws of the Commonwealth of Massachusetts as of the date first written above.

 

BORROWER:

 

BANK:

 

DATAWATCH CORPORATION

 

SILICON VALLEY BANK

 

 

 

 

 

By:

 

 

By:

 

 

Name:

 

 

Name:

 

 

Title:

 

 

Title:

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

 

 

DATAWATCH TECHNOLOGIES CORPORATION

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

The undersigned, DATAWATCH INTERNATIONAL LIMITED,  ratifies, confirms and
reaffirms, all and singular, the terms and conditions of a certain Deed of
Guarantee dated July 11, 2006 (the “Guaranty”) and acknowledges, confirms and
agrees that the Guaranty 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.

DATAWATCH INTERNATIONAL LIMITED

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

 

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