Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of January 24, 2018
(the “Effective Date”) between SILICON VALLEY BANK, a California corporation
(“Bank”), and DATAWATCH CORPORATION, a Delaware corporation (“Borrower”),
provides the terms on which Bank shall lend to Borrower and Borrower shall repay
Bank. The parties agree as follows:

 

1ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP.
Notwithstanding the foregoing, except as explicitly set forth herein, all
financial covenant and other financial calculations shall be computed with
respect to Borrower on a consolidated basis with its Subsidiaries. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

2LOAN AND TERMS OF PAYMENT

 

2.1         Promise to Pay. Borrower hereby unconditionally promises to pay Bank
the outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.

 

2.2Revolving Line.

 

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

 

(b)          Termination; Repayment. The Revolving Line terminates on the
Revolving Line Maturity Date, when the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving
Line shall be immediately due and payable.

 

2.3Term Loan.

 

(a)          Availability. Subject to the terms and conditions of this
Agreement, on the Effective Date Borrower shall request and Bank shall make one
(1) term loan advance in the original principal amount of Ten Million Dollars
($10,000,000.00) (the “Term Loan Advance”). After repayment, the Term Loan
Advance (or any portion thereof) may not be reborrowed.

 

(b)          Interest Payments. Commencing on February 1, 2018 and continuing on
each Payment Date thereafter, Borrower shall make monthly payments of interest,
in arrears, on the principal amount of the Term Loan Advance at the rate set
forth in Section 2.5(a)(ii).

 

(c)          Repayment. Commencing on March 1, 2018 and continuing on each
Payment Date thereafter, Borrower shall repay the Term Loan Advance in (i) equal
monthly installments of principal based upon a forty-eight (48) month
amortization schedule, plus (ii) monthly payments of accrued interest at the
rate set forth in Section 2.5(a)(ii). All outstanding principal and accrued and
unpaid interest under the Term Loan Advance, and all other outstanding
Obligations with respect to the Term Loan Advance, are due and payable in full
on the Term Loan Maturity Date.

 

   

 

  

(d)          Permitted Prepayment. Borrower shall have the option to prepay all
or in an amount equal to fifty percent (50.0%) of the principal amount of the
Term Loan Advance outstanding, provided Borrower (i) delivers written notice to
Bank of its election to prepay the Term Loan Advance at least ten (10) days
prior to such prepayment along with a notice of the portion of the principal
amount being prepaid, and (ii) pays, on the date of such prepayment (A) the
outstanding principal being prepaid (which shall either be fifty percent (50.0%)
or one hundred percent (100.0%) of the principal outstanding) plus accrued and
unpaid interest with respect to the Term Loan Advance, (B) the Prepayment Fee
and (C) all other sums, if any, that shall have become due and payable with
respect to the Term Loan Advance, including interest at the Default Rate with
respect to any past due amounts. Any partial prepayment of principal with
respect to the Term Loan Advance made under this Section 2.3(d) will be applied
to the principal balance of the Term Loan Advance in the inverse order of
maturity.

 

(e)          Mandatory Prepayment Upon an Acceleration. If the Term Loan Advance
is accelerated by Bank following the occurrence and during the continuance of an
Event of Default, Borrower shall immediately pay to Bank an amount equal to the
sum of (i) all outstanding principal plus accrued and unpaid interest with
respect to the Term Loan Advance, (ii) the Prepayment Fee and (iii) all other
sums, if any, that shall have become due and payable with respect to the Term
Loan Advance, including interest at the Default Rate with respect to any past
due amounts.

 

2.4         Overadvances. If, at any time, the outstanding principal amount of
any Advances exceeds the lesser of either the Revolving Line or the Borrowing
Base, Borrower shall immediately pay to Bank in cash the amount of such excess
(such excess, the “Overadvance”). Without limiting Borrower’s obligation to
repay Bank any Overadvance, Borrower agrees to pay Bank interest on the
outstanding amount of any Overadvance, on demand, at a per annum rate equal to
the rate that is otherwise applicable to Advances plus five percent (5.0%).
Notwithstanding the foregoing, in the event that an Overadvance results solely
from a change by Bank to the Borrowing Base percentage, Borrower shall have two
(2) Business Days to repay the portion of such Overadvance resulting from such
change.

 

2.5Payment of Interest on the Credit Extensions.

 

(a)          Interest Rate.

 

(i)          Advances. Subject to Section 2.5(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to one-half of one percent (0.50%) above the Prime Rate, which
interest shall be payable monthly in accordance with Section 2.5(d) below.

 

(ii)         Term Loan Advance. Subject to Section 2.5(b), the principal amount
outstanding under the Term Loan Advance shall accrue interest at a floating per
annum rate equal to one percent (1.0%) above the Prime Rate, which interest
shall be payable monthly in accordance with Section 2.5(d) below.

 

(b)          Default Rate. Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is five percent (5.0%) above the rate that is otherwise
applicable thereto (the “Default Rate”). Fees and expenses which are required to
be paid by Borrower pursuant to the Loan Documents (including, without
limitation, Bank Expenses) but are not paid when due shall bear interest until
paid at a rate equal to the highest rate applicable to the Obligations. Payment
or acceptance of the increased interest rate provided in this Section 2.5(b) is
not a permitted alternative to timely payment and shall not constitute a waiver
of any Event of Default or otherwise prejudice or limit any rights or remedies
of Bank.

 

(c)          Adjustment to Interest Rate. Changes to the interest rate of any
Credit Extension based on changes to the Prime Rate shall be effective on the
effective date of any change to the Prime Rate and to the extent of any such
change.

 

(d)          Payment; Interest Computation. Interest is payable monthly on the
Payment Date of each month and shall be computed on the basis of a 360-day year
for the actual number of days elapsed. In computing interest, (i) all payments
received after 12:00 p.m. Eastern time on any day shall be deemed received at
the opening of business on the next Business Day, and (ii) the date of the
making of any Credit Extension shall be included and the date of payment shall
be excluded; provided, however, that if any Credit Extension is repaid on the
same day on which it is made, such day shall be included in computing interest
on such Credit Extension.

 

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2.6         Fees. Borrower shall pay to Bank:

 

(a)          Term Loan Commitment Fee. A fully earned, non-refundable commitment
fee of Fifty Thousand Dollars ($50,000.00), on the Effective Date;

 

(b)          Revolving Line Commitment Fee. A fully earned, non-refundable
commitment fee of Seventeen Thousand Five Hundred Dollars ($17,500.00), on the
Effective Date;

 

(c)          Prepayment Fee. The Prepayment Fee, when due hereunder;

 

(d)          Unused Revolving Line Facility Fee. Payable monthly in arrears on
the last day of each calendar month occurring prior to the Revolving Line
Maturity Date, and on the Revolving Line Maturity Date, a fee (the “Unused
Revolving Line Facility Fee”) in an amount equal to one-quarter of one percent
(0.25%) per annum of the average unused portion of the Revolving Line, as
determined by Bank, computed on the basis of a year with the applicable number
of days as set forth in Section 2.5(d). The unused portion of the Revolving
Line, for purposes of this calculation, shall be calculated on a calendar year
basis and shall equal the difference between (i) the Revolving Line, and (ii)
the average for the period of the daily closing balance of the Revolving Line
outstanding; and

 

(e)          Bank Expenses. All Bank Expenses (including reasonable attorneys’
fees and expenses for documentation and negotiation of this Agreement) incurred
through and after the Effective Date, when due (or, if no stated due date, upon
demand by Bank).

 

Unless otherwise provided in this Agreement or in a separate writing by Bank,
Borrower shall not be entitled to any credit, rebate, or repayment of any fees
earned by Bank pursuant to this Agreement notwithstanding any termination of
this Agreement or the suspension or termination of Bank’s obligation to make
loans and advances hereunder. Bank may deduct amounts owing by Borrower under
the clauses of this Section 2.6 pursuant to the terms of Section 2.7(c). Bank
shall provide Borrower written notice of deductions made from the Designated
Deposit Account pursuant to the terms of the clauses of this Section 2.6, of
which Bank will endeavor to provide within five (5) days of any such deduction.

 

2.7Payments; Application of Payments; Debit of Accounts.

 

(a)          All payments to be made by Borrower under any Loan Document shall
be made in immediately available funds in Dollars, without setoff or
counterclaim, before 12:00 p.m. Eastern time on the date when due. Payments of
principal and/or interest received after 12:00 p.m. Eastern time are considered
received at the opening of business on the next Business Day. When a payment is
due on a day that is not a Business Day, the payment shall be due the next
Business Day, and additional fees or interest, as applicable, shall continue to
accrue until paid.

 

(b)          Subject to the provisions of Sections 2.3(c) and (d) with respect
to the Term Loan Advance, Bank has the exclusive right to determine the order
and manner in which all payments with respect to the Obligations may be applied.
Borrower shall have no right to specify the order or the accounts to which Bank
shall allocate or apply any payments required to be made by Borrower to Bank or
otherwise received by Bank under this Agreement when any such allocation or
application is not specified elsewhere in this Agreement.

 

(c)          Bank may debit any of Borrower’s deposit accounts, including the
Designated Deposit Account, for principal and interest payments or any other
amounts Borrower owes Bank when due. These debits shall not constitute a
set-off.

 

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2.8         Withholding. Payments received by Bank from Borrower under this
Agreement will be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, duties, deductions, withholdings,
assessments, fees or other charges imposed by any Governmental Authority
(including any interest, additions to tax or penalties applicable thereto).
Specifically, however, if at any time any Governmental Authority, applicable
law, regulation or international agreement requires Borrower to make any
withholding or deduction from any such payment or other sum payable hereunder to
Bank, Borrower hereby covenants and agrees that the amount due from Borrower
with respect to such payment or other sum payable hereunder will be increased to
the extent necessary to ensure that, after the making of such required
withholding or deduction, Bank receives a net sum equal to the sum which it
would have received had no withholding or deduction been required, and Borrower
shall pay the full amount withheld or deducted to the relevant Governmental
Authority. Borrower will, upon request, furnish Bank with proof reasonably
satisfactory to Bank indicating that Borrower has made such withholding payment;
provided, however, that Borrower need not make any withholding payment if the
amount or validity of such withholding payment is contested in good faith by
appropriate and timely proceedings and as to which payment in full is bonded or
reserved against by Borrower. The agreements and obligations of Borrower
contained in this Section 2.8 shall survive the termination of this Agreement.

 

3CONDITIONS OF LOANS

 

3.1         Conditions Precedent to Initial Credit Extension. Bank’s obligation
to make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:

 

(a)          duly executed original signatures to the Loan Documents;

 

(b)          duly executed original signatures to the Control Agreements;

 

(c)          the Operating Documents and long-form good standing certificates of
Borrower certified by the Secretary of State (or equivalent agency) of Delaware
and each other state in which Borrower is qualified to conduct business, each as
of a date no earlier than thirty (30) days prior to the Effective Date;

 

(d)          a secretary’s certificate of Borrower with respect to Borrower’s
Operating Documents, incumbency, specimen signatures and resolutions authorizing
the execution and delivery of this Agreement and the other Loan Documents to
which it is a party;

 

(e)          duly executed original signatures to the completed Borrowing
Resolutions for Borrower;

 

(f)           certified copies, dated as of a recent date, of financing
statement searches, as Bank may request, accompanied by written evidence
(including any UCC termination statements) that the Liens indicated in any such
financing statements either constitute Permitted Liens or have been or, in
connection with the initial Credit Extension, will be terminated or released;

 

(g)          the Perfection Certificate of Borrower, together with the duly
executed original signature thereto;

 

(h)          a landlord’s consent in favor of Bank for each of Borrower’s leased
locations, by the respective landlord thereof, together with the duly executed
original signatures thereto;

 

(i)           a bailee’s waiver in favor of Bank for each location where
Borrower maintains property with a third party, by each such third party,
together with the duly executed original signatures thereto;

 

(j)           a legal opinion (authority and enforceability) of Borrower’s
counsel dated as of the Effective Date together with the duly executed original
signature thereto;

 

(k)          copies of the documents evidencing the Angoss Acquisition;

 

(l)           with respect to the initial Advance, the completion of the Initial
Audit;

 

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(m)         with respect to the initial Advance, a completed Borrowing Base
Report (and any schedules related thereto and including any other information
requested by Bank with respect to Borrower’s Accounts); and

 

(n)          payment of the fees and Bank Expenses then due as specified in
Section 2.6 hereof.

 

3.2         Conditions Precedent to all Credit Extensions. Bank’s obligations to
make each Credit Extension, including the initial Credit Extension, is subject
to the following conditions precedent:

 

(a)          timely receipt of (i) with respect to requests for Advances, the
Credit Extension request and any materials and documents required by Section 3.4
and (ii) with respect to the request for the Term Loan Advance, an executed
Payment/Advance Form and any materials and documents required by Section 3.4;

 

(b)          the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the proposed
Credit Extension and/or of the Payment/Advance Form, as applicable, and on the
Funding Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Event of Default shall have occurred and be continuing
or result from the Credit Extension. Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and warranties
in this Agreement remain true, accurate, and complete in all material respects;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date; and

 

(c)          Bank determines to its satisfaction that there has not been a
Material Adverse Change.

 

3.3         Covenant to Deliver. Borrower agrees to deliver to Bank each item
required to be delivered to Bank under this Agreement as a condition precedent
to any Credit Extension. Borrower expressly agrees that a Credit Extension made
prior to the receipt by Bank of any such item shall not constitute a waiver by
Bank of Borrower’s obligation to deliver such item, and the making of any Credit
Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.4         Procedures for Borrowing.

 

(a)          Advances. Subject to the prior satisfaction of all other applicable
conditions to the making of an Advance set forth in this Agreement, to obtain an
Advance, Borrower (via an individual duly authorized by an Administrator) shall
notify Bank (which notice shall be irrevocable) by electronic mail by 12:00 p.m.
Eastern time on the Funding Date of the Advance. Such notice shall be made by
Borrower through Bank’s online banking program, provided, however, if Borrower
is not utilizing Bank’s online banking program, then such notice shall be in a
written format acceptable to Bank that is executed by an Authorized Signer. Bank
shall have received satisfactory evidence that the Board has approved that such
Authorized Signer may provide such notices and request Advances. In connection
with any such notification, Borrower must promptly deliver to Bank by electronic
mail or through Bank’s online banking program such reports and information,
including without limitation, sales journals, cash receipts journals, accounts
receivable aging reports, and Borrowing Base Reports, as Bank may request in its
reasonable discretion. Bank shall credit proceeds of an Advance to the
Designated Deposit Account. Bank may make Advances under this Agreement based on
instructions from an Authorized Signer or without instructions if the Advances
are necessary to meet Obligations which have become due.

 

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(b)          Term Loan Advance. Subject to the prior satisfaction of all other
applicable conditions to the making of the Term Loan Advance set forth in this
Agreement, to obtain the Term Loan Advance, Borrower (via an individual duly
authorized by an Administrator) shall notify Bank (which notice shall be
irrevocable) by electronic mail by 12:00 noon Eastern time on the Funding Date
of the Term Loan Advance. Such notice shall be made by Borrower through Bank’s
online banking program, provided, however, if Borrower is not utilizing Bank’s
online banking program, then such notice shall be in a written format acceptable
to Bank that is executed by an Authorized Signer. Bank shall have received
satisfactory evidence that the Board has approved that such Authorized Signer
may provide such notices and request the Term Loan Advance. In connection with
such notification, Borrower must promptly deliver to Bank by electronic mail or
through Bank’s online banking program a completed Payment/Advance Form executed
by an Authorized Signer together with such other reports and information, as
Bank may request in its reasonable discretion. Bank shall credit proceeds of any
Term Loan Advance to the Designated Deposit Account. Bank may make the Term Loan
Advance under this Agreement based on instructions from an Authorized Signer or
without instructions if the Term Loan Advance is necessary to meet Obligations
which have become due.

 

4CREATION OF SECURITY INTEREST

 

4.1         Grant of Security Interest. Borrower hereby grants Bank, to secure
the payment and performance in full of all of the Obligations, a continuing
security interest in, and pledges to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof.

 

Borrower acknowledges that it previously has entered, and/or may in the future
enter, into Bank Services Agreements with Bank. Regardless of the terms of any
Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
perfected security interest in the Collateral granted herein (subject only to
Permitted Liens that are permitted pursuant to the terms of this Agreement to
have superior priority to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations (other than
inchoate indemnity obligations) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at the sole cost and expense of
Borrower, release its Liens in the Collateral and all rights therein shall
revert to Borrower. In the event (x) all Obligations (other than inchoate
indemnity obligations), except for Bank Services, are satisfied in full, and (y)
this Agreement is terminated, Bank shall terminate the security interest granted
herein upon Borrower providing cash collateral acceptable to Bank in its good
faith business judgment for Bank Services, if any. In the event such Bank
Services consist of outstanding Letters of Credit, Borrower shall provide to
Bank cash collateral in an amount equal to (x) if such Letters of Credit are
denominated in Dollars, then at least one hundred five percent (105.0%); and (y)
if such Letters of Credit are denominated in a Foreign Currency, then at least
one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of
all such Letters of Credit plus all interest, fees, and costs due or to become
due in connection therewith (as estimated by Bank in its business judgment), to
secure all of the Obligations relating to such Letters of Credit.

 

4.2         Priority of Security Interest. Borrower represents, warrants, and
covenants that the security interest granted herein is and shall at all times
continue to be a first priority perfected security interest in the Collateral
(subject only to Permitted Liens that are permitted pursuant to the terms of
this Agreement to have superior priority to Bank’s Lien under this Agreement).
If Borrower shall acquire a commercial tort claim in an amount in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00), Borrower shall promptly notify
Bank in a writing signed by Borrower of the general details thereof and grant to
Bank in such writing a security interest therein and in the proceeds thereof,
all upon the terms of this Agreement, with such writing to be in form and
substance reasonably satisfactory to Bank.

 

4.3         Authorization to File Financing Statements. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code. Such financing statements may indicate the Collateral as “all
assets of the Debtor” or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank’s discretion.

 

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5REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1         Due Organization, Authorization; Power and Authority. Borrower is
duly existing and in good standing as a Registered Organization in its
jurisdiction of formation and is qualified and licensed to do business and is in
good standing in any jurisdiction in which the conduct of its business or its
ownership of property requires that it be qualified except where the failure to
do so could not reasonably be expected to have a material adverse effect on
Borrower’s business. In connection with this Agreement, Borrower has delivered
to Bank a completed certificate signed by Borrower, entitled “Perfection
Certificate” (the “Perfection Certificate”). Borrower represents and warrants to
Bank that (a) Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; (b) Borrower is an organization of
the type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different than its chief executive office); (e) Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete in all material respects (it
being understood and agreed that Borrower may from time to time update certain
information in the Perfection Certificate after the Effective Date to the extent
permitted by one or more specific provisions in this Agreement). If Borrower is
not now a Registered Organization but later becomes one, Borrower shall promptly
notify Bank of such occurrence and provide Bank with Borrower’s organizational
identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law, (iii)
contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect), or (v) conflict with, contravene, constitute a default
or breach under, or result in or permit the termination or acceleration of, any
material agreement by which Borrower is bound. Borrower is not in default under
any agreement to which it is a party or by which it is bound in which the
default could reasonably be expected to have a material adverse effect on
Borrower’s business.

 

5.2         Collateral. Borrower has good title to, rights in, and the power to
transfer each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no Collateral Accounts at or with any bank or financial institution other
than Bank or Bank’s Affiliates except for the Collateral Accounts described in
the Perfection Certificate delivered to Bank in connection herewith and which
Borrower has taken such actions as are necessary to give Bank a perfected
security interest therein, pursuant to the terms of Section 6.8(b). The Accounts
are bona fide, existing obligations of the Account Debtors.

 

The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

 

All Inventory is in all material respects of good and marketable quality, free
from material defects.

 

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate. Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To the best of Borrower’s
knowledge, no claim has been made that any part of Borrower’s Intellectual
Property violates the rights of any third party except to the extent such claim
would not reasonably be expected to have a material adverse effect on Borrower’s
business.

 

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Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.

 

5.3         Accounts Receivable.

 

(a)          For each Account with respect to which Advances are requested, on
the date each Advance is requested and made, such Account shall be an Eligible
Account.

 

(b)          All statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing the Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower’s Books are genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Eligible Account shall comply in all material respects with all applicable
laws and governmental rules and regulations. Borrower has no knowledge of any
actual or imminent Insolvency Proceeding of any Account Debtor whose accounts
are Eligible Accounts in any Borrowing Base Report. To the best of Borrower’s
knowledge, all signatures and endorsements on all documents, instruments, and
agreements relating to all Eligible Accounts are genuine, and all such
documents, instruments and agreements are legally enforceable in accordance with
their terms.

 

5.4         Litigation. There are no actions or proceedings pending or, to the
knowledge of any Responsible Officer, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than, individually or in the
aggregate, Fifty Thousand Dollars ($50,000.00).

 

5.5         Financial Statements; Financial Condition. All consolidated
financial statements for Borrower and any of its Subsidiaries delivered to Bank
fairly present in all material respects Borrower’s consolidated financial
condition and Borrower’s consolidated results of operations. There has not been
any material deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

 

5.6         Solvency. The fair salable value of Borrower’s consolidated assets
(including goodwill minus disposition costs) exceeds the fair value of
Borrower’s liabilities; Borrower is not left with unreasonably small capital
after the transactions in this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.

 

5.7         Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the
Federal Reserve Board of Governors). Borrower (a) has complied in all material
respects with all Requirements of Law, and (b) has not violated any Requirements
of Law, in the case of (a) or (b) the noncompliance or violation of which could
reasonably be expected to have a material adverse effect on its business. None
of Borrower’s or any of its Subsidiaries’ properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. Borrower and each of its Subsidiaries
have obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all Governmental
Authorities that are necessary to continue their respective businesses as
currently conducted, except where the failure to do so could not reasonably be
expected to have a material adverse effect on Borrower’s business.

 

5.8         Subsidiaries; Investments. Borrower does not own any stock,
partnership, or other ownership interest or other equity securities except for
Permitted Investments.

 

5.9         Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all required tax returns and reports, and Borrower has timely paid all
foreign, federal, state and local taxes, assessments, deposits and contributions
owed by Borrower except (a) to the extent such taxes are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted,
so long as such reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor, or (b) if such
taxes, assessments, deposits and contributions do not, individually or in the
aggregate, exceed Twenty-Five Thousand Dollars ($25,000.00).

 

 8 

 

  

To the extent Borrower defers payment of any contested taxes, Borrower shall (i)
notify Bank in writing of the commencement of, and any material development in,
the proceedings, and (ii) post bonds or take any other steps required to prevent
the Governmental Authority levying such contested taxes from obtaining a Lien
upon any of the Collateral that is other than a “Permitted Lien.” Borrower is
unaware of any claims or adjustments proposed for any of Borrower’s prior tax
years which could result in additional taxes becoming due and payable by
Borrower in excess of Twenty-Five Thousand Dollars ($25,000.00). Borrower has
paid all amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.

 

5.10       Use of Proceeds. Borrower shall use the proceeds of the Credit
Extensions solely as working capital and to fund its general business
requirements and not for personal, family, household or agricultural purposes,
and with respect to the Term Loan Advance, for the Angoss Acquisition.

 

5.11       Full Disclosure. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representation, warranty, or other statement was made, taken
together with all such written certificates and written statements given to
Bank, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

 

5.12       Definition of “Knowledge.” For purposes of the Loan Documents,
whenever a representation or warranty is made to Borrower’s knowledge or
awareness, to the “best of” Borrower’s knowledge, or with a similar
qualification, knowledge or awareness means the actual knowledge, after
reasonable investigation, of any Responsible Officer.

 

6AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1         Government Compliance.

 

(a)          Except to the extent permitted in Section 7.3 hereof, maintain its
and all its Subsidiaries’ legal existence and good standing in their respective
jurisdictions of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to have a material
adverse effect on Borrower’s business or operations. Borrower shall comply, and
have each Subsidiary comply, in all material respects, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could
reasonably be expected to have a material adverse effect on Borrower’s business.

 

(b)          Obtain all of the Governmental Approvals necessary for the
performance by Borrower of its obligations under the Loan Documents to which it
is a party and the grant of a security interest to Bank in all of its property.
Borrower shall promptly provide copies of any such obtained Governmental
Approvals to Bank.

 

6.2         Financial Statements, Reports, Certificates. Provide Bank with the
following:

 

(a)          a Borrowing Base Report (and any schedules related thereto and
including any other information reasonably requested by Bank with respect to
Borrower’s Accounts) (i) with each request for an Advance and (ii) within thirty
(30) days after the end of each month;

 

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(b)          within thirty (30) days after the end of each month, (i) monthly
accounts receivable agings, aged by invoice date, (ii) monthly accounts payable
agings, aged by invoice date, and outstanding or held check registers, if any,
and (iii) monthly reconciliations of accounts receivable agings (aged by invoice
date), transaction reports, Deferred Revenue report and general ledger, each in
a form acceptable to Bank;

 

(c)          as soon as available, but no later than thirty (30) days after the
last day of each month, a company prepared consolidated balance sheet and income
statement covering Borrower’s consolidated operations for such month certified
by a Responsible Officer and in a form acceptable to Bank (it being acknowledged
that the form of such statements delivered by Borrower to Bank prior to the
Effective Date is a form acceptable to Bank) (the “Monthly Financial
Statements”);

 

(d)          within thirty (30) days after the last day of each month and
together with the Monthly Financial Statements, a duly completed Compliance
Certificate signed by a Responsible Officer, certifying that as of the end of
such month, Borrower was in full compliance with all of the terms and conditions
of this Agreement, and setting forth calculations showing compliance with the
financial covenants set forth in this Agreement and such other information as
Bank may reasonably request;

 

(e)          within thirty (30) days after the earlier to occur of (i) the end
of each fiscal year of Borrower and (ii) approval by the Board, and
contemporaneously with any updates or amendments thereto, (A) annual operating
budgets (including income statements, balance sheets and cash flow statements,
by month), and (B) annual financial projections (on a quarterly basis), in each
case as approved by the Board, together with any related business forecasts used
in the preparation of such annual financial projections;

 

(f)           as soon as available, and in any event within the earlier to occur
of (i) ninety (90) days following the end of Borrower’s fiscal year and (ii)
within five (5) days of filing with the SEC, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion (other than as to a going concern or a qualification
resulting solely from the scheduled maturity of the Credit Extensions occurring
within one year from the date such opinion is delivered) on the financial
statements from either RSM US LLP or another independent certified public
accounting firm reasonably acceptable to Bank;

 

(g)          within five (5) days of filing, copies of all periodic and other
reports, proxy statements and other materials filed by Borrower and/or any
Guarantor with the SEC, any Governmental Authority succeeding to any or all of
the functions of the SEC or with any national securities exchange, or
distributed to its shareholders in accordance with the Exchange Act, as the case
may be. Documents required to be delivered pursuant to the terms hereof (to the
extent any such documents are included in materials otherwise filed with the
SEC) may be delivered electronically and if so delivered, shall be deemed to
have been delivered on the date on which Borrower posts such documents, or
provides a link thereto, on Borrower’s website on the internet at Borrower’s
website address; provided, however, Borrower shall promptly notify Bank in
writing (which may be by electronic mail) of the posting of any such documents;

 

(h)          within five (5) days of delivery, copies of all statements, reports
and notices made available to any holders of Subordinated Debt;

 

(i)           prompt report of any legal actions pending or threatened in
writing against Borrower or any of its Subsidiaries that could result in damages
or costs to Borrower or any of its Subsidiaries of, individually or in the
aggregate, One Hundred Thousand Dollars ($100,000.00) or more; and

 

(j)           promptly, from time to time, such other information regarding
Borrower or compliance with the terms of any Loan Documents as reasonably
requested by Bank.

 

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6.3         Accounts Receivable.

 

(a)          Schedules and Documents Relating to Accounts. Borrower shall
deliver to Bank transaction reports and schedules of collections, as provided in
Section 6.2, on Bank’s standard forms; provided, however, that Borrower’s
failure to execute and deliver the same shall not affect or limit Bank’s Lien
and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to
advance or lend against a specific Account affect or limit Bank’s Lien and other
rights therein. If reasonably requested by Bank, Borrower shall furnish Bank
with copies (or, at Bank’s request, originals) of all contracts, orders,
invoices, and other similar documents, and all shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Accounts. In addition, Borrower
shall promptly (and in any event within one (1) Business Day) deliver to Bank,
after its request, the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Accounts, in the same form as received, with all necessary indorsements, and
copies of all credit memos.

 

(b)          Disputes. Borrower shall promptly notify Bank of all disputes or
claims relating to Accounts in excess of One Hundred Thousand Dollars
($100,000.00) in the aggregate existing at any time. Borrower may forgive
(completely or partially), compromise, or settle any Account for less than
payment in full, or agree to do any of the foregoing so long as (i) Borrower
does so in good faith, in the ordinary course of business, in arm’s-length
transactions, and reports the same to Bank in the regular reports provided to
Bank; (ii) no Event of Default has occurred and is continuing; and (iii) after
taking into account all such discounts, settlements and forgiveness, the total
outstanding Advances will not exceed the lesser of the Revolving Line or the
Borrowing Base.

 

(c)          Collection of Accounts. Borrower shall direct Account Debtors to
deliver or transmit all proceeds of Accounts into a lockbox account, or via
electronic deposit capture into a “blocked account” as specified by Bank (either
such account, the “Cash Collateral Account”). Whether or not an Event of Default
has occurred and is continuing, Borrower shall immediately deliver all payments
on and proceeds of Accounts to the Cash Collateral Account. Subject to Bank’s
right to maintain a reserve pursuant to Section 6.3(d), so long as no Event of
Default exists, all amounts received in the Cash Collateral Account shall be
transferred on a daily basis to Borrower’s operating account with Bank. Borrower
hereby authorizes Bank to transfer to the Cash Collateral Account any amounts
that Bank reasonably determines are proceeds of the Accounts (provided that Bank
is under no obligation to do so and this allowance shall in no event relieve
Borrower of its obligations hereunder).

 

(d)          Reserves. Notwithstanding any terms in this Agreement to the
contrary, at times when an Event of Default exists, Bank may hold any proceeds
of the Accounts and any amounts in the Cash Collateral Account that are not
applied to the Obligations pursuant to Section 6.3(c) above (including amounts
otherwise required to be transferred to Borrower’s operating account) as a
reserve to be applied to any Obligations regardless of whether such Obligations
are then due and payable.

 

(e)          Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly (i) determine the reason for such return, (ii) issue a credit
memorandum to the Account Debtor in the appropriate amount, and (iii) provide a
copy of such credit memorandum to Bank, upon request from Bank. In the event any
attempted return occurs after the occurrence and during the continuance of any
Event of Default, Borrower shall hold the returned Inventory in trust for Bank,
and immediately notify Bank of the return of the Inventory.

 

(f)           Verifications; Confirmations; Credit Quality; Notifications.
Following the occurrence and during the continuance of an Event of Default, Bank
may, from time to time, (i) verify and confirm directly with the respective
Account Debtors the validity, amount and other matters relating to the Accounts,
either in the name of Borrower or Bank or such other name as Bank may choose,
and notify any Account Debtor of Bank’s security interest in such Account and/or
(ii) conduct a credit check of any Account Debtor to approve any such Account
Debtor’s credit.

 

(g)          No Liability. Bank shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Bank be
deemed to be responsible for any of Borrower’s obligations under any contract or
agreement giving rise to an Account. Nothing herein shall, however, relieve Bank
from liability for its own gross negligence or willful misconduct.

 

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6.4         Remittance of Proceeds. Except as otherwise provided in Section
6.3(c), deliver, in kind, all proceeds arising from the disposition of any
Collateral to Bank in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower, to be applied to the
Obligations (a) prior to an Event of Default, pursuant to the terms of Section
6.3(c) hereof, and (b) after the occurrence and during the continuance of an
Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if
no Event of Default has occurred and is continuing, Borrower shall not be
obligated to remit to Bank the proceeds of the sale of assets to the extent
permitted by Section 7.1; provided, however, that Borrower shall remit such
proceeds to Bank with respect to any Transfer in connection with Section 7.1(b)
to the extent that such proceeds exceed One Hundred Thousand Dollars
($100,000.00) in the aggregate (for all such transactions in any fiscal year).
To the extent that Borrower is required to remit the proceeds to Bank, Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower’s
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Bank. Nothing in this
Section 6.4 limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.

 

6.5         Taxes; Pensions. Timely file, and require each of its Subsidiaries
to timely file, all required tax returns and reports and timely pay, and require
each of its Subsidiaries to timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower and each of its
Subsidiaries, except for deferred payment of any taxes contested pursuant to the
terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.

 

6.6         Access to Collateral; Books and Records. At reasonable times, on two
(2) Business Days’ prior notice (provided no notice is required if an Event of
Default has occurred and is continuing), Bank, or its agents, shall have the
right to inspect the Collateral and the right to audit and copy Borrower’s
Books. The foregoing inspections and audits shall be conducted no more often
than twice every twelve (12) months unless an Event of Default has occurred and
is continuing in which case such inspections and audits shall occur as often as
Bank shall determine is necessary. The foregoing inspections and audits shall be
conducted at Borrower’s expense and the charge therefor shall be One Thousand
Dollars ($1,000.00) per person per day (or such higher amount as shall represent
Bank’s then-current standard charge for the same), plus reasonable out-of-pocket
expenses. In the event Borrower and Bank schedule an audit more than ten (10)
days in advance, and Borrower cancels or seeks to or reschedules the audit with
less than ten (10) days written notice to Bank, then (without limiting any of
Bank’s rights or remedies) Borrower shall pay Bank a fee of One Thousand Dollars
($1,000.00) plus any out-of-pocket expenses incurred by Bank to compensate Bank
for the anticipated costs and expenses of the cancellation or rescheduling.
Borrower acknowledges that the first such audit will occur within thirty (30)
days of the Effective Date.

 

6.7         Insurance.

 

(a)          Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location. Insurance
policies shall be in a form, with financially sound and reputable insurance
companies that are not Affiliates of Borrower, and in amounts that are standard
for companies in Borrower’s industry and location. All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee. All liability policies shall show, or have endorsements showing, Bank as
an additional insured. Bank shall be named as lender loss payee and/or
additional insured with respect to any such insurance providing coverage in
respect of any Collateral.

 

(b)          Ensure that proceeds payable under any property policy are, at
Bank’s option, payable to Bank on account of the Obligations.

 

(c)          At Bank’s request, Borrower shall deliver certified copies of
insurance policies and evidence of all premium payments. Each provider of any
such insurance required under this Section 6.7 shall agree, by endorsement upon
the policy or policies issued by it or by independent instruments furnished to
Bank, that it will give Bank thirty (30) days prior written notice before any
such policy or policies shall be materially altered or canceled. If Borrower
fails to obtain insurance as required under this Section 6.7 or to pay any
amount or furnish any required proof of payment to third persons and Bank, Bank
may make all or part of such payment or obtain such insurance policies required
in this Section 6.7, and take any action under the policies Bank reasonably
deems prudent.

 

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6.8         Accounts.

 

(a)          Maintain all of its and all of its Domestic Subsidiaries’ operating
and other deposit accounts, the Cash Collateral Account and
securities/investment accounts with Bank and Bank’s Affiliates. Any Guarantor
shall maintain all depository, operating and securities/investment accounts with
Bank and Bank’s Affiliates.

 

(b)          In addition to and without limiting the restrictions in (a),
Borrower shall provide Bank five (5) days prior written notice before
establishing any Collateral Account at or with any bank or financial institution
other than Bank or Bank’s Affiliates. For each Collateral Account that Bank (in
its sole discretion) permits Borrower to open or maintain at any time, Borrower
shall cause the applicable bank or financial institution (other than Bank) at or
with which any Collateral Account is maintained to execute and deliver a Control
Agreement or other appropriate instrument with respect to such Collateral
Account to perfect Bank’s Lien in such Collateral Account in accordance with the
terms hereunder which Control Agreement may not be terminated without the prior
written consent of Bank. The provisions of the previous sentence shall not apply
to deposit accounts exclusively used for payroll, payroll taxes, and other
employee wage and benefit payments to or for the benefit of Borrower’s employees
and identified to Bank by Borrower as such.

 

6.9         Financial Covenants.

 

(a)          Adjusted Quick Ratio. To be tested as of the last day of each
month, have an Adjusted Quick Ratio of at least (i) 1.25 to 1.0 for the month
ending December 31, 2017, (ii) 1.10 to 1.0 for the months ending January 31,
2018 and February 28, 2018, (iii) 1.25 to 1.0 for the month ending March 31,
2018, (iv) 1.10 to 1.0 for the months ending April 30, 2018 and May 31, 2018 and
(v) 1.25 to 1.0 for the month ending June 30, 2018 and for each month
thereafter.

 

(b)          Trailing Three Month Adjusted EBITDA. To be tested as of the last
day of each calendar quarter, have Adjusted EBITDA for the trailing three (3)
month period ending on such day, of at least (a) ($3,000,000.00) for the
trailing three (3) month period ending March 31, 2018, (b) ($1,000,000.00) for
the trailing three (3) month period ending June 30, 2018, (c) ($250,000.00) for
the trailing three (3) month period ending September 30, 2018, (d) $1.00 for the
trailing three (3) month period ending December 31, 2018, (e) $250,000.00 for
the trailing three (3) month period ending March 31, 2019, (f) $500,000.00 for
the trailing three (3) month period ending June 30, 2019, (g) $750,000.00 for
the trailing three (3) month period ending September 30, 2019 and (h)
$1,000,000.00 for the trailing three (3) month period ending December 31, 2019
and for each trailing three (3) month period ending on the last day of each
calendar quarter thereafter.

 

6.10       Protection of Intellectual Property Rights.

 

(a)          Use commercially reasonable efforts to (i) protect, defend and
maintain the validity and enforceability of the Intellectual Property material
to its business; (ii) promptly advise Bank in writing of material infringements
or any other event that could reasonably be expected to materially and adversely
affect the value of its Intellectual Property; and (iii) not allow any
Intellectual Property material to Borrower’s business to be abandoned, forfeited
or dedicated to the public without Bank’s written consent.

 

(b)          Provide written notice to Bank within ten (10) days of entering or
becoming bound by any Restricted License (other than over-the-counter software
that is commercially available to the public). Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for (i) any Restricted License to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such Restricted
License, whether now existing or entered into in the future, and (ii) Bank to
have the ability in the event of a liquidation of any Collateral to dispose of
such Collateral in accordance with Bank’s rights and remedies under this
Agreement and the other Loan Documents.

 

6.11       Litigation Cooperation. From the date hereof and continuing through
the termination of this Agreement, make available to Bank, without expense to
Bank, Borrower and its officers, employees and agents and Borrower’s books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

 

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6.12       Online Banking.

 

(a)          Utilize Bank’s online banking platform for all matters requested by
Bank which shall include, without limitation (and without request by Bank for
the following matters), uploading information pertaining to Accounts and Account
Debtors, requesting approval for exceptions, requesting Credit Extensions, and
uploading financial statements and other reports required to be delivered by
this Agreement (including, without limitation, those described in Section 6.2 of
this Agreement).

 

(b)          Comply with the terms of the “Banking Terms and Conditions” and
ensure that all persons utilizing the online banking platform are duly
authorized to do so by an Administrator. Bank shall be entitled to assume the
authenticity, accuracy and completeness on any information, instruction or
request for a Credit Extension submitted via the online banking platform and to
further assume that any submissions or requests made via the online banking
platform have been duly authorized by an Administrator.

 

6.13       Further Assurances. Execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the
Collateral or to effect the purposes of this Agreement. Deliver to Bank, within
five (5) days after the same are sent or received, copies of all material
correspondence, reports, documents and other filings with any Governmental
Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material
effect on any of the Governmental Approvals or otherwise on the operations of
Borrower or of its Subsidiaries taken as a whole.

 

6.14       Joinder of Angoss. No later than fifteen (15) Business Days following
the closing of the Angoss Acquisition, Borrower shall (a) cause Angoss to
provide to Bank a joinder to this Agreement to cause Angoss to become a
co-borrower hereunder, together with such appropriate documents, all in form and
substance reasonably satisfactory to Bank (including being sufficient to grant
Bank a first priority Lien in and to the assets of Angoss), (b) provide to Bank
appropriate certificates and powers and financing statements, pledging all of
the direct or beneficial ownership interest in Angoss, in form and substance
reasonably satisfactory to Bank, and (c) provide to Bank all other documentation
in form and substance reasonably satisfactory to Bank, which in its opinion is
appropriate with respect to the execution and delivery of the applicable
documentation referred to above, including, without limitation, one or more
opinions of counsel reasonably satisfactory to Bank. Any document, agreement, or
instrument executed or issued pursuant to this Section 6.14 shall be a Loan
Document.

 

6.15       Post-Closing Requirement. Deliver to Bank, within thirty (30) days of
the Effective Date, evidence satisfactory to Bank that the insurance policies
and endorsements required by Section 6.7 hereof are in full force and effect,
together with appropriate evidence showing lender loss payable and/or additional
insured clauses or endorsements in favor of Bank.

 

7NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1         Dispositions. Convey, sell, lease, transfer, assign, or otherwise
dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers (a)
of Inventory in the ordinary course of business; (b) of worn-out, obsolete or
other Equipment that is, in the reasonable judgment of Borrower, no longer
economically practicable to maintain or useful in the ordinary course of
business of Borrower; (c) consisting of Permitted Liens and Permitted
Investments; (d) consisting of the sale or issuance of any stock of Borrower to
the extent not prohibited under Section 7.2 of this Agreement; (e) consisting of
Borrower’s and its Subsidiaries’ use or transfer of money or Cash Equivalents in
the ordinary course of its business for the payment of ordinary course business
expenses in a manner that is not prohibited by the terms of this Agreement or
the other Loan Documents; (f) consisting of distributions, dividends or payments
of the type described in, and permitted pursuant to, Section 7.7; (g) consisting
of any sale or issuance by any Subsidiary of Borrower of its own capital stock
to Borrower; (h) consisting of any sublease of real property by Borrower not
constituting Indebtedness and not entered into as part of a sale and leaseback
transaction; (i) of non-exclusive licenses for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; and (j)
settlements, discounts, write-offs for bad debt and other similar reductions to
Accounts in the ordinary course of business, in each case in accordance with
GAAP and in accordance with Section 6.3(b).

 

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7.2         Changes in Business, Management, Control, or Business Locations. (a)
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve (provided
that any Subsidiary of Borrower which is not a Borrower or a Guarantor may
liquidate or dissolve if its assets are transferred to Borrower or another
Subsidiary of Borrower); (c) fail to provide notice to Bank of any Key Person
departing from or ceasing to be employed by Borrower within five (5) days after
any such Key Person’s departure from Borrower; or (d) permit or suffer any
Change in Control.

 

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Twenty-Five
Thousand Dollars ($25,000.00) in Borrower’s assets or property) or deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
Twenty-Five Thousand Dollars ($25,000.00) to a bailee at a location other than
to a bailee and at a location already disclosed in the Perfection Certificate,
(2) change its jurisdiction of organization, (3) change its organizational
structure or type, (4) change its legal name, or (5) change any organizational
number (if any) assigned by its jurisdiction of organization. If Borrower
intends to deliver any portion of the Collateral valued, individually or in the
aggregate, in excess of Twenty-Five Thousand Dollars ($25,000.00) to a bailee,
and Bank and such bailee are not already parties to a bailee agreement governing
both the Collateral and the location to which Borrower intends to deliver the
Collateral, then Borrower and such bailee shall first execute and deliver a
bailee agreement in form and substance reasonably satisfactory to Bank.

 

7.3         Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person (including, without limitation, by
the formation of any Subsidiary). A Subsidiary may merge or consolidate into
another Subsidiary or into Borrower. Notwithstanding the foregoing, Bank agrees
that Borrower may enter into the Angoss Acquisition provided that Bank’s consent
to such acquisition is conditioned upon (a) Borrower not assuming or incurring
any Indebtedness or Liens in connection with the Angoss Acquisition, (b)
Borrower not using or transferring any of its cash or other property in
connection with the Angoss Acquisition except for (i) Twenty-Four Million Five
Hundred Thousand Dollars ($24,500,000.00) in cash to be paid as the purchase
price at the closing of the Angoss Acquisition, (ii) any working capital
adjustments and (iii) One Million Five Hundred Thousand Dollars ($1,500,000.00)
for expenses and other costs directly related to the Angoss Acquisition, (c)
Borrower being a surviving legal entity after the Angoss Acquisition, (d) no
Event of Default having occurred and continuing and no Event of Default existing
after giving effect to the Angoss Acquisition and (e) Bank receiving
fully-executed copies of the Share Purchase Agreement and the other documents in
connection with the Angoss Acquisition.

 

7.4         Indebtedness. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.

 

7.5         Encumbrance. Create, incur, allow, or suffer any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein (subject only to Permitted Liens that are permitted
pursuant to the terms of this Agreement to have superior priority to Bank’s Lien
in this Agreement),or enter into any agreement, document, instrument or other
arrangement (except with or in favor of Bank) with any Person which directly or
indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary
from assigning, mortgaging, pledging, granting a security interest in or upon,
or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property,
except as is otherwise permitted in Section 7.1 hereof and the definition of
“Permitted Liens” herein.

 

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7.6         Maintenance of Collateral Accounts. Maintain any Collateral Account
except pursuant to the terms of Section 6.8(b) hereof.

 

7.7         Distributions; Investments. (a) Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock provided
that Borrower may (i) pay dividends solely in common stock and (ii) Borrower’s
Subsidiaries may pay dividends to Borrower; or (b) directly or indirectly make
any Investment (including, without limitation, by the formation of any
Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries
to do so.

 

7.8         Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for (a) transactions that are in the ordinary course of Borrower’s business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm’s length transaction with a non-affiliated Person, (b)
transactions of the type described in and permitted by Sections 7.3, 7.4 or 7.7
hereof, (c) the payment of compensation, severance or employee benefit
arrangements to employees, officers and directors of Borrower and its
Subsidiaries in the ordinary course of business and (d) any indemnity provided
to employees, officers, and directors of Borrower or any of its Subsidiaries
solely in such Person’s capacity as an employee, officer or director and to the
extent not otherwise prohibited by this Agreement.

 

7.9         Subordinated Debt. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b)
amend any provision in any document relating to the Subordinated Debt, except as
permitted under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject.

 

7.10       Compliance. Become an “investment company” or a company controlled by
an “investment company”, under the Investment Company Act of 1940, as amended,
or undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation or failure to comply could reasonably be expected
to have a material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

 

8.1         Payment Default. Borrower fails to (a) make any payment of principal
or interest on any Credit Extension when due, or (b) pay any other Obligations
within three (3) Business Days after such Obligations are due and payable (which
three (3) Business Day cure period shall not apply to payments due on the
Revolving Line Maturity Date or the Term Loan Maturity Date). During the cure
period, the failure to make or pay any payment specified under clause (b)
hereunder is not an Event of Default (but no Credit Extension will be made
during the cure period);

 

8.2         Covenant Default.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3,
6.4, 6.5, 6.6, 6.8, 6.9, 6.10(b), 6.12, 6.14, or 6.15 or violates any covenant
in Section 7; or

 

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(b) Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Cure periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in clause (a) above;

 

8.3         Material Adverse Change. A Material Adverse Change occurs;

 

8.4         Attachment; Levy; Restraint on Business.

 

(a)          (i) The service of process seeking to attach, by trustee or similar
process, any funds of Borrower or of any entity under the control of Borrower
(including a Subsidiary), or (ii) a notice of lien or levy is filed against any
of Borrower’s assets by any Governmental Authority, and the same under
subclauses (i) and (ii) hereof are not, within ten (10) days after the
occurrence thereof, discharged or stayed (whether through the posting of a bond
or otherwise); provided, however, no Credit Extensions shall be made during any
ten (10) day cure period; or

 

(b)           (i) any material portion of Borrower’s assets is attached, seized,
levied on, or comes into possession of a trustee or receiver, or (ii) any court
order enjoins, restrains, or prevents Borrower from conducting all or any
material part of its business;

 

8.5         Insolvency. (a) Borrower or any of its Subsidiaries is generally
unable to pay its debts (including trade debts) as they become due or otherwise
becomes insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency
Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of
its Subsidiaries and is not dismissed or stayed within forty-five (45) days (but
no Credit Extensions shall be made while any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6         Other Agreements. There is, under any agreement to which Borrower or
any Guarantor is a party with a third party or parties, (a) any default
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount individually or in
the aggregate in excess of Three Hundred Fifty Thousand Dollars ($350,000.00);
or (b) any breach or default by Borrower or any Guarantor, the result of which
could reasonably be expected to have a material adverse effect on Borrower’s and
the Guarantor’s business taken as a whole;

 

8.7         Judgments; Penalties. One or more fines, penalties or final
judgments, orders or decrees for the payment of money in an amount, individually
or in the aggregate, of at least Three Hundred Fifty Thousand Dollars
($350,000.00) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower by any Governmental Authority, and the same are not, within ten (10)
days after the entry, assessment or issuance thereof, discharged, satisfied, or
paid, or after execution thereof, stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay (provided
that no Credit Extensions will be made prior to the satisfaction, payment,
discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

 

8.8         Misrepresentations. Borrower or any Person acting for Borrower makes
any representation, warranty, or other statement now or later in this Agreement,
any Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;

 

8.9         Subordinated Debt. Any document, instrument, or agreement evidencing
any Subordinated Debt shall for any reason be revoked or invalidated or
otherwise cease to be in full force and effect, any Person shall be in breach
thereof or contest in any manner the validity or enforceability thereof or deny
that it has any further liability or obligation thereunder, or the Obligations
shall for any reason be subordinated or shall not have the priority contemplated
by this Agreement or any applicable subordination or intercreditor agreement;

 

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8.10       Governmental Approvals. Any Governmental Approval shall have been (a)
revoked, rescinded, suspended, modified in an adverse manner or not renewed in
the ordinary course or (b) subject to any decision by a Governmental Authority
that designates a hearing with respect to any applications for renewal of any of
such Governmental Approval or that could result in the Governmental Authority
taking any of the actions described in clause (a) above, and such decision or
such revocation, rescission, suspension, modification or non-renewal causes, or
could reasonably be expected to cause, a Material Adverse Change; or

 

8.11       Subsidiary Cash. Borrower’s Subsidiaries (which are not a Borrower)
acquire, receive, own or hold cash or Cash Equivalents in an aggregate amount
(for all such Subsidiaries together) of greater than Three Million Dollars
($3,000,000.00) at any time.

 

9BANK’S RIGHTS AND REMEDIES

 

9.1         Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, without notice or demand, do any or all of the
following:

 

(a)          declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);

 

(b)          stop advancing money or extending credit for Borrower’s benefit
under this Agreement or under any other agreement between Borrower and Bank;

 

(c)          demand that Borrower (i) deposit cash with Bank in an amount equal
to at least (A) one hundred five percent (105.0%) of the Dollar Equivalent of
the aggregate face amount of all Letters of Credit denominated in Dollars
remaining undrawn, and (B) one hundred ten percent (110.0%) of the Dollar
Equivalent of the aggregate face amount of all Letters of Credit denominated in
a Foreign Currency remaining undrawn (plus, in each case, all interest, fees,
and costs due or to become due in connection therewith (as estimated by Bank in
its good faith business judgment)), to secure all of the Obligations relating to
such Letters of Credit, as collateral security for the repayment of any future
drawings under such Letters of Credit, and Borrower shall forthwith deposit and
pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to
be paid or payable over the remaining term of any Letters of Credit;

 

(d)          terminate any FX Contracts;

 

(e)          verify the amount of, demand payment of and performance under, and
collect any Accounts and General Intangibles, settle or adjust disputes and
claims directly with Account Debtors for amounts on terms and in any order that
Bank considers advisable, and notify any Person owing Borrower money of Bank’s
security interest in such funds. Borrower shall collect all payments in trust
for Bank and, if requested by Bank, immediately deliver the payments to Bank in
the form received from the Account Debtor, with proper endorsements for deposit;

 

(f)           make any payments and do any acts it considers necessary or
reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrower shall assemble the Collateral if Bank requests and make it
available as Bank designates. Bank may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any
of Bank’s rights or remedies;

 

(g)          apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) amount held by Bank owing to or for the credit or the account
of Borrower;

 

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(h)          ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements inure to Bank’s benefit;

 

(i)           place a “hold” on any account maintained with Bank and/or deliver
a notice of exclusive control, any entitlement order, or other directions or
instructions pursuant to any Control Agreement or similar agreements providing
control of any Collateral;

 

(j)           demand and receive possession of Borrower’s Books; and

 

(k)          exercise all rights and remedies available to Bank under the Loan
Documents or at law or equity, including all remedies provided under the Code
(including disposal of the Collateral pursuant to the terms thereof).

 

9.2         Power of Attorney. Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable following the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower’s name on any
checks, payment instruments, or other forms of payment or security; (b) sign
Borrower’s name on any invoice or bill of lading for any Account or drafts
against Account Debtors; (c) demand, collect, sue, and give releases to any
Account Debtor for monies due, settle and adjust disputes and claims about the
Accounts directly with Account Debtors, and compromise, prosecute, or defend any
action, claim, case, or proceeding about any Collateral (including filing a
claim or voting a claim in any bankruptcy case of a Person other than Borrower
in Bank’s or Borrower’s name, as Bank chooses); (d) make, settle, and adjust all
claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien,
charge, encumbrance, security interest, or other claim in or to the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; and (f) transfer the Collateral into the name of Bank or a
third party as the Code permits. Borrower hereby appoints Bank as its lawful
attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of Bank’s security interest in the Collateral
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and the Loan Documents have been terminated. Bank’s
foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights
and powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and the Loan Documents have been terminated.

 

9.3         Protective Payments. If Borrower fails to obtain the insurance
called for by Section 6.7 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or any
other Loan Document or which may be required to preserve the Collateral, Bank
may obtain such insurance or make such payment, and all amounts so paid by Bank
are Bank Expenses and immediately due and payable, bearing interest at the then
highest rate applicable to the Obligations, and secured by the Collateral. Bank
will make reasonable efforts to provide Borrower with notice of Bank obtaining
such insurance at the time it is obtained or within a reasonable time
thereafter. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank’s waiver of any Event of Default.

 

9.4         Application of Payments and Proceeds. If an Event of Default has
occurred and is continuing, Bank shall have the right to apply in any order any
funds in its possession, whether from Borrower account balances, payments,
proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay
any surplus to Borrower by credit to the Designated Deposit Account or to other
Persons legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency. If Bank, directly or indirectly, enters into a deferred payment or
other credit transaction with any purchaser at any sale of Collateral, Bank
shall have the option, exercisable at any time, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

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9.5         Bank’s Liability for Collateral. So long as Bank complies with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Bank, Bank shall not be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other Person. Borrower bears
all risk of loss, damage or destruction of the Collateral.

 

9.6         No Waiver; Remedies Cumulative. Bank’s failure, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Bank thereafter to demand strict performance and compliance herewith or
therewith. No waiver hereunder shall be effective unless signed by the party
granting the waiver and then is only effective for the specific instance and
purpose for which it is given. Bank’s rights and remedies under this Agreement
and the other Loan Documents are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank’s exercise of one right or
remedy is not an election and shall not preclude Bank from exercising any other
remedy under this Agreement or other remedy available at law or in equity, and
Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay
in exercising any remedy is not a waiver, election, or acquiescence.

 

9.7         Demand Waiver. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.

 

10NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by
any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the
earlier of actual receipt and three (3) Business Days after deposit in the U.S.
mail, first class, registered or certified mail return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below. Bank or Borrower may change its mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance
with the terms of this Section 10.

 

  If to Borrower: DATAWATCH CORPORATION     4 Crosby Drive     Bedford,
Massachusetts 01730     Attn:  Jim Eliason, Chief Financial Officer    
Email:  Jim_Eliason@datawatch.com         with a copy to: Choate, Hall & Stewart
LLP     Two International Place     Boston, MA  02110     Attn:   Stephen J.
Tonkovich     Fax:   617-248-4000     Email:  stonkovich@choate.com         If
to Bank: Silicon Valley Bank     275 Grove Street, Suite 2-200     Newton,
Massachusetts 02466     Attn:     Mr. Chris Michael     Fax:       (617)
527-0177     Email:   CMichael@svb.com         with a copy to: Riemer &
Braunstein LLP     Three Center Plaza     Boston, Massachusetts 02108     Attn:
David A. Ephraim, Esquire     Fax: (617) 880-3456     Email:
DEphraim@riemerlaw.com

 

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11CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

 

Except as otherwise expressly provided in any of the Loan Documents,
Massachusetts law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Massachusetts; provided, however, that nothing
in this Agreement shall be deemed to operate to preclude Bank from bringing suit
or taking other legal action in any other jurisdiction to realize on the
Collateral or any other security for the Obligations, or to enforce a judgment
or other court order in favor of Bank. Borrower expressly submits and consents
in advance to such jurisdiction in any action or suit commenced in any such
court, and Borrower hereby waives any objection that it may have based upon lack
of personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in,
or subsequently provided by Borrower in accordance with, Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to
occur of Borrower’s actual receipt thereof or three (3) days after deposit in
the U.S. mails, proper postage prepaid.

 

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

This Section 11 shall survive the termination of this Agreement.

 

12GENERAL PROVISIONS

 

12.1       Termination Prior to Maturity Date; Survival. All covenants,
representations and warranties made in this Agreement shall continue in full
force until this Agreement has terminated pursuant to its terms and all
Obligations have been satisfied. So long as Borrower has satisfied the
Obligations (other than inchoate indemnity obligations, and any other
obligations which, by their terms, are to survive the termination of this
Agreement, and any Obligations under Bank Services Agreements that are cash
collateralized in accordance with Section 4.1 of this Agreement), this Agreement
may be terminated prior to the Revolving Line Maturity Date and the Term Loan
Maturity Date by Borrower, effective three (3) Business Days after written
notice of termination is given to Bank. Those obligations that are expressly
specified in this Agreement as surviving this Agreement’s termination shall
continue to survive notwithstanding this Agreement’s termination.

 

12.2       Successors and Assigns. This Agreement binds and is for the benefit
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or obligations under it without Bank’s prior
written consent (which may be granted or withheld in Bank’s discretion). Bank
has the right, without the consent of or notice to Borrower, to sell, transfer,
assign, negotiate, or grant participation in all or any part of, or any interest
in, Bank’s obligations, rights, and benefits under this Agreement and the other
Loan Documents. Notwithstanding the foregoing, so long as no Event of Default
shall have occurred and is continuing, Bank shall not assign its interest in the
Loan Documents to any Person who in the reasonable estimation of Bank is (a) a
direct competitor of Borrower, whether as an operating company or direct or
indirect parent with voting control over such operating company, or (b) a
vulture fund or distressed debt fund.

 

12.3       Indemnification. Borrower agrees to indemnify, defend and hold Bank
and its directors, officers, employees, agents, attorneys, or any other Person
affiliated with or representing Bank (each, an “Indemnified Person”) harmless
against: (i) all obligations, demands, claims, and liabilities (collectively,
“Claims”) claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (ii) all losses or expenses
(including Bank Expenses) in any way suffered, incurred, or paid by such
Indemnified Person as a result of, following from, consequential to, or arising
from transactions between Bank and Borrower (including reasonable attorneys’
fees and expenses), except for Claims and/or losses directly caused by such
Indemnified Person’s gross negligence or willful misconduct.

 

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This Section 12.3 shall survive until all statutes of limitation with respect to
the Claims, losses, and expenses for which indemnity is given shall have run.

 

12.4       Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

 

12.5       Severability of Provisions. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.

 

12.6       Correction of Loan Documents. Bank may correct patent errors and fill
in any blanks in the Loan Documents consistent with the agreement of the
parties.

 

12.7       Amendments in Writing; Waiver; Integration. No purported amendment or
modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents.

 

12.8       Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, is an original, and all taken together, constitute
one Agreement.

 

12.9       Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, collectively, “Bank Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, that any
prospective transferee or purchaser shall have entered into an agreement
containing provisions substantially the same as those in this Section 12.9); (c)
as required by law, regulation, subpoena, or other order; (d) to Bank’s
regulators or as otherwise required in connection with Bank’s examination or
audit; (e) as Bank considers appropriate in exercising remedies under the Loan
Documents; and (f) to third-party service providers of Bank so long as such
service providers have executed a confidentiality agreement with Bank with terms
no less restrictive than those contained herein. Confidential information does
not include information that is either: (i) in the public domain or in Bank’s
possession when disclosed to Bank, or becomes part of the public domain (other
than as a result of its disclosure by Bank in violation of this Agreement) after
disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not
know that the third party is prohibited from disclosing the information.

 

Bank Entities may use anonymous forms of confidential information for aggregate
datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.

 

12.10    Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.

 

 22 

 

  

12.11    Right of Setoff. Borrower hereby grants to Bank a Lien and a right of
setoff as security for all Obligations to Bank, whether now existing or
hereafter arising upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Bank or any entity under the control of Bank (including a subsidiary of Bank) or
in transit to any of them. At any time after the occurrence and during the
continuance of an Event of Default, without demand or notice, Bank may setoff
the same or any part thereof and apply the same to any liability or Obligation
of Borrower even though unmatured and regardless of the adequacy of any other
collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.12    Captions. The headings used in this Agreement are for convenience only
and shall not affect the interpretation of this Agreement.

 

12.13    Construction of Agreement. The parties mutually acknowledge that they
and their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed without
regard to which of the parties caused the uncertainty to exist.

 

12.14    Relationship. The relationship of the parties to this Agreement is
determined solely by the provisions of this Agreement. The parties do not intend
to create any agency, partnership, joint venture, trust, fiduciary or other
relationship with duties or incidents different from those of parties to an
arm’s-length contract.

 

12.15    Third Parties. Nothing in this Agreement, whether express or implied,
is intended to: (a) confer any benefits, rights or remedies under or by reason
of this Agreement on any persons other than the express parties to it and their
respective permitted successors and assigns; (b) relieve or discharge the
obligation or liability of any person not an express party to this Agreement; or
(c) give any person not an express party to this Agreement any right of
subrogation or action against any party to this Agreement.

 

13DEFINITIONS

 

13.1       Definitions. As used in the Loan Documents, the word “shall” is
mandatory, the word “may” is permissive, the word “or” is not exclusive, the
words “includes” and “including” are not limiting, the singular includes the
plural, and numbers denoting amounts that are set off in brackets are negative.
As used in this Agreement, the following capitalized terms have the following
meanings:

 

“Account” is, as to any Person, any “account” of such Person as “account” is
defined in the Code with such additions to such term as may hereafter be made,
and includes, without limitation, all accounts receivable and other sums owing
to such Person.

 

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Adjusted EBITDA” shall mean, calculated on a consolidated basis, (a) Net
Income, plus (b) to the extent deducted in the calculation of Net Income (i)
Interest Expense, (ii) depreciation expense and amortization expense, (iii)
income tax expense and (iv) non-cash Intellectual Property amortization (to the
extent not included in the calculation of (ii)), (v) any cash received from
future billing obligations acquired in connection with the Angoss Acquisition
which is not otherwise recognized as revenue, (vi) non-cash stock based
compensation and (vii) any increase in Deferred Revenue from the immediately
preceding three (3) month period, minus (c) to the extent included in the
calculation of Net Income, (i) any decrease in Deferred Revenue from the
immediately preceding three (3) month period, (ii) unfinanced capital
expenditures, and (iii) capitalized software development costs.

 

“Adjusted Quick Ratio” is, calculated on a consolidated basis for Borrower and
its Subsidiaries, the ratio of (a) Quick Assets to (b) Current Liabilities minus
the current portion of Deferred Revenue.

 

 23 

 

  

“Administrator” is an individual that is named:

 

(a)        as an “Administrator” in the “SVB Online Services” form completed by
Borrower with the authority to determine who will be authorized to use SVB
Online Services (as defined in the “Banking Terms and Conditions”) on behalf of
Borrower; and

 

(b)        as an Authorized Signer of Borrower in an approval by the Board.

 

“Advance” or “Advances” means a revolving credit loan (or revolving credit
loans) under the Revolving Line.

 

“Affiliate” is, with respect to any Person, each other Person that owns or
controls directly or indirectly the Person, any Person that controls or is
controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and members. For purposes
of the definition of Eligible Accounts, Affiliate shall include a Specified
Affiliate.

 

“Agreement” is defined in the preamble hereof.

 

“Angoss” is Angoss Software Corporation, a Canadian corporation.

 

“Angoss Acquisition” is the acquisition by Borrower of all of the capital stock
of Angoss after the Effective Date.

 

“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution
who is authorized to execute the Loan Documents, including making (and executing
if applicable) any Credit Extension request, on behalf of Borrower.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus (b) the outstanding principal
balance of any Advances.

 

“Bank” is defined in the preamble hereof.

 

“Bank Entities” is defined in Section 12.9.

 

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, amending, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred in connection with the Loan Documents with respect to
Borrower or any Guarantor.

 

“Bank Services” are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct deposit of payroll, business credit cards, and check
cashing services), interest rate swap arrangements, and foreign exchange
services as any such products or services may be identified in Bank’s various
agreements related thereto (each, a “Bank Services Agreement”).

 

“Bank Services Agreement” is defined in the definition of Bank Services.

 

“Board” is Borrower’s board of directors.

 

“Borrower” is defined in the preamble hereof.

 

 24 

 

  

“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.

 

“Borrowing Base” is eighty percent (80.0%) of Eligible Accounts, as determined
by Bank from Borrower’s most recent Borrowing Base Report (and as may
subsequently be updated by Bank based upon information received by Bank
including, without limitation, Accounts that are paid and/or billed following
the date of the Borrowing Base Report); provided, however, that, upon notice to
Borrower, Bank has the right to decrease the foregoing percentage in its
reasonable business judgment to mitigate the impact of events, conditions,
contingencies, or risks which may adversely affect the Collateral or its value.

 

“Borrowing Base Report” is that certain report of the value of certain
Collateral in the form specified by Bank to Borrower from time to time.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s board of directors (and, if required under the terms of
such Person’s Operating Documents, stockholders) and delivered by such Person to
Bank approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying (a) such Person has the authority
to execute, deliver, and perform its obligations under each of the Loan
Documents to which it is a party, (b) that set forth as a part of or attached as
an exhibit to such certificate is a true, correct, and complete copy of the
resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents, including making (and executing if applicable) any Credit
Extension request, on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively rely on such
certificate unless and until such Person shall have delivered to Bank a further
certificate canceling or amending such prior certificate.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

 

“Cash Collateral Account” is defined in Section 6.3(c).

 

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Change in Control” means (a) at any time, any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become,
or obtain rights (whether by means of warrants, options or otherwise) to become,
the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of forty-nine percent (49.0%) or more of
the ordinary voting power for the election of directors of Borrower (determined
on a fully diluted basis) other than by the sale of Borrower’s equity securities
in a public offering or to venture capital or private equity investors so long
as Borrower identifies to Bank the venture capital or private equity investors
at least seven (7) Business Days prior to the closing of the transaction and
provides to Bank a description of the material terms of the transaction; or (b)
at any time, Borrower shall cease to own and control, of record and
beneficially, directly or indirectly, one hundred percent (100.0%) of each class
of outstanding capital stock of each Subsidiary of Borrower free and clear of
all Liens (except Liens created by this Agreement).

 

“Claims” is defined in Section 12.3.

 

 25 

 

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the Commonwealth of Massachusetts; provided, that, to
the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or Divisions
of the Code, the definition of such term contained in Article or Division 9
shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, Bank’s Lien on any Collateral is governed by the
Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth
of Massachusetts, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or
remedies and for purposes of definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

 

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation, in each
case, directly or indirectly guaranteed, endorsed, co made, discounted or sold
with recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.

 

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.

 

“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.

 

“Credit Extension” is any Advance, any Overadvance, the Term Loan Advance, or
any other extension of credit by Bank for Borrower’s benefit.

 

“Currency” is coined money and such other banknotes or other paper money as are
authorized by law and circulate as a medium of exchange.

 

“Current Liabilities” are (a) all obligations and liabilities of Borrower and
its Subsidiaries’ to Bank, plus (b) without duplication of (a), the aggregate
amount of Borrower’s Total Liabilities that mature within one (1) year.

 

“Default Rate” is defined in Section 2.5(b).

 

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.

 

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

 26 

 

  

“Designated Deposit Account” is the account number ending __ (last three digits)
maintained by Borrower with Bank (provided, however, if no such account number
is included, then the Designated Deposit Account shall be any deposit account of
Borrower maintained with Bank as chosen by Bank).

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

 

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts owing to Borrower which arise in the ordinary
course of Borrower’s business that meet all Borrower’s representations and
warranties in Section 5.3, that have been, at the option of Bank, confirmed in
accordance with Section 6.3(f) of this Agreement, and are due and owing from
Account Debtors deemed creditworthy by Bank in its good faith business judgment.
Bank reserves the right at any time after the Effective Date, upon prior or
contemporaneous notice to Borrower, to adjust any of the criteria set forth
below and to establish new criteria in its reasonable business judgment. Unless
Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

(a)          Accounts (i) for which the Account Debtor is Borrower’s Affiliate,
officer, employee, investor, or agent, or (ii) that are intercompany Accounts;

 

(b)          Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date regardless of invoice payment period terms;

 

(c)          Accounts with credit balances over ninety (90) days from invoice
date;

 

(d)          Accounts owing from an Account Debtor if fifty percent (50%) or
more of the Accounts owing from such Account Debtor have not been paid within
ninety (90) days of invoice date;

 

(e)          Accounts owing from an Account Debtor (i) which does not have its
principal place of business in the United States or (ii) whose billing address
(as set forth in the applicable invoice for such Account) is not in the United
States, unless in the case of both (i) and (ii) such Accounts are otherwise
approved by Bank in writing, provided, however, in no event shall such Accounts
exceed twenty-five percent (25.0%) of the Borrowing Base;

 

(f)           Accounts billed from and/or payable to Borrower outside of the
United States (sometimes called foreign invoiced accounts);

 

(g)          Accounts in which Bank does not have a first priority, perfected
security interest under all applicable laws;

 

(h)          Accounts billed and/or payable in a Currency other than Dollars;

 

(i)           Accounts owing from an Account Debtor to the extent that Borrower
is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called “contra” accounts, accounts
payable, customer deposits or credit accounts);

 

 27 

 

  

(j)           Accounts with or in respect of accruals for marketing allowances,
incentive rebates, price protection, cooperative advertising and other similar
marketing credits, to the extent of such allowances, rebates or credits, unless
otherwise approved by Bank in writing;

 

(k)          Accounts owing from an Account Debtor which is a United States
government entity or any department, agency, or instrumentality thereof unless
Borrower has assigned its payment rights to Bank and the assignment has been
acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

(l)           Accounts with customer deposits and/or with respect to which
Borrower has received an upfront payment, to the extent of such customer deposit
and/or upfront payment;

 

(m)         Accounts for demonstration or promotional equipment, or in which
goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on
approval”, or other terms if Account Debtor’s payment may be conditional;

 

(n)          Accounts owing from an Account Debtor where goods or services have
not yet been rendered to the Account Debtor (sometimes called memo billings or
pre-billings);

 

(o)          Accounts subject to contractual arrangements between Borrower and
an Account Debtor where payments shall be scheduled or due according to
completion or fulfillment requirements (sometimes called contracts accounts
receivable, progress billings, milestone billings, or fulfillment contracts);

 

(p)          Accounts owing from an Account Debtor the amount of which may be
subject to withholding based on the Account Debtor’s satisfaction of Borrower’s
complete performance (but only to the extent of the amount withheld; sometimes
called retainage billings);

 

(q)          Accounts subject to trust provisions, subrogation rights of a
bonding company, or a statutory trust;

 

(r)           Accounts owing from an Account Debtor that has been invoiced for
goods that have not been shipped to the Account Debtor unless Bank, Borrower,
and the Account Debtor have entered into an agreement acceptable to Bank wherein
the Account Debtor acknowledges that (i) it has title to and has ownership of
the goods wherever located, (ii) a bona fide sale of the goods has occurred, and
(iii) it owes payment for such goods in accordance with invoices from Borrower
(sometimes called “bill and hold” accounts);

 

(s)          Accounts for which the Account Debtor has not been invoiced;

 

(t)          Accounts that represent non-trade receivables or that are derived
by means other than in the ordinary course of Borrower’s business;

 

(u)          Accounts for which Borrower has permitted Account Debtor’s payment
to extend beyond ninety (90) days (including Accounts with a due date that is
more than ninety (90) days from invoice date);

 

(v)          Accounts arising from chargebacks, debit memos or other payment
deductions taken by an Account Debtor;

 

(w)         Accounts arising from product returns and/or exchanges (sometimes
called “warranty” or “RMA” accounts);

 

(x)          Accounts in which the Account Debtor disputes liability or makes
any claim (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding (whether voluntary or
involuntary), or becomes insolvent, or goes out of business;

 

 28 

 

  

(y)          Accounts owing from an Account Debtor with respect to which
Borrower has received Deferred Revenue (but only to the extent of such Deferred
Revenue), other than Deferred Revenue related solely to subscriptions and
licenses;

 

(z)          Accounts owing from an Account Debtor, whose total obligations to
Borrower exceed twenty-five percent (25.0%) of all Accounts, for the amounts
that exceed that percentage, unless Bank approves in writing; and

 

(aa)        Accounts for which Bank in its reasonable business judgment
determines collection to be doubtful, including, without limitation, accounts
represented by “refreshed” or “recycled” invoices.

 

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Foreign Currency” means lawful money of a country other than the United States.

 

“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.

 

“FX Contract” is any foreign exchange contract by and between Borrower and Bank
under which Borrower commits to purchase from or sell to Bank a specific amount
of Foreign Currency on a specified date.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

 

“Guarantor” is any Person providing a guaranty in favor of Bank.

 

 29 

 

  

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and (d)
Contingent Obligations.

 

“Indemnified Person” is defined in Section 12.3.

 

“Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and
Borrower’s Books, with results satisfactory to Bank in its sole and absolute
discretion.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.

 

“Intellectual Property” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following:

 

(a)          its Copyrights, Trademarks and Patents;

 

(b)          any and all trade secrets and trade secret rights, including,
without limitation, any rights to unpatented inventions, know-how and operating
manuals;

 

(c)          any and all source code;

 

(d)          any and all design rights which may be available to such Person;

 

(e)          any and all claims for damages by way of past, present and future
infringement of any of the foregoing, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
Intellectual Property rights identified above; and

 

(f)           all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents.

 

“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower and its Subsidiaries,
including, without limitation or duplication, all commissions, discounts, or
related amortization and other fees and charges with respect to letters of
credit and bankers’ acceptance financing and the net costs associated with
interest rate swap, cap, and similar arrangements, and the interest portion of
any deferred payment obligation (including leases of all types).

 

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

 

“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.

 

“Key Person” is each of Borrower’s (a) Chief Executive Officer, (b) Chief
Financial Officer and (c) Chief Operating Officer.

 

“Letter of Credit” is a standby or commercial letter of credit issued by Bank
upon request of Borrower based upon an application, guarantee, indemnity, or
similar agreement.

 

 30 

 

  

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

 

“Loan Documents” are, collectively, this Agreement and any schedules, exhibits,
certificates, notices, and any other documents related to this Agreement, the
Perfection Certificate, any Control Agreement, any Bank Services Agreement, any
subordination agreement, any note, or notes or guaranties executed by Borrower
or any Guarantor, and any other present or future agreement by Borrower and/or
any Guarantor with or for the benefit of Bank in connection with this Agreement
and/or the provision of Bank Services, all as amended, restated, or otherwise
modified.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; or (c) a material impairment of the
prospect of repayment of any portion of the Obligations.

 

“Monthly Financial Statements” is defined in Section 6.2(c).

 

“Net Income” means, as calculated on a consolidated basis for Borrower and its
Subsidiaries for any period as at any date of determination, the net profit (or
loss), after provision for taxes, of Borrower and its Subsidiaries for such
period taken as a single accounting period.

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, fees, Bank Expenses, the Prepayment Fee, the Unused Revolving Line
Facility Fee, and other amounts Borrower owes Bank now or later, under this
Agreement or the other Loan Documents, including, without limitation, all
obligations relating to Bank Services and interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank, and to perform Borrower’s duties under the Loan Documents.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State (or equivalent agency) of such Person’s
jurisdiction of organization on a date that is no earlier than thirty (30) days
prior to the Effective Date, and, (a) if such Person is a corporation, its
bylaws in current form, (b) if such Person is a limited liability company, its
limited liability company agreement (or similar agreement), and (c) if such
Person is a partnership, its partnership agreement (or similar agreement), each
of the foregoing with all current amendments or modifications thereto.

 

“Overadvance” is defined in Section 2.4.

 

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

“Payment/Advance Form” is that certain form in the form attached hereto as
Exhibit C.

 

“Payment Date” is (a) with respect to the Term Loan Advance, the first (1st)
calendar day of each month and (b) with respect to Advances, the last calendar
day of each month.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

(a)          Borrower’s Indebtedness to Bank under this Agreement and the other
Loan Documents;

 

(b)          Indebtedness existing on the Effective Date which is shown on the
Perfection Certificate;

 

(c)          Subordinated Debt;

 

(d)          unsecured Indebtedness to trade creditors incurred in the ordinary
course of business;

 

 31 

 

  

(e)          Indebtedness of any Subsidiary (that is not a Borrower) to Borrower
consisting of loans made by Borrower as described in subjection (c) of the
definition of Permitted Investments, subject to the cap set forth therein;

 

(f)           Indebtedness in respect of taxes, assessments or governmental
charges to the extent that payment thereof shall not at the time be due and
payable or with respect to which Borrower or any Guarantor is contesting the
amount or validity thereof in accordance with Section 5.9;

 

(g)          Indebtedness consisting of judgments not otherwise constituting an
Event of Default under Section 8.7;

 

(h)          Indebtedness secured by Liens permitted under clause (c) of the
definition of “Permitted Liens” hereunder;

 

(i)           Indebtedness consisting of overdraft protections incurred in the
ordinary course of business with respect to deposit accounts (but only to the
extent that Borrower is permitted to maintain such accounts pursuant to Section
6.8 of this Agreement) in which Bank has a first priority perfected security
interest (to the extent required by Section 6.8(b));

 

(j)           any Indebtedness of any Borrower to another Borrower; and

 

(k)          extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (j) above,
provided that the principal amount thereof is not increased in excess of the
applicable caps set forth above.

 

“Permitted Investments” are:

 

(a)          Investments (including, without limitation, Subsidiaries) existing
on the Effective Date which are shown on the Perfection Certificate;

 

(b)          Investments consisting of Cash Equivalents;

 

(c)          Investments by (i) Subsidiaries (other than a Borrower) in other
Subsidiaries, (ii) Borrower in another Borrower, and (iii) Borrower in
Subsidiaries (that are not a Borrower) (including loans described in subsection
(e) of the definition of Permitted Indebtedness) for the ordinary and necessary
current operating expenses of such Subsidiary in an aggregate amount not to
exceed Five Million Dollars ($5,000,000.00) per calendar year;

 

(d)          Investments in an aggregate amount not to exceed One Hundred
Thousand Dollars ($100,000.00) consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by the Board;

 

(e)          Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business;

 

(f)           Investments consisting of deposit accounts (but only to the extent
that Borrower is permitted to maintain such accounts pursuant to Section 6.8 of
this Agreement) in which Bank has a first priority perfected security interest
(to the extent required by Section 6.8(b));

 

(g)          Investments accepted in connection with Transfers permitted by
Section 7.1; and

 

 32 

 

  

(h)          Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
Borrower.

 

“Permitted Liens” are:

 

(a)          Liens existing on the Effective Date which are shown on the
Perfection Certificate or arising under this Agreement or the other Loan
Documents;

 

(b)          Liens for taxes, fees, assessments or other government charges or
levies, either (i) not due and payable or (ii) being contested in good faith and
for which Borrower maintains adequate reserves on Borrower’s Books, provided
that no notice of any such Lien has been filed or recorded under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations adopted
thereunder;

 

(c)          purchase money Liens and Liens created pursuant to capital lease
obligations (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than Fifty Thousand Dollars
($50,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment
when acquired, if the Lien is confined to the property and improvements and the
proceeds of the Equipment;

 

(a)          Liens of carriers, warehousemen, suppliers, landlords, materialmen,
repairmen or other Persons that are possessory in nature arising in the ordinary
course of business so long as such Liens only secure liabilities in the
aggregate amount not to exceed One Hundred Thousand Dollars ($100,000.00) and
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;

 

(b)          Liens to secure payment of workers’ compensation, employment
insurance, old-age pensions, social security and other like obligations incurred
in the ordinary course of business (other than Liens imposed by ERISA);

 

(c)          Liens, deposits and pledges to secure the performance of bids,
tenders, leases, contracts (other than contracts for the payment of money),
public or statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds or other similar obligations arising in the ordinary course
of business;

 

(d)          Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

 

(e)          leases or subleases of real property granted in the ordinary course
of Borrower’s business (or, if referring to another Person, in the ordinary
course of such Person’s business), and leases, subleases, non-exclusive licenses
or sublicenses of personal property (other than Intellectual Property) granted
in the ordinary course of Borrower’s business (or, if referring to another
Person, in the ordinary course of such Person’s business), if the leases,
subleases, licenses and sublicenses do not prohibit granting Bank a security
interest therein;

 

(f)           Liens in favor of other financial institutions arising in
connection with Borrower’s deposit and/or securities accounts held at such
institutions, provided that (i) Bank has a first priority perfected security
interest in the amounts held in such deposit and/or securities accounts (to the
extent required by Section 6.8(b)) and (ii) such accounts are permitted to be
maintained pursuant to Section 6.8 of this Agreement;

 

(g)          the title and interest of, and precautionary financing statements
under the applicable UCC (and any similar filing in other jurisdictions
governing preference or priority among creditors) with respect to the title,
interest and other rights of, a lessor or sublessor in and to personal property
leased or subleased (other than through a capital lease), in each case extending
only to such leased personal property;

 

(h)          non-exclusive licenses of Intellectual Property granted to third
parties in the ordinary course of business; and

 

 33 

 

  

(i)           Liens incurred in the extension, renewal or refinancing of the
Indebtedness secured by Liens described in (a) through (h), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the Indebtedness may not increase
above the applicable limits otherwise described herein.

 

“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

 

“Prepayment Fee” shall be an additional fee payable to Bank, for a prepayment of
the Term Loan Advance, in an amount equal to:

 

(a)         for a prepayment made on or prior to the first (1st) anniversary of
the Effective Date, one percent (1.0%) of the outstanding principal balance of
the Term Loan Advance being prepaid; and

 

(b)         for a prepayment made after the first (1st) anniversary of the
Effective Date but on or prior to the second (2nd) anniversary of the Effective
Date, one-half of one percent (0.50%) of the outstanding principal balance of
the Term Loan Advance being prepaid.

 

Notwithstanding the foregoing, Bank agrees to waive the Prepayment Fee and no
Prepayment Fee is due if all of the following is true: (i) the Angoss
Acquisition does not occur within thirty (30) days of the Effective Date, (ii)
such prepayment is not made with funds from any other lender and (iii) such
prepayment is made on or prior to the date that is thirty (30) days after the
Effective Date.

 

“Prime Rate” is the rate of interest per annum from time to time published in
the money rates section of The Wall Street Journal or any successor publication
thereto as the “prime rate” then in effect; provided that, in the event such
rate of interest is less than zero, such rate shall be deemed to be zero for
purposes of this Agreement; and provided further that if such rate of interest,
as set forth from time to time in the money rates section of The Wall Street
Journal, becomes unavailable for any reason as determined by Bank, the “Prime
Rate” shall mean the rate of interest per annum announced by Bank as its prime
rate in effect at its principal office in the State of California (such Bank
announced Prime Rate not being intended to be the lowest rate of interest
charged by Bank in connection with extensions of credit to debtors); provided
that, in the event such rate of interest is less than zero, such rate shall be
deemed to be zero for purposes of this Agreement.

 

“Quick Assets” is, on any date, Borrower’s consolidated, unrestricted and
unencumbered cash maintained with Bank, plus net billed accounts receivable
determined according to GAAP.

 

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

 

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its reasonable business judgment, reducing
the amount of Advances and other financial accommodations which would otherwise
be available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its reasonable business judgment, do or
may adversely affect (i) the Collateral or any other property which is security
for the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets or business of Borrower or any
Guarantor, or (iii) the security interests and other rights of Bank in the
Collateral (including the enforceability, perfection and priority thereof); or
(b) to reflect Bank's reasonable belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Guarantor to Bank is or
may have been incomplete, inaccurate or misleading in any material respect; or
(c) in respect of any state of facts which Bank determines constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default; provided, that Bank shall use commercially reasonable efforts to
notify Borrower at or before the time any such Reserve is to be established or
increased.

 

 34 

 

  

“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.

 

“Restricted License” is any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with Bank’s right to sell any Collateral.

 

“Revolving Line” is an aggregate principal amount equal to Five Million Dollars
($5,000,000.00).

 

“Revolving Line Maturity Date” is two (2) years from the Effective Date.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.

 

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

 

“Specified Affiliate” is any Person (a) more than ten percent (10.0%) of whose
aggregate issued and outstanding equity or ownership securities or interests,
voting, non-voting or both, are owned or held directly or indirectly,
beneficially or of record, by Borrower, and/or (ii) whose equity or ownership
securities or interests representing more than ten percent (10.0%) of such
Person’s total outstanding combined voting power are owned or held directly or
indirectly, beneficially or of record, by Borrower.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or
Guarantor.

 

“Term Loan Advance” is defined in Section 2.3 of this Agreement.

 

“Term Loan Maturity Date” is the date that is thirty-six (36) months after the
Effective Date.

 

“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower’s consolidated balance sheet, including
all Indebtedness.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

 

“Transfer” is defined in Section 7.1.

 

“Unused Revolving Line Facility Fee” is defined in Section 2.6(d).

 

 35 

 

  

[Signature page follows.]

 

 36 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the Effective Date.

 

  BORROWER:       DATAWATCH CORPORATION         By    /s/ James  Eliason        
Name: James Eliason         Title: Chief Financing Officer         BANK:      
SILICON VALLEY BANK         By /s/ Kate Leland         Name: Kate Leland        
Title: Managing Director

 

Signature Page to Loan and Security Agreement

 

   

 

 

EXHIBIT A - COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to
the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, certificates of
deposit, fixtures, letters of credit rights (whether or not the letter of credit
is evidenced by a writing), securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and

 

all Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include (a) any rights
held under a license or contract that are not assignable by their terms without
the consent of the licensor or contracting Person (that is not a Borrower)
thereof (but only to the extent such restriction on assignment is enforceable
under applicable law), (b) any interest of Borrower as a lessee or sublessee
under a real property lease or an Equipment lease if Borrower is prohibited by
the terms of such lease from granting a security interest in such lease or under
which such an assignment or Lien would cause a default to occur under such lease
(but only to the extent that such prohibition is enforceable under all
applicable laws including, without limitation, the Code); provided, however,
that upon termination of such prohibition, such interest shall immediately
become Collateral without any action by Borrower or Bank, and (c) any
Intellectual Property; provided, however, the Collateral shall include all
Accounts and all proceeds of Intellectual Property. If a judicial authority
(including a U.S. Bankruptcy Court) would hold that a security interest in the
underlying Intellectual Property is necessary to have a security interest in
such Accounts and such property that are proceeds of Intellectual Property, then
the Collateral shall automatically, and effective as of the Effective Date,
include the Intellectual Property to the extent necessary to permit perfection
of Bank’s security interest in such Accounts and such other property of Borrower
that are proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its Intellectual Property without
Bank’s prior written consent.

 

 

   

 

 

Exhibit 10.1

 

EXHIBIT B

COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK Date:   FROM: DATAWATCH CORPORATION    

 

The undersigned authorized officer of DATAWATCH CORPORATION (“Borrower”)
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (1) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below, (2) there are no Events of Default, (3) all
representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, (4) Borrower, and each of its
Subsidiaries, has timely filed all required tax returns and reports, and
Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries, if any, relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank. Attached are
the required documents supporting the certification. The undersigned certifies
that these are prepared in accordance with GAAP consistently applied from one
period to the next except for year-end adjustments or as explained in an
accompanying letter or footnotes. The undersigned 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. Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

 

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

 

Reporting Covenants   Required   Complies           Monthly Financial Statements
with Compliance Certificate   Monthly within 30 days   Yes   No 10-Q, 10-K and
8-K   Within 5 days after filing with SEC   Yes   No A/R & A/P Agings   Monthly
within 30 days   Yes   No Deferred Revenue Reports   Monthly within 30 days  
Yes   No Annual financial statements (CPA Audited)   Earlier to occur of (i) FYE
within 90 days and (ii) within 5 days of filing with SEC   Yes   No Borrowing
Base Reports   (i) with each request for an Advance and (ii) monthly within 30
days   Yes   No Board approved projections   Within 30 days of the earlier of
(i) FYE or (ii) Board approval, and as amended/updated   Yes   No

 

Financial Covenants   Required   Actual   Complies               Maintain as
indicated:             Adjusted Quick Ratio (tested monthly)   > ____* : 1.0  
______ : 1.0   Yes   No Adjusted EBITDA (trailing three (3) month, tested
quarterly)   > $______**   $_________   Yes   No

 

* As set forth in Section 6.9(a).

** As set forth in Section 6.9(b).

 

   

 

  

The following financial covenant analyses and information set forth in Schedule
1 attached hereto are true and accurate as of the date of this Certificate.

 

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

  

 

 

 

 

DATAWATCH CORPORATION    

 

By:  

Name:  

Title:  

BANK USE ONLY   Received by:     authorized signer

Date:  

 

Verified:     authorized signer

Date:  

 

    Compliance Status:             Yes      No

 

 

   

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall govern.

 

Dated:   ____________________

 

I.Adjusted Quick Ratio (at all times, tested monthly) (Section 6.9(a))

 

Required:Adjusted Quick Ratio of at least (i) 1.25 to 1.0 for the month ending
December 31, 2017, (ii) 1.10 to 1.0 for the months ending January 31, 2018 and
February 28, 2018, (iii) 1.25 to 1.0 for the month ending March 31, 2018, (iv)
1.10 to 1.0 for the months ending April 30, 2018 and May 31, 2018 and (v) 1.25
to 1.0 for the month ending June 30, 2018 and for each month thereafter.

 

Actual:____:1.0

 

A. Aggregate value of Borrower’s consolidated unrestricted and unencumbered cash
and Cash Equivalents   $                 B. Aggregate value of Borrower’s
consolidated net billed accounts receivable, determined according to GAAP   $  
              C. Quick Assets (the sum of lines A and B)   $                 D.
All obligations and liabilities of Borrower to Bank   $                 E.
Aggregate value of liabilities that should, under GAAP, be classified as
liabilities on Borrower’s and its Subsidiaries’’ balance sheet, including all
Indebtedness, not otherwise reflected in line C above, that mature within one
(1) year   $                 F. Current Liabilities (the sum of lines D and E)  
$                 G. Current portion of Deferred Revenue   $                 H.
Line F minus G   $                 I. Adjusted Quick Ratio (line C divided by
line H)        

 

Is line I equal to or greater than _____*:1.00?

 

* As set forth above

 

             No, not in compliance                                       Yes, in
compliance

 

II.Adjusted EBITDA (trailing three (3) month, tested quarterly) (Section 6.9(b))

 

   

 

  

Required: See chart below

 

Three (3) Month Period Ending  EBITDA  March 31, 2018  $(3,000,000.00) June 30,
2018  $(1,000,000.00) September 30, 2018  $(250,000.00) December 31, 2018 
$1.00  March 31, 2019  $250,000.00  June 30, 2019  $500,000.00  September 30,
2019  $750,000.00  December 31, 2019 and each calendar quarter thereafter 
$1,000,000.00 

 

Actual:          $_________________

 

A. Net Income   $                   B. To the extent included in the
determination of Net Income                         1. Interest Expense   $    
                2. Income tax expense   $                     3. Depreciation
expense   $                     4. Amortization expense   $                    
5. Non-cash Intellectual Property amortization (to the extent not included in
B.4)   $                     6. Any cash received from future billing
obligations which is not otherwise recognized as revenue acquired in connection
with the Angoss Acquisition   $                     7. Non-cash stock based
compensation   $                     8. Any increase in Deferred Revenue from
the immediately preceding three (3) month period   $                     9. The
sum of lines 1 through 8   $                   C. To the extent included in the
calculation of Net Income                         1. Any decrease in Deferred
Revenue from the immediately preceding three (3) month period   $              
      2. Unfinanced Capital Expenditures   $                     3. Capitalized
software development costs   $                     4. The sum of lines 1 through
3   $                   D. Adjusted EBITDA (line A plus line B.9 minus line C.4)
  $    

 

   

 

  

Is line D equal to at least the amount set forth above?

 

             No, not in compliance                                       Yes, in
compliance

 

   

 

  

EXHIBIT C

 

LOAN PAYMENT/ADVANCE REQUEST FORM

 

Deadline for same day processing is Noon Eastern Time

 

Fax To:   Date: _____________________

 

  Loan Payment:      

DATAWATCH CORPORATION

   

  From Account #     To Account #           (Deposit Account #)     (Loan
Account #)  

  Principal $     and/or Interest $                  

  Authorized Signature:     Phone Number:    

  Print Name/Title:                        

 

  Loan Advance:           Complete Outgoing Wire Request section below if all or
a portion of the funds from this loan advance are for an outgoing wire.        

  From Account #     To Account #           (Loan Account #)     (Deposit
Account #)                

  Amount of Term Loan Advance $      

        All Borrower’s representations and warranties in the Loan and Security
Agreement are true, correct and complete in all material respects on the date of
the request for an advance; provided, however, that such materiality qualifier
shall not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:  
     

  Authorized Signature:     Phone Number:    

  Print Name/Title:                        

 

 

Outgoing Wire Request:

Complete only if all or a portion of funds from the loan advance above is to be
wired.

Deadline for same day processing is noon, Eastern Time

       

  Beneficiary Name:     Amount of Wire: $       Beneficiary Bank:     Account
Number:    

  City and State:                

  Beneficiary Bank Transit (ABA) #:     Beneficiary Bank Code (Swift, Sort,
Chip, etc.):             (For International Wire Only)              

  Intermediary Bank:     Transit (ABA) #:    

  For Further Credit to:            

  Special Instruction:    

       

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

 

 

   

 

  

                Authorized Signature:     2nd Signature (if required):    

  Print Name/Title:     Print Name/Title:    

  Telephone #:     Telephone #: