Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT   

 

 

This Loan and Security Agreement, dated as of October 10, 2017 (this
“Agreement”), is entered by and between Bridgeline Digital, Inc., a Delaware
corporation (“Borrower”), and Montage Capital II, L.P., a Delaware limited
partnership (“Lender”). All capitalized terms used herein and not otherwise
defined shall have the meanings provided in Section 13 hereof.

 

The parties agree as follows:

 

1.            THE ADVANCES.

 

1.1     Advances. Subject to the terms and conditions of this Agreement, Lender
will make Advances to Borrower in the aggregate principal amount of $1,500,000.
On or around the date of this Agreement, an Advance in the principal amount of
$1,000,000 (the “First Tranche Advance”) shall be made to Borrower. An
additional Advance of up to $500,000 may be made to Borrower on or after March
31, 2018 but before May 31, 2018 (the “Second Tranche Advance”) upon Borrower’s
request and subject to the terms of this Agreement (including Section 2.2
below). To request the Second Tranche Advance, Borrower shall notify Lender by
3:00 p.m. Pacific time at least three business days before the date of the
Advance, which will be a business day. Lender will transfer the amount of each
Advance to Borrower’s account subject to a control agreement in favor of Lender.
The proceeds of the Advances shall be used for working capital purposes.

 

1.2     Payments.

 

(a)     Interest. Interest shall accrue on the unpaid principal amount of the
Advances from the date of each Advance until the Advances are paid in full, at
the fixed rate of interest equal to 12.75% per annum, calculated upon a year of
365 or 366 days (as applicable) and actual days elapsed. Borrower will pay
interest on the outstanding Advances on the first day of each month, in arrears.

 

(b)     Principal. Beginning on July 1, 2018 and continuing on the first day of
each month thereafter, Borrower shall make principal payments to Lender of (i)
$26,000, if Borrower has received only the First Tranche Advance, or (ii)
$39,000 if Borrower has received the First Tranche Advance and the Second
Tranche Advance. The entire outstanding principal balance of the Advances, all
accrued and unpaid interest thereon, and all fees and other amounts outstanding
hereunder shall be immediately due and payable on the Maturity Date.

 

(c)     Place and Manner. All payments shall be applied first to fees and
expenses, then to interest and then to principal. Borrower shall make all
payments due to Lender in lawful money of the United States, in immediately
available funds, at the address of Lender set forth in Section 10 hereof. Lender
may debit any of Borrower’s deposit accounts for any amounts due under this
Agreement.

 

(d)     Late Payment. Any amounts not paid when due shall bear interest at a
rate equal to 5% above the otherwise applicable rate.

 

(e)     Prepayment. Borrower shall have the option to prepay any or all of the
Advances made by Lender under this Agreement, provided that Borrower provides
written notice to Lender of its election to prepay the Advances at least ten
(10) days prior to such prepayment, and pays, on the date of such prepayment,
(i) the outstanding principal amount of such Advances being repaid, plus (ii)
all accrued interest thereon, plus (iii) all other sums, if any, that shall have
become due and payable under the Transaction Documents and relate to such
Advances, plus (iv) a fee equal to (A) 3.0% of the principal amount of such
Advance being prepaid if such prepayment occurs on or prior to the first
anniversary of the Closing Date, or (B) 2.0% of the principal amount being
prepaid if such prepayment occurs after the first anniversary of the Closing
Date but on or before the second anniversary of the Closing Date, or (C) 1.0% of
the principal amount being prepaid if such prepayment occurs after the second
anniversary of the Closing Date but on or before the third anniversary of the
Closing Date.

 

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1.3     Fees. On the Closing Date, Borrower will pay Lender a fee of $33,333.

 

1.4     Lender Expenses. Borrower will pay to Lender, (i) on the Closing Date,
all reasonable costs or expenses (including reasonable attorneys' fees) incurred
in connection with the preparation of the Transaction Documents through the
Closing Date, and (ii) after the Closing Date, all costs and expenses as and
when they become due, including reasonable Collateral audit fees and Lender's
reasonable attorneys' fees and expenses incurred in amending, enforcing or
defending the Transaction Documents (including fees and expenses of appeal),
incurred before, during and after an Insolvency Event, whether or not suit is
brought (collectively, “Lender Expenses”).

 

2.           CLOSING.

 

2.1     Conditions to Initial Advance. Before the funding of the First Tranche
Advance, (a) Lender must receive the items listed on the closing checklist as of
the Closing Date, other than any items designated post-closing items or waived
by Lender, (b) no Event of Default shall have occurred and be continuing or
would exist after giving effect to such Advance, (c) no event or condition shall
exist that has had or could be reasonably expected to have a Material Adverse
Effect, and (d) the representations and warranties contained in this Agreement
and the other Transaction Documents of Borrower shall be true and correct as if
made on the date of funding of such Advance.

 

2.2     Conditions to Subsequent Advances. As a condition to the funding of any
Advances after the Closing Date, (i) the conditions set forth in Sections
2.1(b), 2.1(c) and 2.1(d) shall be true and correct on such funding date, and
(ii) with respect to the Second Tranche Advance, Borrower shall have delivered
to Lender a written request for the Second Tranche Advance along with evidence
satisfactory to Lender that Borrower’s revenue, as determined in accordance with
GAAP, for the two consecutive calendar quarters ending on March 31, 2018, is 85%
of its projected revenue for such period.

 

3.        GRANT OF SECURITY INTEREST. As security for satisfaction of the
Obligations, Borrower grants Lender a security interest in the Collateral.
Borrower authorizes Lender to file a financing statement to perfect this
security interest, and Borrower will take such actions as Lender deems
appropriate from time to time to perfect or continue the security interest
granted hereunder. Subject to the Intercreditor Agreement, Borrower will take
such actions as Lender requests to obtain assignment of claims notices and such
other documents as Lender requests in connection with any accounts owing to
Borrower by any governmental entity.

 

4.         REPRESENTATIONS AND WARRANTIES. Borrower represents to Lender as
follows: (a) Borrower is not in default under any agreement under which Borrower
owes any money, or any agreement, the violation or termination of which could
have a Material Adverse Effect; (b) Borrower has taken all action and obtained
all consents necessary to authorize the execution, delivery and performance of
the Transaction Documents; (c) Borrower has good title to the Collateral and
there are no liens, security interests or other encumbrances on the Collateral
other than the security interest granted to Lender hereunder and Permitted
Liens; (d) the execution and performance of the Transaction Documents do not
conflict with, or constitute a default under, any agreement to which Borrower is
party or by which Borrower is bound or a Legal Requirement; (e) the information
provided to Lender on or prior to the date of the Advances is true and correct
in all material respects; (f) all financial statements and other information
provided to Lender fairly present Borrower's financial condition, and there has
not been a material adverse change in the financial condition of Borrower since
the date of the most recent of the financial statements submitted to Lender; (g)
Borrower owns the patents, copyrights or trademarks, or is a licensee thereof,
listed on the schedules attached to the Intellectual Property Security
Agreement, and any other intellectual property necessary for or material to the
conduct of its business; (h) Borrower is in compliance with all Legal
Requirements; (i) Borrower is not party to any litigation and is not the subject
of any government investigation, and Borrower has no knowledge of any pending
litigation or investigation or the existence of circumstances that reasonably
could be expected to give rise to such litigation or investigation; (j) Borrower
does not own any shares or other equity interests in any corporation,
partnership, limited liability company or other entity; (k) Borrower’s inventory
is in all material respects of good and marketable quality, free from material
defects, except for inventory for which adequate reserves have been made in
accordance with GAAP, (l) all Collateral is in good operating condition and
repair, subject to ordinary wear and tear, and Borrower has made all
economically reasonable and necessary repairs thereto; (m) each account
receivable represents an undisputed bona fide existing unconditional obligation
of the account debtor created by the sale, delivery and acceptance of goods or
the rendition of services in the ordinary course of Borrower's business; (n) (i)
Borrower is able to pay its debts (including trade debts) as they mature; (ii)
the fair saleable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; and (iii) Borrower
is not left with unreasonably small capital after the transactions contemplated
by this Agreement and the other Transaction Documents; and (o)  no
representation or other statement made by Borrower to Lender in any Transaction
Document or any certificate or instrument delivered by Borrower to Lender in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary to make any statements made to Lender not
misleading.

 

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5.           AFFIRMATIVE COVENANTS.

 

5.1     Financial Information. Borrower will provide Lender (i) as soon as
available, but in any event within 30 days after the last day of each month,
monthly company-prepared consolidated and consolidating financial statements in
form and substance satisfactory to Lender, prepared in accordance with GAAP
along with a Compliance Certificate in the form attached hereto as Exhibit A,
duly executed by an officer of Borrower; (ii) as soon as available, but in any
event within one hundred twenty (120) days after the end of Borrower’s fiscal
year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Lender; (iii) within 30 days after the last day of each
month, aged listings by invoice date of accounts payable and accounts
receivable, and a deferred revenue schedule, (iv) within 5 days of filing,
copies of all reports on Forms 10-K and 10-Q filed with the Securities and
Exchange Commission; (v) within 15 days of filing, copies of Borrower’s tax
returns, with schedules; (vi) as soon as available, but in any event within
thirty (30) days of the end of each fiscal year, Borrower’s annual financial and
operating projections (including income statements, balance sheets and cash flow
statements presented in a monthly format) for the upcoming fiscal year approved
by Borrower’s board of directors and in form and substance reasonably
satisfactory to Lender; (vii) promptly upon Lender’s request, such other
information relating to Borrower’s operations and condition as Lender may
reasonably request from time to time; and (viii) concurrently upon delivery to
Senior Lender, copies of all financial reports and certificates delivered to
Senior Lender in accordance with the Senior Lender Loan Documents as such may be
in effect from time to time.

 

5.2     Good Standings; Existence; Compliance with Laws. Borrower and each
Subsidiary will maintain its corporate existence and good standing and will
maintain in force all licenses and agreements necessary or appropriate to the
conduct of its business. Borrower and each Subsidiary will pay all taxes on or
before the date such taxes are due, and will comply in all material respects
with all Legal Requirements.

 

5.3     Financial Covenants.

 

(a)     Minimum Asset Coverage Ratio. Borrower shall maintain, at all times and
measured as of the last day of each month, a ratio of (i) Eligible Accounts plus
Eligible Foreign Accounts plus Borrower's unrestricted cash maintained in
accounts that are subject to an account control agreement in favor of Lender to
(ii) all outstanding Obligations owing to Lender, of no less than 0.80 : 1.00.

 

(b)     Performance to Plan - Adjusted EBITDA. Borrower's Adjusted EBITDA,
measured on a quarterly basis, shall not negatively deviate more than within 25%
of Borrower’s projected Adjusted EBITDA set forth in Borrower's Financial Plan
for such quarter, which for certain upcoming quarters in 2017 are set forth in
Exhibit B attached hereto. Notwithstanding the foregoing, Borrower shall not be
deemed in breach of the foregoing covenant if the total negative deviation from
its projected Adjusted EBITDA for a particular quarter period does not exceed
$200,000.

 

(c)     Minimum Cash. Borrower shall maintain at all times at least $250,000 in
unrestricted cash in its accounts that are subject to an account control
agreement in favor of Lender.

 

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5.4     Inspection and Audit Rights. Lender shall have a right (i) to visit and
inspect any of the properties of Borrower and its Subsidiaries, including a
right to examine and copy Borrower’s and its Subsidiaries’ books and records
from time to time upon reasonable notice to Borrower and (ii) to discuss its
affairs, finances and accounts with the Borrower’s officers and its independent
public accountants, at such reasonable times and as often as Lender may
reasonably request. Lender may audit Borrower’s Collateral at Borrower’s
expense. Such audits will be conducted no more often than annually unless an
Event of Default has occurred and is continuing. Lender will give Borrower 10
days advance notice of such an audit, unless an Event of Default has occurred
and is continuing.

 

5.5     Insurance. Borrower will maintain insurance in a form acceptable to
Lender relating to the Collateral and Borrower’s business in amounts and of a
type acceptable to Lender, including primary, all risk, physical damage,
property damage and bodily injury. Any insurance on the Collateral shall include
a lender’s loss payable endorsement in favor of Lender as an additional loss
payee, and any liability insurance shall show Lender as an additional insured.
As long as no Event of Default has occurred and is continuing, Borrower shall
have the option of applying the proceeds of any casualty policy with respect to
any loss 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 Lender has been granted a first priority security interest
(subject to the Intercreditor Agreement); provided however that after the
occurrence and during the continuance of an Event of Default, all proceeds
payable under such casualty policy shall, at the option of Lender, be payable to
Lender on account of the Obligations (subject to the Intercreditor Agreement).

 

5.6     Notices. Borrower shall provide to Lender, (i) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of Fifty Thousand Dollars ($50,000) or more; (ii) written notice
of any attachment, lien, security interest or levy on any of Borrower’s property
within 3 business days of such occurrence; (iii) written notice of any fines,
penalties, orders, decrees, settlements, or judgments for the payment of money
that is rendered against Borrower within 3 business days of such occurrence;
(iv) promptly upon filing, copies of any documents or applications filed with
the U.S. Copyright Office; and (v) notice of the acquisition or formation of any
direct or indirect Subsidiary, at least 10 business days prior to such
formation.

 

5.7     Post-Closing Covenants. Within 90 days of the Closing Date, Borrower
will obtain and maintain key man life insurance in an amount of at least
$1,500,000 on Ari Khan in form and substance satisfactory to Lender.

 

5.8     Account Control Agreement(s). All of Borrower’s operating, depository
and investment accounts are and shall remain subject to account control
agreement(s), in form and substance satisfactory to Lender.

 

6.           NEGATIVE COVENANTS. Borrower will not do any of the following
without the prior written consent of Lender:

 

6.1     Investments. Make any investments in, or loans or advances to, any
Person other than in the ordinary course of business as currently conducted; and
in any event, the aggregate amount of all investments, loans or advances made by
Borrower to its subsidiary, Bridgeline Digital Private Ltd shall not exceed
$30,000 in any calendar quarter.

 

6.2     Acquisitions; Mergers. Acquire the stock or other equity interest in, or
any assets of, any Person, or enter into any merger or consolidation with any
Person.

 

6.3     Distributions. Make any distributions or pay any dividends to any Person
on account of any equity ownership interest in Borrower or any Subsidiary, or
make any payment on account of or in redemption, retirement or purchase of any
capital stock of Borrower or any Subsidiary, provided as long as an Event of
Default is not continuing, Borrower may repurchase capital stock to the extent
provided under employment or contractor agreements.

 

6.4     Affiliate Transactions. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower or any Subsidiary,
except for transactions in the ordinary course of business, upon fair and
reasonable terms that are no less favorable to Borrower than would be obtained
in an arms-length transaction with a non-affiliated Person.

 

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6.5     Transfers. Dispose of any interest in Borrower’s or any Subsidiary’s
assets, except for dispositions of assets in the ordinary course of business as
currently conducted.

 

6.6     Subsidiaries. Create any direct or indirect subsidiary of Borrower.

 

6.7     Corporate Changes. Change Borrower’s or any Subsidiary’s state of
incorporation or name or engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto); or cease to conduct business in the manner conducted by
Borrower as of the Closing Date; or suffer or permit a Change in Control.

 

6.8     Indebtedness. Create, incur, assume or be liable for any Indebtedness,
other than Permitted Indebtedness.

 

6.9     Liens; Encumbrances. Create, incur, or allow any Lien on any of its
property or assign or convey any right to receive income, except for Permitted
Liens.

 

6.10     Subordinated Debt. Make any payment on any Subordinated Debt, except
under the terms of the subordination agreement applicable to such Subordinated
Debt, or amend any provision in any document relating to the Subordinated Debt.

 

7.           INVESTMENT RIGHT. At Lender’s option, Lender or its affiliates,
participants and/or assigns, may purchase up to $250,000 of Borrower’s equity or
convertible debt securities of the same class and series, for the same price and
on the same terms as are offered to other investors in the next sale or issuance
of securities after the Closing Date in one closing or in related transactions
in which Borrower receives net cash proceeds of at least $1,500,000 (the “Next
Round”). Borrower will promptly notify Lender at least 15 days prior to the
close of the Next Round, and Lender will have 20 days after receipt of that
notice to participate, in which case Lender will be party to the stock purchase
agreement, investor rights agreement, and other agreements executed by the other
purchasers in connection with the Next Round. This Section 7 and the rights
granted to Lender hereunder shall survive the termination of this Agreement.

 

8.           Events of Default; Remedies.

 

8.1     Events of Default. Any one or more of the following shall constitute an
“Event of Default” under this Agreement: (a) Borrower's failure (i) to pay all
or any part of the principal or interest hereunder on the date due and payable,
or (ii) to comply with any agreement or covenant set forth in this Agreement or
any other Transaction Document, or (iii) to comply with the terms of any
material agreement to which Borrower is a party or by which it is bound which
could have a Material Adverse Effect; or (b) a default under any agreement
pursuant to which Borrower has incurred Indebtedness in excess of $100,000
resulting in a right by a third party to accelerate the maturity of such
Indebtedness or which could have a Material Adverse Effect; or (c) the
occurrence of an Insolvency Event; or (d) if any portion of Borrower’s assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days; or (e) any
representation made to Lender in this Agreement or any other Transaction
Document, or any information given to Lender by or on behalf of Borrower, shall
be incorrect in any material respect; or (f) any part of the Collateral becomes
subject to a lien, security interest or levy in favor of any Person other than
Lender, other than Permitted Liens; or (g) a judgment or judgments for the
payment of money in excess of $100,000 shall be rendered against Borrower and
shall remain unsatisfied and unstayed for a period of ten (10) days, or if a
judgment or other claim becomes a lien or encumbrance upon any portion of
Borrower’s assets and such judgment is not paid, stayed or bonded within ten
(10) days pending a good faith contest by Borrower; or (h) the occurrence or
existence of any circumstance that has or could reasonably be expected to have a
Material Adverse Effect; or (i) if Ari Kahn ceases to devote substantially all
of his time to Borrower’s business and operations in the capacity of Borrower’s
chief executive officer and a replacement acceptable to Lender has not been
appointed within 30 days following such departure (provided however, if an
acting/interim replacement acceptable to Lender has been appointed within 30
days following such departure, then Borrower shall have up to 60 days from such
departure to appoint a permanent replacement acceptable to Lender); or (j) if
Borrower ceases operations or ceases to conduct business.

 

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8.2     Remedies. Upon the occurrence of an Event of Default, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Lender, be immediately due and payable and collectible by or on behalf
of Lender, and Lender may exercise all of the rights of a secured party under
the Uniform Commercial Code and any other applicable law. Lender may immediately
set off and apply to any obligation outstanding hereunder and under any other
Transaction Document any balances or deposits held or controlled by Lender or
any indebtedness at any time owing to or for the credit or the account of
Borrower held or controlled by Lender. Borrower shall assemble the Collateral in
accordance with Lender’s directions, and Lender shall have a right at Borrower’s
sole expense to dispose of all or any portion of the Collateral in the order and
manner that Lender elects, in its sole discretion, in any commercially
reasonable manner. Lender shall have a royalty-free license to use any name,
trademark, or any property of Borrower to complete production of, advertisement
for, and disposition of any Collateral and Lender shall have a license to enter
into, occupy and use Borrower's premises and the Collateral without charge to
exercise any of Lender's rights or remedies under this Agreement or under any
other Transaction Document. After the occurrence and during the continuance of
an Event of Default, Borrower irrevocably appoints Lender (and any of Lender’s
designated employees or agents) as Borrower’s true and lawful attorney in fact
to: endorse Borrower’s name on any checks or other forms of payment; make,
settle and adjust all claims under and decisions with respect to Borrower’s
policies of insurance; settle and adjust disputes and claims respecting accounts
receivable with account debtors; execute and deliver all notices, instruments
and agreements in connection with the perfection of the security interest
granted in this Agreement or under any other Transaction Document; and sell,
lease or otherwise dispose of all or any part of the Collateral. The appointment
of Lender as Borrower’s attorney in fact, and each of Lender’s rights and
powers, being coupled with an interest, is irrevocable until all amounts owing
to Lender under this Agreement and the other Transaction Documents have been
repaid in full.

 

9.      Waivers; Indemnity. Borrower waives notice of default, presentment and
demand for payment, notice of dishonor, protest and notice of protest under this
Agreement and any other Transaction Document. Borrower shall pay all costs of
collection and enforcement of this Agreement when incurred, including reasonable
attorneys' fees, costs and expenses incurred before, after or in connection with
of an Insolvency Event. Lender shall not in any case be liable for any loss of,
or damage to, the Collateral, the risk of which shall be borne by Borrower at
all times. Borrower shall indemnify and hold Lender (and any of its directors,
officers, employees, agents, attorneys or any other Person affiliated with or
representing Lender) harmless from any claim, obligation or liability (including
without limitation reasonable attorneys fees and expenses) arising out of this
Agreement or any other Transaction Document or the transactions contemplated
hereby or thereby, including any claim, obligation or liability arising before,
after or in connection with an Insolvency Event, other than claims or
liabilities caused by Lender’s gross negligence or willful misconduct. The
indemnity obligation hereunder shall survive repayment of all Obligations and
termination of this Agreement until all applicable statute of limitation periods
as to actions that may be brought against Lender have run.

 

10.     NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Transaction
Document shall be in writing, shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
electronic mail or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (c) five (5) days after having
been sent by certified mail, return receipt requested, postage prepaid, or
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery. All communications shall be sent to Borrower or to
Lender, as the case may be, at the address as set forth below or at such other
address as such party may designate by written notice to the other party hereto:

 

If to Borrower:

 

 

 

 

 

Bridgeline Digital, Inc.

80 Blanchard Road

Burlington, MA 01803

Attn: Ari Kahn – CEO; Michael Prinn – CFO

Email: akahn@bridgeline.com

   

If to Lender:

 

Montage Capital II, L.P.

900 East Hamilton Avenue, Suite 100

Campbell, CA 95008

Attn: Mike Rose

Email: mrose@montagecapital.com and

Email: info@montagecapital.com

 

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The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

11.      JURY WAIVER; JUDICIAL REFERENCE. LENDER AND BORROWER WAIVE ANY RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT, THE
TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN,
INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IF THIS JURY WAIVER IS FOR ANY REASON UNENFORCEABLE, THE PARTIES AGREE
TO RESOLVE ALL CLAIMS, CAUSES AND DISPUTES THROUGH JUDICIAL REFERENCE PURSUANT
TO CODE OF CIVIL PROCEDURE SECTION 638 ET SEQ, BEFORE A MUTUALLY ACCEPTABLE
REFEREE IN SANTA CLARA COUNTY SITTING WITHOUT A JURY OR, IF THE PARTIES CANNOT
AGREE ON A REFEREE, THEN ONE APPOINTED BY THE PRESIDING JUDGE OF THE CALIFORNIA
SUPERIOR COURT FOR SANTA CLARA COUNTY, CALIFORNIA. NOTHING IN THIS SECTION SHALL
RESTRICT A PARTY FROM EXERCISING PRE-JUDGMENT REMEDIES OR ITS RIGHTS UNDER THE
UNIFORM COMMERCIAL CODE.

 

12.        Miscellaneous. Lender may assign all or any part of its interest in
this Agreement and the Advances to any Person, or grant a participation of any
interest in this Agreement, without notice to, or the consent of, Borrower. This
Agreement can be amended only by an instrument signed by Lender and Borrower.
All prior agreements, understandings and negotiations are superseded by this
Agreement. Borrower may not assign any obligation hereunder without Lender's
consent, which may be granted or withheld in Lender’s sole discretion. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which shall constitute one instrument. Each
provision of this Agreement shall be severable from every other provision of
this Agreement for the purpose of determining the legal enforceability of any
specific provision. All covenants, representations and warrants made in this
Agreement shall continue in full force and effect so long as any obligations
hereunder remain outstanding. This Agreement shall be governed by the internal
laws of the State of California, without regard to conflicts of laws rules.
Borrower and Lender consent to the jurisdiction of the United States District
Court of the Northern District of California and the state courts for Santa
Clara, California. Borrower authorizes Lender to use Borrower’s tradename and/or
logo in Lender’s promotional material, including on Lender’s web site.

 

13.          DEFINITIONS.

 

“Adjusted EBITDA” means earnings before interest, taxes, depreciation and
amortization expenses and non-cash stock-based compensation expense.

 

“Advance” or “Advances” means a cash advance or cash advances under Section 1.1.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person's senior
executive officers and directors.

 

“Change in Control” shall mean a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction.

 

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“Closing Date” means the date of this Agreement.

 

“Collateral” means all of Borrower’s personal property, now owned or hereafter
acquired, including without limitation all accounts, chattel paper, deposit
accounts, documents, equipment, general intangibles (including intellectual
property, patents, copyrights, trademarks, and goodwill), goods, fixtures,
instruments, inventory, financial assets, investment property, letter of credit
rights, money, and all of Borrower's books and records with respect to any of
the foregoing, and the computers and equipment containing said books and
records; and all products and proceeds thereof, as may be defined in this
Agreement and the Uniform Commercial Code.

 

“Contingent Obligations” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards, or merchant services issued for the account of that
Person; and (iii) all obligations arising under any interest rate, currency or
commodity swap agreement, interest rate cap agreement, interest rate collar
agreement, or other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or commodity
prices; provided, however, that the term "Contingent Obligation" shall not
include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

 

“Eligible Accounts” means those Accounts that arise in the ordinary course of
Borrower’s business that comply with all of Borrower’s representations and
warranties to Lender set forth in Section 4(m) and net after all offsets. Unless
otherwise agreed to by Lender, Eligible Accounts shall not include the
following:

 

(a)     Accounts that the account debtor has failed to pay within ninety (90)
days of invoice date;

 

(b)     Accounts with respect to an account debtor, twenty-five percent (25%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date;

 

(c)     Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower;

 

(d)     Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, demo or
promotional, or other terms by reason of which the payment by the account debtor
may be conditional;

 

(e)     Accounts with respect to which the account debtor is an Affiliate of
Borrower;

 

(f)     Accounts with respect to which the account debtor does not have its
principal place of business in the United States or Canada, except for Eligible
Foreign Accounts;

 

(g)     Accounts with respect to which the account debtor is the United States
or any department, agency, or instrumentality of the United States, except for
Accounts of the United States that Senior Lender has approved on a case-by-case
basis;

 

(h)     Accounts with respect to which Borrower is liable to the account debtor
for goods sold or services rendered by the account debtor to Borrower or for
deposits or other property of the account debtor held by Borrower, but only to
the extent of any amounts owing to the account debtor against amounts owed to
Borrower;

 

8

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(i)     Accounts with respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower exceed thirty-five percent (35%)
of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Senior Lender;

 

(j)     Accounts that have not yet been billed to the account debtor or that
relate to deposits (such as good faith deposits) or other property of the
account debtor held by Borrower for the performance of services or delivery of
goods which Borrower has not yet performed or delivered;

 

(k)     prebillings other than Accounts arising from Borrower’s practice of
issuing invoices in advance of services being rendered to Account Debtors in the
ordinary course of business for a specified subscription period and that Senior
Lender approves on a case-by-case basis;

 

(l)     progress billings other than progress billings that arise from software
and maintenance contracts or purchase orders (as applicable) whereby Borrower is
authorized to bill such account debtor, and the account debtor is contractually
obligated to pay, such amounts owing to Borrower based on the percentage of the
completion method, provided that the aggregate amount of such Accounts do not
exceed One Million Dollars ($1,000,000) at any time;

 

(m)     retention billings;

 

(n)     bonded receivables;

 

(o)     Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Lender believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and

 

(p)     Accounts which Lender reasonably determines to be unsatisfactory for
inclusion as an Eligible Account.

 

“Eligible Foreign Accounts” means Accounts with respect to which the account
debtor does not have its principal place of business in the United States and
that (i) are supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Senior Lender, (ii)
covered in full by credit insurance satisfactory to Senior Lender, less any
deductible, or (iii) that Senior Lender has approved on a case-by-case basis.
Lender hereby approves Perkins Engines Company Limited as an “Eligible Foreign
Account” for all purposes under the Agreement.

 

“Financial Plan” means Borrower’s annual operating projections (including income
statements, balance sheets and cash flow statements presented in a monthly
format) for the upcoming fiscal year, in form and substance reasonably
satisfactory to Lender.

 

“GAAP” is generally accepted accounting principles in effect in the United
States.

 

“Governmental Authority” means any federal, state, provincial, municipal and
foreign governmental entity, authority, or agency or any other political
subdivision, or any entity exercising executive, legislative judicial,
regulatory or administrative functions of government.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations, and (d) all Contingent
Obligations.

 

“Insolvency Event” means Borrower’s becoming insolvent, or becoming the subject
of any case or proceeding under the United States Bankruptcy Code or any other
law relating to the reorganization or restructuring of debt.

 

9

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“Intercreditor Agreement” means that certain Intercreditor Agreement by and
between Lender and Senior Lender dated as of the date hereof and as amended from
time to time.

 

“Legal Requirement” means any statute, ordinance, code, law, rule, regulation,
order or other requirement, standard, procedure enacted, adopted or applied by
any Governmental Authority, including, decisions, orders, writs, awards, or
injunctions of an arbitrator or a court or other Governmental Authority.

 

“Material Adverse Effect” means a material adverse effect on (i) the business
operations, condition (financial or otherwise) of Borrower, (ii) the ability of
Borrower to repay the Obligations or otherwise perform its obligations under the
Transaction Documents, (iii) Borrower's interest in, or the value, or perfection
of Lender’s security interest in the Collateral or (iv) the priority of Lender’s
security interest in the Collateral (other than with respect to Senior Lender’s
security interest).

 

“Maturity Date” means the third anniversary of the Closing Date.

 

“Obligations” means all present and future indebtedness, guarantees,
liabilities, and other obligations of Borrower to Lender under this Agreement
and the other Transaction Documents, or otherwise including Borrower’s
obligation to pay the buyout fee set forth in any warrant to purchase stock
issued to Lender.

 

“Permitted Indebtedness” means:

 

(a)     Indebtedness of Borrower in favor of Lender arising under this Agreement
or any other Transaction Document;

 

(b)     Indebtedness not to exceed $100,000 in the aggregate in any fiscal year
of Borrower secured by a lien described in clause (c) of the defined term
“Permitted Liens;” provided such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness;

 

(c)     Indebtedness in an aggregate principal amount of up to $2,800,000 owing
to Senior Lender with respect to a formula line of credit based on Borrower’s
accounts receivable, subject to the Intercreditor Agreement;

 

(d)     Subordinated Debt; and

 

(e)     Indebtedness to trade creditors incurred in the ordinary course of
business.

 

“Permitted Liens” means:

 

(a)     Any liens (i) existing on the Closing Date and disclosed in writing to
Lender on or before the Closing Date (excluding liens to be satisfied with the
proceeds of the Advance) or (ii) arising under this Agreement or the other
Transaction Documents;

 

(b)     Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves, provided the
same have no priority over any of Lender’s security interests;

 

(c)     Purchase money liens (i) on equipment acquired or held by Borrower
incurred for financing the acquisition of the equipment and software, or (ii)
existing on equipment when acquired, if the lien is confined to the property and
improvements and the proceeds of the equipment;

 

(d)     Leases or subleases and licenses or sublicenses granted in the ordinary
course of Borrower’s business;

 

(e)     Liens in favor of Senior Lender securing indebtedness described in
clause (c) of the definition of Permitted Indebtedness, subject to the
Intercreditor Agreement;

 

10

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(f)     Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 8; and

 

(g)     Liens in favor of other financial institutions arising in connection
with Borrower's deposit accounts held at such institutions to secure standard
fees for deposit services charged by, but not financing made available by such
institutions, provided that Lender has a perfected security interest in the
amounts held in such deposit accounts.

 

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

 

“Senior Lender” means Heritage Bank of Commerce or such other or such other bank
or financial institution acceptable to Lender.

 

“Senior Lender Loan Documents” means that certain Loan and Security Agreement
between Borrower and Senior Lender, dated as of June 9, 2016 and as amended from
time to time.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in
writing to the debt owing by Borrower to Lender on terms acceptable to Lender.

 

“Subsidiary” means any corporation, company or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock or other units
of ownership which by the terms thereof has the ordinary voting power to elect
the Board of Directors, managers or trustees of the entity, at the time as of
which any determination is being made, is owned by Borrower, either directly or
through an Affiliate.

 

“Transaction Documents” means this Agreement, the intellectual property security
agreement, the warrant and the other agreements, documents and instruments
entered into in connection with this Agreement.

 

“Uniform Commercial Code” means the Uniform Commercial Code as in effect from
time to time in the State of California.

 

 

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the first
day above written.

 

Borrower:
  lender:          
Bridgeline Digital, Inc.
  Montage Capital II, L.P.                    
By:
    By:            
Name: Michael D. Prinn
  Name:            
Title: Chief Financial Officer
  Title:  

 

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EXHIBIT A

COMPLIANCE CERTIFICATE

 

BORROWER:

Bridgeline Digital, Inc.

 

Note:   Please send all required reporting to:

Montage Capital II, L.P.

900 East Hamilton Avenue, Suite 100
Campbell, CA 95008
Fax: (408) 659-2318
Email: mrose @montagecapital.com

 

The undersigned authorized officer of Bridgeline Digital, Inc. hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Lender (the “Agreement”).

 

Borrower is in complete compliance for the period ending _______________ with
all required covenants, except as noted below; and all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof.

 

Attached herewith are the required documents supporting the above certification.
The authorized officer further certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) and are consistently
applied from one period to the next except as explained in an accompanying
letter or footnotes.

 

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

 

 

 

 

 

Reporting Covenant            Required Complies        

Monthly financial statements

Monthly within 30 days

Yes

No

A/R & A/P Agings

Monthly within 30 days

Yes

No

Deferred revenue schedule

Monthly within 30 days

Yes

No

Compliance Certificate

Monthly within 30 days

Yes

No

Annual financial statements (CPA audited)

FYE within 120 days

Yes

No

Annual financial projections for upcoming year

Within 30 days of FYE

Yes

No

Tax returns with schedules

Within 15 days of filing

Yes

No

10K and 10Q

Within 5 days of filing

Yes

No

Reports & certificates provided to Senior Lender

Concurrently upon delivery to Senior Lender

Yes

No

 

FINANCIAL COVENANTS

REQUIRED

ACTUAL

COMPLIES

         

Minimum unrestricted cash subject to control agmt

$250,000

$___________

Yes

No

Asset Coverage Ratio (monthly)

0.80 : 1.00

_______: 1.00

Yes

No

Adjusted EBITDA – quarterly negative deviation not to exceed the greater of
$200,000 or 25% of projections

$_________

$__________

Yes

No

         

Please attach any comments as additional pages.

 

Bridgeline Digital, Inc.

 

 Signature

 

 Name

 

 Title

 

 Date

 

 

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EXHIBIT B

FINANCIAL PROJECTIONS

 

(in ‘000s)