EXHIBIT 10.1

 
EXECUTION COPY
 
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
 
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated
as of March 31, 2010 (the “Effective Date” between SILICON VALLEY BANK, a
California corporation with a loan production office located at One Newton
Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462
(“Bank”), and BRIDGELINE DIGITAL, INC., a Delaware corporation (formerly known
as Bridgeline Software, Inc., the “Borrower”), provides the terms on which Bank
shall lend to Borrower and Borrower shall repay Bank.  This Agreement amends and
restated in its entirety that certain Loan and Security Agreement, by and
between Borrower and Bank, dated as of September 29, 2008, as modified by a
certain First Loan Modification Agreement, dated as of December 29, 2008, and as
further modified by a certain Second Amendment to Loan and Security Agreement,
dated as of November 19, 2009 (the “Prior Loan Agreement”).  The parties agree
as follows:
 

 
1
ACCOUNTING AND OTHER TERMS

 
Accounting terms not defined in this Agreement shall be construed following
GAAP.  Calculations and determinations must be made following GAAP.  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.
 

 
2
LOAN 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.
 

 
2.1.1
Revolving Advances.

 
(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.
 

 
2.1.2
Letters of Credit Sublimit.

 
As part of the Revolving Line and subject to deduction of Reserves, Bank shall
issue or have issued Letters of Credit denominated in Dollars or a Foreign
Currency for Borrower’s account.  The aggregate Dollar Equivalent amount
utilized for the issuance of Letters of Credit shall at all times reduce the
amount otherwise available for Advances under the Revolving Line.  The aggregate
Dollar Equivalent of the face amount of outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may
not exceed the lesser of (A) Three Million Dollars ($3,000,000), minus (i) the
sum of all amounts used for Cash Management Services, and minus (ii) the FX
Reduction Amount, or (B) the lesser of Revolving Line or the Borrowing Base,
minus (i) the sum of all outstanding principal amounts of any Advances
(including any amounts used for Cash Management Services), and minus (ii) the FX
Reduction Amount.
 
(a) If, on the Revolving Line Maturity Date (or the effective date of any
termination of this Agreement), there are any outstanding Letters of Credit,
then on such date Borrower shall provide to Bank cash collateral in an amount
equal to 105% 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 good faith business judgment), to secure
all of the Obligations relating to such Letters of Credit.  All Letters of
Credit shall be in form and substance acceptable to Bank in its sole discretion
and shall be subject to the terms and conditions of
 
 
 

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Bank’s standard Application and Letter of Credit Agreement (the “Letter of
Credit Application”).  Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request.  Borrower
further agrees to be bound by the regulations and interpretations of the issuer
of any Letters of Credit guarantied by Bank and opened for Borrower’s account or
by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s
account, and Borrower understands and agrees that Bank shall not be liable for
any error, negligence, or mistake, whether of omission or commission, in
following Borrower’s instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto.
 
(b) The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional, and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.
 
(c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency.  If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the Dollar Equivalent of
the amount thereof (plus fees and charges in connection therewith such as wire,
cable, SWIFT or similar charges).
 
(d) To guard against fluctuations in currency exchange rates, upon the issuance
of any Letter of Credit payable in a Foreign Currency, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount
equal to ten percent (10%) of the face amount of such Letter of Credit.  The
amount of the Letter of Credit Reserve may be adjusted by Bank from time to time
to account for fluctuations in the exchange rate.  Bank shall endeavor to
deliver notice to Borrower of any such adjustment; provided, that the failure of
Bank to provide such notice will not affect the applicability of any such
adjustments.  The availability of funds under the Revolving Line shall be
reduced by the amount of such Letter of Credit Reserve for as long as such
Letter of Credit remains outstanding.
 
2.1.3  Foreign Exchange Sublimit.  As part of the Revolving Line and subject to
the deduction of Reserves, Borrower may enter into foreign exchange contracts
with Bank under which Borrower commits to purchase from or sell to Bank a
specific amount of Foreign Currency (each, a “FX Forward Contract”) on a
specified date (the “Settlement Date”).  FX Forward Contracts shall have a
Settlement Date of at least one (1) FX Business Day after the contract
date.  The aggregate amount of FX Forward Contracts at any one time may not
exceed ten (10) times the lesser of (A) Three Million Dollars ($3,000,000),
minus (i) the sum of all amounts used for Cash Management Services, and minus
(ii) the Dollar Equivalent of the face amount of any outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), or (B) the lesser of Revolving Line or the Borrowing Base,
minus (i) the sum of all outstanding principal amounts of any Advances
(including any amounts used for Cash Management Services), and minus (ii) the
Dollar Equivalent of the face amount of any outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve).  The amount otherwise available for Credit Extensions under the
Revolving Line shall be reduced by an amount equal to ten percent (10%) of each
outstanding FX Forward Contract (the “FX Reduction Amount”).  Any amounts needed
to fully reimburse Bank for any amounts not paid by Borrower in connection with
FX Forward Contracts will be treated as Advances under the Revolving Line and
will accrue interest at the interest rate applicable to Advances.
 
2.1.4  Cash Management Services Sublimit.  Borrower may use the Revolving Line
for Bank’s cash management services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in Bank’s various cash management services agreements (collectively, the “Cash
Management Services”), in an aggregate amount not to exceed the lesser of (A)
Three Million Dollars ($3,000,000), minus (i) the Dollar Equivalent of the face
amount of any outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve), and minus (ii) the FX
Reduction Amount, or (B) the lesser of Revolving Line or the Borrowing Base,
minus (i) the sum of all outstanding principal amounts of any Advances, minus
(ii) the Dollar Equivalent of the face amount of any outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), and minus (iii) the FX Reduction Amount.  Any amounts Bank pays
on behalf of Borrower for any Cash Management Services will be treated as
Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances.
 
2.2   Overadvances.  If, at any time, the sum of (a) the outstanding principal
amount of any Advances (including any amounts used for Cash Management
Services); plus (b) the face amount of any outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve); plus (c) the FX Reduction Amount; plus (d) any outstanding Non-formula
Advance exceeds the lesser of either (i) the Revolving Line or (ii) the sum of
the Borrowing Base plus, during the Non-formula Advance Availability Period, the
Non-
 
 
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formula Advance (such excess amount being an “Overadvance”), Borrower shall
immediately pay to Bank in cash such Overadvance.  Without limiting Borrower’s
obligation to repay Bank any amount of the Overadvance, during the period in
which any Overadvance is outstanding, Borrower agrees to pay Bank interest on
the outstanding amount of any Overadvance, on demand, at the Default Rate.
 

 
2.3
Payment of Interest on the Credit Extensions.

 
(a) Interest Rate; Advances.  Subject to Section 2.3(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to the Prime Rate plus one and one-quarter percentage points
(1.25%); provided, however, that during a Performance Pricing Period, subject to
Section 2.3(b), the principal amount outstanding under the Revolving Line shall
accrue interest at a floating per annum rate equal to the Prime Rate plus one
percent (1.00%), which interest shall in any event be payable monthly, in
arrears, in accordance with Section 2.3(f) 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 three percentage points (3.00%) above the rate that is otherwise applicable
thereto (the “Default Rate”) unless Bank otherwise elects from time to time in
its sole discretion to impose a smaller increase.  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 2.3(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) Computation; 360-Day Year.  In computing interest, 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.  Interest shall be computed on the basis of a 360-day
year for the actual number of days elapsed.
 
(e) Debit of Accounts.  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.
 
(f) Payment; Interest Computation.  Interest is payable monthly on the last
calendar day of each month.  In computing interest on the Obligations, all
Payments received after 12:00 noon Eastern time on any day shall be deemed
received on the next Business Day.  Bank shall not, however, be required to
credit Borrower’s account for the amount of any item of payment which is
unsatisfactory to Bank in its good faith business judgment, and Bank may charge
Borrower’s Designated Deposit Account for the amount of any item of payment
which is returned to Bank unpaid.
 

 
2.4
Fees.  Borrower shall pay to Bank:

 
(a) Commitment Fee.  A fully earned, non refundable commitment fee of Fifty
Thousand Dollars ($50,000), payable as follows (i) Twenty Five Thousand Dollars
($25,000) shall be payable on the Effective Date and (ii); Twenty Five Thousand
Dollars ($25,000) shall be payable on the earlier of (x) the occurrence of an
Event of Default and (y) the day that is 365 days from the Effective Date;
 
(b) Letter of Credit Fee.  Bank’s customary fees and expenses for the issuance
or renewal of Letters of Credit, upon the issuance of such Letter of Credit,
each anniversary of the issuance during the term of such Letter of Credit, and
upon the renewal of such Letter of Credit by Bank;
 
(c) [Intentionally Omitted];
 
(d) Unused Revolving Line Facility Fee.  A fee (the “Unused Revolving Line
Facility Fee”), payable quarterly, in arrears, on a calendar year basis, 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.  The unused portion
of
 
 
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the Revolving Line, for the purposes of this calculation, shall include amounts
reserved for products provided in connection with Cash Management Services and
FX Forward Contracts.  Borrower shall not be entitled to any credit, rebate or
repayment of any Unused Revolving Line Facility Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of the Agreement or the
suspension or termination of Bank’s obligation to make loans and advances
hereunder; 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.
 

 
2.5
Payments; Application of Payments.

 
(a) All payments (including prepayments) to be made by Borrower under any Loan
Document shall be made in immediately available funds in U.S. Dollars, without
setoff or counterclaim, before 12:00 noon Eastern time on the date when
due.  Payments of principal and/or interest received after 12:00 noon 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) Bank shall, other than during the continuance of an Event of Default, credit
such collected funds to a depository account of Borrower with Bank (or an
account maintained by an Affiliate of Bank), the order and method of such
application to be in the sole discretion of Bank.  During the continuance of an
Event of Default, 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.
 

 
3
CONDITIONS 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, as necessary;
 
(c) Borrower’s Operating Documents and a good standing certificate of Borrower
certified by the Secretary of State of the State of Delaware, together with any
applicable certificates of foreign qualification, each as of a date no earlier
than thirty (30) days prior to the Effective Date;
 
(d) duly executed original signatures to the Assistant Secretary’s Certificate
with completed Borrowing Resolutions for Borrower;
 
(e) certified copies, dated as of a recent date, of financing statement
searches, as Bank shall 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;
 
(f) the Perfection Certificate of Borrower, together with the duly executed
original signature thereto;
 
(g) a landlord’s consent in favor of Bank for such of Borrower’s leased
locations as Bank may require, if any, by the respective landlord thereof,
together with the duly executed original signatures thereto;
 
(h) a bailee’s/warehouseman’s waiver executed by each bailee, if any, of
Borrower as required by Bank, in favor of Bank;
 
(i) a legal opinion of Borrower’s counsel, in form and substance acceptable to
Bank, in its reasonable discretion, dated as of the Effective Date together with
the duly executed original signature thereto;
 
 
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(j) evidence satisfactory to Bank that the insurance policies 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; and
 
(k) payment of the fees and Bank Expenses then due as specified in Section 2.4
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) except as otherwise provided in Section 3.4, timely receipt of an executed
Borrowing Base Certificate;
 
(b) the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of each Borrowing
Base Certificate 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
Default or 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) in Bank’s reasonable discretion, there has not been any material impairment
in the general affairs, management, results of operation, financial condition or
the prospect of repayment of the Obligations, or any material adverse deviation
by Borrower from the most recent business plan of Borrower presented to and
accepted by Bank.
 
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.  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 other than Advances under Sections 2.1.2 or
2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by
electronic mail, facsimile, or telephone by 12:00 noon Eastern time on the
Funding Date of the Advance.  Together with any such electronic or facsimile
notification, Borrower shall deliver to Bank by electronic mail or facsimile a
completed Borrowing Base Certificate executed by a Responsible Officer or his or
her designee.  Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee.  Bank shall credit Advances to
the Designated Deposit Account.  Bank may make Advances under this Agreement
based on instructions from a Responsible Officer or his or her designee or
without instructions if the Advances are necessary to meet Obligations which
have become due.
 

 
4
CREATION 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.
 
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 may have superior priority to Bank’s Lien
under this Agreement).  If Borrower shall acquire a commercial tort claim,
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
 
 
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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.
 
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 and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.
 
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.
 

 
5
REPRESENTATIONS AND WARRANTIES

 
Borrower represents and warrants as follows:
 
5.1   Due Organization; Authorization; Power and Authority.  Except as disclosed
on the Perfection Certificate, Borrower and each of its Subsidiaries are duly
existing and in good standing as a Registered Organization in its jurisdiction
of formation and each is qualified and licensed to do business and each is in
good standing in any jurisdiction in which the conduct of each 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”.  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 (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) constitute an event of default under 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, has 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 deposit accounts other than the deposit accounts with Bank, the deposit
accounts, if any described in the Perfection Certificate delivered to Bank in
connection herewith, or of which Borrower has given Bank notice and taken such
actions as are necessary to give Bank a perfected security interest
therein.  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.  In the event
 
 
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that Borrower, after the date hereof, intends to store or otherwise deliver any
portion of the Collateral to a bailee, then Borrower will first receive the
written consent of Bank and such bailee must execute and deliver a bailee
agreement in form and substance satisfactory to Bank in its sole discretion.
 
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 the Intellectual Property
violates the rights of any third party except to the extent such claim would not
have a material adverse effect on Borrower’s business.
 
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; Inventory.  For any Eligible Account in any Borrowing
Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct in all material respects and all such invoices,
instruments and other documents, and all of Borrower’s Books are genuine and in
all material respects what they purport to be.  Whether or not an Event of
Default has occurred and is continuing, Bank may notify any Account Debtor owing
Borrower money of Bank’s security interest in such funds and verify the amount
of such Eligible Account.  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 Certificate.  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 the Responsible Officers, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than, individually or in the
aggregate, One Hundred Fifty Thousand Dollars ($150,000).
 
5.5   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 assets (including goodwill
minus disposition costs) exceeds the fair value of its 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 has complied in all material
respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of
its Subsidiaries is a “holding company” or an “affiliate” of a “holding company”
or a “subsidiary company” of a “holding company” as each term is defined and
used in the Public Utility Holding Company Act of 2005.  Borrower has not
violated any laws, ordinances or rules, the 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 Government
Authorities that are necessary to continue their respective businesses as
currently conducted, except where the failure to obtain such consents, approvals
authorizations, declarations or filings (other than tax filings described in
Section 5.9 hereof) could not reasonably be expected to have a material adverse
effect on Borrower or its business.
 
 
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5.8   Subsidiaries; Investments.  Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.
 
5.9   Tax Returns and Payments; Pension Contributions.  Except as disclosed on
the Perfection Certificate, 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.  Borrower may
defer payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Bank in writing of the
commencement of, and any material development in, the proceedings, (c) posts
bonds or takes 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.  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 (i) to repay Bank in full all outstanding Obligations owed to Bank
pursuant to the terms and conditions of the Prior Loan Agreement; (ii) to pay a
portion of any Permitted Acquisition in accordance with the terms and conditions
hereof; and (iii) as working capital to fund its general business requirements
and not for personal, family, household or agricultural purposes.
 
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 the Responsible Officers.
 

 
5.13
Designated Senior Indebtedness

 
5.14        The Loan Documents and all of the Obligations shall be deemed
“Designated Senior Indebtedness” or a similar concept thereof for purposes of
any Indebtedness of the Borrower.
 

 
6
AFFIRMATIVE COVENANTS

 
Borrower shall do all of the following:
 
6.1   Government Compliance.  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,
with all laws, ordinances and regulations to which it is subject, the
noncompliance with which could have a material adverse effect on Borrower’s
business.
 

 
6.2
Financial Statements, Reports, Certificates.

 
(a) Borrower shall provide Bank with the following:
 
(i) (A) within thirty (30) days after the end of each month, and (B) upon each
request for a Credit Extension, a Borrowing Base Certificate;
 
 
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(ii) within thirty (30) days after the end of each month, (A) monthly accounts
receivable agings, aged by invoice date, (B) monthly accounts payable agings,
aged by invoice date, and held check registers, if any, and (C) monthly
reconciliations of accounts receivable agings (aged by invoice date), a
Transaction Report and a Deferred Revenue report;
 
(iii) within thirty (30) days after the end of each month, monthly unaudited
financial statements;
 
(iv) within thirty (30) days after the end of each month a monthly 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 shall reasonably request;
 
(v) annually, within forty-five (45) days after approval by Borrower’s board of
directors, and as amended, (A) annual operating budgets (including income
statements, balance sheets and cash flow statements, by quarter) for the
upcoming fiscal year of Borrower, and (B) annual financial projections for the
following fiscal year (by quarter) as approved by Borrower’s board of directors,
together with any related business forecasts used in the preparation of such
annual financial projections;
 
(vi) as soon as available, and in any event within one hundred twenty (120) days
following the end of Borrower’s fiscal year, annual financial statements
certified by, and with an unqualified opinion of, independent certified public
accountants reasonably acceptable to Bank;
 
(vii)  within five (5) days of delivery, copies of all statements, reports and
notices made available to Borrower’s security holders or to any holders of
Subordinated Debt;
 
(viii) a 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 Fifty Thousand Dollars ($150,000) or more;
 
Notwithstanding the foregoing, during a Streamline Period, provided no Event of
Default has occurred and is continuing, Borrower shall not be required to
provide Bank with the reports and schedules required pursuant to clause (a)(ii)
above.
 
(b) In the event that Borrower is or becomes subject to the reporting
requirements under the Securities Exchange Act of 1934, as amended, within five
(5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the SEC
or a link thereto on Borrower’s or another website on the Internet.
 
(c) Prompt written notice of (i) any material change in the composition of the
Intellectual Property, (ii) the registration of any Copyright (including any
subsequent ownership right of Borrower in or to any Copyright), Patent or
Trademark not previously disclosed to Bank, or (iii) Borrower’s knowledge of an
event that materially adversely affects the value of the Intellectual Property.
 

 
6.3
Accounts Receivable.

 
(a)   Schedules and Documents Relating to Accounts. Other than during a
Streamline Period, Borrower shall deliver to Bank the 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 requested by Bank, Borrower
shall furnish Bank with copies (or, following the occurrence and during the
continuance of an Event of Default, 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 deliver to Bank, on 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 endorsements, and copies of all credit
memos.
 
 
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(b)   Disputes.  Borrower shall promptly notify Bank of all disputes or claims
relating to Accounts for amounts in excess of One Hundred Thousand Dollars
($100,000) in the aggregate per month, for all such claims and/or disputed
Accounts.  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 a commercially reasonable
manner, 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
Default or 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 Availability Amount.
 
(c)   Collection of Accounts.  Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing.  All payments on, and proceeds of, Accounts shall be deposited
directly by the applicable Account Debtor into a lockbox account, or such other
“blocked account” as Bank may specify, pursuant to a blocked account agreement
in form and substance satisfactory to Bank in its sole discretion.  Whether or
not an Event of Default has occurred and is continuing, Borrower shall
immediately deliver all payments on and proceeds of Accounts to an account
maintained with Bank to be applied (i) prior to an Event of Default, pursuant to
the terms of Section 2.5(b) hereof, and (ii) after the occurrence and during the
continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof.
 
(d)   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 promptly notify Bank of the return of the Inventory.
 
(e)   Verification.  Bank may, from time to time, verify 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.
 
(f)   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.
 
6.4   Remittance of Proceeds.  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 (1) prior to an Event of Default, pursuant to the
terms of Section 2.5(b) hereof, and (2) after the occurrence and during the
continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof;
providedthat, 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 surplus,
worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s
length transaction for an aggregate purchase price of Two Hundred Thousand
Dollars ($200,000) or less (for all such transactions in any fiscal year). 
Borrower agrees that it will maintain all proceeds of Collateral in an account
maintained with Bank.  Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
 
6.5   Taxes; Pensions; Withholding.  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 three
(3) Business Day’s notice (provided no notice is required if an Event of Default
has occurred and is continuing), Bank, or its agents, shall have the right, on a
semi-annual basis (or more frequently if Bank determines conditions warrant, in
its sole discretion), to inspect the Collateral and the right to audit and copy
Borrower’s Books.  The foregoing inspections and audits shall be at Borrower’s
expense, and the charge therefor shall be $850 per person per day (or such
higher
 
 
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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
reschedule 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 $1,000 plus any out-of-pocket expenses incurred by Bank to compensate
Bank for the anticipated costs and expenses of the cancellation or rescheduling.
 
6.7   Insurance.  Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location and as Bank
may reasonably request.  Insurance policies shall be in a form, with companies,
and in amounts that are reasonably satisfactory to Bank.  All property policies
shall have a lender’s loss payable endorsement showing Bank as the sole lender
loss payee and waive subrogation against Bank and shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy.  All liability policies shall show, or have
endorsements showing, Bank as an additional insured, and all such policies (or
the loss payable and additional insured endorsements) shall provide that the
insurer shall give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy.  At Bank’s request, Borrower shall
deliver certified copies of policies and evidence of all premium
payments.  Proceeds payable under any policy shall, at Bank’s option, be payable
to Bank on account of the Obligations.  Notwithstanding the foregoing, (a) so
long as no Event of Default has occurred and is continuing, Borrower shall have
the option of applying the proceeds of any casualty policy up to One Hundred
Fifty Thousand Dollars ($150,000) with respect to any loss, but not exceeding
Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate for all losses
under all casualty policies in any one year, toward the replacement or repair of
destroyed or damaged property; provided that any such replaced or repaired
property (i) shall be of equal or like value as the replaced or repaired
Collateral and (ii) shall be deemed Collateral in which Bank has been granted a
first priority security interest, and (b) after the occurrence and during the
continuance of an Event of Default, all proceeds payable under such casualty
policy shall, at the option of Bank, be payable to Bank on account of the
Obligations.  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 deems prudent.
 

 
6.8
Operating Accounts.

 
(a)   Maintain all of Borrower’s and its Subsidiaries’ primary domestic
operating, depository and securities accounts with Bank and Bank’s Affiliates,
which accounts shall represent greater than fifty percent (50.0%) of the dollar
value of Borrower’s and such Subsidiaries accounts at all financial
institutions.
 
(b)   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 Borrower at any time
maintains (other than the BofA Account, defined below), 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 the 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.
 
(c)   Borrower may maintain its existing account no. 9418380144 with Bank of
America, N.A. (the “BofA Account”), which BofA Account shall not be required by
Bank to be subject to a Control Agreement in favor of Bank; provided, however,
that the aggregate balance of such BofA Account shall at no time exceed One
Hundred Thousand Dollars ($100,000).
 

 
6.9
Financial Covenants.

 
Maintain at all times, to be certified by Borrower as of the last day of each
month, unless otherwise noted, consolidated basis with respect to Borrower and
its Subsidiaries:
 
(a)           EBITDA. EBITDA, measured on a trailing three-month basis as of the
last day of each month, of no less than (i) commencing on the Effective Date
through and including the testing period ending August 31, 2010, Fifty Thousand
Dollars ($50,000); and (ii) commencing on the next testing period ending
September 30, 2010, and for each testing period ending thereafter, One Hundred
Thousand Dollars ($100,000).
 
 
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(b)           Minimum Liquidity.  Unrestricted cash at Bank plus Committed
Availability of not less than Two Million Dollars ($2,000,000).
 

 
6.10
Protection and Registration of Intellectual Property Rights.

 
(a)   (i) Borrower shall take commercially reasonable measures on advice of
counsel to protect, defend and maintain the validity and enforceability of its
Intellectual Property; (ii) promptly advise Bank in writing of material
infringements 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)   If Borrower (i) obtains any Patent, registered Trademark, registered
Copyright, registered mask work, or any pending application for any of the
foregoing, whether as owner, licensee or otherwise, or (ii) applies for any
Patent or the registration of any Trademark, then Borrower shall promptly
provide written notice thereof to Bank and shall execute such intellectual
property security agreements and other documents and take such other actions as
Bank shall request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such
property.  If Borrower decides to register any Copyrights or mask works in the
United States Copyright Office, Borrower shall: (x) provide Bank with at least
fifteen (15) days prior written notice of Borrower’s intent to register such
Copyrights or mask works together with a copy of the application it intends to
file with the United States Copyright Office (excluding exhibits thereto); (y)
execute an intellectual property security agreement and such other documents and
take such other actions as Bank may request in its good faith business judgment
to perfect and maintain a first priority perfected security interest in favor of
Bank in the Copyrights or mask works intended to be registered with the United
States Copyright Office; and (z) record such intellectual property security
agreement with the United States Copyright Office contemporaneously with filing
the Copyright or mask work application(s) with the United States Copyright
Office.  Borrower shall promptly provide to Bank copies of all applications that
it files for Patents or for the registration of Trademarks, Copyrights or mask
works, together with evidence of the recording of the intellectual property
security agreement necessary for Bank to perfect and maintain a first priority
security interest in such property.
 
(c)   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 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, 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.
 
6.12         Creation/Acquisition of Subsidiaries.  Notwithstanding and without
limiting the negative covenant contained in Section 7.3 hereof, in the event
Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such
Subsidiary shall promptly notify Bank of the creation or acquisition of such new
Subsidiary and, at Bank’s request, in its sole discretion, take all such action
as may be reasonably required by Bank to cause each such Subsidiary to, in
Bank’s sole discretion, become a co-Borrower or guarantor under the Loan
Documents and grant a continuing pledge and security interest in and to the
assets of such Subsidiary (substantially as described on Exhibit A hereto); and
Borrower shall grant and pledge to Bank a perfected security interest in the
stock, units or other evidence of ownership of each Subsidiary.
 
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. Borrower shall
deliver to Banker to Bank, within five (5) days after the same are sent or
received, copies of all 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 any of its Subsidiaries.
 

 
7
NEGATIVE COVENANTS

 
 
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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 or obsolete
Equipment; (c) in connection with Permitted Liens and Permitted Investments; and
(d) of non-exclusive licenses for the use of the property of Borrower and its
Subsidiaries in the ordinary course of business, consistent with past practices.
 
7.2   Changes in Business, Management, Ownership or Business Locations.  (a)
Engage in or permit any of its Subsidiaries, if any, 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; or (c)
(i) have a change in senior management; or (ii) enter into any transaction or
series of related transactions in which the stockholders of Borrower who were
not stockholders immediately prior to the first such transaction own more than
forty percent (40%) of the voting stock of Borrower immediately after giving
effect to such transaction or related series of such transactions (other than by
the sale of Borrower’s equity securities in a public offering or to venture
capital investors so long as Borrower identifies to Bank the venture capital
investors prior to the closing of the transaction and provides to Bank a
description of the material terms of the transaction).
 
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 are added in connection with a
Permitted Acquisition or contain less than One Hundred Fifty Thousand Dollars
($150,000) in Borrower’s assets or property) or deliver any portion of the
Collateral valued, individually or in the aggregate, in excess of One Hundred
Fifty Thousand Dollars ($150,000) 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 adds a new
office or business location in connection with a Permitted Acquisition which
contains more than One Hundred Fifty Thousand Dollars ($150,000) in Borrower’s
assets or property, then Borrower shall, at Borrower’s expense and within ten
(10) Business Days following the consummation of such Permitted Acquisition,
cause the landlord of such location to execute and deliver a landlord’s consent
in form and substance acceptable to Bank in its sole discretion.  If Borrower
intends to deliver any portion of the Collateral valued, individually or in the
aggregate, in excess of One Hundred Fifty Thousand Dollars ($150,000) 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 will first receive the written consent of
Bank, and such bailee shall execute and deliver a bailee agreement in form and
substance satisfactory to Bank in its sole discretion.
 
7.3   Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or, other than in
connection with a Permitted Acquisition, acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person.  A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.
 
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 the
Collateral, 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, 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.
 
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 (i)
Borrower may convert any of its convertible securities into other securities
pursuant to the terms of such convertible securities or otherwise in exchange
thereof, (ii) Borrower may pay dividends solely in common stock; and (iii)
Borrower may repurchase the stock of former
 
 
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employees or consultants pursuant to stock repurchase agreements so long as an
Event of Default does not exist at the time of such repurchase and would not
exist after giving effect to such repurchase, provided such repurchase does not
exceed in the aggregate of One Hundred Thousand Dollars ($100,000) per fiscal
year; or (b) directly or indirectly make any Investment (including, without
limitation, any additional Investment in 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
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.
 
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 which would increase
the amount thereof or adversely affect the subordination thereof to Obligations
owed to Bank.
 
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 non-exempt 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 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.
 
7.11         Subsidiary Limitations.  Permit any Subsidiary that is not a
Borrower to maintain assets (other than, with respect to Private Limited, cash
received from Borrower as permitted in connection with clause (h) of the
definition of “Permitted Indebtedness” and clause (c) of the definition of
“Permitted Investments”), in an aggregate amount for all such Subsidiaries in
excess of Fifty Thousand Dollars ($50,000) at any time.
 

 
8
EVENTS 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 on its due date, 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).  During the cure period, the failure
to make or pay any payment specified under clause (a) or (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, 6.4,
6.5, 6.6, 6.7, 6.8, or 6.9, or violates any covenant in Section 7; or
 
(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;
 
 
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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 in excess of One Hundred Fifty Thousand Dollars
($150,000) or of any entity under the control of Borrower (including a
Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate,
or (ii) a notice of lien or levy is filed against any of Borrower’s assets by
any government agency, 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 any material part of
its business;
 
8.5   Insolvency.  (a) Borrower is unable to pay its debts (including trade
debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower
and not dismissed or stayed within thirty (30) days (but no Credit Extensions
shall be made while of 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 is a
party with a third party or parties, (a) any default resulting in the
acceleration by such third party or parties of the maturity of any Indebtedness
in an amount individually or in the aggregate in excess of One Hundred Fifty
Thousand Dollars ($150,000); or (b) any default by Borrower, the result of which
could have a material adverse effect on Borrower’s business;
 
8.7   Judgments.  One or more final judgments, orders, or decrees for the
payment of money in an amount, individually or in the aggregate, of at least One
Hundred Thousand Dollars ($100,000) (not covered by independent third-party
insurance as to which liability has been accepted by such insurance carrier)
shall be rendered against Borrower and the same are not, within ten (10) days
after the entry thereof, discharged or 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
discharge, stay, or bonding of such 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
 
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 for a full term 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 (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction.
 

 
9
BANK’S RIGHTS AND REMEDIES

 
 
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9.1   Rights and Remedies.  While an Event of Default occurs and continues 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 105%
of the Dollar Equivalent of the aggregate face amount of all Letters of Credit
remaining undrawn plus 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; provided, however, if an Event of
Default described in Section 8.5 occurs, the obligation of Borrower to cash
collateralize all Letters of Credit remaining undrawn shall automatically become
effective without any action by Bank;
 
(d)   terminate any FX Forward Contracts;
 
(e)   settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Bank considers advisable, notify any
Person owing Borrower money of Bank’s security interest in such funds, and
verify the amount of such account;
 
(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) any amount held by Bank owing to or for the credit or the account
of Borrower;
 
(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, 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 upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower’s name on any
checks 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)
settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle,
and adjust all claims under Borrower’s insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, and adverse claim in or
to the Collateral, or any judgment based thereon, or otherwise take any action
to terminate or
 
 
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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 Bank is under no further obligation to make
Credit Extensions hereunder.  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
Bank’s obligation to provide Credit Extensions terminates.
 
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, 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 may apply 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 in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to Borrower or to other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If
Bank, in its good faith business judgment, 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.
 
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.
 

 
10
NOTICES

 
All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than Advance requests made pursuant to
Section 3.4, by any party to this Agreement or any other Loan Document must be
in writing and be delivered or sent by facsimile at the addresses or facsimile
numbers listed below.  Bank or Borrower may change its notice address by giving
the other party written notice thereof.  Each such Communication 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, registered
or certified mail, return receipt requested, with proper postage prepaid; (b)
upon transmission, when sent by facsimile transmission (with such facsimile
promptly confirmed by delivery of a copy by personal delivery or United States
mail as otherwise provided in this Section 10); (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 or facsimile number indicated
below.  Advance requests made pursuant to Section 3.4 must be in writing and may
be in the form of electronic mail, delivered to Bank by Borrower at the e-
 
 
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mail address of Bank provided below and shall be deemed to have been validly
served, given, or delivered when sent (with such electronic mail promptly
confirmed by delivery of a copy by personal delivery or United States mail as
otherwise provided in this Section 10).  Bank or Borrower may change its
address, facsimile number, or electronic mail address by giving the other party
written notice thereof in accordance with the terms of this Section 10.
 

 
If to Borrower:
Bridgeline Digital, Inc.
   
10 Sixth Road
   
Woburn, Massachusetts  01801
   
Attn:  Ronald M. Levenson, CFO
   
Fax:  (781) 376-5033
   
Email:  rlevenson@blinedigital.com
 
 
with a copy to:
Morse, Barnes-Brown & Pendleton, P.C.
   
1601 Trapelo Road
   
Waltham, Massachusetts  02451
   
Attn:Joseph C. Marrow, Esquire
   
Fax:(781) 622-5933
   
Email:jmarrow@mbbp.com
       
If to Bank:
Silicon Valley Bank
   
2221 Washington Street
   
One Newton Executive Park, Suite 200
   
Newton, Massachusetts
   
Attn:Mr. Mike Foley
   
Fax:  (617) 527-0177
   
Email:  Mfoley@svb.com
       
with a copy to:
Riemer & Braunstein LLP
   
Three Center Plaza
   
Boston, Massachusetts 02108
   
Attn:  Charles W. Stavros, Esquire
   
Fax: (617) 880-3456
   
Email: cstavros@riemerlaw.com

 

 
11
CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 
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
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. NOTWITHSTANDING
ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALL SPECIFICALLY HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN
ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST
BORROWER OR ITS PROPERTY.
 
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, 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
 
 
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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.
 

 
12
GENERAL PROVISIONS

 
12.1         Termination Prior to Maturity Date.  This Agreement may be
terminated prior to the Revolving Line Maturity Date by Borrower, effective
three (3) Business Days after written notice of termination is given to Bank or
if Bank’s obligation to fund Credit Extensions terminates pursuant to the terms
of Section 2.1.1(b).  Notwithstanding any such termination, Bank’s lien and
security interest in the Collateral shall continue until Borrower fully
satisfies its Obligations.  Upon payment in full of the Obligations and at such
time as Bank’s obligation to make Credit Extensions has terminated, Bank shall
release its liens and security interests in the Collateral and all rights
therein shall revert to Borrower.
 
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.
 
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:  (a) 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 (b) 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 contemplated by the Loan
Documents (including reasonable attorneys’ fees and expenses), except for Claims
and/or losses directly caused by such Indemnified Person’s gross negligence or
willful misconduct.
 
12.4         Time of Essence.  Time is of the essence for the performance of all
Obligations in this Agreement.
 
12.5         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.
 
12.6         Severability of Provisions.  Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
 
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         Survival.  All covenants, representations and warranties made in
this Agreement continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement) have been paid in full and satisfied.  The
obligation of Borrower in Section 12.3 to indemnify Bank shall survive until the
statute of limitations with respect to such claim or cause of action shall have
run.
 
 
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12.10      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, Bank
shall use commercially reasonable efforts to obtain any prospective transferee’s
or purchaser’s agreement to the terms of this provision); (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 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 the confidential information for reporting purposes and
the development and distribution of databases and market analyses so long as
such confidential information is aggregated and anonymized prior to
distribution, unless otherwise expressly permitted by Borrower.  The provisions
of the immediately preceding sentence shall survive the termination of this
Agreement.
 
12.11      Attorneys’ Fees, Costs and Expenses.  In any action or proceeding
between Borrower and Bank arising out of or relating to the Loan Documents, Bank
shall be entitled to recover its reasonable attorneys’ fees and other costs and
expenses incurred, in addition to any other relief to which it may be entitled.
 
12.12      Right of Set Off.   Borrower hereby grants to Bank, a lien, security
interest and right of set off 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 Bank subsidiary) 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 set off 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.
 
12.13      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.
 
12.14      Captions.  The headings used in this Agreement are for convenience
only and shall not affect the interpretation of this Agreement.
 
12.15     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.
 
12.16      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.
 
12.17      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.
 

 
13
DEFINITIONS

 
 
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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 any “account” as 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 Borrower.
 
“Acquisition” is (a) the purchase or other acquisition by Borrower of all or
substantially all of the assets of any other Person, or (b) the purchase or
other acquisition (whether by means of merger, consolidation, or otherwise) by
Borrower of all or substantially all of the stock or other equity interest of
any other Person.
 
“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Advance” or “Advances” means an advance (or advances) 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.
 
“Agreement” is defined in the preamble hereof.
 
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) (X)
the amount available under the Borrowing Base plus (Y) during the Non-formula
Advance Availability Period, the Non-formula Advance minus (b) the Dollar
Equivalent amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit plus an amount equal to the Letter of Credit
Reserve), minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash
Management Services, and minus (e) the outstanding principal balance of any
Advances, including, without limitation, any outstanding Non-formula Advance.
 
“Bank” is defined in the preamble hereof.
 
“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 with respect to Borrower.
 
“Borrower” is defined in the preamble hereof.
 
“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%) of Eligible Accounts, as determined by
Bank from Borrower’s most recent Borrowing Base Certificate; provided, however,
that Bank may decrease the foregoing percentage in its good faith business
judgment based on events, conditions, contingencies, or risks which, as
determined by Bank, may adversely affect the Collateral.
 
“Borrowing Base Certificate” is that certain certificate in the form attached as
Exhibit C hereto.
 
“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors or other appropriate body 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 or assistant secretary on behalf of such
Person certifying that (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 attached as Exhibit A 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 on
 
 
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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.
 
“Capital Expenditures” means, with respect to any Person for any period, the sum
of (a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed, plus (b) to
the extent not covered by clause (a), the aggregate of all expenditures by such
Person and its Subsidiaries during such period to acquire by purchase or
otherwise the business or capitalized assets or the capital stock of any other
Person.
 
“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.
 
“Cash Management Services” is defined in Section 2.1.4.
 
“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.
 
“Committed Availability” is, as of any date of determination, an amount equal to
(a) the lesser of (i) the Revolving Line or (ii) the amount available under the
Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit plus an amount
equal to the Letter of Credit Reserve), minus (c) the FX Reduction Amount, minus
(d) any amounts used for Cash Management Services, and minus (e) the outstanding
principal balance of any Advances.
 
“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Communication” is defined in Section 10.
 
“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,
 
 
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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 or 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, Non-formula Advance, Letter of Credit, FX
Forward Contract, amount utilized for Cash Management Services, or any other
extension of credit by Bank for Borrower’s benefit.
 
“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.
 
“Default Rate” is defined in Section 2.3(b).
 
“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue under GAAP.
 
“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Designated Deposit Account” is Borrower’s deposit account, account number
3300621876, maintained with 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.
 
“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense,
amortization expense (including, without limitation, goodwill) and non-cash
stock compensation expense, plus (d) income tax expense plus (e) other one-time
non-cash expenses approved by Bank, on a case-by-case basis, in its sole
discretion.
 
“Effective Date” is the date Bank executes this Agreement and as indicated on
the signature page hereof.
 
“Eligible Accounts” means Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3.  Bank reserves the right at any time and from time to time after
the Effective Date upon notice to Borrower, to adjust any of the criteria set
forth below and to establish new criteria in its reasonable good faith business
judgment.  Without limiting the fact that the determination of which Accounts
are eligible for borrowing is a matter of Bank’s good faith judgment, the
following (“Minimum Eligibility Requirements”) are the minimum requirements for
an Account to be an Eligible Account.  Unless Bank agrees otherwise in writing,
Eligible Accounts shall not include:
 
(a)   Accounts for which the Account Debtor is Borrower’s Affiliate, officer,
employee, or agent;
 
 
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(b)   Accounts that the Account Debtor has not paid within one hundred twenty
(120) days of invoice date, regardless of invoice payment period terms;
 
(c)   Accounts with credit balances over one hundred twenty (120) days from
invoice date;
 
(d)   Accounts owing from an Account Debtor, fifty percent (50%) or more of
whose Accounts have not been paid within one hundred twenty (120) days of
invoice date;
 
(e)   Accounts owing from an Account Debtor which does not have its principal
place of business in the United States, except Eligible Foreign Accounts;
 
(f)   Accounts billed and/or payable outside the United States;
 
(g)   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), with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor by Borrower in the
ordinary course of its business;
 
(h)   Accounts owing from an Account Debtor, including Affiliates, whose total
obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for
the amounts that exceed that percentage, unless Bank approves in writing;
 
(i)   Accounts owing from the United States or any department, agency, or
instrumentality thereof except for Accounts of the United States if 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;
 
(j)   Accounts for demonstration or promotional equipment, or in which goods are
consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”,
“bill and hold”, or other terms if Account Debtor’s payment may be conditional;
 
(k)   Accounts (i) for which the Account Debtor has not been invoiced or (ii)
where goods or services have not yet been rendered to the Account Debtor
(sometimes called unbilled, memo billings or pre-billings);
 
(l)   Accounts subject to contractual arrangements between Borrower and an
Account Debtor where payments shall be scheduled or due according to completion
or fulfillment requirements where the Account Debtor has a right of offset for
damages suffered as a result of Borrower’s failure to perform in accordance with
the contract (sometimes called contracts accounts receivable, progress billings,
milestone billings, or fulfillment contracts);
 
(m)   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);
 
(n)   Accounts subject to trust provisions, subrogation rights of a bonding
company, or a statutory trust;
 
(o)   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 in its sole
discretion 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);
 
(p)   Accounts that represent non-trade receivables or that are derived by means
other than in the ordinary course of Borrower’s business;
 
(q)   Accounts for which Borrower has permitted Account Debtor’s payment to
extend beyond 120 days;
 
 
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(r)   Accounts arising from chargebacks, debit memos or others payment
deductions taken by an Account Debtor (but only to the extent the chargeback is
determined invalid and subsequently collected by Borrower);
 
(s)   Accounts arising from product returns and/or exchanges (sometimes called
“warranty” or “RMA” accounts);
 
(t)   Accounts owing from an Account Debtor with respect to which Borrower has
received Deferred Revenue (but only to the extent of such Deferred Revenue);
 
(u)   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, or becomes insolvent, or goes out of
business;
 
(v)   Accounts for which Bank in its good faith business judgment determines
collection to be doubtful, including, without limitation, accounts represented
by “refreshed” or “recycled” invoices; and
 
(w)   other Accounts Bank deems ineligible in the exercise of its good faith
business judgment.
 
“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not
have its principal place of business in the United States but are otherwise
Eligible Accounts that are pre-approved by Bank in writing, on a case-by-case
basis.
 
“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.
 
“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 Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.
 
“FX Forward Contract” is defined in Section 2.1.3.
 
“FX Reserve” is defined in Section 2.1.3.
 
“FX Reduction Amount” is defined in Section 2.1.3.
 
“GAAP” is generally accepted accounting principles as defined in the Financial
Accounting Standards Codification, which superseded 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.
 
 
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“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.
 
“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.
 
“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 relief.
 
“Intellectual Property” means all of Borrower’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, operating manuals;
 
(c)   any and all source code;
 
(d)   any and all design rights which may be available to a Borrower;
 
(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, if
any, 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.
 
“IP Agreement” is that certain Amended and Restated Intellectual Property
Security Agreement executed and delivered by Borrower to Bank dated as of the
date hereof.
 
 
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“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.
 
“Letter of Credit Application” is defined in Section 2.1.2(a).
 
“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).
 
“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, the Perfection Certificate,
the IP Agreement, any note, or notes or guaranties executed by Borrower and any
other present or future agreement between Borrower and/or for the benefit of
Bank in connection with this Agreement, all as amended, 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; (c) a material impairment of the prospect
of repayment of any portion of the Obligations or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6 during the next succeeding financial reporting
period.
 
“Net Income” means, as calculated on a consolidated basis for Borrower and its
Subsidiaries, if any,  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.
 
“Non-formula Advance” is (a) the lesser of (i) Two Million Dollars ($2,000,000)
or (ii) the difference between (x) the Revolving Line minus (y) the amount
available under the applicable Borrowing Base; provided, however, that Bank may
decrease the foregoing amount in its good faith business judgment based on
events, conditions, contingencies, or risks which, as determined by Bank, may
adversely affect the Collateral.
 
“Non-formula Advance Availability Period” is, provided a Default has not
occurred, the period commencing three (3) Business Days prior to the end of each
fiscal quarter of the Borrower and terminating on the earlier to occur of (i)
the occurrence of a Default and (ii) 12:00 noon eastern time on the third
Business Day of the immediately succeeding fiscal quarter of the Borrower.
 
“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
whether under this Agreement, the Loan Documents, or otherwise, including,
without limitation, all obligations relating to letters of credit (including
reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including
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 with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 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.
 
“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” means all checks, wire transfers and other items of payment received
by Bank (including proceeds of Accounts and payment of all the Obligations in
full) for credit to Borrower’s outstanding Credit Extensions or, if the balance
of the Credit Extensions has been reduced to zero, for credit to its Deposit
Accounts.
 
 
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“Perfection Certificate” is defined in Section 5.1.
 
“Performance Pricing Period” is, provided no Default has occurred and is
continuing, the period commencing on the first day of the month following the
date in which Borrower reports that Borrower’s EBITDA, measured on a trailing
three-month basis, is greater than One Hundred Fifty Thousand Dollars
($150,000), and terminating on the earlier to occur of (i) the occurrence of a
Default and (ii) the first day of the month in which Borrower reports, or Bank
otherwise determines, in its sole discretion, that Borrower’s EBITDA, measured
on a trailing three-month basis, is equal to or less than One Hundred Fifty
Thousand Dollars ($150,000).  All reports of EBITDA made by Borrower to Bank
shall be in form and substance acceptable to Bank, in its sole
discretion.  Borrower shall provide Bank written notice of its intent to enter
into a Performance Pricing Period.
 
“Permitted Acquisition” is any Acquisition as to which each of the following is
applicable:
 
(a)   no Default or Event of Default shall have occurred and be continuing or
would result from the consummation of the proposed Acquisition;
 
(b)   the entity or assets acquired in such Acquisition are in the same or
similar line of Business as Borrower is in as of the date hereof;
 
(c)   Borrower shall have provided Bank evidence and reasonably detailed
calculations satisfactory to Bank, in its sole discretion, that on a pro forma
basis (including pro forma adjustments arising out of events which are directly
attributable to such proposed Acquisition, are factually supportable, and are
expected to have a continuing impact; such eliminations and inclusions to be
satisfactory to Bank, in its sole discretion, created by adding the combined
financial statements of Borrower (including the combined financial statements of
any other Person or assets that were the subject of a prior Permitted
Acquisition) to the consolidated financial statements of the Person to be
acquired (or the financial statements related to the assets to be acquired)
pursuant to the proposed Acquisition), Borrower is projected to be in compliance
with the financial covenants contained in Section 6.9 for the 12 month period
ended one year after the proposed date of consummation of such proposed
Acquisition;
 
(d)   Borrower shall have provided Bank evidence and reasonably detailed
calculations satisfactory to Bank, in its sole discretion, that, after giving
effect to such Acquisition, the net effect of such Acquisition shall be EBITDA
accretive to Borrower on a pro forma basis for the 12 month period ended one
year after the proposed date of consummation of such proposed Acquisition;
 
(e)   Borrower shall remain a surviving entity after giving effect to such
Acquisition; if, as a result of such Acquisition, a new Subsidiary of Borrower
is formed or acquired, Borrower shall comply with Section 6.12, as required by
Bank;
 
(f)   Borrower shall provide Bank with written notice of the proposed
Acquisition at least ten (10) Business Days prior to the anticipated closing
date of the proposed Acquisition; and not less than five (5) Business Days prior
to the anticipated closing date of the proposed Acquisition, copies of the
acquisition agreement and all other material documents relative to the proposed
Acquisition;
 
(g)   the total cash and non-cash consideration payable (including, without
limitation, any earn-out payment obligations) for all such Acquisitions may not
exceed Six Million Dollars ($6,000,000); Borrower shall provide Bank evidence
satisfactory to Bank, in its sole discretion, that no more than Three Million
Dollars ($3,000,000) in the aggregate of Credit Extensions or other proceeds of
loans made by Bank to Borrower, have been utilized as purchase consideration for
all such Acquisitions; and
 
(h)   the entity or assets acquired in such Acquisition shall not be subject to
any Lien other than the first-priority Liens granted in favor of Bank.
 
“Permitted Indebtedness” is:
 
(a)   Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;
 
(b)   Indebtedness existing on the Effective Date and shown on the Perfection
Certificate;
 
(c)   Subordinated Debt, if any;
 
 
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(d)   unsecured Indebtedness to trade creditors incurred in the ordinary course
of business; and
 
(e)   Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business.
 
(f)   Indebtedness secured by Permitted Liens;
 
(g)   Indebtedness incurred in connection with Permitted Acquisitions;
 
(h)   Indebtedness owed by Private Limited to Borrower in connection with
current operating expenses incurred in the ordinary course of the businesses
currently engaged in by Borrower and Private Limited or reasonably related
thereto and not for extraordinary items or speculative purposes, the proceeds of
which shall be used to promptly pay such current operating expenses of Private
Limited; and
 
(i)   extensions, refinancings, modifications, amendments and restatements of
any items of Permitted Indebtedness (a) through (h) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.
 
“Permitted Investments” are:
 
(a)   Investments shown on the Perfection Certificate and existing on the
Effective Date;
 
(b)   Cash Equivalents;
 
(c)   Investments by Borrower in Private Limited for current operating expenses
incurred in the ordinary course of the businesses currently engaged in by
Borrower and Private Limited or reasonably related thereto and not for
extraordinary items or speculative purposes, the proceeds of which shall be used
to promptly pay such current operating expenses of Private Limited; and
 
(d)   Investments in Permitted Acquisitions.
 
“Permitted Liens” are:
 
(a)   Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and 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 its 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 (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) 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;
 
(d)   Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), 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;
 
(e)   leases or subleases of real property granted in the ordinary course of
business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or Intellectual Property) granted in the
ordinary course of Borrower’s business, if the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest; and
 
(f)   non-exclusive license of Intellectual Property granted to third parties in
the ordinary course of business.
 
 
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“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.
 
“Prime Rate” is the greater of (i) four percent (4.00%) per annum and (ii)
Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
 
“Private Limited” is Bridgeline Software Private Limited, a company organized
under the laws of India and a wholly owned Subsidiary of Borrower.
 
“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 good faith reducing the amount of Advances,
Letters of Credit and other financial accommodations which would otherwise be
available to Borrower under the lending formulas:  (a) to reflect events,
conditions, contingencies or risks which, as determined by Bank in good faith,
do or may 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 good faith 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 in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.
 
“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 the Bank’s right to sell any Collateral.
 
“Revolving Line” is an Advance or Advances in an amount not to exceed Five
Million Dollars ($5,000,000).
 
“Revolving Line Maturity Date” is March 31, 2012 (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.
 
“Streamline Period” is, on and after the Effective Date, the period (i)
beginning on the first (1st) day in which Borrower has, for each consecutive day
in the immediately-preceding thirty (30) day period, maintained unrestricted
cash at Bank plus the Availability Amount (based upon Borrower’s last Borrowing
Base Certificate delivered to Bank) in an amount at all times greater than Three
Million Dollars ($3,000,000), as determined by Bank, in its sole discretion (the
“Streamline Balance”); and (ii) ending on the earlier to occur of (A) the
occurrence of a Default or an Event of Default; and (B) the first day thereafter
in which Borrower fails to maintain the Streamline Balance, as determined by
Bank, in its sole discretion.  Upon the termination of a Streamline Period,
Borrower must maintain the Streamline Balance each consecutive day for thirty
(30) consecutive days, as determined by Bank, in its sole discretion, prior to
entering into a subsequent Streamline Period.  Borrower shall endeavor to give
Bank prior-written notice of Borrower’s intention to enter into any such
Streamline Period.
 
 
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“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.
 
“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.
 
“Transaction Report” is the Bank’s standard reporting package for reporting and
reconciling invoice registers, cash receipt registers, accounts receivable
registers, and credit memo and adjustment registers, together with the
appropriate supporting schedules and documentation therefor, and such other
documentation deemed appropriate by Bank, in its reasonable discretion.
 
“Transfer” is defined in Section 7.1.
 
 “Unused Revolving Line Facility Fee” is defined in Section 2.4(d).
 

[Signature page follows.]
 

 
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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:
BRIDGELINE DIGITAL, INC., f/k/n Bridgeline Software, Inc.
 
By:           /s/ Ronald M. Levenson 

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Name:           Ronald M. Levenson 

--------------------------------------------------------------------------------

Title:           Executive Vice President and CFO

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BANK:
SILICON VALLEY BANK
 
By:           /s/ Mark Sperling

--------------------------------------------------------------------------------

Name:           Mark Sperling

--------------------------------------------------------------------------------

Title:           Vice President

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Effective Date: March  31, 2010
 

 
 
 
- 32 -

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EXHIBIT A

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, commercial tort claims, documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, 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.
 

 
 
 
 
 
 
 
 
 

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EXHIBIT B - COMPLIANCE CERTIFICATE

TO:                 SILICON VALLEY
BANK                                                                                                Date:___________________
FROM:           BRIDGELINE DIGITAL, INC.

The undersigned authorized officer of Bridgeline Digital, Inc. (f/k/a Bridgeline
Software, Inc., the “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 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 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 Covenant
Required
Complies
     
Monthly financial statements with
Compliance Certificate
Monthly within 30 days
Yes   No
Annual financial statement (CPA Audited)
FYE within 120 days
Yes   No
10-Q, 10-K and 8-K
Within 5 days after filing with SEC
Yes   No
A/R & A/P Agings, Transaction Reports and
Deferred Revenue reports
Monthly within 30 days (unless during
a Streamline Period)
Yes   No
Board-approved projections
Annually, w/in 45 days of approval and
as amended
Yes   No
Borrowing Base Certificate
Monthly within 30 days and with each
request for a  Credit Extension
Yes   No
 

Financial Covenant
Required
Actual
Complies
       
Maintain at all times (tested):
     
Minimum EBITDA (monthly, on a trailing three-month basis)
   
Yes   No
Effective Date through and including August 31, 2010
$50,000
$_________
 
September 1, 2010 and thereafter
$100,000
$_________
 
Minimum Liquidity (certified monthly)
$2,000,000
$_________
Yes   No

$_________

The following Intellectual Property was registered after the Effective Date (if
no registrations, state “None”):
 

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There were no held checks as of the end of such month there except as follows
(if no held checks, state “None”):
 

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--------------------------------------------------------------------------------

 

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.”)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

BRIDGELINE DIGITAL, INC., f/k/a Bridgeline Software, Inc.
 
 
By:

--------------------------------------------------------------------------------

Name:

--------------------------------------------------------------------------------

Title:

--------------------------------------------------------------------------------

 
BANK USE ONLY
 
Received by: _____________________
authorized signer
Date:      _________________________
 
Verified: _________________________
authorized signer
Date:       _________________________
 
Compliance Status:                                         Yes     No

 
 
 

 
 
 

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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.           Minimum EBITDA (Section 6.9(a))

Required:                      Maintain EBITDA, measured on a trailing
three-month basis as of the last day of each month, of no less than (i)
commencing on the Effective Date through and including the testing period ending
August 31, 2010, Fifty Thousand Dollars ($50,000); and (ii) commencing on the
next testing period ending September 30, 2010, and for each testing period
ending thereafter, One Hundred Thousand Dollars ($100,000).

Actual: All amounts measured on a trailing three month basis:
A.
Net Income
$           
 
B.
Interest Expense
$           
 
C.
To the extent deducted from the calculation of Net Income, non-cash stock
compensation expense, depreciation expense and amortization expense (including,
without limitation, goodwill)
 
$           
 
D.
Other one-time non-cash expenses approved by Bank, on a case-by-case basis, in
its sole discretion
$           
 
E.
EBITDA (line A plus line B plus line C plus line D)
$           
 

Is line E equal to or greater than
$[                                                                                                ]?
 
    _________  No, not in
compliance                                                                                     _________ Yes,
in compliance

 
 

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II.           Minimum Liquidity (Section 6.7(b))

Required:                      Maintain unrestricted cash at Bank plus Committed
Availability of not less than Two Million Dollars ($2,000,000).

Actual:

A.
Unrestricted Cash at Bank
$           
 
B.
Committed Availability
$           
 
C.
Liquidity (line A plus line B)
$           
 

Is line C equal to or greater than $2,000,000?

    _________  No, not in
compliance                                                                                     _________ Yes,
in compliance

 
 

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EXHIBIT C – BORROWING BASE CERTIFICATE

(Bank to provide.)