Document:

Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”)
dated as of April 20, 2006 (the “Effective
Date”) between SILICON VALLEY BANK,
a California corporation and with a loan production office located at One
Newton Executive Park, Suite 200, 2221 Washington Street, Newton,
Massachusetts  02462 (“Bank”), and DATAWATCH CORPORATION, a Delaware corporation, and DATAWATCH TECHNOLOGIES CORPORATION, a
Delaware corporation (individually, collectively, jointly and severally, “Borrower”), provides the terms on which
Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as follows:

 

1              ACCOUNTING
AND OTHER TERMS

 

Accounting
terms not defined in this Agreement shall be construed following GAAP.  Calculations and determinations must be made
following GAAP.  Capitalized terms not
otherwise defined in this Agreement shall have the meanings set forth in
Section 13.  All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning
provided by the Code to the extent such terms are defined therein.

 

2              LOAN
AND TERMS OF PAYMENT

 

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

 

2.1.1       Revolving Advances.

 

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

 

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

 

2.1.2       Letters of Credit Sublimit.

 

(a)           As part of the Formula Line, Bank
shall issue or have issued Letters of Credit for Borrower’s account.  The face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve) may not exceed $1,000,000.00, inclusive of Credit Extensions relating
to Sections 2.1.1, 2.1.3 and 2.1.4.  Such
aggregate amounts utilized hereunder shall at all times reduce the amount
otherwise available for Advances under the Formula Line.  If, on the Maturity Date, there are any
outstanding Letters of Credit, then on such date Borrower shall provide to Bank
cash collateral in an amount equal to 105% of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business
judgment), to secure all of the Obligations relating to said Letters of
Credit.  All Letters of Credit shall be
in form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s standard Application and Letter
of Credit Agreement (the “Letter of Credit
Application”).  Borrower
agrees to execute any further documentation in connection with the Letters of
Credit as Bank may reasonably request. 
Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that, except as caused by Bank’s gross neglegence or willfull
misconduct, Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or
those contained in the Letters of Credit or any modifications, amendments, or
supplements thereto.

 

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

 

(c)           Borrower may request that Bank issue
a Letter of Credit payable in a Foreign Currency.  If a demand for payment is made under any
such Letter of Credit, Bank shall treat such demand as an Advance to

 

 

Borrower of the equivalent of the amount thereof (plus
fees and charges in connection therewith such as wire, cable, SWIFT or similar
charges) in Dollars at the then-prevailing rate of exchange in San Francisco,
California, for sales of the Foreign Currency for transfer to the country
issuing such Foreign Currency.

 

(d)           To guard against fluctuations in
currency exchange rates, upon the issuance of any Letter of Credit payable in a
Foreign Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the Formula Line in an amount
equal to ten percent (10%) of the face amount of such Letter of Credit.  The amount of the Letter of Credit Reserve
may be adjusted by Bank from time to time, in its reasonable discretion, to
account for fluctuations in the exchange rate. 
The availability of funds under the Formula Line shall be reduced by the
amount of such Letter of Credit Reserve for as long as such Letter of Credit
remains outstanding.

 

2.1.3       Foreign Exchange Sublimit.  As part of the Formula Line, Borrower may
enter into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date
(the “Settlement Date”).  FX Forward Contracts shall have a Settlement
Date of at least one (1) FX Business Day after the contract date and shall be
subject to a reserve of ten percent (10%) of each outstanding FX Forward
Contract in a maximum aggregate amount equal to $1,000,000.00 (the “FX Reserve”), inclusive of Credit
Extensions relating to Sections 2.1.1, 2.1.2 and 2.1.4.  The aggregate amount of FX Forward Contracts
at any one time may not exceed ten (10) times the amount of the FX Reserve.  

 

2.1.4       Cash Management Services Sublimit.  Borrower may use up to $1,000,000.00 (the “Cash Management Services Sublimit”),
inclusive of Credit Extensions relating to Sections 2.1.1, 2.1.2 and 2.1.3, of
the Formula Line for Bank’s cash management services which may include merchant
services, direct deposit of payroll, business credit card, and check cashing
services identified in Bank’s various cash management services agreements
(collectively, the “Cash Management Services”).  Any amounts Bank pays on behalf of Borrower
or any amounts that are not paid by Borrower for any Cash Management Services
will be treated as Advances under the Formula Line and will accrue interest at
the interest rate applicable to Advances.

 

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

 

2.3          Payment
of Interest on the Credit Extensions. 

 

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

 

(b)           Default Rate. If an Event of
Default has occurred and is continuing, Obligations shall bear interest at a
rate per annum which is five percentage points above the rate effective
immediately before the Event of Default (the “Default
Rate”).  Payment or acceptance
of the increased interest rate provided in this Section 2.3(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of
any Event of Default or otherwise prejudice or limit any rights or remedies of
Bank. 

 

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

 

(d)           360-Day Year.  Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.

 

(e)           Debit of Accounts.  Bank may debit the Designated Deposit
Account, for principal and interest payments or, after notice to Borrower, any
other amounts Borrower owes Bank when due. 
These debits shall not constitute a set-off.

 

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(f)            Payments.  Unless otherwise provided, interest is
payable monthly on the first (1st) calendar day of each month.  Payments of principal and/or interest
received after 2:00 p.m. Eastern time are considered received at the opening of
business on the next Business Day.  When
a payment is due on a day that is not a Business Day, the payment is due the
next Business Day and additional fees or interest, as applicable, shall
continue to accrue.

 

2.4          Fees.  Borrower shall pay to Bank:  

 

(a)           Commitment Fee.  A fully earned, non-refundable commitment fee
of $15,000.00, on the Effective Date; and

 

(b)           Letter of Credit Fee.  Bank’s customary fees and expenses for the
issuance or renewal of Letters of Credit, upon the issuance, each anniversary
of the issuance, and the renewal of such Letter of Credit; and

 

(c)           Unused Revolving Line Facility Fee.  A fee (the “Unused
Revolving Line Facility Fee”), payable quarterly, in arrears, on a
calendar year basis, in an amount equal to one half of one percent (0.5%) per
annum of the average unused portion of the Revolving Line, as determined by
Bank.  Borrower shall not be entitled to
any credit, rebate or repayment of any Unused Revolving Line Facility Fee
previously earned by Bank pursuant to this Section notwithstanding any
termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder; and

 

(d)           Bank Expenses.  All Bank Expenses (including reasonable and
documented attorneys’ fees and expenses for documentation and negotiation of
this Agreement) incurred through and after the Effective Date, immediately upon
Borrower’s receipt of written demand therefor from Bank.

 

3              CONDITIONS
OF LOANS

 

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

 

(a)           Duly executed original signatures to
the Loan Documents to which it is a party;

 

(b)           Duly executed original signatures to
the Control Agreement;

 

(c)           Borrower shall have delivered its
Operating Documents and a good standing certificate of Borrower certified by
the Secretary of State of the State of Delaware as of a date no earlier than
thirty (30) days prior to the Effective Date; 

 

(d)           Duly executed original signatures to
the completed Borrowing Resolutions for Borrower;

 

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

 

(f)            Borrower shall have delivered a
legal opinion of Borrower’s counsel dated as of the Effective Date together
with the duly executed original signatures thereto;

 

(g)           Borrower shall have delivered
evidence satisfactory to Bank that the insurance policies required by Section
6.5 hereof are in full force and effect, together with appropriate evidence
showing loss payable and/or additional insured clauses or endorsements in favor
of Bank; and

 

(h)           Borrower shall have paid the fees and
Bank Expenses then due as specified in Section 2.4 hereof.

 

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

 

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(a)           except as otherwise provided in
Section 3.4, timely receipt of an executed Payment/Advance Form;  

 

(b)           the representations and warranties in
Section 5 shall be true in all material respects on the date of the
Payment/Advance Form and on the Funding Date of each Credit Extension;
provided, however, that those representations and warranties expressly
referring to a specific date shall be true, accurate and complete in all
material respects as of such date, and no Default or Event of Default shall
have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and
warranties in Section 5 are true in all material respects as of such date;
provided, however, that those representations and warranties expressly
referring to a specific date shall be true, accurate and complete in all
material respects as of such date; and

 

(c)           in Bank’s reasonable discretion,  there has not been any material impairment in
the general affairs, management, results of operation, financial condition or
the prospect of repayment of the Obligations, or there has not been any
material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank.

 

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

 

3.4          Procedures
for Borrowing. 
Subject to the prior satisfaction of all other applicable conditions to
the making of an Advance set forth in this Agreement, to obtain an Advance
(other than Advances under Sections 2.1.2 or 2.1.4), Borrower shall notify Bank
(which notice shall be irrevocable) by electronic mail, facsimile, or telephone
by 12:00 noon. Eastern time on the Funding Date of the Advance.  Together with any such electronic or
facsimile notification, Borrower shall deliver to Bank by electronic mail or
facsimile a completed Payment/Advance Form executed by a Responsible Officer or
his or her designee designating, among other things, whether the Advance is a
Formula Advance or a Non-Formula Advance. 
Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. 
Bank shall credit Advances to the Designated Deposit Account.  Bank may make Advances under this Agreement
based on instructions from a Responsible Officer or his or her designee or
without instructions if the Advances are necessary to meet Obligations which
have become due.

 

4              CREATION
OF SECURITY INTEREST  

 

4.1          Grant of Security Interest.  Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing
security interest in the Collateral, wherever located, whether now owned or
hereafter acquired or arising, and all proceeds and products thereof.  Borrower represents, warrants, and covenants
that the security interest granted herein is and shall at all times continue to
be a first priority perfected security interest in the Collateral (subject only
to Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement).  If Borrower shall acquire a
commercial tort claim, Borrower shall promptly notify Bank in a writing signed
by Borrower of the general details thereof and grant to Bank in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably
satisfactory to Bank.

 

If
this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash.  Upon payment in full in cash
of the Obligations (other than inchoate indemnity obligations) and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower, and, at Borrower’s expense, Bank shall
promptly execute and deliver or file such releases and terminations as Borrower
may reasonably request.

 

4.2          Authorization to File Financing
Statements.  Borrower
hereby authorizes Bank to file financing statements, without notice to
Borrower, with all appropriate jurisdictions to perfect or protect Bank’s
interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate
the rights of Bank under the Code. 

 

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5              REPRESENTATIONS
AND WARRANTIES

 

Borrower
represents and warrants as follows: 

 

5.1          Due Organization and Authorization.  Borrower and each of its Subsidiaries are
duly existing and in good standing, as Registered Organizations in their
respective jurisdictions of formation and are qualified and licensed to do
business and are in good standing in any jurisdiction in which the conduct of
their business or their ownership of property requires that they be qualified
except where the failure to do so could not reasonably be expected to have a
material adverse effect on Borrower’s business. 
In connection with this Agreement, Borrower has delivered to Bank a completed
certificate signed by Borrower (the “Perfection
Certificate”).  Borrower
represents and warrants to Bank that, as of the Effective Date, (a) Borrower’s
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete.  

 

The execution, delivery
and performance of the Loan Documents to which Borrower is a party have been
duly authorized, and do not conflict with Borrower’s organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound.  Borrower is not in
default under any agreement to which it is a party or by which it is bound in
which the default could reasonably be expected to have a material adverse
effect on Borrower’s business.

 

5.2          Collateral.  Borrower has good title to, has rights in,
and the power to transfer each item of the Collateral upon which it purports to
grant a Lien hereunder, free and clear of any and all Liens except Permitted
Liens.  Borrower has no deposit accounts
other than the deposit accounts with Bank, the deposit accounts, if any,
described in the Perfection Certificate delivered to Bank in connection
herewith, or of which Borrower has given Bank notice and taken such actions as
are necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existing
obligations of the Account Debtors.

 

The Collateral is not in
the possession of any third party bailee (such as a warehouse) except as
otherwise provided in the Perfection Certificate.  None of the components of the Collateral
shall be maintained at locations other than as provided in the Perfection
Certificate or as Borrower has given Bank notice pursuant to Section 7.2.  In the event that Borrower, after the date
hereof, intends to store or otherwise deliver any portion of the Collateral, in
excess of $100,000 in the aggregate, to a bailee, then Borrower will first
receive the written consent of Bank and such bailee must execute and deliver a
bailee agreement in form and substance satisfactory to Bank in its sole
discretion.  

 

Borrower is the sole
owner of its intellectual property, except for non-exclusive licenses granted
to its customers in the ordinary course of business.  Except as disclosed by Borrower to Bank in
the Perfection Certificate, (i) each patent owned by Borrower is valid and
enforceable, (ii) no part of Borrower’s intellectual property has been judged
invalid or unenforceable, in whole or in part, and (iii) to the best of
Borrower’s knowledge, no written claim has been made that any part of its
intellectual property violates the rights of any third party except to the
extent such claim could not reasonably be expected to have a material adverse
effect on Borrower’s business. Except: (i) 
as noted on the Perfection Certificate, and (ii) over-the-counter
software that is commercially available to the public or publicly available
software, Borrower is not a party to, nor is bound by, any material license or
other agreement with respect to which Borrower is the licensee that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such license or agreement or any other property.  Borrower shall provide written notice to Bank
within ten (10) days of entering or becoming bound by any such license or
agreement which is reasonably likely to have a material impact on Borrower’s
business or financial condition (other than over-the-counter software that is
commercially available to the public). 
Borrower shall take such steps as Bank reasonably requests to obtain the
consent of, or waiver by, any person whose consent or waiver is necessary for
all such licenses (other than over-the-counter software that is commercially
available to the public or publicly available software) to be deemed
“Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such
license or agreement (such consent or authorization may include a licensor’s

 

5

 

agreement to a contingent assignment of the license to
Bank if Bank determines that is necessary in its reasonable judgment), whether
now existing or entered into in the future.

 

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

 

5.4          Litigation.  Except as disclosed on the Perfection
Certificate, there are no actions or proceedings pending or, to the knowledge
of the Responsible Officers, threatened in writing by or against Borrower or
any of its Subsidiaries involving more than $200,000.

 

5.5          No Material Deviation in Financial
Statements.  All
consolidated financial statements for Borrower and any of its Subsidiaries
delivered to Bank fairly present in all material respects in accordance with
GAAP the consolidated financial condition and consolidated results of
operations of Borrower and its Subsidiaries. 
There has not been any material deterioration (not forecast or projected
in the most recent business plan of Borrower dated February 17, 2006 presented
to and accepted by Bank) in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

 

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

 

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

 

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

 

5.9          Tax Returns and Payments; Pension
Contributions. 
Borrower has timely filed all required tax returns and reports, and
Borrower and its Subsidiaries have timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by Borrower, except
(i) for those taxes, assessments, deposits and contributions being contested in
good faith with adequate reserves under GAAP or (ii) to the extent that failure
to make such payments could not reasonably be expected to have a material
adverse effect on Borrower’s business. 
Borrower is unaware of any claims or adjustments proposed for any of
Borrower’s prior tax years which could result in additional taxes becoming due
and payable by Borrower.  Borrower has
paid all amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has
not withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation
or its successors or any other governmental agency.

 

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

 

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

 

6              AFFIRMATIVE
COVENANTS

 

Borrower
shall do all of the following:

 

6.1          Government Compliance.  Maintain its and all its Subsidiaries’ legal
existence and good standing in their respective jurisdictions of formation and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to have a material adverse effect on Borrower’s
business or operations.  Borrower shall
comply, and have each Subsidiary comply, with all laws, ordinances and regulations
to which it is subject, the noncompliance with which would reasonably be
expected to have a material adverse effect on Borrower’s business.

 

6.2          Financial Statements, Reports,
Certificates.

 

(a)           Deliver to Bank:  (i) as soon as available, but no later than
thirty (30) days after the last day of each month, a company prepared unaudited
consolidated balance sheet and income statement covering Borrower’s
consolidated operations for such month certified by a Responsible Officer and
in a form reasonably acceptable to Bank; (ii) as soon as available, but no
later than the earlier of: (A) forty-five (45) days after the last day of each
of Borrower’s fiscal quarters, and (B) five (5) days after filing same with the
Securities and Exchange Commission, Borrower’s form 10-Q; (iii) as soon as
available, but no later than the earlier of: (A) one hundred twenty (120) days
after the last day of Borrower’s fiscal year and (B) five (5) days after filing
same with the Securities and Exchange Commission, Borrower’s form 10-K;
(iv) within five (5) days of delivery, copies of all statements, reports
and notices made available to Borrower’s security holders or to any holders of
Subordinated Debt; (v) a prompt report of any legal actions pending or
threatened against Borrower or any of its Subsidiaries that could result in
damages or costs to Borrower or any of its Subsidiaries of Two Hundred Thousand
Dollars ($200,000) or more; (vi) prompt notice of an event that materially
and adversely affects the value of Borrower’s intellectual property; and (vii) annually, and as reasonably requested
by Bank, operating budget, projections, and other financial information.

 

(b)           Within thirty (30) days after the
last day of each month, deliver to Bank a duly completed Borrowing Base
Certificate signed by a Responsible Officer, with aged listings of accounts
receivable (by invoice date).

 

(c)           Within thirty (30) days after the
last day of each month, deliver to Bank with the monthly financial statements,
a duly completed Compliance Certificate signed by a Responsible Officer setting
forth calculations showing compliance with the financial covenants set forth in
this Agreement.

 

(d)           Allow Bank to audit Borrower’s
Collateral at Borrower’s expense, no more often than once every fiscal year of
Borrower unless a Default or an Event of Default has occurred and is
continuing.  Provided that an Event of
Default has not occurred and is not continuing, Bank and Borrower agree that
the cost of such audits shall not exceed $750 per day per auditor, plus reasonable
and documented out-of-pocket expenses incurred by the auditors.  Notwithstanding the foregoing, no Credit
Extension may be requested prior to the Initial Audit.

 

6.3          Inventory; Returns.  Keep all Inventory in good and marketable
condition, free from material defects. 
Returns and allowances between Borrower and its Account Debtors shall
follow Borrower’s customary practices as they exist at the Effective Date.  Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims that involve more than One Hundred
Thousand Dollars ($100,000).

 

7

 

6.4          Taxes; Pensions.  Make, and cause each of its Subsidiaries to
make, timely payment of all foreign, federal, state, and local taxes or
assessments (other than (i) taxes or assessments being contested in good faith
with adequate reserves under GAAP or (ii) to the extent that failure to make
such payments could not reasonably be expected to have a material adverse
effect on Borrower’s business) and shall deliver to Bank, at Bank’s reasonable
request, appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.

 

6.5          Insurance.  Keep its business and the Collateral insured
for risks and in amounts standard for companies in Borrower’s industry and
location and as Bank may reasonably request. 
Insurance policies shall be in a form, with companies, and in amounts
that are reasonably satisfactory to Bank. 
All property policies shall have a lender’s loss payable endorsement
showing Bank as the sole lender loss payee and waive subrogation against Bank,
and all liability policies shall show, or have endorsements showing, Bank as an
additional insured.  All policies (or the
loss payable and additional insured endorsements) shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. 
At Bank’s reasonable request, Borrower shall deliver certified copies of
policies and evidence of all premium payments. 
Proceeds payable under any policy shall, at Bank’s option, be payable to
Bank on account of the Obligations. 
Notwithstanding the foregoing, (a) so long as no Event of Default has
occurred and is continuing, Borrower shall have the option of applying the
proceeds of any casualty policy up to $150,000, in the aggregate, toward the
replacement or repair of destroyed or damaged property; provided that any such
replaced or repaired property (i) shall be of equal or like value as the
replaced or repaired Collateral and (ii) shall be deemed Collateral in
which Bank has been granted a first priority security interest, and (b) after
the occurrence and during the continuance of an Event of Default, all proceeds
payable under such casualty policy shall, at the option of Bank, be payable to
Bank on account of the Obligations and applied by Bank to reduce outstanding
Obligations.  If Borrower fails to obtain
insurance as required under this Section 6.5 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6          Operating Accounts.

 

(a)           Maintain its and its domestic
Subsidiaries’ depository, operating, and securities accounts with Bank and
Bank’s affiliates, which accounts shall represent at least 100% of the dollar
value of Borrower’s and such Subsidiaries accounts at all financial
institutions. The provisions of
the previous sentence shall not apply to Borrower’s payroll account at Citizens
Bank, provided such account is for current payroll obligations only.

 

(b)           Provide Bank five (5) days prior
written notice before establishing any Collateral Account at or with any bank
or financial institution other than Bank or its Affiliates.  In addition, at Bank’s request, for each
Collateral Account that Borrower at any time maintains, Borrower shall cause
the applicable bank or financial institution (other than Bank) at or with which
any Collateral Account is maintained to execute and deliver a Control Agreement
or other appropriate instrument with respect to such Collateral Account to
perfect Bank’s Lien in such Collateral Account in accordance with the terms
hereunder.  The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
customer escrows required pursuant to written agreements between Borrower and
its customers in the ordinary course of business, payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower’s
employees and identified to Bank by Borrower as such, including, without
limitation, Borrower’s payroll account at Citizens Bank, provided such account
is for current payroll obligations only.

 

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

 

6.7          Financial Covenants.   Borrower shall maintain at all times, to be
tested as of the last day of each month, unless otherwise noted, on a
consolidated basis with respect to Borrower and its Subsidiaries:

 

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

 

8

 

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

 

6.8          Protection and Registration of
Intellectual Property Rights. 
Borrower shall:  (a) use its
commercially reasonable efforts to protect, defend and maintain the validity
and enforceability of its intellectual property; (b) promptly advise Bank in
writing of material infringements of Borrower’s intellectual property; and (c)
not allow any intellectual property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s prior written
consent (which consent will not be unreasonably withheld, conditioned or
delayed).  If Borrower decides to
register any copyrights or mask works in the United States Copyright Office,
Borrower shall: (x) provide Bank with at least five (5) Business Days’ prior
written notice of its intent to register such copyrights or mask works,
together with a copy of the application it intends to file with the United States
Copyright Office (excluding exhibits thereto); (y) execute such supplements to
the IP Agreement or related documents as Bank may reasonably request to
maintain the perfection and priority of Bank’s security interest in the
copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) at Bank’s request, record such supplements to the IP
Agreement or related filings with the United States Copyright Office
contemporaneously with filing the copyright or mask work application(s) with
the United States Copyright Office. 
Borrower shall promptly provide to Bank a copy of the application(s)
filed with the United States Copyright Office together with evidence of the
recording of such supplements to the IP Agreement or related filings.  Borrower shall provide written notice to Bank
of any application filed by Borrower in the United States Patent and Trademark
Office for a patent or to register a trademark or service mark within 30 days
after any such filing. 

 

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

 

6.10        Further Assurances.  Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank’s Lien in the Collateral or to effect the purposes of this
Agreement.

 

7              NEGATIVE
COVENANTS

 

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

 

7.1          Dispositions.  Convey, sell, lease, transfer or otherwise
dispose of (collectively, “Transfer”),
or permit any of its Subsidiaries to Transfer, all or any part of its business
or property, except for Transfers (a) of Inventory in the ordinary course
of business; (b) of worn-out or obsolete Equipment; (c) in connection with
Permitted Liens and Permitted Investments; (d) amounts on deposit or to be
transferred or deposited at Citizens Bank for 
current payroll purposes in accordance with this Agreement, and (e) of
nonexclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business.

 

7.2          Changes in Business, Management,
Ownership, or Business Locations.  (a) Engage in or permit any of its
Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably
related thereto; (b) liquidate or dissolve; or (c) (i) have a change in
management such that any Key Person ceases to be involved in the management of
the Borrower, or (ii) enter into any transaction or series of related
transactions in which the stockholders of Borrower immediately prior to the
first such transaction own less than 50% of the voting stock of Borrower immediately
after giving effect to such transaction or related series of such transactions
(other than by the sale of Borrower’s equity securities in a public offering or
to venture capital or other institutional or strategic investors so long as
Borrower identifies to Bank such investors prior to the closing of the
transaction).  Borrower shall not,
without at least thirty (30) days prior written notice to Bank: (1) add
any new offices or business locations, including warehouses (unless such new
offices or business locations contain less than Twenty Thousand Dollars
($20,000) in Borrower’s assets or property), (2) change its jurisdiction of
organization, (3) change its organizational structure or type, (4) change
its legal name, or (5) change any organizational number (if any) assigned
by its jurisdiction of organization.

 

9

 

7.3          Mergers or Acquisitions.  Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. 
A Subsidiary may merge or consolidate into another Subsidiary or into
Borrower.

 

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

 

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

 

7.6          Maintenance of Collateral Accounts.  Maintain any Collateral Account except
pursuant to the terms of Section 6.6(b) hereof.

 

7.7          Distributions; Investments.  (a) Directly or indirectly make any
Investment other than Permitted Investments, or permit any of its Subsidiaries
to do so; or (b) pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock, provided that (i) Borrower may
convert any of its convertible securities into other securities pursuant to the
terms of such convertible securities or otherwise in exchange thereof, (ii)
Borrower may pay dividends solely in common stock; and (iii) Borrower may
repurchase the stock of former employees or consultants pursuant to stock
repurchase agreements so long as an Event of Default does not exist at the time
of such repurchase and would not exist after giving effect to such repurchase,
provided all such repurchases do not exceed in the aggregate of $50,000 per
fiscal year. 

 

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

 

7.9          Subordinated Debt.  (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or
(b) amend any provision in any document relating to the Subordinated Debt
which would increase the amount thereof or adversely affect the subordination
thereof to Obligations owed to Bank.

 

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

 

8              EVENTS
OF DEFAULT

 

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

 

8.1          Payment Default.  Borrower fails to (a) make any payment
of principal or interest on any Credit Extension on its due date, or
(b) pay any other Obligations within three (3) Business Days after such
Obligations are due and payable (which grace period will not apply to payments
due on the Maturity Date).  During the
cure period,

 

10

 

the failure to cure the payment default is not an
Event of Default (but no Credit Extension will be made during the cure period);

 

8.2          Covenant Default.  

 

(a)
Borrower fails or neglects to perform any obligation in Sections 6.2, 6.6, and
6.7 or violates any covenant in Section 7; or

 

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

 

8.3          Material Adverse Change.  A Material Adverse Change occurs;

 

8.4          Attachment.  (a) Any material portion of Borrower’s assets
is attached, seized, levied on, or comes into possession of a trustee or
receiver and the attachment, seizure or levy is not removed in ten (10) days;
(b) the service of process upon Bank ( or Bank’s Affiliate) seeking to
attach, by trustee or similar process, any funds of, or of any entity under
control of Borrower (including a Subsidiary) on deposit with the Bank; (c)
Borrower is enjoined, restrained, or prevented by court order from conducting a
material part of its business and such injunction or restraint is not removed
or terminated in ten (10) days; (d) a judgment or other claim in excess of $150,000
becomes a Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or
assessment is filed against any of Borrower’s assets by any government agency
and not paid within ten (10) days after Borrower receives notice.  These are not Events of Default if stayed or
if a bond is posted pending contest by Borrower (but no Credit Extensions shall
be made during the cure period);

 

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

 

8.6          Other Agreements.  There is a default in any agreement to which
Borrower or any Guarantor is a party with a third party or parties resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a material adverse effect on Borrower’s
or any Guarantor’s business.  

 

8.7          Judgments.  A judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least One Hundred
Thousand Dollars ($100,000) (not covered by independent third-party insurance)
shall be rendered against Borrower and shall remain unsatisfied and unstayed
for a period of ten (10) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);

 

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

 

8.9          Guaranty.  (a) Any guaranty of any Obligations
terminates or ceases for any reason to be in full force and effect; (b) any
Guarantor does not perform any obligation or covenant under any guaranty of the
Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or
8.8. occurs with respect to any Guarantor, (d) the liquidation, winding
up, or termination of existence of any Guarantor; or (e) a material

 

11

 

impairment in the perfection or priority of Bank’s
Lien in the collateral provided by Guarantor or in the value of such
collateral.

 

9              BANK’S
RIGHTS AND REMEDIES

 

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

 

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

 

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

 

(c)           demand that Borrower (i) deposits
cash with Bank in an amount equal to the aggregate amount of any Letters of
Credit remaining undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrower shall forthwith
deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees
scheduled to be paid or payable over the remaining term of any Letters of
Credit;

 

(d)           terminate any FX Contracts;

 

(e)           settle or adjust disputes and claims
directly with Account Debtors for amounts on terms and in any order that Bank
considers advisable, notify any Person owing Borrower money of Bank’s security
interest in such funds, and verify the amount of such account;  

 

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

 

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

 

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

 

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

 

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

 

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

 

9.2          Power of Attorney.  Borrower hereby irrevocably appoints Bank as
its lawful attorney-in-fact, exercisable if an Event of Default has occurred
and is continuing, to:  (a) endorse
Borrower’s name on any checks or other forms of payment or security; (b) sign
Borrower’s name on any invoice or bill of lading for any Account or drafts
against Account Debtors; (c) settle and adjust disputes and claims about the
Accounts directly with Account Debtors, for amounts and on terms Bank
determines reasonable; (d) make, settle, and adjust all claims under

 

12

 

Borrower’s insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, and adverse claim in
or to the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; and (f) transfer the Collateral into
the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful
attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of Bank’s security interest in the Collateral
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder.  Bank’s
foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights
and powers, coupled with an interest, are irrevocable until all Obligations
have been fully repaid and performed, Bank’s obligation to provide Credit
Extensions terminates, and this Agreement is terminated, and shall thereupon
automatically terminate.

 

9.3          Accounts Verification; Collection.  If an Event of Default has occurred and is
continuing, Bank may notify any Person owing Borrower money of Bank’s security
interest in such funds and verify the amount of such account.  During an Event of Default, any amounts
received by Borrower shall be held in trust by Borrower for Bank, and, if
requested by Bank, Borrower shall immediately deliver such receipts to Bank in
the form received from the Account Debtor, with proper endorsements for
deposit.

 

9.4          Protective Payments.  If Borrower fails to obtain the insurance
called for by Section 6.5 or fails to pay any premium thereon, and provided
that any applicable cure periods specified in Section 8.2(b) have expired, Bank
may obtain such insurance or make such payment, and all amounts so paid by Bank
are Bank Expenses and immediately due and payable on demand, bearing interest
after demand at the then highest applicable rate, and secured by the Collateral.  Bank will make reasonable efforts to provide
Borrower with notice of Bank obtaining such insurance at the time it is
obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreement
to make similar payments in the future or Bank’s waiver of any Event of
Default.

 

9.5          Application of Payments and Proceeds.  Unless an Event of Default has occurred and
is continuing, Bank shall apply any funds in its possession, whether from
Borrower account balances, payments, or proceeds realized as the result of any
collection of Accounts or other disposition of the Collateral, first, to Bank
Expenses, including without limitation, the reasonable costs, expenses,
liabilities, obligations and attorneys’ fees incurred by Bank in the exercise of
its rights under this Agreement; second, to the interest due upon any of the
Obligations; and third, to the principal of the Obligations and any applicable
fees and other charges, in such order as Bank shall determine in its sole
discretion.  Any surplus shall be paid to
Borrower or other Persons legally entitled thereto; Borrower shall remain
liable to Bank for any deficiency.  If an
Event of Default has occurred and is continuing, Bank may apply any funds in
its possession, whether from Borrower account balances, payments, proceeds
realized as the result of any collection of Accounts or other disposition of
the Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion.  Any
surplus shall be paid to Borrower or other Persons legally entitled thereto;
Borrower shall remain liable to Bank for any deficiency.  If Bank, in its good faith business judgment,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.

 

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

 

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

 

13

 

9.8          Demand Waiver.  Except as may be otherwise expressly provided
in any Loan Document, Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.

 

10           NOTICES

 

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

 

	
  If
  to Borrower:

  	
   

  	
  DATAWATCH
  CORPORATION

  
	
   

  	
   

  	
  DATAWATCH
  TECHNOLOGIES CORPORATION

  
	
   

  	
   

  	
  271
  Mill Road

  
	
   

  	
   

  	
  Quorum
  Office Park

  
	
   

  	
   

  	
  Chelmsford,
  Massachusetts 01824-4105

  
	
   

  	
   

  	
  Attn:
  Mr. John Hulburt, Chief Financial Officer

  
	
   

  	
   

  	
  Fax:
  (978)453-4443

  
	
   

  	
   

  	
  Email:
  john  hulburt@datawatch.com

  
	
   

  	
   

  	
   

  
	
  with
  a copy to:

  	
   

  	
  Choate,
  Hall & Stewart LLP

  
	
   

  	
   

  	
  2
  International Place

  
	
   

  	
   

  	
  Boston,
  MA  02110

  
	
   

  	
   

  	
  Attn:  William B. Simmons, Esquire

  
	
   

  	
   

  	
  Fax:  (617) 248-4000

  
	
   

  	
   

  	
  Email:  wsimmons@choate.com

  
	
   

  	
   

  	
   

  
	
  If
  to Bank:

  	
   

  	
  Silicon
  Valley Bank

  
	
   

  	
   

  	
  One
  Newton Executive Park, Suite 200

  
	
   

  	
   

  	
  2221
  Washington Street, Newton, Massachusetts 
  02462

  
	
   

  	
   

  	
  Attn:
  Ms. Irina Case

  
	
   

  	
   

  	
  Fax:
  (617)969-5973

  
	
   

  	
   

  	
  Email: icase@svbank.com

  
	
   

  	
   

  	
   

  
	
  with
  a copy to:

  	
   

  	
  Riemer
  & Braunstein LLP

  
	
   

  	
   

  	
  Three
  Center Plaza

  
	
   

  	
   

  	
  Boston,
  Massachusetts 02108

  
	
   

  	
   

  	
  Attn:
  David A. Ephraim, Esquire

  
	
   

  	
   

  	
  Fax:
  (617) 880-3456

  
	
   

  	
   

  	
  Email:
  DEphraim@riemerlaw.com

  

 

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

 

Massachusetts
law governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Massachusetts;
provided, however, that if for any reason Bank cannot avail itself of such
courts in the Commonwealth of Massachusetts, Borrower accepts jurisdiction of
the courts and venue in Santa Clara County, California.  NOTWITHSTANDING THE FOREGOING, BANK SHALL
HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S
RIGHTS AGAINST BORROWER OR ITS PROPERTY.

 

14

 

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

 

12           GENERAL
PROVISIONS

 

12.1        Successors and Assigns.  This Agreement binds and is for the benefit
of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any
rights or obligations under it without Bank’s prior written consent (which may
be granted or withheld in Bank’s discretion). 
Bank has the right, without the consent of or notice to Borrower, to
sell, transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank’s obligations, rights, and benefits under this Agreement and
the other Loan Documents.

 

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

 

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

 

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

 

12.5        Amendments in Writing; Integration.  All amendments to this Agreement must be in
writing signed by both Bank and Borrower. 
This Agreement and the Loan Documents represent the entire agreement
about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement and the Loan Documents merge into this Agreement
and the Loan Documents.

 

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

 

12.7        Survival.  All covenants, representations and warranties
made in this Agreement continue in full force until this Agreement has
terminated pursuant to its terms and all Obligations (other than inchoate
indemnity obligations and any other obligations which, by their terms, are to
survive the termination of this Agreement) have been satisfied.  The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.

 

12.8        Confidentiality.  In handling any confidential information of
Borrower or any of its Subsidiaries, 
Bank shall exercise the same degree of care that it exercises for its
own proprietary information, but disclosure of information may be made: (a) to
Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers
of any interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by
law, regulation, subpoena, or other order; (d) to Bank’s regulators or as
otherwise required in connection with Bank’s examination or audit; and (e) as
Bank considers appropriate in exercising remedies under this Agreement.  Confidential information does not include
information that either: (i) is in the public domain or in Bank’s possession
when disclosed to Bank, or becomes part of the public domain after disclosure
to Bank through no breach by Bank of this Section; or (ii) is disclosed to Bank
by a third party, if Bank does not know that the third party is prohibited from
disclosing the information.

 

12.9        Right of Set Off.   Borrower hereby grants to Bank, a lien,
security interest and right of set off as security for all Obligations to Bank,
whether now existing or hereafter arising upon and against all deposits,
credits,

 

15

 

collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under the
control of Bank (including a Bank subsidiary) or in transit to any of
them.  If an Event of Default has
occurred and is continuing, without demand or prior notice, Bank may set off
the same or any part thereof and apply the same to any liability or obligation
of Borrower then due and payable and regardless of the adequacy of any other
collateral securing the Obligations. 
Bank will notify Borrower of any such set off, provided that failure to
give such notice shall not affect Bank’s rights under this Section 12.10.  ANY AND ALL RIGHTS TO REQUIRE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT
TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.10      Borrower Liability.  Either
Borrower may, acting singly, request Advances hereunder.  Each Borrower hereby appoints the other as
agent for the other for all purposes hereunder, including with respect to
requesting Advances hereunder. Each Borrower hereunder shall be obligated to
repay all Advances made hereunder, regardless of which Borrower actually
receives said Advance, as if each Borrower hereunder directly received all
Advances.  To the extent not prohibited
by applicable law, each Borrower waives any suretyship defenses available to it
under the Code or any other applicable law. 
Each Borrower waives any right to require Bank to: (i) proceed against
any Borrower or any other person; (ii) proceed against or exhaust any security;
or (iii) pursue any other remedy.  Bank
may exercise or not exercise any right or remedy it has against any Borrower or
any security it holds (including the right to foreclose by judicial or
non-judicial sale) without affecting any Borrower’s liability.  Notwithstanding any other provision of this
Agreement or other related document, each Borrower irrevocably waives all
rights that it may have at law or in equity (including, without limitation, any
law subrogating Borrower to the rights of Bank under this Agreement) to seek
contribution, indemnification or any other form of reimbursement from any other
Borrower, or any other Person now or hereafter primarily or secondarily liable
for any of the Obligations, for any payment made by Borrower with respect to
the Obligations in connection with this Agreement or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise until the
Obligations have been paid in full and this Agreement has been terminated. Any
agreement providing for indemnification, reimbursement or any other arrangement
prohibited under this Section shall be null and void.  If any payment is made to a Borrower in
contravention of this Section, such Borrower shall hold such payment in trust
for Bank and such payment shall be promptly delivered to Bank for application
to the Obligations, whether matured or unmatured.

 

13           DEFINITIONS

 

13.1        Definitions.  As used in this Agreement, the following
terms have the following meanings:

 

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

 

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

 

“Advance” or “Advances” means Formula Advances and Non-Formula Advances, as
applicable.

 

“Affiliate” of any Person is a Person that
owns or controls directly or indirectly the Person, any Person that controls or
is controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person
that is a limited liability company, that Person’s managers and members.

 

“Agreement” is defined in the preamble
hereof.

 

“Availability Amount” is (a) with respect to
Formula Advances, (i) the lesser of (A) the Formula Line, or (B) the Borrowing
Base, minus (ii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus an amount equal to
the Letter of Credit Reserves, minus (iii) the FX Reserve, and minus (iv) the
outstanding principal balance of any Formula Advances (including any amounts
used for Cash Management Services), and (b) with respect to Non-Formula
Advances, (i) the Non-Formula Line, minus (ii) the outstanding principal
balance of any Non-Formula Advances.

 

16

 

“Bank” is defined in the preamble hereof.

 

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

 

“Borrower” is defined in the preamble hereof

 

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

 

“Borrowing Base” is 75% of Eligible
Accounts, as determined by Bank from Borrower’s most recent Borrowing Base
Certificate; provided, however, that Bank may decrease the foregoing
percentages in its good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely affect
Collateral.

 

“Borrowing Base Certificate” is that certain
certificate in the form attached hereto as Exhibit C.

 

“Borrowing Resolutions” are, with respect to
any Person, those resolutions adopted by such Person’s Board of Directors and
delivered by such Person to Bank approving the Loan Documents to which such
Person is a party and the transactions contemplated thereby, together with a
certificate executed by its secretary on behalf of such Person certifying that
(a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party, (b) that
attached as Exhibit A to such certificate is a true, correct, and complete copy
of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively rely on
such certificate unless and until such Person shall have delivered to Bank a
further certificate canceling or amending such prior certificate.

 

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

 

“Capital Expenditures” means Borrower’s
consolidated capital expenditures, in accordance with GAAP. 

 

“Cash Equivalents” means (a) marketable
direct obligations issued or unconditionally guaranteed by the United States or
any agency or any State thereof having maturities of not more than one (1) year
from the date of acquisition; (b) commercial paper maturing no more than
one (1) year after its creation and having the highest, or second highest,
rating from either Standard & Poor’s Ratings Group or Moody’s Investors
Service, Inc., and (c) Bank’s certificates of deposit issued maturing no more
than one (1) year after issue.

 

“Cash Management Services” is defined in Section 2.1.4.

 

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

 

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

 

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

 

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

 

17

 

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

 

“Communication” is defined in Section 10.

 

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

 

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

 

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

 

“Credit Extension” is any Advance, Letter of
Credit, FX Forward Contract, amount utilized for Cash Management Services, or
any other extension of credit by Bank for Borrower’s benefit.

 

“Current Liabilities” are, as of any applicable
date, all amounts that should, in accordance with GAAP, be included as current
liabilities to Bank (with the exception of Credit Extensions issued by Bank
which are specifically cash secured and segregated) on the consolidated balance
sheet of Borrower and its Subsidiaries, as at such date, plus, without
duplication, the aggregate amount of Total Liabilities that mature within one
(1) year.

 

“Default” means any event which with notice
or passage of time or both, would constitute an Event of Default.

 

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

 

“Deferred Revenue” is, with respect to
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP,
all amounts received or invoiced in advance of performance under contracts and
not yet recognized as revenue.

 

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

 

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

 

“Dollars,” “dollars”
and “$” each mean lawful money of
the United States.

 

“EBITDA” shall mean (a) Net Income, plus (b)
Interest Expense, plus (c) to the extent deducted in the calculation of Net
Income, depreciation expense and amortization expense, plus (d) income tax
expense.

 

“Effective Date” is defined in the preamble
of this Agreement.

 

“Eligible Accounts” are Accounts which arise
in the ordinary course of Borrower’s business that meet all Borrower’s
representations and warranties in Section 5.3. 
Bank reserves the right at any time and from time to time after the
Effective Date, after consultation with and upon notice to Borrower, to adjust
any of the criteria set forth below and to establish new criteria in its good
faith business judgment.  Unless Bank
agrees otherwise in writing, Eligible Accounts shall not include:

 

18

 

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

 

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

 

(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)           Credit balances over ninety (90) days
from invoice date;

 

(e)           Accounts owing from an Account
Debtor, including Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, for the amounts that exceed that
percentage, unless Bank approves in writing;

 

(f)            Accounts owing from an Account
Debtor which does not have its principal place of business in the United
States;

 

(g)           Accounts owing from an Account Debtor
which is a federal, state or local government entity or any department, agency,
or instrumentality thereof;

 

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

 

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

 

(j)            Accounts for which the Account
Debtor is Borrower’s Affiliate, officer, employee, or agent;

 

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

 

(l)            Accounts for which Bank has notified
Borrower that Bank has reasonably determined collection to be doubtful; and

 

(m)          other Accounts Bank deems ineligible
in the exercise of its reasonable judgment.

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

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

 

“Foreign Subsidiary” means any Subsidiary
which is not organized under the laws of the United States or any state or
territory thereof or the District of Columbia.

 

“Formula Advance” or “Formula Advances” is an Advance or Advances
under the Formula Line.

 

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

 

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

 

19

 

“FX Business Day” is any day when (a) Bank’s
Foreign Exchange Department is conducting its normal business and (b) the
Foreign Currency being purchased or sold by Borrower is available to Bank from
the entity from which Bank shall buy or sell such Foreign Currency.

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

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

 

“General Intangibles” is all “general
intangibles” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, trademarks, service marks
and, to the extent permitted under applicable law, any applications therefor,
whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists, route lists,
telephone numbers, domain names, claims, income and other tax refunds, security
and other deposits, options to purchase or sell real or personal property,
rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of insurance
and rights to payment of any kind.

 

“Guarantor” is any present or future guarantor of the Obligations, including the UK Guarantors.

 

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

 

“Initial Audit” shall be the receipt by Bank
of the results of a complete audit of Borrower’s Accounts, with results
satisfactory to Bank in its sole and absolute discretion. 

 

“Initial Non-Formula Advance” is the initial
Non-Formula Advance under the Non-Formula Line. 

 

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

 

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

 

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

 

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

 

“IP Agreement” is that certain Intellectual
Property Security Agreement executed and delivered by Borrower to Bank dated as
of the Effective Date.

 

20

 

“Key Person” is Borrower’s Chief Executive
Officer, Chief Financial Officer, and Chief Operating Officer. 

 

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

 

“Letter of Credit Application” is defined in
Section 2.1.2(a).

 

“Letter of Credit Reserve” has the meaning
set forth in Section 2.1.2(d).

 

“Lien” is a mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.

 

“Loan Documents” are, collectively, this
Agreement, the Perfection Certificate, the IP Agreement, any note, or notes or
guaranties executed by Borrower or any Guarantor, and any other present or
future agreement between Borrower any Guarantor and/or for the benefit of Bank
in connection with this Agreement, all as amended, restated, or otherwise
modified.

 

“Material Adverse Change” is (a) a material
impairment in the perfection or priority of Bank’s Lien in the Collateral or in
the value of such Collateral; (b) a material adverse change in the business,
operations, or condition (financial or otherwise) of Borrower or Guarantor; (c)
a material impairment of the prospect of repayment of any portion of the
Obligations; or (d) Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a substantial likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.

 

“Maturity Date” is April 19, 2007.

 

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

 

“Non-Formula Advance” or “Non-Formula Advances” is an Advance or
Advances under the Non-Formula Line.

 

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

 

“Obligations” are Borrower’s obligation to
pay when due any debts, principal, interest, Bank Expenses and other amounts
Borrower owes Bank now or later, whether under this Agreement, or the other
Loan Documents, including, without limitation, all obligations relating to
letters of credit, cash management services, and foreign exchange contracts, if
any, and including interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower assigned to Bank, and the
performance of Borrower’s duties under the Loan Documents.

 

“Operating Documents” are, for any Person,
such Person’s formation documents, as certified with the Secretary of State of
such Person’s state of formation on a date that is no earlier than 30 days
prior to the Effective Date, and, its bylaws in current form, each of the
foregoing with all current amendments or modifications thereto.

 

“Payment/Advance Form” is that certain form
attached hereto as Exhibit B.

 

“Perfection Certificate” is defined in
Section 5.1.

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c)           Subordinated Debt;

 

21

 

(d)           unsecured Indebtedness to trade
creditors and with respect to surety bonds and similar obligations incurred in the
ordinary course of business; 

 

(e)           Indebtedness incurred as a result of
endorsing negotiable instruments received in the ordinary course of business;

 

(f)            Indebtedness in an aggregate
principal amount not to exceed $100,000 secured by Permitted Liens; 

 

(g)           unsecured Indebtedness of Borrower to
any Subsidiary and of any Subsidiary to Borrower or any other Subsidiary;
unsecured guarantees by Borrower of Indebtedness of any Subsidiary and by any
Subsidiary of Indebtedness of Borrower or any other Subsidiary in an aggregate
principal amount not to exceed $100,000, at any time;

 

(h)           Indebtedness in respect of leases
entered into by Borrower for Borrower’s primary office space in the ordinary
course of business, in an aggregate principal amount not to exceed $150,000, in
the aggregate in any fiscal year; and

 

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

 

“Permitted Investments” are:

 

(a)           Investments shown on the Perfection
Certificate and existing on the Effective Date;

 

(b)           (i) Cash Equivalents, and (ii) any
Investments permitted by Borrower’s investment policy, as amended from time to
time, provided that such investment policy (and any such amendment thereto) has
been approved by Bank;

 

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

 

(d)           Investments consisting of deposit
accounts in which Bank has a perfected security interest; 

 

(e)           Investments accepted in connection
with Transfers permitted by Section 7.1, and Section 7.7;

 

(f)            Investments of Subsidiaries in or to
other Subsidiaries of Borrower and Investments by Borrower in Subsidiaries not
to exceed $100,000 in the aggregate during the term of this Agreement; 

 

(g)           Investments consisting of (i) travel
advances and employee relocation loans and other employee loans and advances in
the ordinary course of business, and (ii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s
Board of Directors; and

 

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

 

“Permitted Liens” are:

 

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

 

(b)           Liens for taxes, fees, assessments or
other government charges or levies, either not delinquent or being contested in
good faith and for which Borrower maintains adequate reserves on its Books, if
they have no priority over any of Bank’s Liens;

 

22

 

(c)           purchase money Liens or leases (i) on
Equipment (other than Equipment financed by Credit Extensions) acquired or held
by Borrower incurred for financing the acquisition of the Equipment securing no
more than $100,000 in the aggregate amount outstanding, or (ii) existing on
Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;

 

(d)           statutory Liens 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 Lien and the aggregate amount of such Liens does not at any
time exceed $200,000; 

 

(e)           Liens to secure payment of workers’
compensation, employment insurance, old-age pensions, social security and other
like obligations incurred in the ordinary course of business, provided, they
have no priority over any of Bank’s Liens and the aggregate amount of the
Indebtedness secured by such Liens does not at any time exceed $200,000; 

 

(f)            leases or subleases of real property
granted in the ordinary course of business, and leases, subleases,
non-exclusive licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of Borrower’s business, if
the leases, subleases, licenses and sublicenses do not prohibit granting Bank a
security interest;

 

(g)           non-exclusive license of intellectual
property granted to third parties in the ordinary course of business; 

 

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

 

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

 

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

 

“Prime Rate” is Bank’s most recently
announced “prime rate,” even if it is not Bank’s lowest rate. 

 

“Quick Assets” is, on any date, Borrower’s,
and its Subsidiaries, consolidated, unrestricted cash, Cash Equivalents, net billed
accounts receivable and investments with maturities of fewer than 12 months
determined according to GAAP.

 

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

 

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

 

“Revolving Line” is the Formula Line and the
Non-Formula Line. Notwithstanding anything contained herein to the contrary,
(a) the initial Advance shall be a Formula Advance and shall be used to
purchase certain assets of Clearstory Systems, Inc. as set forth is that
certain Asset Purchase Agreement dated as of March 10, 2006, by and between
Borrower and Clearstory Systems, Inc., and (b) prior to the Initial Non-Formula
Advance, Borrower shall cause UK Guarantors to become guarantors of the
Obligations and to enter into guaranties, in form and substance satisfactory to
Bank, and take all such action, and execute all such further documentation, as Bank
deems necessary and appropriate in connection therewith.

 

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

 

“Settlement Date” is defined in Section 2.1.3.

 

23

 

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

 

“Subsidiary” means, with respect to any
Person, any Person of which more than 50% of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.

 

“Total Liabilities” is on any day,
obligations that should, for Borrower and its Subsidiaries on a consolidated
basis under GAAP, be classified as liabilities on Borrower’s consolidated
balance sheet, including all Indebtedness, and current portion of Subordinated
Debt permitted by Bank to be paid by Borrower, but excluding all other
Subordinated Debt.

 

“Transfer” is defined in Section 7.1. 

 

“Trigger Event” is defined in Section
6.6(c).

 

“UK Guarantors” are Datawatch International
Ltd. and Datawatch Europe Ltd.

 

“Unused Revolving Line Facility Fee” is
defined in Section 2.4(c).

 

[The remainder of this page is intentionally left
blank]

 

24

 

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

 

	
  BORROWER:

  
	
   

  
	
  DATAWATCH
  CORPORATION

  
	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  DATAWATCH
  TECHNOLOGIES CORPORATION

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  BANK:

  
	
   

  	
   

  
	
  SILICON
  VALLEY BANK

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

[Signature page to Loan and Security
Agreement]

 

 

EXHIBIT A

 

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

 

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

 

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

 

Notwithstanding
the foregoing, the “Collateral” does not include more than 65% of the presently
existing and hereafter arising issued and outstanding shares of capital stock
owned by Borrower of any Foreign Subsidiary which shares entitle the holder
thereof to vote for directors or any other matter.

 

1

 

EXHIBIT B

Loan Payment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING IS NOON E.S.T.*

	
  Fax
  To:

  	
   

  	
  Date:

  	
   

  	
   

  

 

LOAN PAYMENT:

 

DATAWATCH CORPORATION

DATAWATCH TECHNOLOGIES CORPORATION

 

	
  From
  Account #

  	
   

  	
   

  	
  To
  Account #

  	
   

  	
   

  
	
  (Deposit Account #)

  	
  (Loan Account #)

  
	
  Principal
  $

  	
   

  	
   

  	
  and/or
  Interest $

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
   

  	
  Phone
  Number:

  	
   

  	
   

  
	
  Print
  Name/Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
   

  	
  Phone
  Number:

  	
   

  	
   

  
	
  Print
  Name/Title:

  	
   

  	
   

  	
   

  
														

 

Please note that two (2) authorized
signatures are required

 

LOAN ADVANCE:

 

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

 

	
  From
  Account #

  	
   

  	
   

  	
  To
  Account #

  	
   

  	
   

  
	
  (Loan Account #)

  	
  (Deposit Account #)

  
	
   

  	
   

  
	
  Amount
  of Formula Advance $

  	
   

  	
   

  	
  Amount
  of Non-Formula Advance $

  	
   

  	
   

  
								

 

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

 

	
  Authorized Signature:

  	
   

  	
   

  	
   

  	
  Phone
  Number:

  	
   

  	
   

  
	
  Print
  Name/Title:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  	
   

  	
  Phone
  Number:

  	
   

  	
   

  
	
  Print
  Name/Title:

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

Please note that two (2) authorized
signatures are required

 

OUTGOING WIRE REQUEST:

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

Deadline
for same day processing is noon, E.S.T. 

 

	
  Beneficiary
  Name:

  	
   

  	
   

  	
   

  	
  Amount
  of Wire: $

  	
   

  	
   

  
	
  Beneficiary
  Bank:

  	
   

  	
   

  	
   

  	
  Account
  Number:

  	
   

  	
   

  
	
  City
  and State:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beneficiary
  Bank Transit (ABA) #:

  	
   

  	
   

  	
   

  	
  Beneficiary
  Bank Code (Swift, Sort, Chip, etc.):

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (For International Wire Only)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Intermediary
  Bank:

  	
   

  	
   

  	
   

  	
  Transit
  (ABA) #:

  	
   

  	
   

  
	
  For
  Further Credit to:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Special
  Instruction:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
																	

 

* Unless otherwise provided for an Advance
bearing interest at LIBOR.

 

1

 

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

 

	
  Authorized
  Signature:

  	
   

  	
   

  	
   

  	
  2nd
  Signature (if required):

  	
   

  	
   

  
	
  Print
  Name/Title:

  	
   

  	
   

  	
   

  	
  Print
  Name/Title:

  	
   

  	
   

  
	
  Telephone #:

  	
   

  	
   

  	
   

  	
  Telephone #:

  	
   

  	
   

  
											

 

2

 

EXHIBIT C

BORROWING BASE CERTIFICATE

 

Borrower:               DATAWATCH CORPORATION and
DATAWATCH TECHNOLOGIES CORPORATION

Lender:                   SILICON VALLEY
BANK

Commitment Amount (Formula Line):               $1,500,000

 

	
  ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  
	
  1.             Accounts Receivable Book Value as of                                           

  	
   

  	
  $

  	
   

  	
   

  
	
  2.             Additions (please explain on reverse)

  	
   

  	
  $

  	
   

  	
   

  
	
  3.             TOTAL ACCOUNTS RECEIVABLE

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE DEDUCTIONS (without
  duplication)

  	
   

  	
   

  	
   

  
	
  4.             Amounts over 90 days due

  	
   

  	
  $

  	
   

  	
   

  
	
  5.             Balance of 50% over 90 day accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  6.             Credit balances over 90 days

  	
   

  	
  $

  	
   

  	
   

  
	
  7.             Concentration Limits

  	
   

  	
  $

  	
   

  	
   

  
	
  8.             Foreign Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  9.             Governmental Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  10.           Contra Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  11.           Promotion or Demo Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  12.           Intercompany/Employee Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  13.           Disputed Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
  14.           Other (please explain on reverse)

  	
   

  	
  $

  	
   

  	
   

  
	
  15.           TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

  	
   

  	
  $

  	
   

  	
   

  
	
  16.           Eligible Accounts (#3 minus #15)

  	
   

  	
  $

  	
   

  	
   

  
	
  17.           ELIGIBLE AMOUNT OF ACCOUNTS (75% of #16)

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  	
   

  
	
  18.           Maximum Loan Amount (Formula Line)

  	
   

  	
  $

  	
  1,500,000.00

  	
   

  
	
  19.           Total Funds Available (Lesser of #17 and #18)

  	
   

  	
  $

  	
   

  	
   

  
	
  20.           Present balance owing on Formula Line

  	
   

  	
  $

  	
   

  	
   

  
	
  21.           Outstanding under Sublimits

  	
   

  	
  $

  	
   

  	
   

  
	
  22.           RESERVE POSITION (#19 minus #20 and #21)

  	
   

  	
  $

  	
   

  	
   

  

 

The undersigned represents and warrants that this is true,
complete and correct, and that the information in this Borrowing Base
Certificate complies with the representations and warranties in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.

 

	
  COMMENTS:

  	
   

  	
  BANK USE ONLY 

  
	
   

  	
   

  	
  Received
  by:

  	
   

  	
   

  
	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
  Authorized Signer

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance
  Status:

  	
  Yes

  	
  No

  	
   

  
													

 

1

 

EXHIBIT D

COMPLIANCE CERTIFICATE

 

	
  TO:

  	
  SILICON
  VALLEY BANK

  	
  Date:

  	
   

  	
   

  
	
  FROM:

  	
  DATAWATCH
  CORPORATION

  	
   

  	
   

  
	
   

  	
  DATAWATCH
  TECHNOLOGIES CORPORATION

  	
   

  	
   

  

 

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

 

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

  

 

	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly
  financial statements with Compliance Certificate

  	
   

  	
  Monthly
  within 30 days

  	
   

  	
  Yes No

  
	
  Borrowing
  Base Certificate A/R Agings

  	
   

  	
  Monthly
  within 30 days

  	
   

  	
  Yes No

  
	
  Form
  10-Q

  	
   

  	
  Earlier
  of 45 days after Q-end or 5 days after filing with SEC

  	
   

  	
  Yes No

  
	
  Form
  10-K

  	
   

  	
  Earlier
  of 120 days after FYE or 5 days after filing with SEC

  	
   

  	
  Yes No

  
	
  Projections,
  Operating Budgets, and other financial information

  	
   

  	
  Annually
  and as requested by Bank

  	
   

  	
  Yes No

  
	
  Audit

  	
   

  	
  Annually

  	
   

  	
  Yes No

  

 

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

 

	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain
  at all times (tested Monthly, on a consolidated basis):

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Adjusted Quick Ratio

  	
   

  	
  1.25:1.0

  	
   

  	
  :1.0

  	
   

  	
  Yes No

  
	
  Minimum
  Cash Flow

  	
   

  	
  *

  	
   

  	
  :1.0

  	
   

  	
  Yes No

  

 

	
  *see Section 6.7 of the Loan and Security
  Agreement

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

1

 

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

 

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

 

 

 

 

 

	
   

  	
   

  	
  BANK USE ONLY

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  Received
  by:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
  Title:

  	
   

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance
  Status:

  	
  Yes

  	
  No

  
														

 

2

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

	
  Dated:

  	
   

  	
   

  

 

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

 

I.              Adjusted
Quick Ratio (Section 6.7(a))

 

Required:               1.25:1.00

 

Actual:

	
  A.

  	
   

  	
  Aggregate
  value of the unrestricted cash and Cash Equivalents of Borrower and its
  Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
  B.

  	
   

  	
  Aggregate
  value of the net billed accounts receivable of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
  C.

  	
   

  	
  Aggregate
  value of the Investments with maturities of fewer than 12 months of Borrower
  and it Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
  D.

  	
   

  	
  Quick Assets
  (the sum of lines A through C)

  	
   

  	
  $

  	
   

  	
   

  
	
  E.

  	
   

  	
  Aggregate
  value of liabilities (including all Obligations of Borrower and its
  Subsidiaries to Bank (with the exception of Credit Extensions issued by Bank
  which are specifically cash secured and segregated)

  	
   

  	
  $

  	
   

  	
   

  
	
  F.

  	
   

  	
  Aggregate
  value of liabilities of Borrower and its Subsidiaries (including all
  Indebtedness that mature within one (1 year and current portion of
  Subordinated Debt permitted by Bank to be paid by Borrower)

  	
   

  	
  $

  	
   

  	
   

  
	
  G.

  	
   

  	
  Current
  Liabilities (the sum of lines E and F)

  	
   

  	
  $

  	
   

  	
   

  
	
  H.

  	
   

  	
  Aggregate
  value of all amounts received or invoiced by Borrower and its Subsidiaries in
  advance of performance under contracts and not yet recognized as revenue

  	
   

  	
  $

  	
   

  	
   

  
	
  I

  	
   

  	
  Line G minus
  line H

  	
   

  	
  $

  	
   

  	
   

  
	
  J.

  	
   

  	
  Adjusted Quick
  Ratio (line D divided by line I)

  	
   

  	
   

  	
   

  

 

Is
line J equal to or greater than 1.25:1:00?

 

	
                  No,
  not in compliance

  	
   

  	
  Yes,
  in compliance

  

 

II.            Cash
Flow (Section 6.7(b))

 

	
  Required:

  	
   

  	
  (a)
  $1.00 for 3-month period ending 3/31/06

  
	
   

  	
   

  	
  (b)
  $250,000 for the 3-month periods ending 4/30/06, 5/31/06, and 6/30/06

  
	
   

  	
   

  	
  (c)
  $500,000 for the 3-month period ending 7/31/06 and for the 3-month period
  ending on the last day of each month thereafter

  

 

Actual:

	
  A.

  	
   

  	
  Consolidated
  Net Income (Borrower and its Subsidiaries)

  	
   

  	
  $

  	
   

  	
   

  
	
  B.

  	
   

  	
  Interest
  Expense (Borrower and its Subsidiaries)

  	
   

  	
  $

  	
   

  	
   

  

 

3

 

	
  C.

  	
   

  	
  To
  the extent deducted in the calculation of Net Income:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.     depreciation expense (Borrower and its
  Subsidiaries)

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  2.     amortization expense (Borrower and its
  Subsidiaries)

  	
   

  	
  $

  	
   

  	
   

  
	
  D.

  	
   

  	
  income
  tax expense (Borrower and its Subsidiaries)

  	
   

  	
  $

  	
   

  	
   

  
	
  E.

  	
   

  	
  EBITDA
  (line A plus line B, plus line C.1, plus line C.2, plus line D)

  	
   

  	
  $

  	
   

  	
   

  
	
  F.

  	
   

  	
  Capital
  Expenditures for Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
  G.

  	
   

  	
  Line
  E minus line F

  	
   

  	
  $

  	
   

  	
   

  

 

	
  Is
  line G greater than or equal to:

  	
   

  	
   

  
	
   

  	
  (a)
  $1.00 for 3-month period ending 3/31/06

  
	
   

  	
  (b)
  $250,000 for the 3-month periods ending 4/30/06, 5/31/06, and 6/30/06

  
	
   

  	
  (c)
  $500,000 for the 3-month period ending 7/31/06 and for the 3-month period
  ending on the last day of each month thereafter

  
				

 

	
                  No,
  not in compliance

  	
   

  	
  Yes,
  in compliance

  

 

4EXHIBIT 10.1

 

ZOMAX
INCORPORATED

2006
EXECUTIVE OFFICER BONUS PLAN

 

The Zomax Incorporated 2006 Executive Officer Bonus Plan is designed to
pay for performance.  Plan participants are eligible to receive cash
incentives as well as equity incentives upon the achievement of performance
targets.

 

CASH INCENTIVE

 

Each executive officer is assigned a total cash bonus opportunity
(ranging from 50-70% of base salary).  The cash incentive has two
components:  strategic objectives and financial objectives.  Up to 50
percent of an executive officer’s total cash bonus opportunity is payable based
upon the achievement of specified strategic objectives.  The remaining 50
percent of an executive officer’s total cash bonus opportunity is payable upon
the achievement of a specified financial objective related to EBITDA.

 

EQUITY INCENTIVE

 

Each executive officer receives a restricted stock award that vests as
follows:  Up to 50 percent upon the achievement of specified strategic
objectives; and up to 50 percent upon the achievement of specified financial
objectives related to EBITDA, operating results and revenue.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00102-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00102-of-00352.parquet"}]]