Document:

EXHIBIT 10.19
                                                                   -------------

                            PLACEMENT AGENT AGREEMENT

                                                           Dated: April 10, 2006

Joseph Gunnar & Co., LLC
30 Broad Street
New York, NY 10004

Gentlemen:

1. Offering.

         A. Bridgeline Software, Inc., a Delaware corporation (the "Company"),
hereby engages Joseph Gunnar & Co., LLC ("JGUN") (the "Placement Agent") to act
as its exclusive placement agent in connection with the issuance and sale by the
Company (the "Offering") of up to $2,300,000, or 23 Units ("Maximum
Offering")/$1,100,000, or 11 Units ("Minimum Offering"), with a "best-efforts"
over-allotment contingency of an additional $500,000, or 5 Units
("Overallotment"), which Units shall consist of senior secured notes (the
"Notes") and a five-year warrant to purchase 10,000 shares of the Company's
common stock ("Common Stock") at an exercise price of $.001 per share for each
$100,000 subscribed for (the "Warrant," and the shares issuable upon exercise of
the Warrant referred to herein as the "Warrant Shares"). The Placement Agent is
hereby authorized to engage, at its option, the services of other broker-dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
to assist it in soliciting subscribers and to remit to such broker-dealers the
commissions payable to the Placement Agent hereunder as it shall determine.

         The Offering is subject to (i) the terms and conditions set forth in
the Company's Confidential Private Offering Memorandum dated April 7, 2006 (such
memorandum with all amendments and exhibits thereto (the "Memorandum")). The
Offering is also subject to a subscription agreement and questionnaire and
noteholder agency appointment agreement to be executed by each purchaser of the
Notes and the Company (collectively, the "Subscription Agreements") (The
Subscription Agreement and the Memorandum are collectively referred to as the
"Offering Documents"). The Company shall issue and sell to Placement Agent or
its designee(s), for nominal consideration, five-year warrants to purchase 4,000
shares of Common Stock for each Unit sold (the "Placement Agent Warrants"), and
the Placement Agent agrees to enter into a six-month post-IPO lock-up on the
Placement Agent Warrant and the shares of Common Stock issuable upon exercise
thereof.

         The Notes, the Warrants, the Warrant Shares, the Placement Agent
Warrants, and the Common Stock underlying the Placement Agent Warrants
("Placement Agent Shares") are hereinafter sometimes collectively referred to as
the "Securities."

         The Notes and Warrants will be offered without registration under the
Securities Act of 1933, as amended (the "Securities Act"). Purchasers of the
Notes and Warrants will be granted certain registration rights with respect to
the Warrant Shares as more fully set forth in the

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Warrants. The Placement Agent will be granted certain registration rights with
respect to the Placement Agent Warrants, as more fully set forth in the
Placement Agent Warrants.

         B. The Notes and Warrants (collectively the "Units") will be offered by
the Company on a "best efforts, all or none" basis with respect to the "Minimum
Offering", and a "best efforts" basis with respect to the Maximum Offering, plus
a "best efforts" basis over allotment contingency with respect to the
Overalloment. The Company will issue the certificates representing the Notes and
Warrants at one or more closings (the "Closing") after subscriptions have been
received for the Minimum Offering and accepted by the Company and when funds
from investors have cleared the banking system in the normal course of business.

         C. The Offering shall terminate on the earliest of: (a) the sale of the
Maximum Offering, or (b) May 31, 2006, unless extended without notice to the
Investors by the Company and the Placement Agent for no more than two (2) thirty
(30) day periods (the "Offering Period"). If the Minimum Offering is not sold
prior to the end of the Offering Period, the Offering will be terminated and all
funds received from Investors will be returned thereto, without interest thereon
or deduction therefrom. With respect to any subscriptions that are received by
the Placement Agent or accepted by the Company subsequent to the Offering
Period, all funds received by Investors will be returned thereto, without
interest thereon or deduction therefrom. The Company and Placement Agent reserve
the right to reject any and all subscription agreements in excess of the Minimum
Offering.

2. Information.

         A. The Notes and Warrants shall have the terms set forth in and shall
be offered by the Company by means of the Offering Documents. Payment for the
Notes shall be made by check, money order or wire transfer as more fully
described in the Subscription Agreement. The minimum purchase by any purchaser
shall be $100,000, unless subscriptions for lesser amounts are accepted at the
discretion of the Company and the Placement Agent. The Placement Agent and the
Company agree that the Notes and Warrants will be offered solely to "accredited
investors" within the meaning of Rule 501 of Regulation D ("Accredited
Investors") promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Act and Rule 506 of Regulation D under the
Securities Act.

         B. All funds received from subscriptions arranged will be promptly
transmitted to the escrow account maintained at U.S. Bank and designated as
"U.S. Bank/Bridgeline Software, Inc. - Escrow Account." In the event that a
Closing occurs, the funds received in respect of the Notes and Warrants closed
on will be forwarded to the Company, against delivery of the appropriate amount
of the Notes and Warrants, net of (i) the placement agent commission equal to
cash in an amount equal to ten percent (10%) of the gross proceeds of the Notes
sold in the Offering, (ii) the Placement Agent Warrants, and (iii) any
out-of-pocket costs and expenses paid or to be paid by the Placement Agent
including, but not limited to, travel, due diligence, printing, mailing, plus
legal expenses except that the Company shall not be responsible for any non-Blue
Sky law compliance related fees of the Placement Agent's legal counsel in excess
of $35,000 without the Company's approval.

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         C. The Company and the Placement Agent reserve the right to reject any
subscriber, in whole or in part, in their sole reasonable discretion. Funds
received by the Company from any subscriber whose subscription is rejected will
be returned to such subscriber, without deduction therefrom or interest thereon,
but no sooner than such funds have cleared the banking system in the normal
course of business.

3. Representations, Warranties and Covenants of Placement Agent.

         The Placement Agent represents, warrants and covenants as follows:

                  (i) It has the necessary power to enter into this Agreement
and to consummate the transactions contemplated hereby.

                  (ii) The execution and delivery by the Placement Agent of this
Agreement and the consummation of the transactions contemplated herein will not
result in any violation of, or be in conflict with, or constitute a default
under, any agreement or instrument to which a Placement Agent is a party or by
which a Placement Agent or its properties are bound, or any judgment, decree,
order or, to a Placement Agent's knowledge, any statute, rule or regulation
applicable to a Placement Agent. This Agreement constitutes the legal, valid and
binding obligation of the Placement Agent, enforceable against the Placement
Agent in accordance with its terms, except to the extent that (a) the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect and affecting the rights
of creditors generally, (b) the enforceability hereof is subject to general
principles of equity, or (c) the indemnification provisions hereof may be held
to be violative of public policy.

                  (iii) The Placement Agent will deliver to each Investor, prior
to any submission by such person of a written offer relating to the purchase of
the Notes and Warrants, a copy of the Offering Documents, as they may have been
most recently amended or supplemented by the Company.

                  (iv) Upon receipt of an executed Subscription Agreement, the
Placement Agent will promptly forward copies of the subscription documents to
the Company.

                  (v) The Placement Agent will not deliver the Offering
Documents to any person they do not reasonably believe to be an Accredited
Investor or to any person in a state where it does not reasonably believe that
the Offering is exempt from the applicable state "Blue Sky" laws.

                  (vi) The Placement Agent will not intentionally take any
action which it reasonably believes would cause the Offering to violate the
provisions of the Securities Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or the respective rules and regulations promulgated
thereunder (the "Rules and Regulations").

                  (vii) The Placement Agent shall have no obligation to insure
that (a) any check, note, draft or other means of payment for the Notes will be
honored, paid or enforceable against the subscriber in accordance with its
terms; or (b) subject to the performance of the Placement Agent's obligations
and the accuracy of its representations and warranties hereunder, (i) the
Offering is exempt from the registration requirements of the Securities Act or
any applicable

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state "Blue Sky" law; or (ii) any prospective purchaser is an Accredited
Investor; provided that Placement Agent will not deliver the Offering Documents
to any person they do not reasonably believe to be an Accredited Investor.

                  (viii) The Placement Agent is a member of the NASD and is a
broker-dealer registered as such under the Exchange Act and under the securities
laws of the states in which the Securities will be offered or sold by the
Placement Agent, unless an exemption for such state registration is available to
the Placement Agent. The Placement Agent is in compliance with all material
rules and regulations applicable to the Placement Agent generally and to the
Placement Agent's participation in the Offering.

4. Representations and Warranties of the Company.

         The Company represents and warrants as follows:

                  (i) The execution, delivery and performance of each of this
Agreement, the Subscription Agreements and the Escrow Agreement has been duly
and validly authorized by the Company and is, or with respect to the
Subscription Agreements, will be, a valid and binding obligation of the Company,
enforceable in accordance with its respective terms, except to the extent that
(a) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (b) the enforceability
hereof or thereof is subject to general principles of equity; or (c) the
indemnification provisions hereof or thereof may be held to be violative of
public policy.

                  (ii) The issuance, sale and delivery by the Company of the
Securities have been or will be prior to the Closing duly authorized by all
requisite corporate action of the Company. The Warrant Shares and the Placement
Agent Shares will, prior to the Closing, be duly reserved for issuance upon
exercise of the Warrants and exercise of the Placement Agent Warrants,
respectively.

                  (iii) Except as set forth in the Offering Documents or on
Schedule 4(iii), all issued and outstanding securities of the Company and its
subsidiaries have been duly authorized and validly issued, fully paid and
non-assessable and were issued in compliance with all applicable federal and
state securities laws; the holders thereof have no rights of rescission or
preemptive rights with respect thereto and are not subject to personal liability
solely by reason of being security holders; and none of such securities was
issued in violation of the preemptive rights of any holders of any security of
the Company. The Company has 15,000,000 shares of authorized Common Stock,
11,711,498 shares (calculated on a pre-1-for-3 reverse stock split anticipated
to take place on or about April 7, 2006) of which are issued and outstanding as
of the date hereof and no shares of authorized Preferred Stock.

                  (iv) Except as set forth in the Offering Documents or on
Schedule 4(iv) there are: (i) no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements pursuant to which the
Company is or may become obligated to issue, sell or repurchase any securities
of the Company; (ii) no restrictions on the transfer of the Company's capital
stock imposed by the Company's Certificate of Incorporation or Bylaws or any

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agreement to which the Company is a party, any order of any court or any
governmental agency to which the Company is subject or any statute other than
those imposed by relevant state and federal securities laws; (iii) no cumulative
voting or preemptive rights for any of the Company's capital stock; (iv) no
registration rights under the Securities Act with respect to the Company's
capital stock; (v) no antidilution adjustment provisions or similar rights with
respect to the outstanding securities of the Company will be triggered by the
issuance of the Securities; (vi) no voting trusts or agreements, shareholders
agreements, pledge agreements, buy-sell, rights of first offer, negotiation or
refusal or proxies or similar arrangements relating to any securities of the
Company to which the Company is a party; and (vii) no options or other rights to
purchase securities from its shareholders granted by such shareholders.

                  (v) The Warrant Shares and Placement Agent Shares, when issued
in accordance with the terms of the Subscription Agreement, Warrants, and the
Placement Agent Warrants and the terms of this Agreement as the case may be,
will be validly issued, fully-paid and non-assessable. The holders of the
Securities will not be subject to personal liability under the Company's
Certificate of Incorporation or Bylaws or, any state law, solely by reason of
being such holders; the Securities are not and will not be subject to the
preemptive rights of any holder of any security of the Company.

                  (vi) Each of the Company and its subsidiaries which are set
forth on Schedule 4(vi) has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
necessary to conduct its business (including, without limitation, any real or
personal property stated in the Offering Documents to be owned or leased by the
Company and its subsidiaries), free and clear of all liens, encumbrances,
claims, security interests and defects of any nature whatsoever, other than
those set forth in the Offering Documents or on Schedule 4(vi) and liens for
taxes not yet due and payable. All of the leases and subleases under which the
Company is the lessor or sublessor of properties or assets or under which the
Company holds properties or assets as lessee or sublessee are in full force and
effect, and the Company is not in default with respect to any of the terms or
provisions of any of such leases or subleases, and no claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease.

                  (vii) There is no litigation or governmental proceeding
pending or, to the best of the Company's knowledge, threatened against, or
involving the Company or its subsidiaries or their properties or business,
except as set forth in the Offering Documents or on Schedule 4(vii). The Company
is not a party to any order, writ, injunction, judgment or decree of any court.

                  (viii) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under its
respective jurisdiction of incorporation. Except as set forth in the Offering
Documents or on Schedule 4(viii), the Company does not own or control, directly
or indirectly, an interest in any other corporation, partnership, trust, joint
venture or other business entity. The Company owns 100% of the outstanding
capital stock of each of its subsidiaries. Each of the Company and its
subsidiaries is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction in which the character of its operations
requires such qualification or licensing and where failure to

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so qualify would have a material adverse effect on the Company and its
subsidiaries taken as a whole ("MAE"). Each of the Company and its subsidiaries
has all requisite corporate power and authority, and all material and necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies (domestic and foreign) to
conduct its businesses (and proposed business), and each of the Company and its
subsidiaries is doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates and permits and all foreign, federal,
state and local laws, rules and regulations concerning the business in which it
is engaged, except where failure to so comply would not have a MAE. The Company
has all corporate power and authority to enter into this Agreement, the
Subscription Agreements, the Notes, the Warrants, the Placement Agent Warrants,
and Escrow Agreement and to carry out the provisions and conditions hereof and
thereof and to issue, sell and deliver the Securities. No consents,
authorizations, approvals, or orders of, or registration, qualification,
declaration or filing with, any federal, state or local governmental authority
on the part of the Company is required in connection herewith and therewith or
to issue, sell and deliver the Securities, other than registration or
qualification, or taking such action to secure exemption from such registration
or qualification of the Securities under applicable state, federal or foreign
securities laws, which actions have been taken or will be taken prior to the
Closing.

                  (ix) Except as set forth in the Offering Documents or on
Schedule 4(ix), each of the Company and its subsidiaries is not in breach of, or
in default under, any term or provision of any indenture, mortgage, deed of
trust, lease, note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any other agreement
or instrument to which it is a party or by which it or any of its properties may
be bound, excluding trade payables and purchase orders as generally described in
the Offering Documents. Each of the Company and its subsidiaries is not in
violation of any provision of its charter or Bylaws or in violation of any
franchise, license, permit, judgment, decree or order, or in violation of any
statute, rule or regulation, except for the violation of statutes, rules or
regulations would not have a MAE. Neither the execution and delivery of this
Agreement and the Subscription Agreements, nor the issuance and sale or delivery
of the Securities, nor the consummation of any of the transactions contemplated
herein or in the Subscription Agreements, nor the compliance by each of the
Company and its subsidiaries with the terms and provisions hereof or thereof,
has conflicted with or will conflict with, or has resulted in or will result in
a breach of, any of the terms and provisions of, or has constituted or will
constitute a default under, or has resulted in or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company and its subsidiaries, if any, pursuant to the terms of any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company or its subsidiaries may be bound or
to which any of the property or assets of the Company or its subsidiaries is
subject except where such default, lien, charge or encumbrance would not have a
MAE; nor will such action result in any violation of the provisions of the
charter or the Bylaws of each of the Company and its subsidiaries or, assuming
the due performance by the Placement Agent of its obligations hereunder, any
statute, order, rule or regulation applicable to the Company or its subsidiaries
of any court or of any foreign, federal, state or other regulatory authority or
other government body having jurisdiction over each of the Company and its
subsidiaries, if any.

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                  (x) Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than Placement Agent and
there are no claims for services in the nature of a finder's or origination fee
with respect to the sale of the Securities.

                  (xi) Each of the Company and its subsidiaries owns or
possesses, free and clear of all liens or encumbrances and rights thereto or
therein by third parties, the requisite licenses or other rights to use all
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses necessary to conduct its business (including,
without limitation, any such license, patent or rights described in the Offering
Documents as being owned or possessed by each of the Company and its
subsidiaries) and there is no claim or action by any person pertaining to, or
proceeding, pending or to the Company's knowledge, threatened, which challenges
the rights of each of the Company and its subsidiaries with respect to any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses used in the conduct of each of the Company's
and its subsidiaries' businesses (including, without limitation, any such
licenses or rights described in the Offering Documents as being owned or
possessed by each of the Company and its subsidiaries); each of the Company's
and its subsidiaries' current products, services or processes do not infringe or
will not infringe on the patents currently held by any third party.

                  (xii) Each of the Company and its subsidiaries is not under
any obligation to pay royalties or fees of any kind whatsoever to any third
party with respect to any trademarks, service marks, copyrights, service names,
trade names, patents, patent applications, licenses or technology it has
developed, uses, employs or intends to use or employ, other than to their
respective licensors.

                  (xiii) Subject to the performance by the Placement Agent of
its obligations hereunder, and the accuracy of the representations and
warranties made by the respective investors in the Subscription Agreements, the
Offering Documents and the offer and sale of the Securities comply, and will
continue to comply, through the Offering Period with the requirements of Rule
506 of Regulation D promulgated by the Commission pursuant to the Securities Act
and any other applicable federal and state laws, rules, regulations and
executive orders. Neither the Offering Documents nor any amendment or supplement
thereto, nor any other documents prepared by the Company in connection with the
Offering contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All statements of material facts in the Offering Documents are true
and correct as of the date of the Offering Documents and will be true and
correct in all material respects on the date of each Closing except with respect
to the number of shares of Common Stock outstanding, which may change between
the date hereof and the date of each Closing due to the conversion of
outstanding securities as described in the Offering Documents. If at any time
prior to the completion of the Offering or other termination of this Agreement
any event shall occur as a result of which it might, in the Company's opinion,
become necessary to amend or supplement the Offering Documents so that they do
not include any untrue statement of any material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances then existing, not misleading, the Company will promptly notify

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Placement Agent and will supply Placement Agent with amendments or supplements
correcting such statement or omission.

                  (xiv) All taxes which are due and payable from each of the
Company and its subsidiaries have been paid in full or appropriate extensions of
such payment have been obtained and each of the Company and its subsidiaries
does not have any tax deficiency or claim outstanding assessed or proposed
against it (except for such amounts set forth in the Offering Documents or on
Schedule 4(xiv), which amounts will be paid at Closing).

                  (xv) The financial statements of the Company included in the
Offering Documents or on Schedule 4(xv) fairly present the financial position,
results of operations, stockholders equity and cash flows, in all material
respects, of the Company at the respective dates thereof and for the periods
referred to therein.

                  (xvi) Neither the Company nor its subsidiaries, if any, nor
any of their respective officers, directors, employees or agents, nor any other
person acting on behalf of the Company or its subsidiaries, if any, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who is or may be in a position to
help or hinder the business of each of the Company or its subsidiaries (or
assist it in connection with any actual or proposed transaction) which (A) might
subject the Company and its subsidiaries, if any, to any material damage or
penalty in any civil, criminal or governmental litigation or proceeding, or (B)
if not given in the past, might have had a MAE on the assets, business or
operations of the Company or its subsidiaries as reflected in any of the
financial statements contained in the Offering Documents or on Schedule 4(xvi),
or (C) if not continued in the future, might adversely affect the assets,
business or operations of the Company or its subsidiaries in the future.

                  (xvii) Assuming (i) the accuracy of the information provided
by the respective investors in the Subscription Agreements and (ii) that
Placement Agent have complied in all material respects with their obligations
under this Agreement, the offer and sale of the Notes and Warrants pursuant to
the terms of the Offering Documents are exempt from the registration
requirements of the Securities Act and the rules and regulations promulgated
thereunder.

                  (xviii) When the Warrant Shares and the Placement Agent Shares
shall have been duly delivered to the purchasers and payment shall have been
made therefor, the purchasers shall have good and marketable title to the
Warrant Shares and Placement Agent Shares, as the case may be, free and clear of
all liens, encumbrances and claims whatsoever and the Company shall have paid
all taxes, if any, in respect of the original issuance thereof.

                  (xix) The Company understands that the foregoing
representations and warranties shall be deemed material and to have been relied
upon by Placement Agent. No representation or warranty by the Company in this
Agreement, and no written statement contained in any document, certificate or
other writing delivered by the Company to Placement Agent contains any untrue
statement of material fact or omits to state any material fact necessary

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to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading.

                  (xx) Upon receipt of an executed Subscription Agreement,
Company will promptly forward copies of the subscription documents to Placement
Agent.

                  (xxi) The Company will not deliver the Offering Documents to
any person it does not reasonably believe to be an Accredited Investor.

                  (xxii) The Company will not intentionally take any action
which it reasonably believes would cause the Offering to violate the provisions
of the Securities Act, Exchange Act or the Rules and Regulations.

                  (xxiii) The Company shall use all reasonable efforts to
determine (a) whether any prospective purchaser is an Accredited Investor and
(b) that any information furnished by a prospective investor is true and
accurate.

                  (xxiv) Except as set forth in the Offering Documents or on
Schedule 4(xxiv), as of the date hereof, the Company has no contractual
liability or any other liability, whether accrued, contingent, absolute,
determined, indeterminable or otherwise, which was not (i) reflected or reserved
against in the financial statements or (ii) incurred in the ordinary course of
business, consistent with past practice since its inception.

                  (xxv) To the best of Company's knowledge, since December 31,
2005, except as disclosed in the Offering Documents, the Company has not
incurred any liabilities or obligations, direct or contingent, not consistent
with its past practices, or entered into any transaction not consistent with its
past practices, which is material to the business of the Company, and, since the
date of the Memorandum, there has not been any change in the capital stock of,
or any incurrence of funded debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.

                  (xxvi) Except as set forth in the Offering Documents or on
Schedule 4(xxvi), the Company filed all Federal, State, local and foreign tax
returns, if any, which are required to be filed by it to the relevant agencies
and all such returns are true and correct in all material respects except as the
Company has paid all taxes pursuant to such returns or pursuant to any
assessments received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. The Company has properly accrued
all taxes required to be accrued by generally accepted accounting principals
consistently applied. To the best of current management's knowledge, the tax
returns of the Company have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment
or deficiency.

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                  (xxvii) Except with respect to holders of the Units, no person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company. The Company shall grant
registration rights under the Securities Act to the Investors in the Offering
and/or their transferees as more fully described in the Subscription Agreement
between the Company and the Investors.

                  (xxviii) No person, firm or other business entity is a party
to any agreement, contract or understanding, written or oral entitling such
party to a right of first refusal with respect to offerings by the Company.

5. Certain Covenants and Agreements of the Company.

                  The Company covenants and agrees at its expense and without
any expense to Placement Agent as follows:

         A. To advise Placement Agent of any adverse change in the Company's
financial condition, prospects or business or of any development materially
affecting the Company or rendering untrue or misleading any material statement
in the Offering Documents occurring at any time prior to a Closing as soon as
reasonably practicable after the Company is either informed or becomes aware
thereof.

         B. To use its best efforts to cause the Securities to be qualified or
registered for sale, or to obtain exemptions from such qualification or
registration requirements, on terms consistent with those stated in the Offering
Documents, the Notes, the Warrants and the Placement Agent Warrants under the
securities laws of such jurisdictions as Placement Agent shall reasonably
request, provided that such states and jurisdictions do not require the Company
to qualify as a foreign corporation. Qualification, registration and exemption
charges and fees shall be at the sole cost and expense of the Company. Company's
counsel shall perform the required "Blue Sky" services, and all reasonable
expenses and disbursements of Company's counsel relating to such "Blue Sky"
matters and relating to the Offering shall be paid by the Company.

         C. To apply the net proceeds of the Offering as described in the
Offering Documents or as set forth on Schedule 5(C).

         D. To provide Placement Agent with as many copies of the Offering
Documents as the Placement Agent may reasonably request.

         E. To comply with the terms of the Subscription Agreements, Notes,
Warrants and Placement Agent Warrants including, without limitation, the
registration rights provisions thereof.

         F. To issue to Placement Agent or its designees, at the Closing, the
Placement Agent Warrants and provide for registration by the Company of the
Placement Agent Shares issuable upon the exercise thereof.

         G. To keep available out of its authorized and designated Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants and
Placement Agent Warrants, such number of Warrant Shares and Placement Agent
Shares.

                                       10
<PAGE>

         H. Within three (3) days from the date hereof, Placement Agent shall
receive a copy of a duly executed escrow agreement in the form previously
delivered to you regarding the deposit of funds pending the Closing(s) of the
Offering with a bank or trust company acceptable to the Placement Agent (the
"Fund Escrow Agreement").

         I. Employment agreements with key management reasonably acceptable to
the Placement Agent and its counsel shall have been executed and delivered.

         J. A Board of Directors composition reasonably acceptable to the
Placement Agent, which shall include at least a majority of "independent"
directors, shall
be in place within 180 days of the first Closing. In the event this covenant is
not satisfied, the Placement Agent shall have the authority to nominate and the
Company shall appoint two directors selected by the Placement Agent. In the
event this covenant is satisfied, the Placement Agent's right to nominate such
directors will terminate.

         K. There shall be reasonable satisfaction by the Placement Agent, in
its reasonable discretion, with their ongoing due diligence of the Company and
any subsidiaries.

         L. The appointment of an observer designated by the Placement Agent, to
the Board of Directors of the Company and any subsidiary, shall have been
adopted at the time of the initial Closing. Such observer shall remain in place
so long as the Notes remain outstanding.

         M. There shall be approval by the Board of Directors of the Company of
the contemplated public offering of the Company's securities as soon as possible
following the Offering on the terms outlined on Exhibit II to the Letter of
Intent (as defined below) and another Board of Directors resolution that if the
public offering of the Company's securities is not pursued in good faith and
absent the Placement Agent's failure to process the public offering in good
faith, the Company shall pay to the Placement Agent liquidated damages in the
amount of $100,000 for its failure to do so as set forth therein.

         N. Pending completion of the Offering contemplated herein and the IPO
contemplated hereinafter, the Company agrees that it shall not negotiate with
any other broker-dealer or other person relating to a possible private and/or
public offering of its securities without the written consent of the Placement
Agent. In the event the Company enters into a letter of intent or effectuates a
private and/or a public offering of its securities with another broker-dealer or
any other person without the written permission of the Placement Agent after the
execution of this Agreement and prior to ______, 2006, the Company, in
compliance with the NASD Conduct Rules, shall be liable to the Placement Agent
for the out-of-pocket accountable expenses of the Placement Agent due and
payable immediately upon such engagement with another broker-dealer. The Company
further agrees that any communications with any other broker-dealer, solicited
or unsolicited, shall be conducted exclusively through the Placement Agent. The
preparations for the Offering may not be terminated prior to April 1, 2006 by
the Company other than for the Placement Agent's failure to proceed in good
faith. Thereafter, in the event marketing of the Offering has not commenced,
either party may terminate the Offering upon three days prior written notice,
without liability or continuing obligation to the other; provided, however, that
if the Company elects not to proceed with the Offering for any reason other than
the Placement Agent's bad faith in processing the transaction or if the
Placement Agent elects

                                       11
<PAGE>

not to proceed due to a material breach by the Company of any representation,
warranty or covenant contained in the Placement Agent Agreement to be entered
into, or as a result of the Company's failure to meet any of the conditions set
forth in Section 4 hereof, then the Company shall be obligated to pay the
Placement Agent, exclusive of any payments otherwise made, a "break-up" fee of
$100,000 plus 40,000 Placement Agent Warrants or, if the Offering Documents have
been distributed to potential investors, $150,000 plus 60,000 Placement Agent
Warrants.

6. Indemnification.

         The Company agrees to indemnify and hold harmless the Placement Agent,
its affiliates, the directors, officers and employees of the Placement Agent and
its affiliates and subagents and selected dealers, and each other person or
entity, if any, controlling the Placement Agent or any of its affiliates
(collectively, "Indemnified Persons"), from and against, and the Company agrees
that no Indemnified Person shall have any liability to the Company or its
owners, parents, affiliates, securityholders or creditors for, any losses,
claims, damages, liabilities or expenses (including actions, claims or
proceedings in respect thereof (collectively, "Actions") brought by or against
any person, including stockholders of the Company, and the cost of any
investigation and preparation therefore and defense thereof) (collectively,
"Losses") (A) related to or arising out of any statements or omissions made in
the Offering Documents or any exhibit thereto or the services, commitment or
other obligations undertaken or being considered by the Placement Agent in this
Agreement in connection with the sale of the Securities in the Offering
(collectively, "Placement Agent's Role"), and claims relating to any finders or
origination fees, except that the indemnification shall not apply to the Losses
of an Indemnified Person that are determined by a court of competent
jurisdiction in a final judgment not subject to appeal to have resulted from the
bad faith or gross negligence of such Indemnified Person or to Losses arising
out of a claim under subsection (A) under this section as to an alleged omission
from or misstatement in, the Offering Documents or any exhibit thereto if either
(i) at or prior to the execution of a Subscription Agreement the copy of the
Memorandum and exhibits were not sent or delivered to the subscriber or (ii) the
alleged untrue statement was corrected or the omission of a material fact
alleged was contained in a supplement or amendment to the Memorandum was
delivered to the subscriber prior to the written acceptance of the subscriber's
Subscription Agreement by the Company. In addition, the indemnification
referenced above shall not apply to the Losses of an Indemnified Person that are
determined by a court of competent jurisdiction in a final judgment not subject
to appeal to have resulted from the bad faith or gross negligence of the
Placement Agent.

         Promptly after receipt by an Indemnified Person (each an "indemnified
party") under this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6, notify in writing the indemnifying
party of the commencement thereof, however, that no delay on the part of the
indemnified party in notifying the indemnifying party shall relieve the
indemnifying party from any obligation hereunder unless the indemnifying party
is prejudiced by such delay. In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent that it may wish, jointly with any other indemnifying party,
similarly notified, to assume the defense thereof, with counsel who shall be to
the reasonable satisfaction of such

                                       12
<PAGE>

indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that if, in the reasonable judgment
of the indemnified party, it is advisable for the indemnified party to be
represented by separate counsel, the indemnified party shall have the right to
employ a single counsel only to represent the indemnified parties who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the indemnified parties thereof against the indemnifying party, in
which event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any such indemnifying party shall not be liable to any such
indemnified party on account of any settlement of any claim or action effected
without the consent of such indemnifying party.

         If such an indemnity provided for in this Agreement is unavailable or
insufficient for any Indemnified Person with respect to any Losses (other than
by reason of the gross negligence or bad faith of such indemnifying party), then
the indemnifying party, in lieu of indemnifying such Indemnified Person, will
contribute to the amount paid or payable by such Indemnified Person as a result
of such Losses (i) in such proportion as it is appropriate to reflect the
relative benefits received by the Company on the one hand, and the Placement
Agent, on the other hand, from the transactions contemplated hereunder, or (ii)
if the allocation provided by (i) above is not permitted by applicable law in
such proportion as is appropriate to reflect not only the relative benefits
referred to in (i) above, but also the relative fault on the Company, on the one
hand, and of the Placement Agent on the other hand in connection with statements
or omissions that resulted in Losses as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand,
and the Placement Agent, on the other hand shall be deemed to be in the same
proportion as the total proceeds from the Transactions (net of sales
commissions, but before deducting other expenses) received by the Company bear
to the commissions received by the Placement Agent. The relative fault of the
Company, on the one hand, and the Placement Agent, on the other hand, will be
determined with reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission to state a material fact
relates to the information supplied by the Company, on the one hand, and the
Placement Agent, on the other hand, and their relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.

         The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this section were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.

         THE PLACEMENT AGENT HEREBY AGREES AND THE COMPANY HEREBY AGREES, ON ITS
OWN BEHALF AND ON BEHALF OF ITS SECURITYHOLDERS, TO WAIVE ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF PLACEMENT
AGENT'S ROLE OR THIS PLACEMENT AGENT AGREEMENT.

                                       13
<PAGE>

7. Payment of Expenses.

         Whether or not the Offering is successfully completed, the Company
hereby agrees to bear all of the customary reasonable expenses in connection
with the Offering, including, but not limited to the following: due diligence,
travel, lodging, filing fees, printing and duplicating costs, advertisements,
postage and mailing expenses with respect to the transmission of offering
material, registrar and transfer agent fees, escrow agent fees and expenses,
fees of the Company's counsel and accountants, issue and transfer taxes, if any,
"Blue Sky" counsel fees and expenses of Company's counsel and the legal fees and
expenses of Placement Agent's counsel in an amount not to exceed $35,000. It is
agreed that the Company's counsel shall perform the required Blue Sky legal
services.

8. Conditions of the Closing

         Provided the Offering shall have been subscribed for and funds
representing such amount thereof shall have cleared, each Closing shall be held
at the offices of the Placement Agent's counsel or such other place as mutually
agreed upon by the parties. The obligations of the Placement Agent hereunder
shall be subject to the continuing accuracy of the representations and
warranties, in all material respects, of the Company herein as of the date
hereof and as of the date of the Closing as if such representations and
warranties had been made on and as of such Closing; the accuracy on and as of
the date of each Closing of the statements of the officers of the Company made
pursuant to the provisions hereof; and the performance by the Company on and as
of each Closing of its covenants and obligations hereunder and to the following
further conditions:

         A. At each Closing, the Placement Agent shall receive the opinion of
Morse, Barnes-Brown & Pendleton, P.C., counsel to the Company, dated as of the
date of the Closing, which opinion shall be acceptable to the Placement Agent.

         B. At or prior to each Closing, counsel for Placement Agent shall have
been furnished such documents, certificates and opinions as it may reasonably
require for the purpose of enabling it to review or pass upon the matters
referred to in this Agreement and the Offering Documents, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.

         C. At and prior to each Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the financial
condition or operations except where such change would not have a material
adverse effect or the business activities, financial or otherwise, of the
Company and its subsidiaries from the latest dates as of which such condition is
set forth in the Offering Documents; (ii) there shall have been no material
transaction, not in the ordinary course of business, entered into by the Company
and its subsidiaries which has not been disclosed as having taken place or being
contemplated in the Offering Documents or to the Placement Agent in writing;
(iii) the Company shall not be in default under any provision of any instrument
relating to any outstanding indebtedness, excluding trade payables, for which a
waiver or extension has not been otherwise received except where such default
would not have a material adverse effect; (iv) except as set forth in the
Offering Documents or in the Schedules to this Agreement, the Company shall not
have issued

                                       14
<PAGE>

any securities (other than those set forth in the Offering Documents or pursuant
to the exercise of outstanding warrants or options) or declared or paid any
dividend or made any distribution of its capital stock of any class and there
shall not have been any material adverse change in the indebtedness (long or
short term) or liabilities or obligations of the Company and its subsidiaries
(contingent or otherwise); (v) no material amount of the assets of the Company
and its subsidiaries shall have been pledged or mortgaged, except with respect
to assets in the normal course of business and as indicated in the Offering
Documents or in the Schedules to this Agreement; and (v) no action, suit or
proceeding, at law or in equity, against the Company or its subsidiaries or
affecting any of its properties or businesses shall be pending or threatened
before or by any court or federal or state commission, board or other
administrative agency, domestic or foreign, wherein an unfavorable decision,
ruling or finding could have a material adverse effect, except as set forth in
the Offering Documents or in the Schedules of this Agreement.

         D. Subject to the filing of any necessary state "Blue Sky" filings, the
Offering will become qualified or be exempt from qualification under the
securities laws of the several states as contemplated by Section 5(B) no later
than the date of the Closing and no stop order suspending the sale of the Notes
shall have been issued, and no proceedings for that purpose shall have been
initiated or threatened.

         E. At each Closing, the Placement Agent shall have received a
certificate of the Company signed by its chief executive officer and chief
financial officer, dated as of the date of such Closing, to the effect that the
conditions set forth in subparagraph (C) above have been satisfied and that, as
of the date of such Closing, the representations and warranties of the Company
set forth herein are true and correct.

         F. At Closing, the Company, the acquisition target and the Placement
Agent shall have executed a non-binding term sheet including all material terms
and provisions acceptable to the Placement Agent providing for an acquisition by
the Company to be consummated no later than thirty (30) days following the
Closing of the Offering.

         G. At each Closing, the Company shall have duly executed and delivered
the appropriate amount of Notes to the respective holders thereof.

         H. At each Closing, the Company shall duly and validly issue the
Warrants and the Placement Agent Warrants in accordance with the terms hereof.

         I. The Company and the Placement Agent shall have executed the
Placement Agent Agreement and the Placement Agent shall have been delivered the
Company's counsel's opinion in accordance therewith.

         J. Employment agreements with key management on the terms and
provisions reasonably acceptable to the Placement Agent shall have been executed
and delivered.

         K. The Company engagement of an independent accounting firm and a legal
firm reasonably acceptable to the Placement Agent.

         L. The Placement Agent shall have received comfort representation from
the Company's bank creditors.

                                       15
<PAGE>

         M. There shall be satisfaction by the Placement Agent, in its sole
discretion, with its ongoing due diligence of the Company and any subsidiaries,
including, but not limited to, the Company's financial condition, business
prospects, acquisition targets, management and Board of Directors. This also
includes satisfactory background examinations of the Company's officers,
directors, controlling persons and key employees.

         N. The appointment of a non-voting observer designated by the Placement
Agent to the Board of Directors of the Company and any Subsidiary shall have
been adopted. Such observer shall be entitled to receive reimbursement for
reasonably incurred expenses and all information as and when received by the
voting Board members so as to enable such observer to discharge his duties and
responsibilities on the Board. Such observer shall remain in place so long as
the Notes remain outstanding.

         O. The Company shall have delivered to the Placement Agent at Closing
an annual projection of its operations, financial position and cash flow of the
Company and any Subsidiary, as approved by the Board of Directors and executive
officers of the Company.

         P. The Company, immediately prior to the Closing of the Minimum
Offering, will furnish Placement Agent with agreements to the effect that for a
period of 12 months after the effective date of the registration statement of
the Company's initial public offering, the persons who are officers, directors
and stockholders who own any outstanding common stock of the Company or warrants
or options to purchase common stock or securities convertible into common stock
will refrain from making any public sale or distribution of their common stock
or such warrants, options or convertible securities (pursuant to Rule 144 or
otherwise) without the prior written consent of the Placement Agent. In
addition, there will be no private transaction involving such securities unless
the proposed transferee agrees to be bound by all the provisions of such
agreement prior to any such private transaction.

9. Termination.

         This Agreement shall terminate if a Closing does not take place on or
before seven (7) business days following the Offering Period. In the event that
the Offering is not successfully completed, then the Company shall immediately
pay to Placement Agent the amount of its out-of-pocket expenses incurred in
connection with the offer of the Securities and pay all non-Blue Sky related
fees of counsel to Placement Agent, up to $35,000. Upon any termination of the
Offering, all subscription documents and payments for the Securities not
previously delivered to the purchasers thereof, shall be returned to the
respective subscribers, without interest thereon or deduction therefrom, and
neither party hereto shall have any further obligation to each other, except as
specifically provided herein.

                                       16
<PAGE>

10. Miscellaneous.

         A. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all which shall be deemed to be
one and the same instrument.

         B. Any notice required or permitted to be given hereunder shall be
given in writing and shall be deemed effective when deposited in the United
States mail, postage prepaid, or when received if personally delivered, sent by
overnight courier or faxed, addressed as follows:

         To JGUN:

                     Joseph Gunnar & Co., LLC
                     30 Broad Street
                     New York, New York 10004
                     Fax:  (212) 440-9668
                     Attention:  Stephan A. Stein

         with a copy to:

                     Cozen O'Connor
                     1667 K Street, NW, Suite 500
                     Washington, DC 20006
                     Fax (202) 912-4830
                     Attention: Ralph V. De Martino, Esq.

         to the Company:

                     Bridgeline Software, Inc.
                     10 Sixth Road
                     Woburn, MA 01801
                     Fax: (781) 497-3033
                     Attention: Thomas Massie

         with a copy to:

                     Morse, Barnes-Brown & Pendleton, P.C.
                     Reservoir Place, 1601 Trapelo Road
                     Waltham, MA 02451
                     Fax: (781) 622-5933
                     Attention: Joseph C. Marrow, Esq.

or to such other address of which written notice is given to the others.

         C. This Agreement shall be governed by and construed in all respects
under the laws of the State of New York, without reference to its conflict of
laws rules or principles. Any suit, action, proceeding or litigation arising out
of or relating to this Agreement shall be brought and prosecuted only in federal
and state courts in the City, County and State of New York. The

                                       17
<PAGE>

parties hereby irrevocably and unconditionally consent to the jurisdiction of
each such court or courts located within the State of New York and to service of
process by registered or certified mail, return receipt requested, or by any
other manner provided by applicable law, and hereby irrevocably and
unconditionally waive any right to claim that any suit, action, proceeding or
litigation so commenced has been commenced in an inconvenient forum.

         D. This Agreement and the other agreements referenced herein contain
the entire understanding between the parties hereto with respect to the subject
Offering and may not be modified or amended except by a writing duly signed by
the party against whom enforcement of the modification or amendment is sought.
The terms and conditions of any other agreement between the Company and
Placement Agent are hereby terminated, and specifically, the October 1, 2005
Letter of Intent between JGUN and the Company (the "Letter of Intent"), as well
as any other any other prior agreement or understanding not set forth herein
between the Company and the Placement Agent are hereby terminated, voided and
made null.

         E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.

                                       18
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                                BRIDGELINE SOFTWARE, INC.

                                                By: /S/ THOMAS L. MASSIE
                                                    --------------------------
                                                    Name: Thomas Massie
                                                    Title: President and CEO

JOSEPH GUNNAR & CO., LLC

By: /S/ STEPHAN A. STEIN
    -------------------------------
    Name: Stephan A. Stein
    Title: Chief Operating Officer

                                       19EXHIBIT 10.20
                                                                   -------------

                           GENERAL SECURITY AGREEMENT

     SECURITY AGREEMENT, dated as of April 21, 2006, between Bridgeline
Software, Inc., a Delaware corporation with offices at 10 Sixth Road, Woburn, MA
01801 (the "Debtor") and the undersigned Individual Investor (or his, her or its
duly authorized agent) (the "Purchaser") .

                              W I T N E S S E T H :
                              ---------------------

     WHEREAS, the Debtor and certain investors (individually, a "Note Holder",
and, collectively, the "Note Holders") are parties to secured promissory notes
issued by the Debtor in the aggregate principal amount of up to $2,250,000 with
an option to issue an additional $550,000 in secured promissory notes (herein,
as at any time amended, extended, restated, renewed or modified, the "Notes");

     WHEREAS, it is a condition to the willingness of the Note Holder to accept
the Notes and make the loan evidenced thereby that the Debtor enter into this
Agreement and grant to each individual Purchaser the security interest provided
for herein; and

     WHEREAS, the Debtor has a certain existing credit line with Sand Hill
Finance, LLC under a Financing Agreement dated, March 29, 2005, as amended (the
"Senior Agreement"), pursuant to which Sand Hill Finance, LLC has a first
priority lien on all of Debtor's assets so long as any obligations are
outstanding under the Senior Agreement.

     NOW, THEREFORE, FOR VALUE RECEIVED, IT IS AGREED:

     Section 1. Terms. Unless otherwise defined herein, capitalized terms used
in this Agreement shall have the meaning specified therefor in the Note. As used
herein the following terms shall have the meanings specified and shall include
in the singular number the plural and in the plural number the singular:

     "Assigned Agreements" shall mean all contracts and agreements of the
Debtor.

     "Collateral" means all of the Debtor's right, title and interest in and
under or arising out of each and all of the following:

          All personal property and fixtures of the Debtor of any type or
     description, wherever located and now existing or hereafter arising or
     acquired, including but not limited to the following:

          (i)     all of the Debtor's goods including, without limitation:

                  (a) all inventory, including without limitation, equipment
                  held for lease, whether raw materials, in process or finished,
                  all material or equipment usable in processing the same and
                  all documents of title
<PAGE>

                  covering any inventory (all of the foregoing, "Inventory"),
                  including without limitation that located at the locations
                  listed on Schedule 1 annexed hereto;

                  (b) all equipment (the "Equipment") employed in connection
                  with the Debtor's business, together with all present and
                  future additions, attachments and accessions thereto and all
                  substitutions therefor and replacements thereof, including
                  without limitation that located at the locations listed on
                  Schedule 1 annexed hereto;

          (ii)    all of the Debtor's present and future accounts, accounts
                  receivable, general intangibles, contracts and contract rights
                  (herein sometimes referred to as "Receivables"), including but
                  not limited to the Debtor's rights (including rights to
                  payment) under all Assigned Agreements, together with

                  (a) all claims, rights, powers or privileges and remedies of
                  the Debtor relating thereto or arising in connection therewith
                  including, without limitation, all rights of the Debtor to
                  make determinations, to exercise any election (including, but
                  not limited to, election of remedies) or option or to give or
                  receive any notice, consent, waiver or approval, together with
                  full power and authority to demand, receive, enforce, collect
                  or receipt for any of the foregoing or any property which is
                  the subject of the Assigned Agreements, to enforce or execute
                  any checks, or other instruments or orders, to file any claims
                  and to take any action which (in the opinion of the Secured
                  Party Representative, as defined herein) may be necessary or
                  advisable in connection with any of the foregoing,

                  (b) all liens, security, guaranties, endorsements, warranties
                  and indemnities and all insurance and claims for insurance
                  relating thereto or arising in connection therewith,

                  (c) all rights to property forming the subject matter of the
                  Receivables including, without limitation, rights to stoppage
                  in transit and rights to returned or repossessed property,

                  (d) all writings relating thereto or arising in connection
                  therewith including without limitation, all notes, contracts,
                  security agreements, guaranties, chattel paper and other
                  evidence of indebtedness or security, all powers-of-attorney,
                  all books, records, ledger cards and invoices, all credit
                  information, reports or memoranda and all evidence of filings
                  or registrations relating thereto,

                                       2
<PAGE>

                  (e) all catalogs, computer and automatic machinery software
                  and programs, and the like pertaining to operations by the
                  Debtor in, on or about any of its plants or warehouses, all
                  sales data and other information relating to sales or service
                  of products now or hereafter manufactured on or about any of
                  its plants, and all accounting information pertaining to
                  operations in, on or about any of its plants, and all media in
                  which or on which any of the information or knowledge or data
                  is stored or contained, and all computer programs used for the
                  compilation or printout of such information, knowledge,
                  records or data, and

                  (f) all accounts, contract rights, general intangibles and
                  other property rights of any nature whatsoever arising out of
                  or in connection with the foregoing, including without
                  limitation, payments due and to become due, whether as
                  repayments, reimbursements, contractual obligations,
                  indemnities, damages or otherwise;

          (iii)   patents, patent applications, copyrights and intellectual
                  property of all description;

          (iv)    all other personal property of the Debtor of any nature
                  whatsoever, including, without limitation, all accounts, bank
                  accounts, deposits, credit balances, contract rights,
                  inventory, general intangibles, goods, equipment, instruments,
                  chattel paper, machinery, furniture, furnishings, fixtures,
                  tools, supplies, appliances, plans and drawings, together with
                  all customer and supplier lists and records of the business,
                  and all property from time to time described in any financing
                  statement (UCC-1) signed by the Debtor naming the Secured
                  Party Representative as secured party; and

          (v)     all additions, accessions, replacements, substitutions or
                  improvements and all products and proceeds including, without
                  limitation, proceeds of insurance, of any and all of the
                  Collateral described in clauses (i) through (iii) above.

     "Instrument" shall have the meaning specified in Article 3 of the Uniform
Commercial Code, as in effect from time to time in the State of New York and
shall also include any other writing which evidences a right to the payment of
money and is not itself a security agreement or lease and is of a type which is
in the ordinary course of business transferred by delivery with any necessary
endorsement or assignment.

     "Lien" means any mortgage, pledge, hypothecation, assignment, security
interest, deposit arrangement, encumbrance (including any easement, right of
way, zoning restriction and the like), lien (statutory or other) or preference,
priority or other security agreement or preferential

                                       3
<PAGE>

arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any financing lease involving substantially the
same economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).

     "Permitted Liens" means:

          (a) Liens for taxes, assessments or other governmental charges or
     levies not at the time delinquent or thereafter payable without penalty or
     being contested in good faith by appropriate proceedings and for which
     adequate reserves in accordance with generally accepted accounting
     principles shall have been set aside on its books;

          (b) Liens of carriers, warehousemen, mechanics, materialmen and
     landlords incurred in the ordinary course of business for sums not overdue
     or being contested in good faith by appropriate proceedings and for which
     adequate reserves shall have been set aside on its books;

          (c) Liens (other than Liens arising under the Employee Retirement
     Income Security Act of 1974, as amended, or Section 412(n) of the Internal
     Revenue Code of 1986, as amended) incurred in the ordinary course of
     business in connection with workers' compensation, unemployment insurance
     or other forms of governmental insurance or benefits, or to secure
     performance of tenders, statutory obligations, leases and contracts (other
     than for borrowed money) entered into in the ordinary course of business or
     to secure obligations on surety or appeal bonds;

          (d) judgment Liens in existence less than 30 days after the entry
     thereof or with respect to which execution has been stayed;

          (e) ground leases in respect of real property on which facilities
     owned or leased by the Debtor or any of its subsidiaries are located;

          (f) easements, rights-of-way, restrictions, minor defects or
     irregularities in title and other similar charges or encumbrances not
     interfering in any material respect with the business of the Debtor and its
     subsidiaries taken as a whole;

          (g) any interest or title of a lessor secured by a lessor's interest
     under any lease of real property on which facilities owned or leased by the
     Debtor or any of its subsidiaries are located;

          (h) leases or subleases granted to others not interfering in any
     material respect with the business of the Debtor and its subsidiaries taken
     as a whole;

                                       4
<PAGE>

          (i) a Lien on any asset securing indebtedness (including capitalized
     lease obligations) incurred or assumed for the purpose of financing the
     purchase price (including capitalized lease payments in the nature thereof)
     of such asset, provided that such Lien attaches only to the asset acquired
     with the proceeds of such indebtedness and attaches concurrently with or
     within ten (10) days following the acquisition thereof;

          (j) any liens set forth on Schedule 2; and

          (k) any liens securing indebtedness or obligations, which liens,
     indebtedness or obligations are approved by the Note Holder in writing.

     "Person" means any natural person, corporation, firm, association,
partnership, joint venture, limited liability company, joint-stock company,
trust, unincorporated organization, government, governmental agency or
subdivision, or any other entity, whether acting in an individual, fiduciary or
other capacity.

     "Receivables" has the meaning specified therefor in clause (ii) of the
definition of Collateral.

     "Secured Obligations" means all obligations of the Debtor, whether for
fees, expenses or otherwise, now existing or hereafter arising under this
Agreement and the Notes.

     Section 2. Security Interests. As security for the payment and performance
of all Secured Obligations the Debtor does hereby grant and assign to each Note
Holder, a continuing security interest in all of the Collateral, whether now
existing or hereafter arising or acquired and wherever located, subject to the
priority, if any, of Permitted Liens.

     Section 3. General Representations, Warranties and Covenants. The Debtor
represents, warrants and covenants, which representations, warranties and
covenants shall survive execution and delivery of this Agreement, as follows:

     (a) This Agreement is made with full recourse to the Debtor and pursuant to
and upon all the warranties, representations, covenants, and agreements on the
part of the Debtor contained herein, in the Note and otherwise made in writing
in connection herewith or therewith.

     (b) Except for the security interest of the Note Holder therein, the Debtor
is, and as to Collateral acquired from time to time after the date hereof the
Debtor will be, the owner of all the Collateral free from any lien, security
interest, encumbrance or other right, title or interest of any Person (other
than Permitted Liens) and the Debtor shall defend the Collateral against all
claims and demands of all Persons at any time claiming the same or any interest
therein adverse to the Note Holder.

                                       5
<PAGE>

     (c) There is no financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) now on file or registered in any
public office covering any interest of any kind in the Collateral, or intended
to cover any such interest, which has not been terminated or released by the
secured party named therein and so long as the Notes remain outstanding or any
of the Secured Obligations of the Debtor remain unpaid, the Debtor will not
execute and there will not be on file in any public office any financing
statement (or similar statement or instrument of registration under the law of
any jurisdiction) or statements relating to the Collateral, except (i) financing
statements filed or to be filed in respect of and covering the security interest
of the Note Holders hereby granted and provided for and (ii) with respect to
Permitted Liens.

     (d) The chief executive office and chief place of business of the Debtor is
located at the address of the Debtor listed on the signature page hereof, and
the Debtor will not move its chief executive office and chief place of business
except to such new location as the Debtor may establish in accordance with the
last sentence of this Section 3(d). The originals of all Assigned Agreements and
all documents (as well as all duplicates thereof) evidencing all Receivables and
all other contract rights or accounts and other property of the Debtor and the
only original books of account and records of the Debtor relating thereto are,
and will continue to be, kept at such chief executive office, or at such new
location as the Debtor may establish in accordance with the last sentence of
this Section 3(d). The Debtor shall establish no such new location until (i) it
shall have given to the Note Holders not less than 30 days' prior written notice
of its intention to do so, clearly describing such new location and providing
such other information in connection therewith as the Note Holders may
reasonably request, and (ii) with respect to such new location, it shall have
taken such action, satisfactory to the Note Holders (including, without
limitation, all action required by Section 7 hereof), to maintain the security
interest of the Note Holders in the Receivables intended to be granted at all
times fully perfected and in full force and effect.

     (e) The Debtor has no Collateral located outside of locations set forth on
Schedule 1 annexed hereto.

     (f) The name of the Debtor is as set forth on the signature page hereto and
the Debtor shall not change such name, conduct its business in any other name or
take title to the Collateral in any other name while this Agreement remains in
effect, without providing the Note Holders no less than 20 days' notice and
making such filings as the Note Holders shall reasonably request. The Debtor has
never had any name, or conducted business under any name in any jurisdiction,
other than its name set forth on the signature page hereto, during the past six
years other than as set forth in Schedule 2 annexed hereto.

     (g) At the Debtor's own expense, the Debtor will: (i) without limiting the
provisions of the Notes, keep the Collateral fully insured at all times with
financially sound and responsible insurance carriers against loss or damage by
fire and other risks, casualties and contingencies and in such manner and to the
same extent that like properties are customarily so insured by other entities
engaged in the same or similar businesses similarly situated and keep

                                       6
<PAGE>

adequate insurance at all times against liability on account of damage to
persons and properties and under all applicable workers' compensation laws, by
insurers and in amounts approved by the Note Holders, for the benefit of the
Debtor and the Note Holders, (ii) upon request by the Note Holders, promptly
deliver the insurance policies or certificates thereof to the Note Holders, and
(iii) keep the Collateral in good condition at all times (normal wear and tear
excepted) and maintain same in accordance with all manufacturer's specifications
and requirements. Upon any failure of the Debtor to comply with its obligations
pursuant to this Section 3(g), each Note Holder may at its option, and without
affecting any of its other rights or remedies provided herein or as a secured
party under the Uniform Commercial Code, procure the insurance protection it
deems necessary and/or cause repairs or modifications to be made to the
Collateral and the cost of either or both of which shall be a lien against the
Collateral added to the amount of the indebtedness secured hereby and payable on
demand with interest at a rate per annum equal to 18%.

     (h) The Debtor hereby assigns to the Note Holders all of Debtor's right,
title and interest in and to any and all moneys which may become due and payable
with respect to the Collateral under any policy insuring the Collateral (except
proceeds relating to tangible personal property which are applied to restoration
or replacement), including return of unearned premium, and shall cause any such
insurance company to make payment directly to the Note Holder for application to
amounts outstanding under the Notes in accordance with the terms of the Notes
and, to the extent not provided therein, in such order as the Note Holders shall
determine.

     (i) The Debtor will not use the Collateral in violation of any statute or
ordinance or applicable insurance policy and will promptly pay all taxes and
assessments levied against the Collateral.

     (j) The Debtor will not sell, transfer, change the registration, if any,
dispose of, attempt to dispose of, substantially modify or abandon the
Collateral or any part thereof other than sales of Inventory in the ordinary
course of business and the disposition of obsolete or worn-out Equipment in the
ordinary course of business.

     (k) The Debtor will not assert against the Note Holders or any Note Holder
any claim or defense which the Debtor may have against any seller of the
Collateral or any part thereof or against any other Person with respect to the
Collateral or any part thereof.

     (l) The Debtor will indemnify and hold the Note Holders and any Note Holder
harmless from and against any loss, liability, damage, costs and expenses
whatsoever arising from the Debtor's use, operation, ownership or possession of
the Collateral or any part thereof.

     (m) The Debtor will maintain the confidentiality of all customer lists and
not sell or otherwise dispose of such lists except that the Debtor shall deliver
copies thereof to each Note Holder upon its request, which may be made at any
time and from time to time after an Event of Default.

                                       7
<PAGE>

     (n) The Debtor will not enter into any agreement that is inconsistent with
the Debtor's obligations under this Agreement, without the prior written consent
of the Note Holders.

     (o) If the Debtor transfer any assets to any subsidiary or affiliate now
existing or hereafter formed, before so doing, it shall cause such person to
sign a guaranty and security agreement covering the secured obligations.

     Section 4. Special Provisions Concerning Assigned Agreements. The Debtor
represents, warrants and agrees as follows:

     (a) The Assigned Agreements constitute the legal, valid and binding
obligations of the Debtor and, to the best of its knowledge, the other parties
thereto, enforceable in accordance with their respective terms.

     (b) The Debtor will use its best efforts to faithfully abide by, perform
and discharge each and every material obligation, covenant and agreement to be
performed by the Debtor under the Assigned Agreements.

     (c) At the request of the Note Holders, and at the sole cost and expense of
the Debtor, the Debtor will enforce or secure the performance of each and every
material obligation, covenant, condition and agreement contained in the Assigned
Agreements to be performed by the other parties thereto.

     (d) The Debtor will not modify, amend or agree to vary any of the Assigned
Agreements in any material respect other than in the ordinary course of
business, or otherwise act or fail to act in a manner likely (directly or
indirectly) to entitle any party thereto to claim that the Debtor is in default
under the terms thereof.

     (e) The Debtor will not terminate or permit the termination of any Assigned
Agreement, except in accordance with its terms, other than in the ordinary
course of business.

     (f) Without the prior written consent of the Note Holders, the Debtor will
not, other than in the ordinary course of business, waive or in any manner
release or discharge any party to any Assigned Agreement from any of the
material obligations, covenants, conditions and agreements to be performed by it
under such Assigned Agreement including, without limitation, the obligation to
make all payments in the manner and at the time and places specified.

     (g) If a Note Holder so requests after the occurrence of an Event of
Default, the Debtor will hold any payments received by it which are assigned and
set over to the Note Holder by this Agreement for and on behalf of such Note
Holder and turn them promptly over to such Note Holder forthwith in the same
form in which they are received (together with any necessary endorsement) for
application to amounts outstanding under the Notes in accordance with the terms

                                       8
<PAGE>

of the Notes and, to the extent not provided therein, in such order as such Note
Holder shall determine.

     (h) The Debtor will appear in and defend every action or proceeding arising
under, growing out of or in any manner connected with the Assigned Agreements or
the obligations, duties or liabilities of the Debtor and any assignee
thereunder.

     (i) Should the Debtor fail to make any payment or to do any act as herein
provided after 15 days' notice by the Note Holders, the Note Holders may (but
without obligation on the Note Holders' part to do so and without notice to or
demand on the Debtor and without releasing the Debtor from any obligation
hereunder) make or do the same in such manner and to such extent as the Note
Holders may deem necessary to protect the security interests provided hereby,
including specifically, without limiting the general powers, the right to appear
in and defend any action or proceeding purporting to affect the security
interests provided hereby and the Debtor, and the Note Holders may also perform
and discharge each and every obligation, covenant and agreement of the Debtor
contained in any Assigned Agreement and, in exercising any such powers, pay
necessary costs and expenses, employ counsel and incur and pay reasonable
attorneys' fees.

     (j) Upon the request of the Note Holders, the Debtor will send to the Note
Holders copies of all notices, documents and other papers furnished or received
by it with respect to any of the Assigned Agreements.

     Section 5. Special Provisions Concerning Receivables. (a) As of the time
when each Receivable arises, the Debtor shall be deemed to have warranted as to
each such Receivable that such Receivable and all papers and documents relating
thereto are genuine and in all respects what they purport to be, and that all
papers and documents relating thereto:

          (i) will be signed by the account debtor named therein (or such
     account debtor's duly authorized agent) or otherwise be binding on the
     account debtor;

          (ii) will represent the genuine, legal, valid and binding obligation
     of the account debtor evidencing indebtedness unpaid and owed by such
     account debtor arising out of the performance of labor or services or the
     sale and delivery of merchandise or both;

          (iii) to the extent evidenced by writings, will be the only original
     writings evidencing and embodying such obligation of the account debtor
     named therein; and

          (iv) will be in compliance and will conform with all applicable
     federal, state and local laws (including applicable usury laws) and
     applicable laws of any relevant foreign jurisdiction.

                                       9
<PAGE>

     (b) The Debtor will keep and maintain at the Debtor's own cost and expense
satisfactory and complete records of the Receivables, including, but not limited
to, records of all payments received, all credits granted thereon, all
merchandise returned and all other dealings therewith, and the Debtor will make
the same available to the Note Holders, at the Debtor's own cost and expense, at
any and all reasonable times upon demand of the Note Holders. The Debtor shall,
at the Debtor's own cost and expense, deliver the Receivables (including,
without limitation, all documents evidencing the Receivables) and such books and
records to each Note Holder or to its representatives upon its demand at any
time after the occurrence of an Event of Default and, if prior to the Maturity
Date, Acceleration shall exist. If the Note Holder shall so request, the Debtor
shall legend, in form and manner satisfactory to the Note Holder, the
Receivables and other books, records and documents of the Debtor evidencing or
pertaining to the Receivables with an appropriate reference to the fact that the
Receivables have been assigned to the Note Holders and that the Note Holders
have a security interest therein.

     (c) Except in the ordinary course of business prior to an Event of Default
and, if prior to the Maturity Date, Acceleration shall exist, the Debtor will
not rescind or cancel any indebtedness evidenced by any Receivable or modify any
term thereof or make any adjustment with respect thereto, or extend or renew the
same, or compromise or settle any dispute, claim, suit or legal proceeding
relating thereto, or sell any Receivable or interest therein, without the prior
written consent of the Note Holders, except that the Debtor may grant discounts
in connection with the prepayment of any Receivable in an amount which is
customary in the line of business in which the Debtor is engaged and consistent
with the Debtor's past practices.

     (d) The Debtor will duly fulfill all obligations on its part to be
fulfilled under or in connection with the Receivables and will do nothing to
impair the rights of the Note Holders in the Receivables.

     (e) The Debtor shall endeavor to collect or cause to be collected from the
account debtor named in each Receivable, as and when due (including, without
limitation, Receivables which are delinquent, such Receivables to be collected
in accordance with generally accepted lawful collection procedures) any and all
amounts owing under or on account of such Receivable, and credit forthwith (on a
daily basis) upon receipt thereof all such amounts as are so collected to the
outstanding balance of such Receivable. The costs and expenses (including
attorney's fees) of collection, whether incurred by the Debtor or the Note
Holders, shall be borne by the Debtor.

     (f) If any of the Receivables becomes evidenced by an Instrument (other
than a check received in payment of a Receivable and deposited in the ordinary
course of business), the Debtor will notify the Note Holders thereof, and, upon
request by the Note Holders, promptly deliver such Instrument to the Note
Holders appropriately endorsed to the order of the Note Holders as further
security for the satisfaction in full of the Secured Obligations.

                                       10
<PAGE>

     (g) Upon request of the Note Holders, at any time when an Event of Default
and, if prior to the Maturity Date, Acceleration shall exist, the Debtor shall
promptly notify (in manner, form and substance satisfactory to the Note Holders)
all Persons who are at any time obligated under any Receivable that the Note
Holders possess a security interest in such Receivable and that all payments in
respect thereof are to be made to such account as the Note Holders direct.

     Section 6. Special Provisions Concerning Equipment. The Debtor will do
nothing to impair the rights of the Note Holders in the Equipment. The Debtor
shall cause the Equipment to at all times constitute and remain personal
property. The Debtor will at all times keep all Equipment insured with
financially responsible insurance companies in favor of the Note Holders, at the
expense of the Debtor, against such perils and in such amounts as are customary
for Persons in the same general line of business as the Debtor and operating in
similar geographic locations and markets. If the Debtor shall fail to insure the
Equipment to the Note Holders' reasonable satisfaction, or if the Debtor shall
fail so to endorse and deposit all policies or certificates with respect
thereto, the Note Holders shall have the right (but shall be under no
obligation) for and on behalf of the Note Holders to procure such insurance and
the Debtor agrees to reimburse the Note Holders for all costs and expenses of
procuring such insurance, together with interest at a rate per annum equal to
18%. The Note Holders may apply any proceeds of such insurance when received by
it pursuant to the terms of this Section 6 or Section 3(h) hereof toward the
payment of any of the Secured Obligations, whether or not the same shall then be
due. The Debtor retains all liability and responsibility in connection with the
Equipment and the liability of the Debtor to pay the Secured Obligations shall
in no way be affected or diminished by reason of the fact that such Equipment
may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable
to the Debtor.

     Section 7. Financing Statements; Documentary Stamp Taxes. (a) The Debtor
will, at its own expense, make, execute, endorse, acknowledge, file and/or
deliver to the Note Holders from time to time such lists, descriptions and
designations of Inventory, warehouse receipts, bills of lading, documents of
title, vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports and other assurances or instruments and take such further steps relating
to the Collateral and other property or rights covered by the security interest
hereby granted, which the Note Holders deem appropriate or advisable to perfect,
preserve or protect its security interest in the Collateral. The Debtor hereby
constitutes the Note Holders as its attorney-in-fact to execute and file in the
name and on behalf of the Debtor such additional financing statements and other
documents as the Note Holders may reasonably request, such acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an interest,
is irrevocable until the Secured Obligations are paid in full. Further, to the
extent permitted by applicable law, the Debtor authorizes the Note Holders to
file any such financing statements and other documents without the signature of
the Debtor or to execute the same on behalf of the Debtor. The Debtor will pay
all applicable filing fees and related expenses in connection with any such
financing statements.

     (b) The Debtor agrees to procure, pay for, affix to any and all documents
and cancel any documentary tax stamps required by and in accordance with,
applicable law and the

                                       11
<PAGE>

Debtor will indemnify and hold the Note Holders and any Note Holders harmless
against any liability (including interest and penalties) in respect of such
documentary stamp taxes.

     Section 8. Special Provisions Concerning Remedies and Sale. In addition to
any rights and remedies now or hereafter granted under applicable law and not by
way of limitation of any such rights and remedies, upon the occurrence of an
Event of Default the Note Holders shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as enacted in any applicable
jurisdiction in addition to the rights and remedies provided herein, in the Note
and in any other agreement executed in connection with the Note whereby the
Debtor has granted any Lien to the Note Holders. Without in any way limiting the
foregoing, upon the giving of notice to the Debtor of the Note Holders' intent
to pursue any one or all of the following or any other remedies (it being
understood that the Note Holders will take the same actions under this Security
Agreement):

     (a) Upon the occurrence of an Event of Default, the Note Holders shall have
all of the rights and remedies of a secured party under the Uniform Commercial
Code as enacted in any applicable jurisdiction in addition to the rights and
remedies provided herein, in the Note and any other document whereby the Debtor
has granted any Lien to the Note Holders. The Note Holders shall have the right,
without further notice to, or assent by, the Debtor, in the name of the Debtor
or in the name of the Note Holders or otherwise:

          (i) to ask for, demand, collect, receive, compound and give
     acquittance for the Receivables or any part thereof;

          (ii) to extend the time of payment of, compromise or settle for cash,
     credit or otherwise, and upon any terms and conditions, any of the
     Receivables;

          (iii) to endorse the name of the Debtor on any checks, drafts or other
     orders or instruments for the payment of moneys payable to the Debtor which
     shall be issued in respect of any Receivable;

          (iv) to file any claims, commence, maintain or discontinue any
     actions, suits or other proceedings deemed by the Note Holders necessary or
     advisable for the purpose of collecting or enforcing payment of any
     Receivable;

          (v) to make test verifications of the Receivables or any portion
     thereof;

          (vi) to notify any or all account debtors under any or all of the
     Receivables to make payment thereof directly to the Note Holders for the
     account of the Note Holders and to require the Debtor to forthwith give
     similar notice to the account debtors;

                                       12
<PAGE>

          (vii) to require the Debtor forthwith to account for and transmit to
     the Note Holders in the same form as received all proceeds (other than
     physical property) of collection of Receivables received by the Debtor and,
     until so transmitted, to hold the same in trust for the Note Holders and
     not commingle such proceeds with any other funds of the Debtor;

          (viii) to take possession of any or all of the Collateral and, for
     that purpose, to enter, upon reasonable notice, with the aid and assistance
     of any Person or Persons and with or without legal process, any premises
     where the Collateral, or any part thereof, are, or may be, placed or
     assembled, and to remove any of such Collateral;

          (ix) to execute any instrument and do all other things necessary and
     proper to protect and preserve and realize upon the Collateral and the
     other rights contemplated hereby;

          (x) upon reasonable notice to such effect, to require the Debtor to
     deliver, at the Debtor's expense, any or all Collateral to the Note Holders
     at a place designated by the Note Holders; and

          (xi) without obligation to resort to other security, at any time and
     from time to time, to sell, re-sell, assign and deliver all or any of the
     Collateral, in one or more parcels at the same or different times, and all
     right, title and interest, claim and demand therein and right of redemption
     thereof, at public or private sale, for cash, upon credit or for future
     delivery, and at such price or prices and on such terms as the Note Holders
     may determine, with the amounts realized from any such sale to be applied
     to the Secured Obligations in the manner determined by the Note Holders.

The Debtor hereby agrees that all of the foregoing may be effected without
demand, advertisement or notice (except as otherwise provided herein or as may
be required by law), all of which (except as otherwise provided) are hereby
expressly waived, to the extent permitted by law. The Note Holders shall not be
obligated to do any of the acts hereinabove authorized, but in the event that
the Note Holder elects to do any such act, the Note Holder shall not be
responsible to the Debtor except for their gross negligence or willful
misconduct.

     (b) the Note Holders may take legal proceedings for the appointment of a
receiver or receivers (to which the Note Holders shall be entitled as a matter
of right) to take possession of the Collateral pending the sale thereof pursuant
either to the powers of sale granted by this Agreement or to a judgment, order
or decree made in any judicial proceeding for the foreclosure or involving the
enforcement of this Agreement. If, after the exercise of any or all of such
rights and remedies, any of the Secured Obligations shall remain unpaid, the
Debtor shall remain liable for any deficiency. After the indefeasible payment in
full of the Secured Obligations, any proceeds of the Collateral received or held
by the Note Holders shall be turned over to the

                                       13
<PAGE>

Debtor and the Collateral shall be reassigned to the Debtor by the Note Holders
without recourse to the Note Holders and without any representations, warranties
or agreements of any kind.

     (c) Upon any sale of any of the Collateral, whether made under the power of
sale hereby given or under judgment, order or decree in any judicial proceeding
for the foreclosure or involving the enforcement of this Agreement:

          (i) the Note Holders may, to the extent permitted by law, bid for and
     purchase the property being sold, and upon compliance with the terms of
     sale may hold, retain and possess and dispose of such property in its own
     absolute right without further accountability, and may, in paying the
     purchase money therefor, deliver any Note or claims for interest thereon
     and any other instruments evidencing the Secured Obligations or agree to
     the satisfaction of all or a portion of the Secured Obligations in lieu of
     cash in payment of the amount which shall be payable thereon, and the Note
     and such instruments, in case the amounts so payable thereon shall be less
     than the amount due thereon, shall be returned to the Note Holders after
     being appropriately stamped to show partial payment;

          (ii) the Note Holders may make and deliver to the purchaser or
     purchasers a good and sufficient deed, bill of sale and instrument of
     assignment and transfer of the property sold;

          (iii) the Note Holders are hereby irrevocably appointed the true and
     lawful attorney-in-fact of the Debtor in its name and stead, to make all
     necessary deeds, bills of sale and instruments of assignment and transfer
     of the property thus sold and for such other purposes as are necessary or
     desirable to effectuate the provisions (including, without limitation, this
     Section 8) of this Agreement, and for that purpose they may execute and
     deliver all necessary deeds, bills of sale and instruments of assignment
     and transfer, and may substitute one or more Persons with like power, the
     Debtor hereby ratifying and confirming all that its said attorney, or such
     substitute or substitutes, shall lawfully do by virtue hereof; but if so
     requested by the Note Holderss or by any purchaser, the Debtor shall ratify
     and confirm any such sale or transfer by executing and delivering to the
     Note Holderss or to such purchaser all property, deeds, bills of sale,
     instruments or assignment and transfer and releases as may be designated in
     any such request;

          (iv) all right, title, interest, claim and demand whatsoever, either
     at law or in equity or otherwise, of the Debtor of, in and to the property
     so sold shall be divested; such sale shall be a perpetual bar both at law
     and in equity against the Debtor, its successors and assigns, and against
     any and all Persons claiming or who may claim the property sold or any part
     thereof from, through or under the Debtor, its successors or assigns;

                                       14
<PAGE>

          (v) the receipt of the Note Holders or of the officer thereof making
     such sale shall be a sufficient discharge to the purchaser or purchasers at
     such sale for his or their purchase money, and such purchaser or
     purchasers, and his or their assigns or personal representatives, shall
     not, after paying such purchase money and receiving such receipt of the
     Note Holders or of such officer therefor, be obliged to see to the
     application of such purchase money or be in any way answerable for any
     loss, misapplication or non-application thereof; and

          (vi) to the extent that it may lawfully do so, and subject to any
     legal requirement that the Note Holders act in a commercially reasonable
     manner, the Debtor agrees that it will not at any time insist upon, or
     plead, or in any manner whatsoever claim or take the benefit or advantage
     of, any appraisement, valuation, stay, extension or redemption laws, or any
     law permitting it to direct the order in which the Collateral or any part
     thereof shall be sold, now or at any time hereafter in force, which may
     delay, prevent or otherwise affect the performance or enforcement of this
     Agreement, the Note or any other agreement executed in connection with the
     Note whereby the Debtor has granted any Lien to the Note Holders, and the
     Debtor hereby expressly waives all benefit or advantage of any such laws
     and covenants that it will not hinder, delay or impede the execution of any
     power granted or delegated to the Note Holders in this Agreement, but will
     suffer and permit the execution of every such power as though no such laws
     were in force. In the event of any sale of Collateral pursuant to this
     Section, the Note Holders shall, at least 10 days before such sale, give
     the Debtor written, telecopied or telex notice of its intention to sell.

     Section 9. Application of Moneys. (a) Except as otherwise provided herein
or in the Note, all moneys which the Note Holders shall receive, in accordance
with the provisions hereof, shall be applied (to the extent thereof) in the
following manner: First, to the payment of all costs and expenses reasonably
incurred in connection with the administration and enforcement of, or the
preservation of any rights under, this Agreement or any of the reasonable
expenses and disbursements of the Note Holders (including, without limitation,
the reasonable fees and disbursements of its counsel and agents); Second, to the
payment of all Secured Obligations arising out of the Notes and, if not therein
provided, in such order as the Note Holders may determine; and Third, to the
payment of all other Secured Obligations in such order as the Note Holders may
determine.

     (b) If after applying any amounts which the Note Holders have received in
respect of the Collateral any of the Secured Obligations remain unpaid, the
Debtor shall continue to be liable for any deficiency, together with interest.

     Section 10. Fees and Expenses, etc. Any and all fees, costs and expenses of
whatever kind or nature, including but not limited to the reasonable attorneys'
fees and legal expenses incurred by the Note Holders in connection with the
enforcement of this Agreement, the filing or recording of any documents
(including all taxes in connection therewith) in public offices,

                                       15
<PAGE>

the payment or discharge of any taxes, counsel fees, maintenance fees, fees and
other costs relating to the encumbrances or otherwise protecting, maintaining,
preserving the Collateral, or in defending or prosecuting any actions or
proceedings arising out of or related to the Collateral, shall be borne and paid
by the Debtor on written demand by the Note Holders setting forth in reasonable
detail the nature of such expenses and until so paid shall be added to the
principal amount of the Secured Obligations and shall bear interest at a rate
per annum equal to 18%. In addition, the Debtor will pay, and indemnify and hold
the Note Holders and any Note Holder harmless from and against, any and all
liabilities, obligations, losses, damages penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the Collateral, including (without limitation) claims of patent or trademark
infringement and any claim of unfair competition or anti-trust violation.

     Section 11. Subordination to Senior Agreement. The Debtor and the Purchaser
hereby understand and agree that the obligations of the Debtor to pay the
principal and accrued interest on the Notes are expressly made subordinate and
junior in right of payment to the obligations of the Debtor owing to Sand Hill
Finance, LLC under the Senior Agreement. Debtor will not make, and Purchaser
will not accept, any payment on account of the Notes, at any time that an Event
of Default has occurred and is continuing. The Security Interest granted under
this Agreement is junior to the security interest granted under the Senior
Agreement so long as any obligations are outstanding under the Senior Agreement.
This paragraph may not be amended or waived as long as any obligations are
outstanding under the Senior Agreement.

     Section 12. Miscellaneous. All notices, communications and distributions
hereunder shall be in writing (including telecopied communication) and mailed by
certified mail, telecopied, personally delivered or delivered by Federal Express
or other reputable overnight courier service, if to the Debtor addressed to it
at its address set forth opposite its signature below, if to the Note Holders,
addressed to it at its address set forth opposite its signature below, or as to
either party at such other address as shall be designated by such party in a
written notice to such other party complying as to delivery with the terms of
this Section. All such notices and other communications shall be effective (i)
if mailed by certified mail, three days after the date of deposit thereof with
the U.S. Postal Service, properly addressed with postage prepaid, (ii) if
telecopied, upon receipt by the addressee, (iii) if personally delivered, upon
such delivery and (iv) if delivered by overnight courier service, on the
business day following delivery thereof to such courier service in time for
next-business-day delivery.

     (b) No delay on the part of the Note Holders in exercising any of its
rights, remedies, powers and privileges hereunder or partial or single exercise
thereof, shall constitute a waiver thereof, except if, and in such case only to
the extent which, such failure prejudices or damages the Debtor. None of the
terms and conditions of this Agreement may be changed, waived, modified or
varied in any manner whatsoever unless in writing duly signed by the Debtor and
the Note Holders. No notice to or demand on the Debtor in any case shall entitle
the Debtor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of any of

                                       16
<PAGE>

the rights of the Note Holders to any other or further action in any
circumstances without notice or demand.

     (c) The obligations of the Debtor hereunder shall remain in full force and
effect without regard to, and shall not be impaired by, (i) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation
or the like of the Debtor; (ii) any exercise or non-exercise, or any waiver of,
any right, remedy, power or privilege under or in respect of the Note, this
Agreement or any other agreement executed in connection with the Note whereby
the Debtor has granted any Lien to the Note Holders or any other agreement
executed in connection with any of the foregoing, the Secured Obligations or any
security for any of the Secured Obligations; or (iii) any amendment to or
modification of any of the foregoing; whether or not the Debtor shall have
notice or knowledge of any of the foregoing. The rights and remedies of the Note
Holders herein provided are cumulative and not exclusive of any rights or
remedies which the Note Holders would otherwise have.

     (d) This Agreement shall be binding upon the Debtor and its successors and
assigns and shall inure to the benefit of the Note Holders and their successors
and assigns, except that the Debtor may not transfer or assign any of its
obligations, rights or interest hereunder without the prior written consent of
the Note Holders, and any such purported assignment by the Debtor shall be void.
All agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement.

     (e) The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.

     (f) Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

     (g) All rights, remedies and powers provided by this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and the provisions hereof are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they will not render this
Agreement invalid, unenforceable in whole or in part or not entitled to be
recorded, registered or filed under the provisions of any applicable law.

     (h) Except to the extent that matters of title, or creation, perfection and
priority of the security interests created hereby, or procedural issues of
foreclosure are required to be governed by the laws of the state in which the
Collateral, or part thereof, is located, this Agreement shall be governed by and
construed in all respects under the laws of the State of New York, without

                                       17
<PAGE>

reference to its conflict of laws rules or principles. Any suit, action,
proceeding or litigation arising out of or relating to this Agreement shall be
brought and prosecuted only in federal and state courts in the City, County and
State of New York. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of each such court or courts located within the State of New
York and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum. EACH PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING,
COUNTERCLAIM OR OTHER LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, THE NOTES OR ANY FINANCING DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF ANY SUCH PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
SECURED PARTIES' ENTERING INTO THIS AGREEMENT.

     (i) It is expressly agreed, anything herein, in the Note or in any other
agreement or instrument executed in connection with the Note to the contrary
notwithstanding, that the Debtor shall remain liable to perform all of the
obligations, if any, assumed by it with respect to the Collateral and the Note
Holders shall not have any obligations or liabilities with respect to any
Collateral by reason of or arising out of this Agreement, nor shall the Note
Holder be required or obligated in any manner to perform or fulfill any of the
obligations of the Debtor under or pursuant to any or in respect of any
Collateral.

     (j) This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which counterparts taken
together shall be deemed to constitute one and the same instrument.

                                       18
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

Addresses                              BRIDGELINE SOFTWARE, INC.
---------                              as Debtor
10 Sixth Rd.
Woburn, MA 01801                       By: /S/ THOMAS MASSIE
                                          -------------------------------------
                                          Name:  Thomas Massie
                                          Title: President, Chief Executive
                                                 Officer

                                       NOTEHOLDERS

                                       By: /S/ STEPHAN A. STEIN
                                          -------------------------------------
                                          Name: Stephan A. Stein,
                                          Title: Member, Joseph Gunnar & Co.,
                                                 LLC, on behalf of Noteholders

                                       19
<PAGE>

SCHEDULE 1.
LOCATION OF CERTAIN INVENTORY AND EQUIPMENT COLLATERAL
------------------------------------------------------

Bridgeline has two (2) Capital Lease Master Agreements with Bank of America
Leasing and Fidelity Capital Leasing.

The lease lines are both active as of April 6, 2006. The leases are used to
finance computer and telephone equipment as well as some office furniture. The
leasing companies have filed UCC-l's on all equipment financed under the
Agreements. The lease terms are either three (3) or five (5) years with a $1.00
buy out.

A summary of the Lease balances is below:

As of April 6, 2006                Master Lease           Leases Outstanding
--------------------------------------------------------------------------------

Capital Lease-Bank of America        100,000                   41,385

Capital Lease-Fidelity Capital       250,000                   125,902
--------------------------------------------------------------------------------

SCHEDULE 2.
EXISTING FINANCING STATEMENTS
-----------------------------
[LIST ALL FINANCING STATEMENTS
------------------------------

Pursuant to the Financing Agreement between the Company and Sand Hill Finance,
Inc., dated March 29, 2005, Sand Hill Finance has a first priority lien on all
of the assets of the Company.

                                       20

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