**Exhibit 10.1**

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**AMENDED AND RESTATEDLOAN AND SECURITY AGREEMENT**

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**THIS AMENDED AND RESTATED LOAN AND SECURITYAGREEMENT** (this “**Agreement**”) dated as of the Effective Date between **SILICON VALLEY BANK**, a California corporation with a loanproduction office located at One Newton Executive Park, Suite 200, 2221Washington Street, Newton, Massachusetts 02462 (“**Bank**”), and **NETWORK ENGINES, INC.**, a Delawarecorporation with offices at 25 Dan Road, Canton, Massachusetts 02021 (“**Borrower**”), provides the terms on which Bank shall lend toBorrower and Borrower shall repay Bank. This Agreement amends and restates in its entirety that certain Loan andSecurity Agreement, dated as of October 11, 2007, by and between Borrower,Alliance Systems Inc. (“**Alliance**”), andBank, as amended by that certain First Loan Modification Agreement dated as of August 1,2008, between Borrower, Alliance, and Bank. The parties agree as follows:

 

**1****                                        ****ACCOUNTING AND OTHER TERMS**

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Accounting terms not defined in this Agreement shallbe construed following GAAP. Calculations and determinations must be made following GAAP.  Capitalized terms not otherwise defined inthis 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 theextent such terms are defined therein.

 

**2****                                        ****LOAN AND TERMS OF PAYMENT**

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## **2.1****                              ****Promise to Pay**. Borrower hereby unconditionally promises to pay Bank the outstandingprincipal amount of all Credit Extensions and accrued and unpaid interestthereon as and when due in accordance with this Agreement.

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### **2.1.1****                    ****Revolving Advances.**

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

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

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### **2.1.2****                    ****Letters of Credit Sublimit.**

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As part of the Revolving Line and subject to deductionof Reserves, Bank shall issue or have issued Letters of Credit denominated inDollars or a Foreign Currency for Borrower’s account.  The aggregate Dollar Equivalent amountutilized for the issuance of Letters of Credit shall at all times reduce theamount otherwise available for Advances under the Revolving Line.  The aggregate Dollar Equivalent of the faceamount of outstanding Letters of Credit (including drawn but unreimbursedLetters of Credit and any Letter of Credit Reserve) may not exceed the lesserof (A) Ten Million Dollars ($10,000,000.00), minus (i) the sum of allamounts used for Cash Management Services, and minus (ii) the FX ReductionAmount, or (B) the lesser of the 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) theFX Reduction Amount.

 

#### (a)                                  If, on the Revolving Line Maturity Date (orthe effective date of any termination of this Agreement), there are anyoutstanding Letters of Credit, then on such date Borrower shall provide to Bankcash collateral in an amount equal to one hundred five percent (105%) of theDollar Equivalent of the face amount of all such Letters of Credit plus allinterest, fees, and costs due or to become due in connection therewith (asestimated by Bank in its good faith business judgment), to secure all of theObligations relating to such Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bankin its sole discretion and shall be subject to the terms and conditions of Bank’sstandard Application and Letter of Credit Agreement (the “**Letter of Credit Application**”).  Borrower agrees to execute any further documentationin connection with the Letters of Credit as Bank may reasonably request.  Borrowerfurther agrees to be bound by the regulations and interpretations of the issuerof any Letters of Credit guarantied by Bank and opened for Borrower’s accountor by Bank’s interpretations of any Letter of Credit issued by Bank forBorrower’s account, and Borrower understands and agrees that Bank shall not beliable for any error, negligence, or mistake, whether of omission orcommission, in following Borrower’s 

 

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#### instructionsor those contained in the Letters of Credit or any modifications, amendments,or supplements thereto, except for Bank’s gross negligence or willfulmisconduct.

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#### (b)                                 The obligation of Borrower to immediatelyreimburse Bank for drawings made under Letters of Credit shall be absolute,unconditional, and irrevocable, and shall be performed strictly in accordancewith the terms of this Agreement, such Letters of Credit, and the Letter ofCredit Application.

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#### (c)                                  Borrower may request that Bank issue aLetter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bankshall treat such demand as an Advance to Borrower of the Dollar Equivalent ofthe amount thereof (plus reasonable fees and charges in connection therewithsuch as wire, cable, SWIFT or similar charges).

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#### (d)                                 To guard against fluctuations in currencyexchange rates, upon the issuance of any Letter of Credit payable in a ForeignCurrency, Bank shall create a reserve (the “**Letter ofCredit Reserve**”) under the Revolving Line in an amount equal to tenpercent (10%) of the face amount of such Letter of Credit.  The amount of the Letter of Credit Reservemay be adjusted by Bank from time to time to account for fluctuations in theexchange rate.  The availability of fundsunder the Revolving Line shall be reduced by the amount of such Letter ofCredit Reserve for as long as such Letter of Credit remains outstanding.

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### **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 whichBorrower commits to purchase from or sell to Bank a specific amount of ForeignCurrency (each, a “**FX Forward Contract**”)on a specified date (the “**Settlement Date**”).  FX Forward Contracts shall have a SettlementDate of at least one (1) FX Business Day after the contract date and shallbe subject to a reserve of ten percent (10%) of each outstanding FX ForwardContract.  The aggregate amount of FXForward Contracts at any one time may not exceed ten (10) times the lesserof (A) Ten Million Dollars ($10,000,000.00), minus (i) the sum of allamounts used for Cash Management Services, and minus (ii) the DollarEquivalent of the face amount of any outstanding Letters of Credit (includingdrawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), or (B) thelesser of the Revolving Line or the Borrowing Base, minus (i) the sum ofall outstanding principal amounts of any Advances (including any amounts usedfor Cash Management Services), and minus (ii) the Dollar Equivalent of theface amount of any outstanding Letters of Credit (including drawn butunreimbursed Letters of Credit and any Letter of Credit Reserve).  The amount otherwise available for CreditExtensions under the Revolving Line shall be reduced by an amount equal to tenpercent (10%) of each outstanding FX Forward Contract (the “**FX Reduction Amount**”). Any amounts needed to fully reimburse Bank for any amounts not paid byBorrower in connection with FX Forward Contracts will be treated as Advancesunder the Revolving Line and will accrue interest at the interest rateapplicable to Advances.

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### **2.1.4****                    ****Cash Management ServicesSublimit.**  Borrower may use the Revolving Line for Bank’scash management services, which may include merchant services, direct depositof payroll, business credit card, and check cashing services identified in Bank’svarious cash management services agreements (collectively, the “**Cash Management Services**”), in an aggregate amount not toexceed the lesser of (A) Ten Million Dollars ($10,000,000.00), minus (i) theDollar Equivalent of the face amount of any outstanding Letters of Credit(including drawn but unreimbursed Letters of Credit and any Letter of CreditReserve), and minus (ii) the FX Reduction Amount, or (B) the lesserof the Revolving Line or the Borrowing Base, minus (i) the sum of alloutstanding principal amounts of any Advances, minus (ii) the DollarEquivalent of the face amount of any outstanding Letters of Credit (includingdrawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), andminus (iii) the FX Reduction Amount. Any amounts Bank pays on behalf of Borrower for any Cash ManagementServices will be treated as Advances under the Revolving Line and will accrueinterest at the interest rate applicable to Advances.

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## **2.2****                              ****Overadvances. **If, at any time, the sum of (a) the outstandingprincipal amount of any Advances (including any amounts used for CashManagement Services); plus (b) the face amount of any outstanding Lettersof Credit (including drawn but unreimbursed Letters of Credit and any Letter ofCredit Reserve); plus (c) the FX Reduction Amount exceeds the lesser ofeither the Revolving Line or the Borrowing Base (such excess amount being an “**Overadvance**”), Borrower shall immediately pay to Bank incash such Overadvance.  Without limitingBorrower’s obligation to repay Bank any amount of the Overadvance, Borroweragrees to pay Bank interest on the outstanding amount of any Overadvance, ondemand, at the Default Rate.

 

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## **2.3****                              ****Payment of Interest on the CreditExtensions.**

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#### (a)                                  Interest Rate. Subject to Section 2.3(b), the principal amount outstanding underthe Revolving Line shall accrue interest at a floating per annum rate equal toone half of one percent (0.50%) above the Prime Rate, which interest shall bepayable monthly, in arrears, in accordance with Section 2.3(f) below.

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#### (b)                                 Default Rate.**** Immediately upon the occurrence and during thecontinuance of an Event of Default, Obligations shall bear interest at a rateper annum which is four percentage points (4.0%) above the rate that isotherwise applicable thereto (the “**Default Rate**”)unless Bank otherwise elects from time to time in its sole discretion to imposea smaller increase.  Fees and expenseswhich are required to be paid by Borrower pursuant to the Loan Documents(including, without limitation, Bank Expenses) but are not paid when due shallbear interest until paid at a rate equal to the highest rate applicable to theObligations.  Payment or acceptance ofthe increased interest rate provided in this Section 2.3(b) is not apermitted alternative to timely payment and shall not constitute a waiver ofany Event of Default or otherwise prejudice or limit any rights or remedies ofBank.

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

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#### (d)                                 Computation; 360-Day Year. In computing interest, the date of the making of any Credit Extensionshall 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 a360-day year for the actual number of days elapsed.

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#### (e)                                  Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including theDesignated Deposit Account, for principal and interest payments or any otheramounts Borrower owes Bank when due. These debits shall not constitute a set-off.

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#### (f)                                    Interest Payment Date. Unless otherwise provided, interest is payable monthly on the lastcalendar day of each month.

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#### (g)                                 Payment; Interest Computation; FloatCharge.  In computing interest on the Obligations, allPayments received after 12:00 p.m. Eastern time on any day shall be deemedreceived on the next Business Day.  Inaddition, Bank shall be entitled to charge Borrower a “float” charge in anamount equal to three (3) Business Days interest, at the interest rateapplicable to the Advances, on all Payments received by Bank. Said float chargeis not included in interest for purposes of computing minimum monthly interest(if any) under this Agreement.  The floatcharge for each month shall be payable on the last day of the month.  Bank shall not, however, be required tocredit Borrower’s account for the amount of any item of payment which isunsatisfactory to Bank in its good faith business judgment, and Bank may chargeBorrower’s Designated Deposit Account for the amount of any item of paymentwhich is returned to Bank unpaid.

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## **2.4****                              ****Fees.** Borrower shall pay to Bank:

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#### (a)                                  Commitment Fee. A fully earned, non refundable commitment fee equal to $22,726.03, onthe Effective Date;

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#### (b)                                 Anniversary Fee. A fully-earned, non-refundable anniversary fee equal to Thirty ThousandDollars ($30,000.00) shall be earned as of the Effective Date, and shall be dueand payable on the earlier of (i) the date that is one (1) year fromthe Effective Date, (ii) the occurrence of an Event of Default, or (iii) theearly termination of this Agreement;

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#### (c)                                  Termination Fee.  Pursuantto and subject to the terms of Section 12.1, a termination fee;

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#### (d)                                 Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal ofLetters of Credit, upon the issuance of such Letter of Credit, each anniversaryof the issuance during the term of such Letter of Credit, and upon the renewalof such Letter of Credit by Bank;

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#### (e)                                  Unused Revolving Line Facility Fee. A fee (the “**Unused Revolving LineFacility Fee**”), payable monthly, in arrears, on a calendar yearbasis, in an amount equal to 0.30% per annum of the average unused portion ofthe Revolving Line during such month, as determined by Bank.  The unused portion of the 

 

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#### Revolving Line,for the purposes of this calculation, shall include average amounts reservedfor products provided in connection with Cash Management Services and FXForward Contracts during such month. Borrower shall not be entitled to any credit, rebate or repayment of anyUnused Revolving Line Facility Fee previously earned by Bank pursuant to this Section notwithstandingany termination of the Agreement or the suspension or termination of Bank’sobligation to make loans and advances hereunder, including during anyStreamline Period; and

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#### (f)                                    Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and expenses fordocumentation and negotiation of this Agreement) incurred through and after theEffective Date, when due.

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## **2.5****                              ****Payments; Application ofPayments.**

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#### (a)                                  All payments (including prepayments) tobe made by Borrower under any Loan Document shall be made in immediatelyavailable funds in U.S. Dollars, without setoff or counterclaim, before 12:00 p.m.Eastern time on the date when due. Payments of principal and/or interest received after 12:00 p.m.Eastern time are considered received at the opening of business on the nextBusiness Day.  When a payment is due on aday 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 untilpaid.

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#### (b)                                 Bank shall apply the whole or any part ofcollected funds against the Revolving Line or credit such collected funds to adepository account of Borrower with Bank (or an account maintained by anAffiliate of Bank), the order and method of such application to be in the solediscretion of Bank.  Borrower shall haveno right to specify the order or the accounts to which Bank shall allocate orapply any payments required to be made by Borrower to Bank or otherwise receivedby Bank under this Agreement when any such allocation or application is notspecified elsewhere in this Agreement.

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## **2.6****                              ****Withholding.** Payments received by Bank from Borrowerhereunder will be made free and clear of any withholding taxes.  Specifically, however, if at any time anyGovernmental Authority, applicable law, regulation or international agreementrequires Borrower to make any such withholding or deduction from any suchpayment or other sum payment hereunder to Bank, Borrower hereby covenants andagrees that the amount due from Borrower with respect to such payment or othersum payable hereunder will be increased to the extent necessary to ensure that,after the making of such required withholding or deduction, Bank receives a netsum equal to the sum which it would have received had no withholding ordeduction been required and Borrower shall pay the full amount withheld ordeducted to the relevant Governmental Authority.  Borrower will, upon request, furnish Bankwith proof satisfactory to Bank indicating that Borrower has made suchwithholding payment provided, however, that Borrower need not make anywithholding payment if the amount or validity of such withholding payment iscontested in good faith by appropriate and timely proceedings and as to whichpayment in full is bonded or reserved against by Borrower.  The agreements and obligations of Borrowercontained in this Section 2.6 shall survive the termination of thisAgreement.

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**3****                                        ****CONDITIONS OF LOANS**

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

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#### (a)                                  duly executed original signatures to theLoan Documents;

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#### (b)                                 duly executed original signatures to theControl Agreement(s);

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#### (c)                                  Borrower’s Operating Documents and a goodstanding certificate of Borrower certified by the Secretary of State of theState of Delaware as of a date no earlier than thirty (30) days prior to theEffective Date;

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#### (d)                                 Secretary’s Certificates attesting to theduly executed Borrowing Resolutions for Borrower;

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#### (e)                                  certified copies, dated as of a recentdate, of financing statement searches, as Bank shall request, accompanied bywritten evidence (including any UCC termination statements) that the Liensindicated in 

 

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#### any such financingstatements either constitute Permitted Liens or have been or, in connectionwith the initial Credit Extension will be terminated or released;

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

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#### (g)                                 a bailee’s/warehouseman’s waiver executedby each bailee, if any, of Borrower as required by Bank, in favor of Bank;

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#### (h)                                 a legal opinion of Borrower’s counsel, inform and substance acceptable to Bank, in its reasonable discretion, dated asof the Effective Date, together with the duly executed original signaturethereto;

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#### (i)                                     the duly executed original signatures tothe Guaranty, together with Secretary’s Certificates attesting to the dulyexecuted Borrowing Resolutions for Guarantor;

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#### (j)                                     a legal opinion of Guarantor’s counsel,in form and substance acceptable to Bank, in its reasonable discretion, datedas of the Effective Date, together with the duly executed original signaturethereto;

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#### (k)                                  evidence satisfactory to Bank that theinsurance policies required by Section 6.7 hereof are in full force andeffect, together with appropriate evidence showing lender loss payable and/oradditional insured clauses or endorsements in favor of Bank;

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#### (l)                                     the completion of the Initial Audit withresults satisfactory to Bank in its sole and absolute discretion; and

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#### (m)                               payment of the fees and Bank Expensesthen due as specified in Section 2.4 hereof.

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## **3.2****                              ****Conditions Precedent to allCredit Extensions.**  Bank’s obligations to make each CreditExtension, including the initial Credit Extension, is subject to the followingconditions precedent:

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#### (a)                                  except as otherwise provided in Section 3.4,timely receipt of an executed Transaction Report;

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#### (b)                                 the representations and warranties inthis Agreement shall be true, accurate, and complete in all material respectson the date of the Transaction Report and on the Funding Date of each CreditExtension; provided, however, that such materiality qualifier shall not beapplicable to any representations and warranties that already are qualified ormodified by materiality in the text thereof; and provided, further that thoserepresentations and warranties expressly referring to a specific date shall betrue, accurate and complete in all material respects as of such date, and noDefault or Event of Default shall have occurred and be continuing or resultfrom the Credit Extension.  Each CreditExtension is Borrower’s representation and warranty on that date that therepresentations and warranties in this Agreement remain true, accurate, andcomplete in all material respects; provided, however, that such materialityqualifier shall not be applicable to any representations and warranties that alreadyare qualified or modified by materiality in the text thereof; and provided,further that those representations and warranties expressly referring to aspecific date shall be true, accurate and complete in all material respects asof such date; and

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#### (c)                                  in Bank’s sole discretion, there has notbeen any material impairment in the general affairs, management, results ofoperation, financial condition or the prospect of repayment of the Obligations,or any material adverse deviation by Borrower from the most recent businessplan of Borrower presented to and accepted by Bank.

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

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## **3.4****                              ****Procedures for Borrowing.** Subject to the prior satisfaction of all other applicable conditions tothe 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 

 

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## telephone by 12:00 p.m.Eastern time on the Funding Date of the Advance.  Together with any such electronic orfacsimile notification, Borrower shall deliver to Bank by electronic mail orfacsimile a completed Transaction Report executed by a Responsible Officer orhis or her designee.  Bank may rely onany telephone notice given by a person whom Bank reasonably believes is aResponsible Officer or designee.  Bankshall credit Advances to the Designated Deposit Account.  Bank may make Advances under this Agreementbased on instructions from a Responsible Officer or his or her designee orwithout instructions if the Advances are necessary to meet Obligations whichhave become due.

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**4****                                        ****CREATION OF SECURITYINTEREST**

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## **4.1**                               **Grant of Security Interest.** Borrower hereby grants Bank, to secure the payment and performance infull of all of the Obligations, a continuing security interest in, and pledgesto Bank, the Collateral, wherever located, whether now owned or hereafteracquired or arising, and all proceeds and products thereof.

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## **4.2****                              ****Priority of Security Interest.** Borrower represents, warrants, and covenants that the security interestgranted herein is and shall at all times continue to be a first priorityperfected security interest in the Collateral (subject only to Permitted Liensthat may have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tortclaim with a value in excess of One Hundred Thousand Dollars ($100,000.00),Borrower shall promptly notify Bank in a writing signed by Borrower of thegeneral details thereof and, upon request of Bank, grant to Bank in suchwriting a security interest therein and in the proceeds thereof, all upon theterms of this Agreement, with such writing to be in form and substancereasonably satisfactory to Bank.

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If this Agreement is terminated, Bank’s Lien in theCollateral shall continue until the Obligations (other than inchoate indemnityobligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Bank’sobligation to make Credit Extensions has terminated, Bank shall, at Borrower’ssole cost and expense, release its Liens in the Collateral and all rightstherein shall revert to Borrower.

 

## **4.3****                              ****Authorization to File FinancingStatements.**  Borrower hereby authorizes Bank to filefinancing statements, without notice to Borrower, with all appropriatejurisdictions to perfect or protect Bank’s interest or rights hereunder,including a notice that any disposition of the Collateral, by either Borroweror any other Person, shall be deemed to violate the rights of Bank under theCode.  Such financing statements mayindicate the Collateral as “all assets of the Debtor” or words of similareffect, or as being of an equal or lesser scope, or with greater detail, all inBank’s discretion.

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**5****                                        ****REPRESENTATIONS ANDWARRANTIES**

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Borrower represents and warrants as follows:

 

## **5.1****                              ****Due Organization; Authorization;Power and Authority.**  Borrower and each of its Subsidiaries areduly existing and in good standing as Registered Organizations in theirrespective jurisdictions of formation and each is qualified and licensed to dobusiness and each is in good standing in any jurisdiction in which the conductof each of its business or its ownership of property requires that it bequalified except where the failure to do so could not reasonably be expected tohave a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrowerhas delivered to Bank completed certificates each signed by Borrower, eachentitled “Perfection Certificate” (the “**Perfection Certificate**”).  Borrower represents and warrants to Bankthat, as of the date hereof: (a) Borrower’s exact legal name is thatindicated on the Perfection Certificate and on the signature page hereof; (b) Borroweris an organization of the type and is organized in the jurisdiction set forthin the Perfection Certificate; (c) the Perfection Certificate accuratelysets forth Borrower’s organizational identification number or accurately statesthat Borrower has none; (d) the Perfection Certificate accurately setsforth Borrower’s place of business, or, if more than one, its chief executiveoffice as well as Borrower’s mailing address (if different than its chiefexecutive office); (e) except as set forth in the Perfection Certificate,Borrower (and each of its predecessors) has not, in the past five (5) years,changed its jurisdiction of formation, organizational structure or type, or anyorganizational number assigned by its jurisdiction; and (f) all otherinformation set forth on the Perfection Certificate pertaining to Borrower andeach of its Subsidiaries is accurate and complete (it being understood andagreed that Borrower may from time to time update certain information in thePerfection Certificate after the Effective Date to the extent permitted by oneor 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 withBorrower’s organizational identification number.

 

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The execution, delivery and performance by Borrower ofthe 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 Requirementof Law, (iii) contravene, conflict or violate any applicable order, writ,judgment, injunction, decree, determination or award of any GovernmentalAuthority by which Borrower or any of its Subsidiaries or any of their propertyor assets may be bound or affected, (iv) require any action by, filing,registration, or qualification with, or Governmental Approval from, anyGovernmental Authority (except such Governmental Approvals which have alreadybeen obtained and are in full force and effect), or (v) constitute anevent of default under any material agreement by which Borrower is bound.  Borrower is not in default under anyagreement to which it is a party or by which it is bound in which the defaultwould reasonably be expected to have a material adverse effect on Borrower’sbusiness.

 

## **5.2****                              ****Collateral.**

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#### (a)                                  Borrower has good title to, has rightsin, and the power to transfer each item of the Collateral upon which itpurports to grant a Lien hereunder, free and clear of any and all Liens exceptPermitted Liens.  Borrower has no depositaccounts other than the deposit accounts with Bank, the deposit accounts, ifany described in the Perfection Certificate delivered to Bank in connectionherewith, or of which Borrower has given Bank notice and taken such actions asare necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existingobligations of the Account Debtors.

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#### (b)                                 The Collateral is not in the possessionof any third party bailee (such as a warehouse) except as otherwise provided inthe Perfection Certificate.  None of thecomponents of the Collateral shall be maintained at locations other than asprovided in the Perfection Certificate or as permitted pursuant to Section 7.2.  In the event that Borrower, after the datehereof, intends to store or otherwise deliver any portion of the Collateral toa bailee, then Borrower will first receive a written acknowledgment from suchbailee in form and substance reasonably satisfactory to Bank in its solediscretion.

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#### (c)                                  All Inventory is in all material respectsof good and marketable quality, free from material defects.

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#### (d)                                 Borrower is the sole owner of theIntellectual Property which it owns or purports to own except for (a) non-exclusivelicenses granted to its customers in the ordinary course of business, (b) over-the-countersoftware that is commercially available to the public, and (c) materialIntellectual Property licensed to Borrower and noted on the PerfectionCertificate.  Each Patent which it ownsor purports to own and which is material to Borrower’s business is valid andenforceable, and no part of the Intellectual Property which Borrower owns orpurports to own and which is material to Borrower’s business has been judgedinvalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made that anypart of the Intellectual Property violates the rights of any third party exceptto the extent such claim would not have a material adverse effect on Borrower’sbusiness.

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#### (e)                                  Except as noted on the PerfectionCertificate, Borrower is not a party to, nor is it bound by, any RestrictedLicense, other than (i) licenses or agreements for software that Borrowerincorporates into products for distribution to its customers, (ii) softwarelicensed for internal use by Borrower and (iii) shrink-wrap, freeware andopen source software licenses (collectively “**ExcludedLicenses**”).

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## **5.3****                              ****Accounts Receivable.** For any Eligible Account in any Borrowing Base Certificate, allstatements made and all unpaid balances appearing in all invoices, instrumentsand other documents evidencing such Eligible Accounts are and shall be true andcorrect and all such invoices, instruments and other documents, and all ofBorrower’s Books are genuine and in all material respects what they purport tobe.  Whether or not an Event of Defaulthas occurred and is continuing, Bank may notify any Account Debtor owingBorrower money of Bank’s security interest in such funds and verify the amountof such Eligible Account.  All sales andother transactions underlying or giving rise to each Eligible Account shallcomply in all material respects with all applicable laws and governmental rules andregulations.  Borrower has no knowledgeof any actual Insolvency Proceeding of any Account Debtor whose accounts areEligible Accounts in any Borrowing Base Certificate.  To the best of Borrower’s knowledge, allsignatures and endorsements on all documents, instruments, and agreementsrelating to all Eligible Accounts are genuine, and all such documents,instruments and agreements are legally enforceable in accordance with theirterms.

 

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## **5.4****                              ****Litigation.** There are no actions or proceedings pending or, to the knowledge of theResponsible Officers, threatened in writing by or against Borrower or any ofits Subsidiaries which would be reasonably likely to result in damages owed byBorrower or any of its Subsidiaries in excess of, individually or in theaggregate, Two Hundred Fifty Thousand Dollars ($250,000.00).

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## **5.5****                              ****Financial Condition**. All consolidated financial statements for Borrower and any of itsSubsidiaries delivered to Bank fairly present in all material respects Borrower’sconsolidated financial condition and Borrower’s consolidated results ofoperations.  There has not been anymaterial deterioration in Borrower’s consolidated financial condition since thedate of the most recent financial statements submitted to Bank.

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## **5.6****                              ****Solvency**. Borrower is not left with unreasonably small capital after thetransactions 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 “investmentcompany” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of itsimportant 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 materialrespects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiariesis a “holding company” or an “affiliate” of a “holding company” or a “subsidiarycompany” of a “holding company” as each term is defined and used in the PublicUtility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violationof which could reasonably be expected to have a material adverse effect on itsbusiness.  None of Borrower’s or any ofits Subsidiaries’ properties or assets has been used by Borrower or anySubsidiary or, to the best of Borrower’s knowledge, by previous Persons, indisposing, producing, storing, treating, or transporting any hazardoussubstance other than legally.  Borrower andeach of its Subsidiaries have obtained all consents, approvals andauthorizations of, made all declarations or filings with, and given all noticesto, all Government Authorities that are necessary to continue their respectivebusinesses as currently conducted.

##  

## **5.8****                              ****Subsidiaries;Investments**.  Borrower does not own any stock, partnershipinterest or other equity securities except for Permitted Investments.

##  

## **5.9****                              ****Tax Returns andPayments; Pension Contributions**.  Borrower has timelyfiled all required tax returns and reports (or extensions thereof), andBorrower has timely paid all foreign, federal, state and local taxes,assessments, deposits and contributions owed by Borrower except for taxes,assessments, deposits and contributions of up to Seventy-Five Thousand Dollars($75,000.00) in the aggregate.  Borrowermay defer payment of any contested taxes, provided that Borrower (a) ingood faith contests its obligation to pay the taxes by appropriate proceedingspromptly and diligently instituted and conducted, (b) notifies Bank inwriting of the commencement of, and any material development in, theproceedings, (c) posts bonds or takes any other steps required to preventthe governmental authority levying such contested taxes from obtaining a Lienupon any of the Collateral that is other than a Permitted Lien.  Borrower is unaware of any claims oradjustments proposed for any of Borrower’s prior tax years which wouldreasonably be expected to result in additional taxes becoming due and payableby Borrower.  Borrower has paid allamounts necessary to fund all present pension, profit sharing and deferredcompensation plans in accordance with their terms, and Borrower has notwithdrawn from participation in, and has not permitted partial or completetermination of, or permitted the occurrence of any other event with respect to,any such plan which would reasonably be expected to result in any liability ofBorrower, including any liability to the Pension Benefit Guaranty Corporationor its successors or any other governmental agency.

##  

## **5.10****                       ****Use of Proceeds**. Borrower shall use the proceeds of the Credit Extensions solely asworking capital and to fund its general business requirements and not forpersonal, family, household or agricultural purposes.

##  

## **5.11****                       ****Full Disclosure**. No written representation, warranty or other statement of Borrower inany certificate or written statement given to Bank, as of the date suchrepresentation, warranty, or other statement was made, taken together with allsuch written certificates and written statements given to Bank, contains anyuntrue statement of a material fact or omits to state a material fact necessaryto make the statements contained in the certificates or statements notmisleading (it being recognized by Bank that the projections and forecastsprovided by Borrower in good faith and based upon reasonable assumptions arenot viewed as facts and that actual results during the period or periodscovered by such projections and forecasts may differ from the projected orforecasted results).

 

8

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##  

## **5.12****                       ****Definition of “Knowledge.”** For purposes of the Loan Documents, whenever a representation orwarranty is made to Borrower’s knowledge or awareness, to the “best of”Borrower’s knowledge, or with a similar qualification, knowledge or awarenessmeans the actual knowledge, after reasonable investigation, of the ResponsibleOfficers.

##  

## **5.13****                       ****Designated SeniorIndebtedness****.**  The Loan Documents and all of the Obligationsshall be deemed “Designated Senior Indebtedness” or a similar concept thereoffor purposes of any Indebtedness of the Borrower.

##  

**6****                                        ****AFFIRMATIVE COVENANTS**

** **

Borrower shall do all ofthe following:

 

## **6.1****                              ****Government Compliance**. Maintain its and all its Subsidiaries’ legal existence and good standingin their respective jurisdictions of formation and maintain qualification ineach jurisdiction in which the failure to so qualify would reasonably beexpected to have a material adverse effect on Borrower’s business oroperations.  Borrower shall comply, andhave each Subsidiary comply, with all laws, ordinances and regulations to whichit is subject, the noncompliance with which could have a material adverseeffect on Borrower’s business.

##  

## **6.2****                              ****Financial Statements, Reports,Certificates**.

##  

#### (a)                                  Borrower shall provide Bank with thefollowing:

####  

(i) (A) bi-weekly,and (B) upon each request for a Credit Extension, a Transaction Report;

 

(ii) within fifteen(15) days after the end of each month, (A) monthly accounts receivableagings, aged by invoice date, (B) monthly accounts payable agings, aged byinvoice date, and outstanding or held check registers, if any, (C) monthlyreconciliations of accounts receivable agings (aged by invoice date),transaction reports, deferred revenue report and general ledger, and (D) monthlyinventory sell through reports;

 

(iii) as soon asavailable, and in any event within thirty (30) days after the end of eachmonth, monthly unaudited consolidated and consolidating financial statements;

 

(iv) within thirty(30) days after the end of each month, a monthly Compliance Certificate signedby a Responsible Officer, certifying that as of the end of such month, Borrowerwas in full compliance with all of the terms and conditions of this Agreement,and setting forth calculations showing compliance with the financial covenantsset forth in this Agreement and such other information as Bank shall reasonablyrequest, including, without limitation, a statement that at the end of suchmonth there were no held checks;

 

(v) withinforty-five (45) days after the end of each fiscal year of Borrower, (A) annualoperating budgets (including income statements, balance sheets and cash flowstatements, by month) for the current fiscal year of Borrower, and (B) annualfinancial projections for the current fiscal year of Borrower (on a quarterlybasis) as approved by Borrower’s board of directors, together with any relatedbusiness forecasts used in the preparation of such annual financialprojections, each in a form acceptable to Bank;

 

(vi) as soon asavailable, and in any event within one hundred twenty (120) days following theend of Borrower’s fiscal year, annual consolidated and consolidating financialstatements certified by, and with an unqualified opinion of, independentcertified public accountants acceptable to Bank;

 

(vii)  within five (5) daysof delivery, copies of all statements, reports and notices made available toBorrower’s security holders or to any holders of Subordinated Debt;

 

(viii) a promptreport of any legal actions pending or threatened in writing against Borroweror any of its Subsidiaries that would reasonably be expected to result indamages or costs to Borrower or any of its Subsidiaries of, individually or inthe aggregate, of Two Hundred Fifty Thousand Dollars ($250,000.00) or more; and

 

9

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(ix) other financialinformation reasonably requested by Bank.

 

Notwithstanding the foregoing, during a StreamlinePeriod or when no Obligations are outstanding, provided no Event of Default hasoccurred and is continuing, Borrower shall be required to provide Bank with aTransaction Report (a) within fifteen (15) days after the last day of eachcalendar month, and (b) upon each request for a Credit Extension.

 

#### (b)                                 In the event that Borrower is or becomessubject to the reporting requirements under the Securities Exchange Act of1934, as amended, within five (5) days after filing, Borrower shallprovide to Bank all reports on Form 10-K, 10-Q and 8-K filed with the SECor a link thereto on Borrower’s or another website on the Internet.

####  

#### (c)                                  Within five (5) days after filing,Borrower shall provide to Bank all other reports or filings with the SEC oranother Governmental Authority.

####  

#### (d)                                 Borrower shall provide prompt writtennotice to Bank of (i) any material change in the composition of theintellectual property, (ii) the registration of any copyright (includingany subsequent ownership right of Borrower in or to any copyright), patent ortrademark not previously disclosed to Bank, or (iii) Borrower’s knowledgeof an event that materially adversely affects the value of the intellectualproperty.

####  

## **6.3****                              ****Accounts Receivable**.

##  

#### (a)                                  Schedules and Documents Relating toAccounts*.* Borrower shall deliver to Bank transactionreports and schedules of collections, as provided in Section 6.2, on Bank’sstandard forms; provided, however, that Borrower’s failure to execute anddeliver the same shall not affect or limit Bank’s Lien and other rights in allof Borrower’s Accounts, nor shall Bank’s failure to advance or lend against aspecific Account affect or limit Bank’s Lien and other rights therein.  If requested by Bank, Borrower shall furnishBank with copies (or, at Bank’s request, originals) of all contracts, orders,invoices, and other similar documents, and all shipping instructions, deliveryreceipts, bills of lading, and other evidence of delivery, for any goods thesale 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, securityagreements, guarantees and other documents and property evidencing or securingany Accounts, in the same form as received, with all necessary endorsements,and copies of all credit memos.

####  

#### (b)                                 Disputes.  Borrowershall promptly notify Bank of all disputes or claims relating to Accounts.  Borrower may forgive (completely orpartially), compromise, or settle any Account for less than payment in full, oragree to do any of the foregoing so long as (i) Borrower does so in goodfaith, in a commercially reasonable manner, in the ordinary course of business,in arm’s-length transactions, and reports the same to Bank in the regularreports provided to Bank; (ii) no Default or Event of Default has occurredand is continuing; and (iii) after taking into account all such discounts,settlements and forgiveness, the total outstanding Credit Extensions will notexceed the amount available under the lesser of (1) the Revolving Line,and (2) the Borrowing Base.

####  

#### (c)                                  Collection of Accounts. Borrower shall have the right to collect all Accounts, unless and untila Default or an Event of Default has occurred and is continuing.  All payments on, and proceeds of, Accountsshall be deposited directly by the applicable Account Debtor into a lockboxaccount, or such other “blocked account” as Bank may specify, pursuant to ablocked account agreement in form and substance satisfactory to Bank in itssole discretion.  Whether or not an Eventof Default has occurred and is continuing, Borrower shall hold all payments on,and proceeds of, Accounts in trust for Bank, and Borrower shall promptlydeliver all such payments and proceeds to Bank in their original form, dulyendorsed, to be applied to the Obligations pursuant to the terms of Section 9.4hereof, provided, however, that during a Streamline Period, provided no Eventof Default has occurred and is continuing, such payments and proceeds shall betransferred by Bank to an account of Borrower maintained at Bank.

####  

#### (d)                                 Returns*.*  Provided noEvent of Default has occurred and is continuing, if any Account Debtor returnsany Inventory to Borrower in excess of Two Hundred Fifty Thousand Dollars($250,000.00) in the aggregate, Borrower shall promptly (i) determine thereason for such return, (ii) issue a credit memorandum to the AccountDebtor in the appropriate amount, and (iii) provide a copy of such creditmemorandum to Bank, upon request from Bank. In the event any attempted return occurs after the occurrence and duringthe continuance of any 

 

10

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#### Event of Default,Borrower shall hold the returned Inventory in trust for Bank,and immediately notify Bank of the return of the Inventory.

####  

#### (e)                                  Verification*.*  Bank may, fromtime to time, verify directly with the respective Account Debtors the validity,amount and other matters relating to the Accounts, either in the name ofBorrower or Bank or such other name as Bank may choose.

####  

#### (f)                                    No Liability*.*  Bank shall notbe responsible or liable for any shortage or discrepancy in, damage to, or lossor destruction of, any goods, the sale or other disposition of which gives riseto an Account, or for any error, act, omission, or delay of any kind occurringin the settlement, failure to settle, collection or failure to collect anyAccount, or for settling any Account in good faith for less than the fullamount thereof, nor shall Bank be deemed to be responsible for any of Borrower’sobligations under any contract or agreement giving rise to an Account.  Nothing herein shall, however, relieve Bankfrom liability for its own gross negligence or willful misconduct.

####  

## **6.4****                              ****Remittance of Proceeds**. Except as otherwise provided in Section 6.3(c), deliver, in kind,all proceeds arising from the disposition of any Collateral to Bank in theoriginal form in which received by Borrower not later than the followingBusiness Day after receipt by Borrower, to be applied to the Obligationspursuant to the terms of Section 9.4 hereof; provided that, if no Defaultor Event of Default has occurred and is continuing, Borrower shall not beobligated to remit to Bank the proceeds of the sale of worn out or obsoleteEquipment disposed of by Borrower in good faith in an arm’s length transactionfor an aggregate purchase price of Twenty Five Thousand Dollars ($25,000.00) or less (for all such transactionsin any fiscal year).  Borrower agreesthat it will not commingle proceeds of Collateral with any of Borrower’s otherfunds or property, but will hold such proceeds separate and apart from suchother funds and property and in an express trust for Bank.  Nothing in this Section limits therestrictions on disposition of Collateral set forth elsewhere in thisAgreement.

##  

## **6.5****                              ****Taxes; Pensions; Withholding.** Timely file, and require each of its Subsidiaries to timely file, allrequired tax returns and reports and timely pay, and require each of itsSubsidiaries to timely pay, all foreign, federal, state and local taxes,assessments, deposits and contributions owed by Borrower and each of itsSubsidiaries, except for deferred payment of any taxes contested or otherwise permittedpursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, ondemand, appropriate certificates attesting to such payments, and pay allamounts necessary to fund all present pension, profit sharing and deferredcompensation plans in accordance with their terms.

##  

## **6.6****                              ****Access to Collateral; Books andRecords.**  At reasonable times, on five (5) BusinessDay’s notice (provided no notice is required if an Event of Default hasoccurred and is continuing), Bank, or its agents, shall have the right, on asemi-annual basis (or more frequently after the occurrence of an Event ofDefault), to inspect the Collateral and the right to audit and copy Borrower’sBooks.  The foregoing inspections andaudits shall be at Borrower’s expense, and the charge therefor shall be $850per person per day (or such higher amount as shall represent Bank’sthen-current standard charge for the same), plus reasonable out-of-pocketexpenses.  In the event Borrower and Bankschedule an audit more than ten (10) days in advance, and Borrower cancelsor seeks to reschedule the audit with less than ten (10) days writtennotice to Bank, then (without limiting any of Bank’s rights or remedies),Borrower shall pay Bank a fee of One Thousand Dollars ($1,000.00) plus anyout-of-pocket expenses incurred by Bank to compensate Bank for the anticipatedcosts and expenses of the cancellation or rescheduling.

##  

## **6.7****                              ****Insurance.** Keep its business and the Collateral insured for risks and in amountsstandard for companies in Borrower’s industry and location and as Bank mayreasonably request.  Insurance policiesshall be in a form, with companies, and in amounts that are reasonablysatisfactory to Bank.  All property policiesshall have a lender’s loss payable endorsement showing Bank as the sole lenderloss payee and waive subrogation against Bank and shall provide that theinsurer 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 asan additional insured, and all such policies (or the loss payable andadditional insured endorsements) shall provide that the insurer shall give Bankat least twenty (20) days notice before canceling, amending, or declining torenew its policy.  At Bank’s request,Borrower shall deliver certified copies of policies and evidence of all premiumpayments.  Proceeds payable under anypolicy shall, at Bank’s option, be payable to Bank on account of theObligations.  Notwithstanding theforegoing, (a) so long as no Event of Default has occurred and iscontinuing, Borrower shall have the option of applying the proceeds of anycasualty policy up to One Hundred Thousand Dollars ($100,000.00) with respectto any loss, but not exceeding Two Hundred Fifty Thousand Dollars ($250,000.00)in the aggregate for all losses under all casualty policies in any one (1) year,toward the replacement or repair of destroyed or damaged 

 

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## property; providedthat any such replaced or repaired property (i) shall be of equal or likevalue as the replaced or repaired Collateral and (ii) shall be deemedCollateral in which Bank has been granted a first priority security interest,and (b) after the occurrence and during the continuance of an Event ofDefault, all proceeds payable under such casualty policy shall, at the optionof Bank, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance asrequired under this Section 6.7 or to pay any amount or furnish anyrequired proof of payment to third persons and Bank, Bank may make all or partof such payment or obtain such insurance policies required in this Section 6.7and take any action under the policies Bank deems prudent.

##  

## **6.8****                              ****Operating Accounts.**

##  

#### (a)                                  Maintain its and its Subsidiaries’primary operating accounts with Bank and Bank’s affiliates.  In addition, (i) Borrower shall maintainits cash or securities in excess of that amount used for Borrower’s currentoperations with Bank and Bank’s affiliates, and (ii) each of Borrower’sSubsidiaries shall maintain its cash or securities in excess of that amountused for such Subsidiary’s current operations with Bank and Bank’s affiliates. Notwithstandingthe foregoing, Borrower and its Subsidiaries may maintain bank accounts atfinancial institutions outside of the U.S. provided that the aggregate amountof funds deposited in such accounts at any time does not exceed Five HundredThousand Dollars ($500,000.00) (the **“Permitted Bank Accounts”)**.

####  

#### (b)                                 Provide Bank five (5) days prior-written notice before establishing any Collateral Account at or with any bankor financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower atany time maintains, Borrower shall cause the applicable bank or financialinstitution (other than Bank) at or with which any Collateral Account ismaintained to execute and deliver a Control Agreement or other appropriateinstrument with respect to such Collateral Account to perfect Bank’s Lien insuch Collateral Account in accordance with the terms hereunder which ControlAgreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shallnot apply to: (i) deposit accounts exclusively used for payroll, payroll taxesand other employee wage and benefit payments to or for the benefit of Borrower’semployees and identified to Bank by Borrower as such, and (ii) the Permitted BankAccounts.

####  

## **6.9****                              ****Financial Covenants. **Borrower shall maintain at all times, unless otherwisenoted, on a consolidated basis withrespect to Borrower and its Subsidiaries:

##  

(a)                                  Adjusted Quick Ratio. To be tested as of the last day of each calendar month, an AdjustedQuick Ratio of at least 1.20 to 1.0.

 

## (b)                                 Operating Cash Flow. Operating Cash Flow of at least (i) ($2,000,000.00) as of December 31,2009, (ii) ($5,000,000.00) as of each of March 31, 2010 and June 30,2010, (iii) ($4,000,000.00) as of September 30, 2010, (iv) ($3,000,000.00)as of December 31, 2010, and (v) as of the last day of each calendarquarter thereafter, the amount that is $1,000,000.00 greater than the requiredOperating Cash Flow as of the last day of the immediately preceding calendarquarter.

##  

## **6.10****                       ****Protection of IntellectualProperty Rights.**

##  

#### (a)                                  (i) Use commercially reasonableefforts to protect, defend and maintain the validity and enforceability of itsIntellectual Property; (ii) promptly advise Bank in writing of materialinfringements of its Intellectual Property; and (iii) not allow anyIntellectual Property material to Borrower’s business to be abandoned,forfeited or dedicated to the public without Bank’s written consent.

####  

#### (b)                                 Provide written notice to Bank within ten(10) days of entering or becoming bound by any Restricted License (otherthan over-the-counter software that is commercially available to thepublic).  Borrower shall take such stepsas Bank requests to obtain the consent of, or waiver by, any person whoseconsent or waiver is necessary for (i) any Restricted License to be deemed“Collateral” and for Bank to have a security interest in it that mightotherwise be restricted or prohibited by law or by the terms of any suchRestricted License, whether now existing or entered into in the future, and (ii) Bankto have the ability in the event of a liquidation of any Collateral to disposeof such Collateral in accordance with Bank’s rights and remedies under thisAgreement and the other Loan Documents.

####  

## **6.11****                       ****Litigation Cooperation.** From the date hereof and continuing through the termination of thisAgreement, make available to Bank, without expense to Bank, Borrower and itsofficers, employees and agents and Borrower’s Books, to the extent that Bankmay deem them reasonably necessary to prosecute or defend any third-party suitor proceeding instituted by or against Bank with respect to any Collateral orrelating to Borrower.

##  

## **6.12****                       ****Creation/Acquisition ofSubsidiaries.**  Notwithstanding and without limiting thenegative covenant contained in Section 7.3 hereof, in the event Borroweror any Subsidiary creates or acquires any 

 

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## Subsidiary,Borrower and such Subsidiary shall promptly notify Bank of the creation oracquisition of such new Subsidiary and, at Bank’s request, in its solediscretion, take all such action as may be reasonably required by Bank to causeeach such Subsidiary to, in Bank’s sole discretion, become a co-Borrower orGuarantor under the Loan Documents and grant a continuing pledge and securityinterest in and to the assets of such Subsidiary (substantially as described onExhibit A hereto); and Borrower shall grant and pledge to Bank a perfectedsecurity interest in the stock, units or other evidence of ownership of eachSubsidiary.

##  

## **6.13****                       ****Further Assurances.** Execute any further instruments and take further action as Bankreasonably requests to perfect or continue Bank’s Lien in the Collateral or toeffect the purposes of this Agreement.

##  

**7****                                        ****NEGATIVE COVENANTS**

** **

Borrower shall not do any of the following withoutBank’s prior written consent:

 

## **7.1****                              ****Dispositions.** Convey, sell, lease, transfer, assign,or otherwise dispose of (collectively, “**Transfer**”), orpermit any of its Subsidiaries to Transfer, all or any part of its business orproperty, except for Transfers (a) of Inventory in the ordinary course ofbusiness; (b) of worn out, excessive or obsolete Equipment; (c) inconnection with Permitted Liens and Permitted Investments; and (d) ofnon-exclusive licenses for the use of the property of Borrower or itsSubsidiaries in the ordinary course of business.

##  

## **7.2****                              ****Changes in Business, Management,Ownership or Business Locations.**  (a) Engagein or permit any of its Subsidiaries, if any, to engage in any business otherthan the businesses currently engaged in by Borrower and such Subsidiary, asapplicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) havea change in management such that any Key Person resigns, is terminated, or isno longer actively involved in the management of the Borrower in his/herposition held as of the Effective Date, and a replacement reasonablysatisfactory to Bank for such Key Person is not made within ninety (90) daysafter departure from Borrower; or (ii) enter into any transaction orseries of related transactions in which the stockholders of Borrower who werenot stockholders immediately prior to the first such transaction own more thanforty percent (40%) of the voting stock of Borrower immediately after givingeffect to such transaction or related series of such transactions (other thanby the sale of Borrower’s equity securities in a public offering or to venturecapital investors so long as Borrower identifies to Bank the venture capitalinvestors prior to the closing of the transaction and provides to Bank adescription of the material terms of the transaction).

##  

Borrower shall not, without at least thirty (30) daysprior written notice to Bank: (1) add any new offices or businesslocations, including warehouses (unless such new offices or business locationscontain less than One Hundred Thousand Dollars ($100,000.00) in Borrower’sassets or property) or deliver any portion of the Collateral valued,individually or in the aggregate, in excess of Ten Thousand Dollars($10,000.00) to a bailee at a location other than to a bailee and at a locationalready disclosed in the Perfection Certificate, (2) change itsjurisdiction of organization, (3) change its organizational structure ortype, (4) change its legal name, or (5) change any organizationalnumber (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion ofthe Collateral valued, individually or in the aggregate, in excess of TenThousand Dollars ($10,000.00) to a bailee, and Bank and such bailee are not alreadyparties to a bailee agreement governing both the Collateral and the location towhich Borrower intends to deliver the Collateral, then Borrower will firstreceive the written consent of Bank, and such bailee shall execute and delivera bailee agreement in form and substance satisfactory to Bank in its solediscretion.

 

## **7.3****                              ****Mergers or Acquisitions.** Merge or consolidate, or permit any of itsSubsidiaries to merge or consolidate, with any other Person, or acquire, orpermit any of its Subsidiaries to acquire, all or substantially all of the capitalstock or property of another Person.  ASubsidiary may merge or consolidate into another Subsidiary or into Borrower.

##  

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

##  

## **7.5****                              ****Encumbrance.** Create, incur, allow, or suffer any Lien on any of its property, orassign or convey any right to receive income, including the sale of anyAccounts, 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 interestgranted herein, or enter into any agreement, document, instrument or otherarrangement (except with or in favor of Bank) with any Person which directly orindirectly prohibits or has the effect of prohibiting Borrower or anySubsidiary from assigning, 

 

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## mortgaging,pledging, granting a security interest in or upon, or encumbering any ofBorrower’s or any Subsidiary’s Intellectual Property, except as is otherwisepermitted in Section 7.1 hereof and the definition of “Permitted Liens”herein.

##  

## **7.6****                              ****Maintenance of CollateralAccounts.** Maintain any Collateral Account exceptpursuant to the terms of Section 6.8(b) hereof.

##  

## **7.7****                              ****Distributions; Investments.**  (a) Payany dividends or make any distribution or payment or redeem, retire or purchaseany capital stock, except Permitted Distributions; or (b) directly orindirectly make any Investment (including, without limitation, any additionalInvestment in any Subsidiary) other than Permitted Investments, or permit anyof its Subsidiaries to do so.

##  

## **7.8****                              ****Transactions with Affiliates.** Directly or indirectly enter into or permit toexist any material transaction with any Affiliate of Borrower, except fortransactions that are in the ordinary course of Borrower’s business, upon fairand reasonable terms that are no less favorable to Borrower than would beobtained in an arm’s length transaction with a non-affiliated Person.

##  

## **7.9****                              ****Subordinated Debt.**  (a) Makeor permit any payment on any Subordinated Debt, except under the terms of thesubordination, intercreditor, or other similar agreement to which suchSubordinated Debt is subject, or (b) amend any provision in any documentrelating to the Subordinated Debt which would increase the amount thereof oradversely affect the subordination thereof to Obligations owed to Bank.

##  

## **7.10****                       ****Compliance.** Become an “investment company” or a company controlled by an “investmentcompany”, under the Investment Company Act of 1940, as amended, or undertake asone of its important activities extending credit to purchase or carry marginstock (as defined in Regulation U of the Board of Governors of the FederalReserve System), or use the proceeds of any Credit Extension for that purpose;fail to meet the minimum funding requirements of ERISA, permit a ReportableEvent or non-exempt Prohibited Transaction, as defined in ERISA, to occur; failto comply with the Federal Fair Labor Standards Act or violate any other law orregulation, if the violation or failure to comply would reasonably be expectedto have a material adverse effect on Borrower’s business, or permit any of itsSubsidiaries to do so; withdraw or permit any Subsidiary to withdraw fromparticipation in, permit partial or complete termination of, or permit theoccurrence of any other event with respect to, any present pension, profitsharing and deferred compensation plan which could reasonably be expected toresult in any liability of Borrower, including any liability to the PensionBenefit Guaranty Corporation or its successors or any other governmentalagency.

##  

**8****                                        ****EVENTS OF DEFAULT**

** **

Any one of the following shall constitute an event ofdefault (an “**Event of Default**”) under thisAgreement:

 

## **8.1****                              ****Payment Default.** Borrower fails to (a) make any payment of principal or interest onany Credit Extension on its due date, or (b) pay any other Obligationswithin three (3) Business Days after such Obligations are due and payable(which three (3) Business Day cure period shall not apply to payments dueon the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment specifiedunder clause (a) or (b) hereunder is not an Event of Default (but noCredit Extension will be made during the cure period);

##  

## **8.2****                              ****Covenant Default.**

##  

#### (a)                                  Borrower fails or neglects to perform anyobligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, or 6.9, or violates anycovenant in Section 7; or

####  

#### (b)                                 Borrower fails or neglects to perform,keep, or observe any other term, provision, condition, covenant or agreementcontained in this Agreement or any Loan Documents, and as to any default (otherthan those specified in this Section 8) under such other term, provision,condition, covenant or agreement that can be cured, has failed to cure thedefault within ten (10) days after the occurrence thereof; provided,however, that if the default cannot by its nature be cured within the ten (10) dayperiod or cannot after diligent attempts by Borrower be cured within such ten (10) dayperiod, and such default is likely to be cured within a reasonable time, thenBorrower shall have an additional period (which shall not in any case exceedthirty (30) days) to attempt to cure such default, and within such reasonabletime period the failure to cure the default shall not be deemed an Event ofDefault (but 

 

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#### no CreditExtensions shall be made during such cure period).  Cure periods provided under this sectionshall not apply, among other things, to financial covenants or any othercovenants set forth in clause (a) above;

####  

## **8.3****                              ****Material Adverse Change.**  AMaterial Adverse Change occurs;

##  

## **8.4****                              ****Attachment; Levy; Restraint onBusiness.**

##  

#### (a)                                  (i) The service of process seekingto attach, by trustee or similar process, any funds of Borrower or of anyentity under the control of Borrower (including a Subsidiary) on deposit orotherwise maintained with Bank or any Bank Affiliate, or (ii) a notice oflien or levy for a judgment or claim in excess of One Hundred Thousand Dollars($100,000.00) is filed against any of Borrower’s assets by any governmentagency, 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, noCredit Extensions shall be made during any ten (10) day cure period; or

####  

#### (b)                                 (i) any material portion of Borrower’sassets is attached, seized, levied on, or comes into possession of a trustee orreceiver, or (ii) any court order enjoins, restrains, or prevents Borrowerfrom conducting any material part of its business;

####  

## **8.5****                              ****Insolvency.**  (a) Borroweris unable to pay its debts (including trade debts) as they become due orotherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding;or (c) an Insolvency Proceeding is begun against Borrower and notdismissed or stayed within thirty (30) days (but no Credit Extensions shall bemade while of any of the conditions described in clause (a) exist and/oruntil any Insolvency Proceeding is dismissed);

##  

## **8.6****                              ****Other Agreements.** There is, under any agreement to which Borrower or any Guarantor is aparty with a third party or parties, (a) any default resulting in a rightby such third party or parties, whether or not exercised, to accelerate thematurity of any Indebtedness in an amount individually or in the aggregate inexcess of Two Hundred Thousand Dollars ($200,000.00); or (b) any defaultby Borrower or Guarantor , the result of which could have a material adverseeffect on Borrower’s or any Guarantor’s business;

##  

## **8.7****                              ****Judgments.** One or more final judgments, orders, or decrees for the payment of moneyin an amount, individually or in the aggregate, of at least Fifty ThousandDollars ($50,000.00) (not covered by independent third-party insurance as towhich liability has been accepted by such insurance carrier) shall be renderedagainst Borrower and the same are not, within ten (10) days after theentry 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 Documentor in any writing delivered to Bank or to induce Bank to enter this Agreementor any Loan Document, and such representation, warranty, or other statement isincorrect in any material respect when made;

##  

## **8.9****                              ****Subordinated Debt.** Any document, instrument, or agreement evidencing any Subordinated Debtshall for any reason be revoked or invalidated or otherwise cease to be in fullforce and effect, any Person shall be in breach thereof (and all notice andgrace periods shall have expired) or contest in any manner the validity orenforceability thereof or deny that it has any further liability or obligationthereunder, or the Obligations shall for any reason be subordinated or shallnot have the priority contemplated by this Agreement;

##  

## **8.10****                       ****Guaranty. **(a) Any guaranty of any Obligations terminates orceases for any reason to be in full force and effect; (b) any Guarantordoes not perform any obligation or covenant under any guaranty of theObligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5,8.7, or 8.8. occurs with respect to any Guarantor, or (d) the death,liquidation, winding up, or termination of existence of any Guarantor; or (e) (i) amaterial impairment in the perfection or priority of Bank’s Lien in thecollateral provided by Guarantor or in the value of such collateral or (ii) amaterial adverse change in the general affairs, management, results ofoperation, condition (financial or otherwise) or the prospect of repayment ofthe Obligations occurs with respect to any Guarantor; or

 

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## **8.11****                       ****Governmental Approvals.** Any Governmental Approval shall have been (a) revoked, rescinded,suspended, modified in an adverse manner or not renewed in the ordinary coursefor a full term or (b) subject to any decision by a Governmental Authoritythat designates a hearing with respect to any applications for renewal of anyof such Governmental Approval or that could result in the GovernmentalAuthority taking any of the actions described in clause (a) above, andsuch decision or such revocation, rescission, suspension, modification ornon-renewal (i) has, or could reasonably be expected to have, a MaterialAdverse Change, or (ii) adversely affects the legal qualifications ofBorrower or any of its Subsidiaries to hold such Governmental Approval in anyapplicable jurisdiction and such revocation, rescission, suspension,modification or non-renewal could reasonably be expected to affect the statusof or legal qualifications of Borrower or any of its Subsidiaries to hold anyGovernmental Approval in any other jurisdiction.

##  

**9****                                        ****BANK’S RIGHTS AND REMEDIES**

** **

## **9.1****                              ****Rights and Remedies.** While an Event of Default occurs and continues Bank may, without noticeor demand, do any or all of the following:

##  

#### (a)                                  declare all Obligations immediately dueand 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 creditfor Borrower’s benefit under this Agreement or under any other agreementbetween Borrower and Bank;

####  

#### (c)                                  demand that Borrower (i) deposit cashwith Bank in an amount equal to 105% of the Dollar Equivalent of the aggregateface 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 inits good faith business judgment), to secure all of the Obligations relating tosuch Letters of Credit, as collateral security for the repayment of any futuredrawings under such Letters of Credit, and Borrower shall forthwith deposit andpay such amounts, and (ii) pay in advance all letter of credit feesscheduled to be paid or payable over the remaining term of any Letters ofCredit; provided, however, if an Event of Default described in Section 8.5occurs, the obligation of Borrower to cash collateralize all Letters of Creditremaining undrawn shall automatically become effective without any action byBank;

####  

#### (d)                                 settle or adjust disputes and claimsdirectly with Account Debtors for amounts on terms and in any order that Bankconsiders advisable, notify any Person owing Borrower money of Bank’s securityinterest in such funds, and verify the amount of such account;

####  

#### (e)                                  make any payments and do any acts itconsiders necessary or reasonable to protect the Collateral and/or its securityinterest in the Collateral.  Borrowershall assemble the Collateral if Bank requests and make it available as Bankdesignates.  Bank may enter premiseswhere the Collateral is located, take and maintain possession of any part ofthe Collateral, and pay, purchase, contest, or compromise any Lien whichappears to be prior or superior to its security interest and pay all expensesincurred. Borrower grants Bank a license to enter and occupy any of itspremises, without charge, to exercise any of Bank’s rights or remedies;

####  

#### (f)                                    apply to the Obligations any (i) balancesand deposits of Borrower it holds, or (ii) any amount held by Bank owingto or for the credit or the account of Borrower;

####  

#### (g)                                 ship, reclaim, recover, store, finish,maintain, repair, prepare for sale, advertise for sale, and sell theCollateral.  Subject to the rights ofthird parties to the extent that such third parties’ rights are senior to Bank’srights, Bank is hereby granted a non-exclusive, royalty-free license or otherright to use, without charge, Borrower’s labels, Patents, Copyrights, maskworks, rights of use of any name, trade secrets, trade names, Trademarks, andadvertising matter, or any similar property as it pertains to the Collateral,in completing production of, advertising for sale, and selling any Collateraland, 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’sbenefit;

####  

#### (h)                                 deliver a notice of exclusive control,any entitlement order, or other directions or instructions pursuant to anyControl Agreement or similar agreements providing control of any Collateral;

####  

#### (i)                                     demand and receive possession of Borrower’sBooks; and

 

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#### (j)                                     exercise all rights and remedies availableto Bank under the Loan Documents or at law or equity, including all remediesprovided under the Code (including disposal of the Collateral pursuant to theterms 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 ofDefault, to:  (a) endorse Borrower’sname on any checks or other forms of payment or security; (b) signBorrower’s name on any invoice or bill of lading for any Account or draftsagainst Account Debtors; (c) settle and adjust disputes and claims aboutthe Accounts directly with Account Debtors, for amounts and on terms Bankdetermines reasonable; (d) make, settle, and adjust all claims underBorrower’s insurance policies; (e) pay, contest or settle any Lien,charge, encumbrance, security interest, and adverse claim in or to theCollateral, or any judgment based thereon, or otherwise take any action toterminate or discharge the same; and (f) transfer the Collateral into thename of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawfulattorney-in-fact to sign Borrower’s name on any documents necessary to perfector continue the perfection of Bank’s security interest in the Collateral regardlessof whether an Event of Default has occurred until all Obligations have beensatisfied in full and Bank is under no further obligation to make CreditExtensions hereunder.  Bank’s foregoingappointment as Borrower’s attorney in fact, and all of Bank’s rights andpowers, coupled with an interest, are irrevocable until all Obligations havebeen fully repaid and performed and Bank’s obligation to provide CreditExtensions terminates.

##  

## **9.3****                              ****Protective Payments.** If Borrower fails to obtain the insurance called for by Section 6.7or fails to pay any premium thereon or fails to pay any other amount whichBorrower 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 byBank are Bank Expenses and immediately due and payable, bearing interest at thethen highest rate applicable to the Obligations, and secured by theCollateral.  Bank will make reasonableefforts to provide Borrower with notice of Bank obtaining such insurance at thetime it is obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreementto make similar payments in the future or Bank’s waiver of any Event ofDefault.

##  

## **9.4****                              ****Application of Payments andProceeds.** Unless an Event of Default has occurred and iscontinuing, Bank may apply any funds in its possession, whether from Borroweraccount balances, payments, or proceeds realized as the result of anycollection of Accounts or other disposition of the Collateral, first, to BankExpenses, including without limitation, the reasonable costs, expenses,liabilities, obligations and attorneys’ fees incurred by Bank in the exerciseof its rights under this Agreement; second, to the interest due upon any of theObligations; and third, to the principal of the Obligations and any applicablefees and other charges, in such order as Bank shall determine in its solediscretion.  Any surplus shall be paid toBorrower or other Persons legally entitled thereto; Borrower shall remainliable to Bank for any deficiency.  If anEvent of Default has occurred and is continuing, Bank may apply any funds inits possession, whether from Borrower account balances, payments, proceedsrealized as the result of any collection of Accounts or other disposition ofthe Collateral, or otherwise, to the Obligations in such order as Bank shalldetermine in its sole discretion.  Anysurplus 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 credittransaction with any purchaser at any sale of Collateral, Bank shall have theoption, exercisable at any time, of either reducing the Obligations by theprincipal amount of the purchase price or deferring the reduction of theObligations until the actual receipt by Bank of cash therefor.

##  

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

##  

## **9.6****                              ****No Waiver; Remedies Cumulative.** Bank’s failure, at any time or times, to require strict performance byBorrower of any provision of this Agreement or any other Loan Document shallnot waive, affect, or diminish any right of Bank thereafter to demand strictperformance and compliance herewith or therewith.  No waiver hereunder shall be effective unlesssigned by the party granting the waiver and then is only effective for thespecific instance and purpose for which it is given.  Bank’s rights and remedies under thisAgreement and the other Loan Documents are cumulative.  Bank has all rights and remedies providedunder the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election and shall notpreclude Bank from exercising any other remedy under this Agreement or otherremedy available at law or in equity, and Bank’s waiver of any Event of 

 

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## Default is not acontinuing waiver.  Bank’s delay inexercising any remedy is not a waiver, election, or acquiescence.

##  

## **9.7****                              ****Demand Waiver.** Borrower waives demand, notice of default (unless required hereunder orin the Loan Documents) or dishonor, notice of payment and nonpayment, notice ofany default, nonpayment at maturity, release, compromise, settlement,extension, or renewal of accounts, documents, instruments, chattel paper, andguarantees held by Bank on which Borrower is liable.

##  

## **9.8****                              ****Release of Alliance.** Bank hereby releases Alliance from theObligations.  Borrower hereby consents toBank’s release of Alliance from the Obligations and hereby agrees to pay andperform when due all present and future obligations and liabilities of Allianceunder, based upon, or arising out of this Agreement, the Loan Documents and anyinstruments and agreements relating thereto.

##  

**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 tothis Agreement or any other Loan Document must be in writing and be deliveredor sent by facsimile at the addresses or facsimile numbers listed below.  Bank or Borrower may change its noticeaddress by giving the other party written notice thereof.  Each such Communication shall be deemed tohave been validly served, given, or delivered: (a) upon the earlier ofactual receipt and three (3) Business Days after deposit in the U.S. mail,registered or certified mail, return receipt requested, with proper postageprepaid; (b) upon transmission, when sent by facsimile transmission (withsuch facsimile promptly confirmed by delivery of a copy by personal delivery orUnited States mail as otherwise provided in this Section 10); (c) one(1) Business Day after deposit with a reputable overnight courier with allcharges prepaid; or (d) when delivered, if hand-delivered by messenger, allof which shall be addressed to the party to be notified and sent to the addressor facsimile number indicated below. Advance requests made pursuant to Section 3.4 must be in writingand may be in the form of electronic mail, delivered to Bank by Borrower at thee-mail address of Bank provided below and shall be deemed to have been validlyserved, given, or delivered when sent (with such electronic mail promptlyconfirmed by delivery of a copy by personal delivery or United States mail asotherwise provided in this Section 10). Bank or Borrower may change its address, facsimile number, or electronicmail address by giving the other party written notice thereof in accordancewith the terms of this Section 10.

 
|   | If to Borrower: | Network  Engines, Inc.                  |
|--------|-----------------|----------------------------------------------|
|   |            | 25 Dan Road                                  |
|   |            | Canton, MA 02021                             |
|   |            | Attn:  Vice President of Finance        |
|   |            | Fax: (781) 770-2000                          |
|   |            | Email:   Jim.Herlihy@networkengines.com |
|   |            |                                         |
|   | If to Bank:     | Silicon Valley Bank                          |
|   |            | One Newton Executive  Park, Suite 200   |
|   |            | 2221 Washington Street                       |
|   |            | Newton, Massachusetts  02462            |
|   |            | Attn:  Mr. Ryan Ravenscroft        |
|   |            | Fax:  (617) 527- 0177                   |
|   |            | Email:  rravenscroft@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               |

 

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**11****          ****CHOICE OF LAW, VENUE, ANDJURY TRIAL WAIVER**

** **

Massachusetts law governs the Loan Documents withoutregard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the Stateand Federal courts in Massachusetts; provided, however, that nothing in thisAgreement shall be deemed to operate to preclude Bank from bringing suit ortaking other legal action in any other jurisdiction to realize on theCollateral or any other security for the Obligations, or to enforce a judgmentor other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdictionin any action or suit commenced in any such court, and Borrower hereby waivesany objection that it may have based upon lack of personal jurisdiction,improper venue, or forum non conveniens and hereby consents to the granting ofsuch legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service ofthe summons, complaints, and other process issued in such action or suit andagrees that service of such summons, complaints, and other process may be madeby registered or certified mail addressed to Borrower at the address set forthin Section 10 of this Agreement and that service so made shall be deemedcompleted upon the earlier to occur of Borrower’s actual receipt thereof orthree (3) days after deposit in the U.S. mails, proper postage prepaid.NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALLSPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWEROR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMSNECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISEENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY.

 

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

 

**12****          ****GENERAL PROVISIONS**

** **

## **12.1****       ****Termination Prior to MaturityDate.**  This Agreement may be terminated prior to theRevolving Line Maturity Date by Borrower, effective three (3) BusinessDays after written notice of termination is given to Bank or if Bank’sobligation to fund Credit Extensions terminates pursuant to the terms of Section 2.1.1(b).  Notwithstanding any such termination, Bank’slien and security interest in the Collateral shall continue until Borrowerfully satisfies its Obligations.  If suchtermination is at Borrower’s election or at Bank’s election due to the occurrenceand continuance of an Event of Default, and such termination occurs prior tothe one (1) year anniversary of the Effective Date, Borrower shall pay toBank, in addition to the payment of any other expenses or fees then-owing, atermination fee in an amount equal to Seventy-Five Thousand Dollars($75,000.00) provided that no termination fee shall be charged if the creditfacility hereunder is replaced with a new facility from another division ofSilicon Valley Bank.  Upon payment infull of the Obligations and at such time as Bank’s obligation to make CreditExtensions has terminated, Bank shall release its liens and security interestsin 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 andpermitted assigns of each party. Borrower may not assign this Agreement or any rights or obligationsunder it without Bank’s prior written consent (which may be granted or withheldin Bank’s discretion).  Bank has theright, 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 otherLoan 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 orrepresenting 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 transactionscontemplated by the Loan Documents; and (b) all losses or expenses(including Bank Expenses) in any way suffered, incurred, or paid by suchIndemnified Person as a result of, following from, consequential to, or arisingfrom transactions between Bank and Borrower (including reasonable attorneys’fees and expenses), except for Claims and/or losses and/or Bank Expensesdirectly caused by such Indemnified Person’s gross negligence or willfulmisconduct.

##  

## **12.4****       ****Time of Essence.** Time is of the essence for the performance of all Obligations in thisAgreement.

 

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

##  

## **12.6****       ****Severability of Provisions.** Each provision of this Agreement is severable from every other provisionin determining the enforceability of any provision.

##  

## **12.7****       ****Amendments in Writing; Waiver;Integration.**  No purported amendment or modification of anyLoan Document, or waiver, discharge or termination of any obligation under anyLoan Document, shall be enforceable or admissible unless, and only to theextent, expressly set forth in a writing signed by the party against whichenforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise orstatement, nor any action, inaction, delay, failure to require performance orcourse of conduct shall operate as, or evidence, an amendment, supplement orwaiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to thespecific circumstance expressly described in it, and shall not apply to anysubsequent or other circumstance, whether similar or dissimilar, or give riseto, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entireagreement about this subject matter and supersede prior negotiations oragreements.  All prior agreements,understandings, representations, warranties, and negotiations between theparties about the subject matter of the Loan Documents merge into the LoanDocuments.

##  

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

##  

## **12.9****       ****Survival.**  Allcovenants, representations and warranties made in this Agreement continue infull force until this Agreement has terminated pursuant to its terms and allObligations (other than inchoate indemnity obligations and any otherobligations which, by their terms, are to survive the termination of thisAgreement) have been paid in full and satisfied.  The obligation of Borrower in Section 12.2to indemnify Bank shall survive until the statute of limitations with respectto such claim or cause of action shall have run.

##  

## **12.10****     ****Confidentiality.** In handling any confidential information, Bank shall exercise the samedegree of care that it exercises for its own proprietary information, butdisclosure of information may be made: (a) to Bank’s Subsidiaries orAffiliates; (b) to prospective transferees or purchasers of any interestin the Credit Extensions (provided, however, Bank shall use commerciallyreasonable efforts to obtain any prospective transferee’s or purchaser’sagreement to the terms of this provision); (c) as required by law,regulation, subpoena, or other order; (d) to Bank’s regulators or asotherwise required in connection with Bank’s examination or audit; (e) asBank considers appropriate in exercising remedies under the Loan Documents; and(f) to third-party service providers of Bank so long as such serviceproviders have executed a confidentiality agreement with Bank with terms noless restrictive than those contained herein. Confidential information does not include information that is either: (i) isin the public domain or in Bank’s possession when disclosed to Bank, or becomespart of the public domain after disclosure to Bank; or (ii) is disclosedto Bank by a third party, if Bank does not know that the third party isprohibited from disclosing the information. Bank may use confidential information for the development of databases,reporting purposes, and market analysis so long as such confidentialinformation is aggregated and anonymized prior to distribution unless otherwiseexpressly permitted by Borrower.  Theprovisions of the immediately preceding sentence shall survive the terminationof this Agreement.

##  

## **12.11****     ****Attorneys’ Fees, Costs andExpenses.**  In any action or proceeding between Borrowerand Bank arising out of or relating to the Loan Documents, Bank shall beentitled to recover its reasonable attorneys’ fees and other costs and expensesincurred, 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 ofset off as security for all Obligations to Bank, whether now existing orhereafter arising upon and against all deposits, credits, collateral andproperty, now or hereafter in the possession, custody, safekeeping or controlof Bank or any entity under the control of Bank (including a Bank subsidiary)or in transit to any of them.  At anytime 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 applythe same to any liability or obligation of Borrower even though unmatured andregardless of the adequacy of any other collateral securing theObligations.  ANY AND ALL RIGHTS TOREQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERALWHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITHRESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBYKNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

20

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## **12.13****     ****Electronic Execution ofDocuments.** The words “execution,” “signed,” “signature”and words of like import in any Loan Document shall be deemed to includeelectronic signatures or the keeping of records in electronic form, each ofwhich shall be of the same legal effect, validity and enforceability as amanually 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 ElectronicTransactions Act.

##  

## **12.14****     ****Captions.** The headings used in this Agreement are for convenience only and shallnot affect the interpretation of this Agreement.

##  

## **12.15****     ****Construction of Agreement.** The parties mutually acknowledge that they andtheir attorneys have participated in the preparation and negotiation of thisAgreement.  In cases of uncertainty thisAgreement shall be construed without regard to which of the parties caused theuncertainty to exist.

##  

## **12.16****     ****Relationship.** The relationship of the parties to this Agreement is determined solelyby the provisions of this Agreement.  Theparties do not intend to create any agency, partnership, joint venture, trust,fiduciary or other relationship with duties or incidents different from thoseof parties to an arm’s-length contract.

##  

## **12.17****     ****Third Parties.** Nothing in this Agreement, whether express or implied, is intended to: (a) conferany benefits, rights or remedies under or by reason of this Agreement on anypersons other than the express parties to it and their respective permittedsuccessors and assigns; (b) relieve or discharge the obligation orliability of any person not an express party to this Agreement; or (c) giveany person not an express party to this Agreement any right of subrogation oraction against any party to this Agreement.

##  

**13****          ****DEFINITIONS**

** **

## **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 denotingamounts that are set off in brackets are negative.  As used in this Agreement, the followingcapitalized terms have the following meanings:

##  

“**Account**” is any“account” as defined in the Code with such additions to such term as mayhereafter be made, and includes, without limitation, all accounts receivableand other sums owing to Borrower.

 

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

 

“**Adjusted Quick Ratio**” is the ratio of (a) Quick Assets to (b) (i) CurrentLiabilities minus (ii) Deferred Revenue.

 

“**Advance**” or “**Advances**” means an advance (or advances) under the RevolvingLine.

 

“**Affiliate**” is,with respect to any Person, each other Person that owns or controls directly orindirectly the Person, any Person that controls or is controlled by or is undercommon control with the Person, and each of that Person’s senior executiveofficers, directors, partners and, for any Person that is a limited liabilitycompany, that Person’s managers and members.

 

“**Agreement**” isdefined in the preamble hereof.

 

“**Alliance**” isdefined in the preamble.

 

“**Availability Amount**”is (a) the lesser of (i) the Revolving Line or (ii) the amountavailable under the Borrowing Base minus (b) the Dollar Equivalent amountof all outstanding Letters of Credit (including drawn but unreimbursed Lettersof Credit plus an amount equal to the Letter of Credit Reserve), minus (c) theFX Reduction Amount, minus (d) any amounts used for Cash ManagementServices, and minus (e) the outstanding principal balance of any Advances.

 

“**Bank**” isdefined in the preamble hereof.

 

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“**Bank Expenses**”are all audit fees and expenses, costs, and expenses (including reasonableattorneys’ fees and expenses) for preparing, amending, negotiating,administering, defending and enforcing the Loan Documents (including, withoutlimitation, those incurred in connection with appeals or InsolvencyProceedings) or otherwise incurred with respect to Borrower or any Guarantor.

 

“**Borrower**” isdefined in the preamble hereof.

 

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

 

“**Borrowing Base**”is eighty percent (80%) of Eligible Accounts, as determined by Bank fromBorrower’s most recent Borrowing Base Certificate, provided, however, that Bankmay decrease the foregoing percentage in its good faith business judgment basedon events, conditions, contingencies, or risks which, as determined by Bank,may adversely affect the Collateral.

 

“**Borrowing Base Certificate**”is that certain certificate included within each Transaction Report.

 

“**Borrowing Resolutions**”are, with respect to any Person, those resolutions adopted by such Person’sBoard of Directors or other appropriate body and delivered by such Person toBank approving the Loan Documents to which such Person is a party and thetransactions contemplated thereby, together with a certificate executed by itssecretary on behalf of such Person certifying that (a) such Person has theauthority to execute, deliver, and perform its obligations under each of theLoan Documents to which it is a party, (b) that attached as Exhibit Ato such certificate is a true, correct, and complete copy of the resolutionsthen in full force and effect authorizing and ratifying the execution,delivery, and performance by such Person of the Loan Documents to which it is aparty, (c) the name(s) of the Person(s) authorized to executethe Loan Documents on behalf of such Person, together with a sample of the truesignature(s) of such Person(s), and (d) that Bank may conclusivelyrely on such certificate unless and until such Person shall have delivered toBank 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.

 

“**CapitalExpenditures**” means, with respect to any Person for any period, thesum of (a) the aggregate of all expenditures by such Person and itsSubsidiaries during such period that are capital expenditures as determined inaccordance with GAAP, whether such expenditures are paid in cash or financed, plus(b) to the extent not covered by clause (a), the aggregate of allexpenditures by such Person and its Subsidiaries during such period to acquireby purchase or otherwise the business or capitalized assets or the capitalstock of any other Person.

 

“**Cash Equivalents**”means (a) marketable direct obligations issued or unconditionallyguaranteed by the United States or any agency or any State thereof havingmaturities of not more than one (1) year from the date of acquisition; (b) commercialpaper maturing no more than one (1) year after its creation and having thehighest rating from either Standard & Poor’s Ratings Group or Moody’sInvestors Service, Inc., (c) Bank’s certificates of deposit issuedmaturing no more than one (1) year after issue; and (d) money marketfunds at least ninety-five percent (95%) of the assets of which constitute CashEquivalents of the kinds described in clauses (a) through (c) of thisdefinition.

 

“**Cash Management Services**”is defined in Section 2.1.4.

 

“**Claims**” isdefined in Section 12.3.

 

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

 

22

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

 

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

 

“**Commodity Account**”is any “commodity account” as defined in the Code with such additions to suchterm 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, ofthat Person for (a) any indebtedness, lease, dividend, letter of credit orother obligation of another such as an obligation, in each case directly orindirectly guaranteed, endorsed, co made, discounted or sold with recourse bythat Person, or for which that Person is directly or indirectly liable; (b) anyobligations for undrawn letters of credit for the account of that Person; and (c) allobligations from any interest rate, currency or commodity swap agreement,interest rate cap or collar agreement, or other agreement or arrangement designatedto protect a Person against fluctuation in interest rates, currency exchangerates or commodity prices; but “Contingent Obligation” does not includeendorsements in the ordinary course of business.  The amount of a Contingent Obligation is thestated or determined amount of the primary obligation for which the ContingentObligation is made or, if not determinable, the maximum reasonably anticipatedliability for it determined by the Person in good faith; but the amount may notexceed the maximum of the obligations under any guarantee or other supportarrangement.

 

“**Control Agreement**”is any control agreement entered into among the depository institution at whichBorrower maintains a Deposit Account or the securities intermediary orcommodity intermediary at which Borrower maintains a Securities Account or aCommodity 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**” areany and all copyright rights, copyright applications, copyright registrationsand like protections in each work or authorship and derivative work thereof,whether published or unpublished and whether or not the same also constitutes atrade secret.

 

“**Credit Extension**”is any Advance, Letter of Credit, FX Forward Contract, amount utilized for CashManagement Services or any other extension of credit by Bank for Borrower’sbenefit.

 

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

 

“**Default**” meansany event which with notice or passage of time or both, would constitute an Eventof Default.

 

“**Default Rate**”is defined in Section 2.3(b).

 

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

 

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

 

“**Designated Deposit Account**”is Borrower’s deposit account, account number                          ,maintained with Bank.

 

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

 

23

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“**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 ForeignCurrency, the equivalent amount therefor in Dollars as determined by Bank atsuch time on the basis of the then-prevailing rate of exchange in SanFrancisco, California, for sales of the Foreign Currency for transfer to thecountry issuing such Foreign Currency.

 

“**EBITDA**”shall mean (a) Net Income, plus (b) Interest Expense, plus (c) tothe extent deducted in the calculation of Net Income, depreciation expense andamortization expense, plus (d) income tax expense, plus (e) to theextent deducted in the calculation of Net Income, non-stock compensation andother one-time non-cash expenses approved by Bank in writing on a case-by-casebasis.

 

“**Effective Date**”is February 5, 2010.

 

“**Eligible Accounts**”are Accounts which arise in the ordinary course of Borrower’s business thatmeet all Borrower’s representations and warranties in Section 5.3.  Bank reserves the right at any time and fromtime to time after the Effective Date upon notice to Borrower, to adjust any ofthe criteria set forth below and to establish new criteria in its good faithbusiness judgment.  Without limiting thefact that the determination of which Accounts are eligible for borrowing is amatter of Bank’s good faith judgment, the following (“**MinimumEligibility Requirements**”) are the minimum requirements for anAccount to be an Eligible Account. Unless Bank agrees otherwise in writing, Eligible Accounts shall notinclude:

 

#### (a)           Accounts for which the Account Debtor hasnot been invoiced or where goods or services have not yet been rendered to theAccount Debtor (sometimes called memo billings or pre-billings);

####  

#### (b)           Accounts that the Account Debtor has notpaid within ninety (90) days of invoice date, regardless of invoice paymentperiod terms;

####  

#### (c)           Accounts owing from an Account Debtor,fifty percent (50%) or more of whose Accounts have not been paid within ninety(90) days of invoice date;

####  

#### (d)           Accounts billed and/or payable outsidethe United States;

####  

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

####  

#### (f)            Accounts owing from an Account Debtor,including Affiliates, whose total obligations to Borrower exceed twenty-fivepercent (25%) of all Accounts, (provided that such percentage shall be fortypercent (40%) for Accounts for which the Account Debtor is EMC Corporation) forthe amounts that exceed that percentage, unless Bank approves in writing;

####  

#### (g)           Accounts subject to contractualarrangements between Borrower and an Account Debtor where payments shall bescheduled or due according to completion or fulfillment requirements where theAccount Debtor has a right of offset for damages suffered as a result ofBorrower’s failure to perform in accordance with the contract (sometimes calledcontracts accounts receivable, progress billings, milestone billings, orfulfillment contracts);

####  

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

####  

#### (i)            Accounts owing from an Account Debtorwhich does not have its principal place of business in the United States exceptfor Eligible Foreign Accounts;

####  

#### (j)            Accounts owing from the United States orany department, agency, or instrumentality thereof except for Accounts of theUnited States if Borrower has assigned its payment rights to Bank and theassignment has been acknowledged under the Federal Assignment of Claims Act of1940, as amended;

####  

#### (k)           Accounts owing from an Account Debtor tothe extent that Borrower is indebted or obligated in any manner to the AccountDebtor (as creditor, lessor, supplier or otherwise - sometimes called “contra”accounts, accounts payable, customer deposits or credit accounts), with theexception of customary credits, adjustments and/or discounts given to anAccount Debtor by Borrower in the ordinary course of its business;

 

24

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#### (l)            Accounts for demonstration or promotionalequipment, or in which goods are consigned, or sold on a “sale guaranteed”, “saleor return”, “sale on approval”, “bill and hold”, or other terms if AccountDebtor’s payment may be conditional;

####  

#### (m)          Accounts that represent non-tradereceivables or that are derived by means other than in the ordinary course ofBorrower’s business;

####  

#### (n)           Accounts for which the Account Debtor isBorrower’s Affiliate, officer, employee, or agent;

####  

#### (o)           Accounts in which the Account Debtordisputes liability or makes any claim (but only up to the disputed or claimedamount), or if the Account Debtor is subject to an Insolvency Proceeding, orbecomes insolvent, or goes out of business;

####  

#### (p)           Accounts owing from an Account Debtorwith respect to which Borrower has received Deferred Revenue (but only to theextent of such Deferred Revenue), except for such Accounts approved in writingby Bank, provided no Event of Default has occurred or is continuing;

####  

#### (q)           Accounts subject to chargebacks or otherpayment deductions taken by an Account Debtor;

####  

#### (r)            Accounts for which Bank in its good faithbusiness judgment determines collection to be doubtful; and

####  

#### (s)           other Accounts Bank deems ineligible inthe exercise of its good faith business judgment.

####  

“**Eligible Foreign Accounts**”are Accounts for which the Account Debtor does not have its principal place ofbusiness in the United States but are otherwise Eligible Accounts that are (a) supportedby letter(s) of credit acceptable to Bank; or (b) that Bank approvesin writing.

 

“**ERISA**” is theEmployee Retirement Income Security Act of 1974, and its regulations.

 

“**Excluded Licenses**”is defined in Section 5.2.

 

“**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 ofBorrower which shall be a Business Day.

 

“**FX Business Day**”is any day when (a) Bank’s Foreign Exchange Department is conducting itsnormal business and (b) the Foreign Currency being purchased or sold byBorrower is available to Bank from the entity from which Bank shall buy or sellsuch Foreign Currency.

 

“**FX Forward Contract**”is defined in Section 2.1.3.

 

“**FX Reduction Amount**”is defined in Section 2.1.3.

 

“**GAAP**” isgenerally accepted accounting principles set forth in the opinions andpronouncements of the Accounting Principles Board of the American Institute ofCertified Public Accountants and statements and pronouncements of the FinancialAccounting Standards Board or in such other statements by such other Person asmay be approved by a significant segment of the accounting profession, whichare 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 datehereof with such additions to such term as may hereafter be made, and includeswithout limitation, all Intellectual Property, claims, income and other taxrefunds, security and other deposits, payment intangibles, contract rights,options to purchase or sell real or personal property, rights in all litigationpresently or hereafter pending (whether in 

 

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contract, tort orotherwise), insurance policies (including without limitation key man, propertydamage, and business interruption insurance), payments of insurance and rightsto payment of any kind.

 

“**Governmental Approval**”is any consent, authorization, approval, order, license, franchise, permit,certificate, accreditation, registration, filing or notice, of, issued by, fromor 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 orother entity exercising executive, legislative, judicial, taxing, regulatory oradministrative functions of or pertaining to government, any securitiesexchange and any self-regulatory organization.

 

“**Guarantor**” isany present or future guarantor of the Obligations.

 

“**Included****Indebtedness**” is (a) indebtedness forborrowed money, (b) obligations evidenced by notes, bonds, debentures orsimilar instruments, and (c) capital lease obligations.

 

“**Indebtedness**”is (a) indebtedness for borrowed money or the deferred price of propertyor services, such as reimbursement and other obligations for surety bonds andletters of credit, (b) obligations evidenced by notes, bonds, debenturesor similar instruments, (c) capital lease obligations, and (d) ContingentObligations.

 

“**Indemnified Person**”is defined in Section 12.2.

 

“**Initial Audit**”is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’sBooks.

 

“**Insolvency Proceeding**”is any proceeding by or against any Person under the United States BankruptcyCode, or any other bankruptcy or insolvency law, including assignments for thebenefit of creditors, compositions, extensions generally with its creditors, orproceedings 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 tradesecret rights, including, without limitation, any rights to unpatentedinventions, know-how, operating manuals;

####  

#### (c)           any and all source code;

####  

#### (d)           any and all design rights which may beavailable to a Borrower;

####  

#### (e)           any and all claims for damages by way ofpast, 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 orinfringement of the Intellectual Property rights identified above; and

####  

#### (f)            all amendments, renewals and extensionsof 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 Extensionand other Indebtedness of Borrower and its Subsidiaries, if any, including,without limitation or duplication, all commissions, discounts, or relatedamortization and other fees and charges with respect to letters of credit andbankers’ acceptance financing and the net costs associated with interest rateswap, cap, and similar arrangements, and the interest portion of any deferredpayment obligation (including leases of all types).

 

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“**Inventory**” isall “inventory” as defined in the Code in effect on the date hereof with suchadditions to such term as may hereafter be made, and includes without limitationall merchandise, raw materials, parts, supplies, packing and shippingmaterials, work in process and finished products, including without limitationsuch inventory as is temporarily out of Borrower’s custody or possession or intransit and including any returned goods and any documents of titlerepresenting any of the above.

 

“**Investment**” isany beneficial ownership interest in any Person (including stock, partnershipinterest or other securities), and any loan, advance or capital contribution toany Person.

 

“**Key Person**”is any of Borrower’s Chief Executive Officer, Chief Operating Officer, or ChiefFinancial Officer, who are as of the Effective Date, Gregory A. Shortell andDouglas G. Bryant, respectively.

 

“**Letter of Credit**”means a standby letter of credit issued by Bank or another institution basedupon an application, guarantee, indemnity or similar agreement on the part ofBank as set forth in Section 2.1.2.

 

“**Letter of CreditApplication**” 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 aclaim, mortgage, deed of trust, levy, charge, pledge, security interest orother encumbrance of any kind, whether voluntarily incurred or arising byoperation of law or otherwise against any property.

 

“**Loan Documents**”are, collectively, this Agreement, the Perfection Certificate, any note, ornotes or guaranties executed by Borrower or any Guarantor, and any otherpresent or future agreement between Borrower any Guarantor and/or for the benefitof Bank in connection with this Agreement, all as amended, restated, orotherwise modified.

 

“**Material Adverse Change**”is (a) a material impairment in the perfection or priority of Bank’s Lienin the Collateral or in the value of such Collateral; (b) a materialadverse change in the business, operations, or condition (financial orotherwise) of Borrower; (c) a material impairment of the prospect ofrepayment of any portion of the Obligations or (d) Bank determines, basedupon information available to it and in its reasonable judgment, that there isa reasonable likelihood that Borrower shall fail to comply with one or more ofthe financial covenants in Section 6 during the next succeeding financialreporting period.

 

“**Minimum EligibilityRequirements**” is defined in the defined term “Eligible Accounts”.

 

“**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 (orloss), after provision for taxes, of Borrower and its Subsidiaries for suchperiod taken as a single accounting period.

 

“**Obligations**”are Borrower’s obligation to pay when due any debts, principal, interest, BankExpenses and other amounts Borrower owes Bank now or later, whether under thisAgreement, the Loan Documents or otherwise, including, without limitation, allobligations relating to letters of credit (including reimbursement obligationsfor drawn and undrawn letters of credit), cash management services, and foreignexchange contracts, if any, and including interest accruing after InsolvencyProceedings begin and debts, liabilities, or obligations of Borrower assignedto Bank, and to perform Borrower’s duties under the Loan Documents.

 

“**Operating Cash Flow**”is, for the immediately preceding twelve (12) month period as of any date ofdetermination, (a) Borrower’s consolidated EBITDA, minus (b) CapitalExpenditures, minus (c) Borrower’s cash taxes.

 

“**Operating Documents**”are, for any Person, such Person’s formation documents, as certified with theSecretary of State of such Person’s state of formation on a date that is noearlier than 30 days prior to the Effective Date, and, (a) if such Personis a corporation, its bylaws in current form, (b) if such Person is alimited liability company, its limited liability company agreement (or similaragreement), and (c) if such Person is a partnership, its partnershipagreement (or similar agreement), each of the foregoing with all currentamendments or modifications thereto.

 

27

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“**Overadvance**” isdefined in Section 2.2.

 

“**Patents**” meansall patents, patent applications and like protections including withoutlimitation improvements, divisions, continuations, renewals, reissues,extensions and continuations-in-part of the same.

 

“**Payment**” meansall checks, wire transfers and other items of payment received by Bank(including proceeds of Accounts and payment of all the Obligations in full) forcredit to Borrower’s outstanding Credit Extensions or, if the balance of theCredit Extensions has been reduced to zero, for credit to its Deposit Accounts.

 

“**Perfection Certificate**”is defined in Section 5.1.

 

“**Permitted Bank Accounts**”is defined in Section 6.8 (a).

 

“**Permitted Distributions**”means:

 

(a)           purchases of capital stock from formeremployees, consultants and directors pursuant to repurchase agreements or othersimilar agreements in an aggregate amount not to exceed Two Hundred ThousandDollars ($200,000.00) in any fiscal year provided that at the time of suchpurchase no Default or Event of Default has occurred and is continuing;

 

(b)           distributions or dividends consistingsolely of Borrower’s capital stock;

 

(c)           purchases of fractional shares of capitalstock arising out of stock dividends, splits or combinations or businesscombinations; and

 

(d)           the settlement or performance of suchPerson’s obligations under any equity derivative transaction, option contractor similar transaction or combination of transactions.

 

“**Permitted Indebtedness**”is:

 

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

####  

#### (b)           Indebtedness existing on the EffectiveDate and shown on the Perfection Certificate;

####  

#### (c)           Subordinated Debt, if any;

####  

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

 

(e)           Indebtedness secured by Permitted Liens;

 

(f)            Indebtednessunder any FX Forward Contract or Letter of Credit;

 

(g)           Indebtednessto Bank incurred in connection with Cash Management Services;

 

(h)           Indebtedness,if any, arising under any “swap agreement,” as such term is defined in Section 101of the Bankruptcy Code;

 

(i)            Indebtednessincurred as a result of endorsing negotiable instruments received in theordinary course of business;

 

(j)            Indebtednesssolely among Borrower and any Subsidiary that is a Guarantor which has grantedBank a first priority security interest in its assets;

 

(k)           OtherIndebtedness in an amount not exceeding One Hundred Thousand Dollars($100,000.00) in the aggregate outstanding at any time; and

 

(l)            extensions, refinancings, modifications,amendments and restatements of any items of Permitted Indebtedness (a) through(k) above, provided that the principal amount thereof is not increased orthe terms thereof are not modified to impose more burdensome terms uponBorrower or its Subsidiary, as the case may be.

 

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“**Permitted Investments**”are:

 

#### (a)           Investmentsshown on the Perfection Certificate and existing on the Effective Date;

####  

#### (b)           CashEquivalents;

####  

#### (c)           Investmentsconsisting of the endorsement of negotiable instruments for deposit orcollection or similar transactions in the ordinary course of Borrower’sbusiness;

####  

#### (d)           Investmentsconsisting of (i) travel advances and employee relocation loans and otheremployee loans and advances in the ordinary course of business, and (ii) loansto employees, officers or directors relating to the purchase of equitysecurities of Borrower or its Subsidiaries pursuant to employee stock purchaseplans or agreements approved by Borrower’s Board of Directors;

####  

#### (e)           Investments(including debt obligations) received in connection with the bankruptcy orreorganization of customers or suppliers and in settlement of delinquentobligations of, and other disputes with, customers or suppliers arising in theordinary course of business;

####  

#### (f)            Investmentsconsisting of notes receivable of, or prepaid royalties and other creditextensions, to customers and suppliers who are not Affiliates, in the ordinarycourse of business; provided that this paragraph (f) shall not apply toInvestments of Borrower in any Subsidiary;

####  

(g)           Investments to theextent they constitute Permitted Indebtedness;

 

(i)            any PermittedDistribution; and

 

#### (j)            Other Investments in an amount notexceeding One Hundred Thousand Dollars ($100,000.00) in the aggregateoutstanding at any time.

####  

“**Permitted Liens**”are:

 

#### (a)           Liensexisting on the Effective Date and shown on the Perfection Certificate orarising under this Agreement and the other Loan Documents;

####  

#### (b)           Liensfor taxes, fees, assessments or other government charges or levies, either (i) notdue and payable or (ii) being contested in good faith and for whichBorrower maintains adequate reserves on its Books, that no notice of any suchLien has been filed or recorded under the Internal Revenue Code of 1986, asamended, and the Treasury Regulations adopted thereunder;

####  

#### (c)           purchasemoney Liens (i) on Equipment acquired or held by Borrower incurred forfinancing the acquisition of the Equipment securing no more than Fifty ThousandDollars ($50,000.00) in the aggregate amount outstanding, or (ii) existingon Equipment when acquired, if the Lien is confined to the property andimprovements and the proceeds of the Equipment;

####  

#### (d)           statutoryLiens securing claims or demands of materialmen, mechanics, carriers,warehousemen, landlords and other Persons imposed without action of such parties,provided, they have no priority over any of Bank’s Liens, such Liens attachonly to Inventory and the aggregate amount of the Indebtedness secured by suchLiens does not at any time exceed Fifty Thousand Dollars ($50,000.00) and isnot delinquent or is being contested in good faith by appropriate proceedings;

####  

#### (e)           Liensto secure payment of workers’ compensation, employment insurance, old-agepensions, social security and other like obligations incurred in the ordinarycourse of business, provided, they have no priority over any of Bank’s Liensand the aggregate amount of the Indebtedness secured by such Liens does not atany time exceed One Hundred Thousand Dollars ($100,000.00);

####  

#### (f)            Liensincurred in the extension, renewal or refinancing of the indebtedness securedby Liens described in (a) through (e), but any extension, renewal orreplacement Lien must be limited to the property encumbered by the existingLien and the principal amount of the indebtedness may not increase;

 

29

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#### (g)           leasesor subleases of real property granted in the ordinary course of business, andleases, subleases, non-exclusive licenses or sublicenses of property (otherthan real property or Intellectual Property) granted in the ordinary course ofBorrower’s business, if the leases, subleases, licenses and sublicenses do notprohibit granting Bank a security interest;

####  

#### (h)           non-exclusivelicenses of Intellectual Property granted to third parties in the ordinarycourse of business;

####  

#### (i)            Liensarising from judgments, decrees or attachments in circumstances notconstituting an Event of Default under Section 8.4 or 8.7;

####  

#### (j)            Lienssecuring Subordinated Debt provided that Bank has consented to such Lien inwriting;

####  

#### (k)           Lienssecuring Letters of Credit; and

####  

#### (l)            securitydeposits for the benefit of landlords in the ordinary course of business, in anamount not to exceed One Hundred Thousand Dollars ($100,000.00).

####  

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

 

“**Prime Rate**” isthe greater of: (a) Bank’s most recently announced “prime rate,” even ifit is not Bank’s lowest rate, and (b) four percent (4.0%).

 

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

 

“**Registered Organization**”is any “registered organization” as defined in the Code with such additions tosuch 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 ordetermination of an arbitrator or a court or other Governmental Authority, ineach case applicable to or binding upon such Person or any of its property orto 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 totime establish and revise in good faith reducing the amount of Advances,Letters of Credit and other financial accommodations which would otherwise beavailable to Borrower under the lending formulas:  (a) to reflect events, conditions,contingencies or risks which, as determined by Bank in good faith, do or mayaffect (i) the Collateral or any other property which is security for theObligations or its value (including without limitation any increase indelinquencies of Accounts), (ii) the assets or business of Borrower or anyguarantor, or (iii) the security interests and other rights of Bank in theCollateral (including the enforceability, perfection and priority thereof); or (b) toreflect Bank’s good faith belief that any collateral report or financialinformation furnished by or on behalf of Borrower or any guarantor to Bank isor may have been incomplete, inaccurate or misleading in any material respect;or (c) in respect of any state of facts which Bank determines in goodfaith constitutes an Event of Default or may, with notice or passage of time orboth, constitute an Event of Default.

 

“**Responsible Officer**”is any of the Chief Executive Officer, President, Chief Financial Officer andController of Borrower.

 

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

 

“**Revolving Line**”is an Advance or Advances in an amount equal to Ten Million Dollars($10,000,000).

 

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“**Revolving Line MaturityDate**” is February 4, 2012*.*

 

“**SEC**” shall meanthe Securities and Exchange Commission, any successor thereto, and anyanalogous Governmental Authority

 

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

 

“**Streamline Period**”is, on and after the Effective Date, the period (i) beginning on the first(1st) day of each calendar month immediatelyfollowing a calendar month in which Borrower has maintained, for thirty (30)consecutive days during such calendar month, a sum of: (i) unrestrictedand unencumbered cash at Bank, plus (ii) the Availability Amount ofgreater than Ten Million Dollars ($10,000,000.00), as determined by Bank, inits sole discretion (the “**StreamlineAvailability**”); and (ii) ending on the earlier to occur of (A) theoccurrence of a Default or an Event of Default; and (B) the first daythereafter in which Borrower fails to maintain the Streamline Availability, asdetermined by Bank, in its sole discretion. Borrower shall give Bank prior written notice of Borrower’s intention toenter into any such Streamline Period.

 

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

 

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

 

“**Total Liabilities**”is on any day, obligations that should, under GAAP, be classified asliabilities on Borrower’s consolidated balance sheet, including allIndebtedness, and current portion of Subordinated Debt permitted by Bank to bepaid by Borrower, but excluding all other Subordinated Debt.

 

“**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 andsymbolized by such trademarks.

 

“**Transaction Report**”is the Bank’s standard reporting package for, without limitation, reportingsales, collections, credit memos and other collateral adjustments, provided byBank to Borrower.

 

“**Transfer**” isdefined in Section 7.1.

 

“**Unused Revolving LineFacility Fee**” is defined in Section 2.4(e).

 

***[****Signature page follows.**]***

 

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**IN WITNESS WHEREOF**, the parties hereto have caused thisAgreement to be executed as a sealed instrument under the laws of theCommonwealth of Massachusetts as of the Effective Date.

 

**BORROWER**:

 

NETWORK ENGINES, INC.

 
| By                  | /s/ Douglas G. Bryant |   |
|---------------------|-----------------------|--------|
| Name:               | Douglas G. Bryant     |   |
| Title:              | CFO                   |   |
|                |                  |
| **BANK**:           |                  |
|                |                  |
| SILICON VALLEY BANK |                  |
|                |                  |
| By:                 |                  |   |
| Name:               |                  |   |
| Title:              |                  |   |

 

[Signature page to Loanand Security Agreement]

 

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**EXHIBIT A**

** **

**COLLATERAL DESCRIPTION**

** **

The Collateral consistsof all of Borrower’s right, title and interest in and to the following personalproperty:

 

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

 

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

 

Notwithstanding theforegoing, the Collateral does not include any Intellectual Property; provided,however, the Collateral shall include all Accounts and all proceeds ofIntellectual Property.  If a judicialauthority (including a U.S. Bankruptcy Court) would hold that a securityinterest in the underlying Intellectual Property is necessary to have asecurity interest in such Accounts and such property that are proceeds ofIntellectual Property, then the Collateral shall automatically, and effectiveas of the Effective Date, include the Intellectual Property to the extentnecessary to permit perfection of Bank’s security interest in such Accounts andsuch other property of Borrower that are proceeds of the Intellectual Property.

 

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

 

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**EXHIBIT B**

** **

**COMPLIANCECERTIFICATE**

 
| TO:   | SILICON VALLEY BANK   | Date:  |   |
|-------|-----------------------|--------|--------|
| FROM: | NETWORK ENGINES, INC. |   |   |

 

The undersigned authorized officer of NETWORK ENGINES,INC. (“Borrower”) certifies that under the terms and conditions of the Loan andSecurity Agreement between Borrower and Bank (the “Agreement”), (1) Borroweris in complete compliance for the period ending                              with all required covenants except as noted below, (2) there are no Eventsof Default, (3) all representations and warranties in the Agreement aretrue and correct in all material respects on this date except as noted below;provided, however, that such materiality qualifier shall not be applicable toany representations and warranties that already are qualified or modified bymateriality in the text thereof; and provided, further that thoserepresentations and warranties expressly referring to a specific date shall betrue, 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 andreports, and Borrower has timely paid all foreign, federal, state and localtaxes, assessments, deposits and contributions owed by Borrower except asotherwise 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 anyof its Subsidiaries, if any, relating to unpaid employee payroll or benefits ofwhich Borrower has not previously provided written notification to Bank.  Attached are the required documentssupporting the certification.  Theundersigned certifies that these are prepared in accordance with GAAPconsistently applied from one period to the next except as explained in an accompanyingletter or footnotes.  The undersignedacknowledges that no borrowings may be requested at any time or date ofdetermination that Borrower is not in compliance with any of the terms of theAgreement, and that compliance is determined not just at the date thiscertificate is delivered.  Capitalizedterms used but not otherwise defined herein shall have the meanings given themin the Agreement.

 

**Please indicate compliance statusby circling Yes/No under “Complies” column.**

 
| **Reporting  Covenant**                                                                   | ** ** | **Required**                                       | ** ** | **Complies**      |
|-------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------|
| ** **                                                                                | ** ** | ** **                                         | ** ** | ** **        |
| Monthly consolidated  plus consolidating financial statements with Compliance Certificate |       | Monthly within 30 days                             |       | Yes o   No o |
| Annual consolidated  plus consolidating financial statement (CPA Audited)                 |       | FYE within120 days                                 |       | Yes o   No o |
| 10-Q, 10-K and 8-K and  other public filings                                              |       | Within 5 days after  filing with SEC               |       | Yes o   No o |
| A/R & A/P  Agings, Deferred Revenue reports and Inventory Sell-Through Reports   |       | Monthly within 15 days                             |       | Yes o   No o |
| Transaction Reports                                                                       |       | As set forth in  Section 6.2 of the Agreement |       | Yes o   No o |
| Budgets and Projections                                                                   |       | 45 days after FYE                                  |       | Yes o   No o |

 

The followingIntellectual Property was registered after the Effective Date (if noregistrations, state “None”)

                                                                 

 
| **Financial  Covenant**                                                     | ** ** | **Required**                                                         | ** ** | **Actual**                                                          | ** ** | **Complies**      |
|-----------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------|
|                                                                        | ** ** | ** **                                                           | ** ** | ** **                                                          | ** ** | ** **        |
| Adjusted Quick Ratio  (to be tested on the last day of each calendar month) |       | 1.20:1.0                                                             |       |       :1.0                            |       | Yes o   No o |
| Operating Cash Flow (as  of the last day of each calendar quarter)          |       | $           * |       | $            |       | Yes o   No o |

 

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

 

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The following financialcovenant analyses and information set forth in Schedule 1 attached hereto aretrue and accurate as of the date of this Certificate.

 

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

 

 

 
| Network Engines, Inc. |   | **BANK USE ONLY**        |
|-----------------------|--------|--------------------------|
|                  |   |                     |
|                  |   |                     | Received by: |   |
| By:                   |   |                     | AUTHORIZED SIGNER  |
| Name:                 |   |                     | Date: |   |
| Title:                |   |                     |   |   |
|                  |   | Verified:                |   |
|                  |   | AUTHORIZED  SIGNER  |
|                  |   | Date:                    |   |
|                  |   |                     |   |
|                  |   | Compliance Status:       | Yes o   No o |
|                       |        |                          |  |  |  |

 

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**Schedule 1 to Compliance Certificate**

 

**Financial Covenants of Borrower**

 

| Dated: |   |   |
|--------|--------|--------|

 

In the event of aconflict between this Schedule and the Agreement, the terms of the Agreementshall control.

 

I.              **Adjusted****Quick Ratio** (Section 6.9(a))

 
| Required: | 1.20:1.00                                       |
|-----------|-------------------------------------------------|
| Actual:   |        :1.00 |

 
| A.     | Aggregate value of the  unrestricted cash of Borrower and its Subsidiaries at Bank                                                                                                                                      |   | $      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                                                                                                                                                                                    |   |   |
| B.     | Aggregate value of the  net billed accounts receivable of Borrower and its Subsidiaries                                                                                                                                 |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| C.     | Quick Assets (the sum  of lines A through B)                                                                                                                                                                            |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| D.     | Aggregate value of  Obligations to Bank plus (a) indebtedness for borrowed money,  (b) obligations evidenced by notes, bonds, debentures or similar  instruments, and (c) capital lease obligations      |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| E.     | Aggregate value of  liabilities of Borrower and its Subsidiaries (including all Indebtedness)  that matures within one (1) year and current portion of Subordinated  Debt permitted by Bank to be paid by Borrower |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| F.     | Current Liabilities  (the sum of lines D and E)                                                                                                                                                                         |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| G      | Deferred Revenue                                                                                                                                                                                                        |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| H      | Line F minus line G                                                                                                                                                                                                     |   | $      |
|   |                                                                                                                                                                                                                    |   |   |
| I.     | Adjusted Quick Ratio  (line C divided by line H)                                                                                                                                                                        |   |   |

 

Is line I equal to orgreater than 1.20:1:00?

 

| o   No, not in compliance |   | o   Yes, in compliance |
|--------------------------------|--------|-----------------------------|

 

II.            **Operating Cash Flow** (Section 6.9(b))

 

Required:               Operating Cash Flow of at least (i) ($2,000,000.00)as of December 31, 2009, (ii) ($5,000,000.00) as of each of March 31,2010 and June 30, 2010, (iii) ($4,000,000.00) as of September 30,2010, (iv) ($3,000,000.00) as of December 31, 2010, and (v) asof the last day of each calendar quarter thereafter, the amount that is$1,000,000.00 greater than the required Operating Cash Flow as of the last dayof the immediately preceding calendar quarter

 
| Actual: | $ |
|---------|---|

 
| A. | Net Income (as defined  in the Agreement) for prior 12 month period |   | $ |
|----|---------------------------------------------------------------------|--------|---|

 

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| B.     | Interest Expense (as  defined in the Agreement) for prior 12 month period                                                                   |   | $      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                                                                                                        |   |   |
| C.     | Depreciation expense  and amortization expense for prior 12 month period                                                                    |   | $      |
|   |                                                                                                                                        |   |   |
| D.     | Income tax expense for  prior 12 month period                                                                                               |   | $      |
|   |                                                                                                                                        |   |   |
| E.     | non-stock compensation  and other one-time non-cash expenses approved by Bank in writing on a  case-by-case basis for prior 12 month period |   | $      |
|   |                                                                                                                                        |   |   |
| F.     | EBITDA (the sum of  lines A through E)                                                                                                      |   | $      |
|   |                                                                                                                                        |   |   |
| G.     | Capital Expenditures  (as defined in the Agreement) for prior 12 month period                                                               |   | $      |
|   |                                                                                                                                        |   |   |
| H.     | Borrower’s cash taxes  for prior 12 month period                                                                                       |   | $      |
|   |                                                                                                                                        |   |   |
| I.     | Operating Cash Flow  (line F minus line G minus line H)                                                                                     |   | $      |

 

Is Line I greater than orequal to the applicable amount above?

 

| o    No, not in compliance |   | o    Yes, in compliance |
|--------------------------------------|--------|-----------------------------------|

 

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