SECOND LOAN MODIFICATION AGREEMENT

 

This Second Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of November 27, 2006, by and between SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054, and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 (“Bank”) and DATAWATCH CORPORATION, a Delaware corporation, and DATAWATCH TECHNOLOGIES CORPORATION, a Delaware corporation, each with its chief executive office located at 271 Mill Road, Quorum Office Park, Chelmsford, Massachusetts ###-###-#### (individually, collectively, jointly and severally, “Borrower”).

 

1.  DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of April 20, 2006, evidenced by, among other documents, a certain Loan and Security Agreement dated as of April 20, 2006, between Borrower and Bank, as amended by that certain First Loan Modification Agreement dated as of August 2, 2006 (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

2.  DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Bank, including, without limitation, the IP Security Agreement, the “Security Documents”).

 

Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.              DESCRIPTION OF CHANGE IN TERMS.

 

A.

Modifications to Loan Agreement.

 

1.

The Loan Agreement shall be amended by deleting the following Section 2.3(a) thereof, entitled “Interest Rate,” in its entirety:

 

“(a)

Interest Rate. Subject to Section 2.3(b), the principal amount of Advances outstanding under the Formula Line shall accrue interest at a floating per annum rate equal to one half of one percentage point (0.5%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below. Notwithstanding the foregoing, during the Covenant Suspension Period and through the date which is five (5) days after the termination of the Covenant Suspension Period, subject to Section 2.3(b), the principal amount of Advances outstanding under the Formula Line shall accrue interest at a floating per annum rate equal to one and one half of one percentage point (1.5%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below. Subject to Section 2.3(b), the principal amount of Advances outstanding under the Non-Formula Line shall accrue interest at a floating per annum rate equal to one percentage point (1.0%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.”

 

and inserting in lieu thereof the following:

 

“(a)

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

 

2.

The Loan Agreement shall be amended by deleting the following Section 6.7(b) thereof, in its entirety:

 

“(b)

Minimum Consolidated Cash Flow. EBITDA less Capital Expenditures of at least (i) One Dollar ($1.00) for the three month period ending March 31, 2006, (ii) Two Hundred Fifty Thousand Dollars ($250,000.00) for each of the three month periods ending April 30, 2006, May 31, 2006, and June 30, 2006, (iii) Five Hundred Thousand Dollars ($500,000.00) for each of the three month periods ending July 31, 2006 and August 31, 2006, (iv) One Dollar ($1.00) for each of the three month periods ending September 30, 2006, October 31, 2006, November 30, 2006, and December 31, 2006, (v) Two Hundred Fifty Thousand Dollars ($250,000.00) for each of the three month periods ending January 31, 2007, February 28, 2007, and March 31, 2007, and (vi) Five Hundred Thousand Dollars ($500,000.00) for the three month period ending April 30, 2007, and for each of the three month periods ending on last day of each month thereafter. Notwithstanding the foregoing, Borrower shall not be required to comply with the financial covenant set forth in this Section 6.7(b) for the months ending July 31, 2006 and August 31, 2006.”

 

and inserting in lieu thereof the following:

 

“(b)

Minimum Consolidated Cash Flow. EBITDA less Capital Expenditures of at least (i) One Dollar ($1.00) for the three month period ending March 31, 2006, (ii) Two Hundred Fifty Thousand Dollars ($250,000.00) for each of the three month periods ending April 30, 2006, May 31, 2006, and June 30, 2006, (iii) Five Hundred Thousand Dollars ($500,000.00) for each of the three month periods ending July 31, 2006 and August 31, 2006, (iv) One Dollar ($1.00) for each of the three month periods ending September 30, 2006, October 31, 2006, November 30, 2006, and December 31, 2006, and (v) Two Hundred Fifty Thousand Dollars ($250,000.00) for the three month period ending January 31, 2007, and for each of the three month periods ending on last day of each month thereafter. Notwithstanding the foregoing, Borrower shall not be required to comply with the financial covenant set forth in this Section 6.7(b) for the months ending July 31, 2006, August 31, 2006, October 31, 2006, or November 30, 2006.”

 

3.

The Loan Agreement shall be amended by deleting the following definition in Section 13.1 thereof:

 

““Covenant Suspension Period” is the period commencing on July 31, 2006 and ending on the date on which Bank receives Borrower’s financial reporting pursuant to Section 6.2 hereof for the month ending September 30, 2006, which financial reporting evidences, in Bank’s sole discretion, Borrower’s compliance with the financial covenants set forth in Section 6.7 hereof as of the month ending September 30, 2006.”

 

and inserting in lieu thereof the following:

 

““Covenant Suspension Period” is the period commencing on July 31, 2006 and ending on the date on which Bank receives Borrower’s financial reporting pursuant to Section 6.2 hereof for the month ending December 31, 2006, which financial reporting evidences, in Bank’s sole discretion, Borrower’s compliance with the financial covenants set forth in Section 6.7 hereof as of the month ending December 31, 2006.”

 

4.

The Loan Agreement shall be amended by inserting the following definition, in alphabetical order, in Section 13.1 thereof:

 

““2006 Closing Date” is November 27, 2006.”

 

5.

The Compliance Certificate appearing as Exhibit D to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit A hereto.

 

B.

Waivers.

 

1.

Bank hereby waives Borrower’s existing defaults under the Loan Agreement by virtue of Borrower’s failure to comply with the financial covenant set forth in Section 6.7(b) thereof (Minimum Consolidated Cash Flow) as of the month ending September 30, 2006. Bank’s waiver of Borrower’s compliance of said financial covenant shall apply only to the foregoing specific period.

 

4.  FEES. Borrower shall pay to Bank a modification fee equal to $5,500.00, which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

 

5.  RATIFICATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENT. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Intellectual Property Security Agreement dated as of April 20, 2006 between Borrower and Bank (the “IP Security Agreement”), and acknowledges, confirms and agrees that the IP Security Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined in the IP Security Agreement, and shall remain in full force and effect.

 

6.  RATIFICATION OF PERFECTION CERTIFICATE. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of April 20, 2006 between Borrower and Bank, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Bank in the Perfection Certificate has not changed, as of the date hereof.

 

7.  AUTHORIZATION TO FILE. Borrower hereby authorizes Bank to file UCC financing statements without notice to Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in order to further perfect or protect Bank’s interest in the Collateral, including a notice that any disposition of the Collateral, by either the Borrower or any other Person, shall be deemed to violate the rights of the Bank under the Code.

 

8.  CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

9.  RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

10.             NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether

 

known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

 

11.  CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

 

12.  JURISDICTION/VENUE. Borrower accepts for itself and in connection with its properties, unconditionally, the exclusive jurisdiction of any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts in any action, suit, or proceeding of any kind against it which arises out of or by reason of this Loan Modification Agreement; provided, however, that if for any reason Bank cannot avail itself of the courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, THE BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE BANK’S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.

 

13.  COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

 

 

 

 

 

 

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

 

 

The undersigned, DATAWATCH INTERNATIONAL LIMITED, ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Deed of Guarantee dated July 11, 2006 (the “Guaranty”) and acknowledges, confirms and agrees that the Guaranty shall remain in full force and effect and shall in no way be limited by the execution of this Loan Modification Agreement, or any other documents, instruments and/or agreements executed and/or delivered in connection herewith.

 

 

By:        /s/ Robert Hagger__________________  

Name:   Robert Hagger                                               

Title:     Director                                                           

 

 

56120/496

 

TO:  SILICON VALLEY BANK                                                       Date:____________________________

FROM:        DATAWATCH CORPORATION

     DATAWATCH TECHNOLOGIES CORPORATION

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

 

Please indicate compliance status by circling Yes/No under “Complies” column.
Reporting Covenant	Required	Complies
Monthly financial statements with Compliance Certificate	Monthly within 30 days	Yes No
Borrowing Base Certificate A/R Agings	Monthly within 30 days	Yes No
Form 10-Q	Earlier of 45 days after Q-end or 5 days after filing with SEC	Yes No
Form 10-K	Earlier of 120 days after FYE or 5 days after filing with SEC	Yes No
Projections, Operating Budgets, and other financial information	Annually and as requested by Bank	Yes No
Audit	Annually	Yes No
The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”) ____________________________________________________________________________

 

 

Financial Covenant	Required	Actual	Complies
Maintain at all times (tested Monthly, on a consolidated basis):
Minimum Adjusted Quick Ratio*	1.25:1.0	_____:1.0	Yes No
Minimum Consolidated Cash Flow**	***	$__________	Yes No
*covenant not to be tested for periods ending 7/31/06, and 8/31/06
**covenant not to be tested for periods ending 7/31/06, 8/31/06, 10/31/06, and 11/30/06
***see Section 6.7 of the Loan and Security Agreement

 

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

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

 

 

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By:  __________________________________ Name: ________________________________ Title: _________________________________

BANK USE ONLY   Received by: ___________________________ authorized signer Date:  ________________________________   Verified: ______________________________  authorized signer Date:  ________________________________   Compliance Status:  Yes    No