-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ac0BrYZ//VbIzpZpDgYNDhRhSNRrgHDpj82+lfjLPI7dwv2q6+/aKqeWbK0/BRoQ MU61EOFZmrPBjVGCozB0+g== 0001072613-01-500259.txt : 20010223 0001072613-01-500259.hdr.sgml : 20010223 ACCESSION NUMBER: 0001072613-01-500259 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATAWATCH CORP CENTRAL INDEX KEY: 0000792130 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 020405716 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19960 FILM NUMBER: 1542059 BUSINESS ADDRESS: STREET 1: TOWER 3, 5TH FLOOR STREET 2: 900 CHELMSFORD STREET CITY: LOWELL STATE: MA ZIP: 01851-8100 BUSINESS PHONE: 978-441-2200 10-Q 1 form10q_10557.txt DATAWATCH CORPORATION FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------------- --------------- COMMISSION FILE NUMBER: 0-19960 DATAWATCH CORPORATION --------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 02-0405716 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 175 CABOT STREET SUITE 503 LOWELL, MASSACHUSETTS 01854 --------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 978-441-2200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Class Outstanding at February 7, 2001 ----- ------------------------------- Common Stock $0.01 par value 11,301,274 ================================================================================ DATAWATCH CORPORATION AND SUBSIDIARIES -------------------------------------- TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements Page # a) Consolidated Condensed Balance Sheets: December 31, and September 30, 2000 3 b) Consolidated Condensed Statements of Operations: Three Months Ended December 31, 2000 and 1999 4 c) Consolidated Condensed Statements of Cash Flows: Three Months Ended December 31, 2000 and 1999 5 d) Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings * Item 2. Changes in Securities and Use of Proceeds 14 Item 3. Default upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders * Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 * No information provided due to inapplicability of item. PART I. Item 1. Financial Statements - ----------------------------- DATAWATCH CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
December 31, September 30, 2000 2000 ------------ ------------ ASSETS CURRENT ASSETS: Cash and equivalents $ 1,917,605 $ 1,695,832 Short-term investments -- 348,121 Accounts receivable, net 7,001,042 7,662,454 Inventories 343,626 395,291 Prepaid expenses 843,594 943,465 ------------ ------------ Total current assets 10,105,867 11,045,163 ------------ ------------ PROPERTY AND EQUIPMENT: Property and equipment 3,814,281 3,805,599 Less accumulated depreciation and amortization (2,618,191) (2,635,005) ------------ ------------ Net property and equipment 1,196,090 1,170,594 ------------ ------------ OTHER ASSETS 1,188,166 945,844 EXCESS OF COSTS OVER NET ASSETS OF ACQUIRED COMPANY 377,877 411,216 ------------ ------------ TOTAL ASSETS $ 12,868,000 $ 13,572,817 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,204,392 $ 2,064,501 Accrued expenses 1,276,403 1,589,423 Borrowings under credit lines 960,000 960,000 Deferred revenue 1,951,011 2,092,002 ------------ ------------ Total current liabilities 6,391,806 6,705,926 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock 94,582 94,083 Additional paid-in capital 20,205,454 20,165,954 Accumulated deficit (13,140,061) (12,666,364) Accumulated other comprehensive loss (543,393) (586,394) ------------ ------------ 6,616,582 7,007,279 Less treasury stock - at cost (140,388) (140,388) ------------ ------------ Total shareholders' equity 6,476,194 6,866,891 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,868,000 $ 13,572,817 ============ ============
See notes to consolidated condensed financial statements. 3 Item 1. Financial Statements (continued) - ----------------------------- DATAWATCH CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended December 31, 2000 1999 ----------- ----------- NET SALES $ 6,052,043 $ 6,710,436 COSTS AND EXPENSES: Cost of sales 1,417,169 1,570,899 Engineering & product development 419,285 406,208 Selling, general and administrative 4,686,944 5,166,005 ----------- ----------- LOSS FROM OPERATIONS (471,355) (432,676) INTEREST EXPENSE (22,026) (41,033) OTHER INCOME, primarily interest 15,959 36,905 FOREIGN CURRENCY GAIN (LOSS) 3,725 (540) ----------- ----------- NET LOSS $ (473,697) $ (437,344) =========== =========== NET LOSS PER COMMON SHARE: Basic and diluted $ (.05) $ (.05) =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and diluted 9,406,165 9,189,638 =========== ===========
See notes to consolidated condensed financial statements. 4 Item 1. Financial Statements (continued) - ---------------------------- DATAWATCH CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended December 31, 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (473,697) $ (437,344) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 249,164 207,123 Loss on disposition of equipment 5,489 -- Changes in current assets and liabilities, net of acquisitions: Accounts receivable 723,447 417,664 Inventories 53,447 28,484 Prepaid advertising and other expenses 105,319 43,403 Accounts payable and accrued expenses (198,688) 118,106 Deferred revenue (156,323) (133,574) ----------- ----------- Net cash provided by (used in) operating activities 308,158 243,862 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and fixtures (175,510) (59,313) Proceeds from sale of equipment - net 2,812 -- Proceeds from sale of short-term investments 348,121 782,646 Purchase of short-term investments -- (588,599) Capitalized software (274,579) (67,875) Other assets 4,218 (33,645) ----------- ----------- Net cash provided by (used in) investing activities (94,938) 33,214 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock -- 2,655 Principal payments on long-term obligations (212) (15,627) Borrowings under credit lines, net -- -- ----------- ----------- Net cash provided by (used in) financing activities (212) (12,972) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 8,765 (37,918) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 221,773 226,186 CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,695,832 1,684,485 ----------- ----------- CASH AND EQUIVALENTS, END OF PERIOD $ 1,917,605 $ 1,910,671 =========== ===========
See notes to consolidated condensed financial statements. 5 Item 1. Financial Statements (continued) - ----------------------------- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements include the accounts of Datawatch Corporation (the "Company") and its wholly owned subsidiaries and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments necessary for fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. 2. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which, as amended, is effective for fiscal years beginning after June 15, 2000. The new standard requires that all companies record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company adopted SFAS No. 133, as required, on October 1, 2000 with no material impact on the Company's consolidated financial statements. The Securities and Exchange Commission has released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which sets forth its views regarding how revenue should be recognized in financial statements. The Company's revenue recognition practices are in conformity with accounting standards generally accepted in the U.S., and the adoption of this bulletin, as required, on October 1, 2000 had no material impact on the Company's consolidated financial statements. 3. Inventories: The Company accounts for its inventories using a standard cost methodology. Inventories were comprised of the following: December 31, September 30, 2000 2000 -------- -------- Materials $201,318 $247,089 Finished goods 142,308 148,202 -------- -------- TOTAL $343,626 $395,291 ======== ======== 4. Comprehensive Income: The following table sets forth the reconciliation of net loss to comprehensive loss: Three Months Ended December 31, 2000 1999 --------- --------- Net loss $(473,697) $(437,344) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments 43,001 (64,374) --------- --------- Comprehensive loss $(430,696) $(501,718) ========= ========= Accumulated other comprehensive loss reported in the condensed consolidated balance sheets consists only of foreign currency translation adjustments. 6 Item 1. Financial Statements (continued) - ----------------------------- 5. Earnings (Loss) per Share: Basic net earnings (loss) per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net earnings (loss) per share reflects the impact, when dilutive, of the exercise of options and warrants using the treasury stock method. For the periods ended December 31, 2000 and December 31, 1999, 13,804 and 272,910 potential shares, respectively, were therefore excluded from the calculation as the effect would be antidilutive. 6. Line of Credit: On January 17, 2001, the Company renewed its two line-of-credit agreements effective December 29, 2000. The two lines provide for working capital borrowings through December 31, 2000, with maximum borrowings up to the lesser of $3,500,000 or 50% to 90% of defined eligible accounts receivable. As of December 31, 2000, the Company had approximately $960,000 outstanding borrowings under these lines. As part of the renewal of the lines of credit, warrants to purchase 70,000 shares of the Company's common stock were issued to Silicon Valley Bank at an exercise price of $0.50 per share. These warrants expire on January 27, 2011. 7. Non-cash issuance of Common Stock: On November 7, 2000, 50,000 shares of common stock, valued at $40,000, were issued to a developer for certain product rights. 8. Segment Information: The Company has determined that it has only one reportable segment meeting the criteria established under SFAS No. 131. The Company's chief operating decision maker, as defined, (determined to be the Chief Executive Officer and the Board of Directors) does not manage any part of the Company separately, and the allocation of resources and assessment of performance is based solely on the Company's consolidated operations and operating results. The following table presents information about the Company's sales by product lines: Three Months Ended December 31, 2000 1999 ----- ----- Monarch and Monarch|ES 59 % 56 % Quetzal|SC 25 28 Third-party and other 16 16 ----- ----- 100 % 100 % ===== ===== The Company's operations are conducted in the U.S. and in Europe (principally in the United Kingdom). The following tables present information about the Company's geographic operations:
Net Sales --------- Domestic Europe Eliminations Total -------- ------ ------------ ----- Q1 FY2001 $ 2,998,403 $ 3,456,085 $ (402,445) $ 6,052,043 Q1 FY2000 3,523,464 3,679,496 (492,524) 6,710,436 Long-lived Assets ----------------- Domestic Europe Eliminations Total -------- ------ ------------ ----- At December 31, 2000 $ 1,913,318 $ 836,065 $ - $ 2,749,383 At September 30, 2000 1,615,423 899,231 - 2,514,654
Export sales aggregated approximately $1,416,000 and $1,385,000, respectively, for the three months ended December 31, 2000 and December 31, 1999. 9. Subsequent event: In January 2001, the Company issued 1,875,000 shares of common stock in a private placement to investors for an aggregate of $1,162,500. 7 Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations --------------------- GENERAL Datawatch Corporation (the "Company" or "Datawatch"), is engaged in the design, development, manufacture, marketing, and support of business computer software. Its products address the enterprise reporting, business intelligence, data replication and help desk markets. Datawatch's principal products are: Monarch, a report mining application that lets users extract and manipulate data from ASCII report files produced on any mainframe, midrange, client/server or PC system; Redwing, a plug-in for Adobe Acrobat that lets users extract text and tables from Adobe PDF documents; Monarch|ES, a configurable enterprise reporting solution that allows an organization to quickly deliver business intelligence and decision support derived from existing reporting systems with no new programming or report writing; Monarch Data Pump, a data replication and migration tool that offers a shortcut for populating and refreshing data marts and data warehouses, for migrating legacy data into new applications and for providing automated delivery of reports in a variety of formats via email; and Quetzal|SC, an integrated help desk and asset management software with advanced service level management capabilities, integrated change management features, business process automation tools and unique user-interface that promotes ease-of-use and ease-of-learning. In the second quarter of fiscal 2001 the Company will introduce Q|SM, a major new release of the Company's service management software, and VorteXML, a data transformation tool that converts ASCII data into valid XML without programming. RESULTS OF OPERATIONS Three Months Ended December 31, 2000 and 1999. - ---------------------------------------------- Net sales for the three months ended December 31, 2000 were $6,052,000 which represents a decrease of $658,000 or approximately 10% from net sales of $6,710,000 for the three months ended December 31, 1999. This decrease in net sales is primarily attributable to two specific factors. First, there was a decrease in the Company's domestic Monarch product sales that accounted for a 5% reduction in the Company's net sales. Second, sales decreased because of the impact of foreign exchange movements on the translation of the financial statements; movements which do not have a cash impact on the Company. Approximately 50% of the Company's sales come from international operations that conduct business in local currencies. Over the past 12 months the dollar has significantly strengthened against these local currencies, resulting in a comparative reduction in excess of 10% for international sales when stated in dollars and a reduction in excess of 5% for the Company's net sales. For the first quarter of fiscal 2001, Monarch and Monarch|ES accounted for approximately 59% of net sales (as compared to 56% of net sales for the first quarter of fiscal 2000), Quetzal|SC accounted for approximately 25% of net sales (as compared to 28% of net sales for the first quarter of fiscal 2000), and third-party products accounted for approximately 16% of net sales (as compared to 16% of net sales for the first quarter of fiscal 2000). Cost of sales for the three months ended December 31, 2000 was $1,417,000 or approximately 23% of net sales which is comparable to cost of sales of $1,571,000 or approximately 23% of net sales for the three months ended December 31, 1999. Engineering and product development expenses were $419,000 for the three months ended December 31, 2000, an increase of $13,000 or approximately 3% from $406,000 for the three months ended December 31, 1999. This increase is primarily 8 attributable to expenses related to the Company's development of its new products including Q|SM, VorteXML and Monarch|ES version 2.5. Selling, general and administrative expenses were $4,687,000 for the three months ended December 31, 2000, a decrease of $479,000 or approximately 9% from $5,166,000 for the three months ended December 31, 1999. As is the case with sales, approximately 50% of the Company's selling, general and administrative expenses are attributable to international subsidiaries that conduct business in their local currencies. Over the past 12 months the dollar has significantly strengthened against these local currencies, resulting in a comparative reduction in excess of 10% for international selling, general, and administrative expenses when stated in dollars. This principally accounts for the reduction in total selling, general and administrative expenses as reported in the Consolidated Statement of Operations. The loss from operations for the three months ended December 31, 2000 was approximately $471,000 which compares to a loss from operations of approximately $433,000 for the three months ended December 31, 1999. The Company has not recorded any benefit for income taxes in either the first quarter of fiscal 2001 or the first quarter of fiscal 2000 on the net loss from operations owing to the Company's conclusion that the realization of such net operating losses was not more likely than not. The net loss for the three months ended December 31, 2000 was $474,000 which compares to a net loss of $437,000 for the three months ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES Working capital decreased by approximately $625,000 during the first quarter of fiscal 2001 primarily as a result of unprofitable operations and investments in capitalized software for Q|SM and Monarch|ES. The net cash provided by operating activities totaled $308,000 for the three months ended December 31, 2000 (as compared to $244,000 for the three months ended December 31, 1999). The investment in capitalized software totaled $315,000 for the three months ended December 31, 2000 (as compared to $68,000 for the three months ended December 31, 1999). The Company's management believes that its currently anticipated capital needs for future operations of the Company will be satisfied through at least September 30, 2001 by funds available under the Company's line of credit agreements and from an equity investment in the Company of $1,162,500 which occurred in January 2001. In January 2001, the Company issued 1,875,000 shares of common stock in a private placement to investors for an aggregate of $1,162,500. The Company's lines of credit, which were renewed effective December 29, 2000 and expire on December 31, 2001, provide for maximum borrowings up to the lesser of $3,500,000 or 50% to 90% of defined eligible accounts receivable. As of December 31, 2000, the Company had approximately $960,000 outstanding borrowings under these lines. Management believes that the Company's current operations are not materially impacted by the effects of inflation. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which, as amended, is effective for fiscal years beginning after June 15, 2000. The new standard requires that all companies record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company adopted SFAS No. 133, as required, on October 1, 2000, with no material impact on the Company's consolidated financial statements. 9 The Securities and Exchange Commission has released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which sets forth its views regarding how revenue should be recognized in financial statements. The Company's revenue recognition practices are in conformity with accounting standards generally accepted in the U.S., and the adoption of this bulletin, as required, on October 1, 2000 has no material impact on the Company's consolidated financial statements. RISK FACTORS The Company does not provide forecasts of its future financial performance. However, from time to time, information provided by the Company or statements made by its employees may contain "forward looking" information that involves risks and uncertainties. In particular, statements contained in this Report on Form 10-Q that are not historical facts (including, but not limited to statements contained in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part I of this Report on Form 10-Q relating to liquidity and capital resources) may constitute forward looking statements and are made under the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The Company's actual results of operations and financial condition have varied and may in the future vary significantly from those stated in any forward looking statements. Factors that may cause such differences include, without limitation, the risks, uncertainties and other information discussed below and within this Report on Form 10-Q, as well as the accuracy of the Company's internal estimates of revenue and operating expense levels. The following discussion of the Company's risk factors should be read in conjunction with the financial statements contained herein and related notes thereto. Such factors, among others, may have a material adverse effect upon the Company's business, results of operations and financial condition. Fluctuations in Quarterly Operating Results The Company's future operating results could vary substantially from quarter to quarter because of uncertainties and/or risks associated with such things as technological change, competition, delays in the introduction of products or product enhancements and general market trends. Historically, the Company has operated with little backlog of orders because its software products are generally shipped as orders are received. As a result, net sales in any quarter are substantially dependent on orders booked and shipped in that quarter. Because the Company's staffing and operating expenses are based on anticipated revenue levels and a high percentage of the Company's costs are fixed in the short-term, small variations in the timing of revenues can cause significant variations in operating results from quarter to quarter. Because of these factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. There can be no assurance that the Company will not experience such variations in operating results in the future or that such variations will not have a material adverse effect on the Company's business, financial condition or results of operation. Dependence on Principal Products For the three months ended December 31, 2000, Monarch and Monarch|ES products and Quetzal|SC products accounted for approximately 59% and 25%, respectively, of the Company's net sales. The Company is substantially dependent on Monarch, Monarch|ES and Quetzal|SC products. As a result, any factor adversely affecting sales of either of these products could have a material adverse effect on the Company. The Company's future financial performance will depend in part on the successful introduction of its new and enhanced versions of these products and development of new versions of these and other products and subsequent acceptance of such new and enhanced products. In addition, competitive pressures or other factors may result in significant price erosion that could have a material adverse effect on the Company's business, financial condition or results of operations. 10 International Sales The Company anticipates that international sales will continue to account for a significant percentage of its net sales. A significant portion of the Company's net sales will therefore be subject to risks associated with international sales, including unexpected changes in legal and regulatory requirements, changes in tariffs, exchange rates and other barriers, political and economic instability, difficulties in account receivable collection, difficulties in managing distributors or representatives, difficulties in staffing and managing international operations, difficulties in protecting the Company's intellectual property overseas, seasonality of sales and potentially adverse tax consequences. Acquisition Strategy Although the Company has no current acquisition plans, it has addressed and may continue to address the need to develop new products, in part, through the acquisition of other companies. Acquisitions involve numerous risks including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has no or limited direct prior experience and where competitors in such markets have stronger market positions, and the potential loss of key employees of the acquired company. Achieving and maintaining the anticipated benefits of an acquisition will depend in part upon whether the integration of the companies' business is accomplished in an efficient and effective manner, and there can be no assurance that this will occur. The successful combination of companies in the high technology industry may be more difficult to accomplish than in other industries. Dependence on New Introductions; New Product Delays Growth in the Company's business depends in substantial part on the continuing introduction of new products. The length of product life cycles depends in part on end-user demand for new or additional functionality in the Company's products. If the Company fails to accurately anticipate the demand for, or encounters any significant delays in developing or introducing, new products or additional functionality on its products, there could be a material adverse effect on the Company's business. Product life cycles can also be affected by the introduction by suppliers of operating systems of comparable functionality within their products. The failure of the Company to anticipate the introduction of additional functionality in products developed by such suppliers could have a material adverse effect on the Company's business. In addition, the Company's competitors may introduce products with more features and lower prices than the Company's products. Such increase in competition could adversely affect the life cycles of the Company's products, which in turn could have a material adverse effect on the Company's business. Software products may contain undetected errors or failures when first introduced or as new versions are released. There can be no assurance that, despite testing by the Company and by current and potential end-users, errors will not be found in new products after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Any failure by the Company to anticipate or respond adequately to changes in technology and customer preferences, or any significant delays in product development or introduction, could have a material adverse effect on the Company's business. Rapid Technological Change The markets in which the Company competes have undergone, and can be expected to continue to undergo, rapid and significant technological change. The ability of the Company to grow will depend on its ability to successfully update and improve its existing products and market and license new products to meet the changing demands of the marketplace and that can compete successfully with the 11 existing and new products of the Company's competitors. There can be no assurance that the Company will be able to successfully anticipate and satisfy the changing demands of the personal computer software marketplace, that the Company will be able to continue to enhance its product offerings, or that technological changes in hardware platforms or software operating systems, or the introduction of a new product by a competitor, will not render the Company's products obsolete. Competition in the PC Software Industry The software market for personal computers is highly competitive and characterized by continual change and improvement in technology. Several of the Company's existing and potential competitors including IBM, Remedy, Actuate and Seagate have substantially greater financial, marketing and technological resources than the Company. No assurance can be given that the Company will have the resources required to compete successfully in the future. Dependence on Proprietary Software Technology The Company's success is dependent upon proprietary software technology. Although the Company does not own any patents on any such technology, it does hold exclusive licenses to such technology and relies principally on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect its rights to such proprietary technology. Despite such precautions, there can be no assurance that such steps will be adequate to deter misappropriation of such technology. Reliance on Software License Agreements Substantially all of the Company's products incorporate third-party proprietary technology which is generally licensed to the Company on an exclusive, worldwide basis. Failure by such third-parties to continue to develop technology for the Company and license such technology to the Company could have a material adverse effect on the Company's business and results of operations. Indirect Distribution Channels The Company sells its products through resellers, none of which are under the direct control of the Company. The loss of major resellers of the Company's products, or a significant decline in their sales, could have a material adverse effect on the Company's operating results. There can be no assurance that the Company will be able to attract or retain additional qualified resellers or that any such resellers will be able to effectively sell the Company's products. The Company seeks to select and retain resellers on the basis of their business credentials and their ability to add value through expertise in specific vertical markets or application programming expertise. In addition, the Company relies on resellers to provide post-sales service and support, and any deficiencies in such service and support could adversely affect the Company's business. Volatility of Stock Price As is frequently the case with the stocks of high technology companies, the market price of the Company's common stock has been, and may continue to be, volatile. Factors such as quarterly fluctuations in results of operations, increased competition, the introduction of new products by the Company or its competitors, expenses or other difficulties associated with assimilating companies acquired by the Company, changes in the mix of sales channels, the timing of significant customer orders, and macroeconomic conditions generally, may have a significant impact on the market price of the stock of the Company. Any shortfall in revenue or earnings from the levels anticipated by securities analysts could have an immediate and significant adverse effect on the market price of the Company's common stock in any given period. In addition, the stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market price for many high technology companies and 12 which, on occasion, have appeared to be unrelated to the operating performance of such companies. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. At December 31, 2000, the Company did not participate in any derivative financial instruments, or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. The Company holds no investment securities which would require disclosure of market risk. Primary Market Risk Exposures. The Company's primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. The Company utilizes U.S. dollar denominated borrowings to fund its operational needs through its $3,500,000 working capital line of credit agreements. The lines, which currently bear an interest rate of prime plus 1% (10.5% at December 31, 2000), are subject to annual renewal. Had the interest rates under the lines of credit been 10% greater or lesser than actual rates, the impact would not have been material in the Company's consolidated financial statements for the period ended December 31, 2000. As of December 31, 2000, the Company had approximately $960,000 in outstanding borrowings under working capital lines. The Company's exposure to currency exchange rate fluctuations has been and is expected to continue to be immaterial due to the fact that the operations of its international subsidiaries are almost exclusively conducted in their respective local currencies. As a result, foreign exchange fluctuations can impact the Company's consolidated results while having no impact on cash flows. Dollar advances to the Company's international subsidiaries, if any, are usually considered to be of a long-term investment nature. Therefore, the majority of currency movements are reflected in the Company's other comprehensive income. There are, however, certain situations where the Company will invoice customers in currencies other than its own. Such gains or losses, whether realized or unrealized, are reflected in income. These have not been material in the past nor does management believe that they will be material in the future. Currently the Company does not engage in foreign currency hedging activities. 13 PART II. Item 2. Changes in Securities and Use of Proceeds - -------------------------------------------------- In November 2000, the Company issued 50,000 shares of Common Stock to Russell Ryan in exchange for the assignment of his right title and interest in certain software he developed pursuant to an Assignment and Consulting Agreement with the Company. No underwriter was involved in the foregoing issuance of Common Stock. Such issuance was made by the Company in reliance upon an exemption from the registration provisions of the Securities Act of 1933 set forth in Section 4(2) thereof as a transaction by an issuer not involving a public offering. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- A. Exhibits 4.1 Warrant to Purchase Stock issued to Silicon Valley Bank, dated January 17, 2001 (filed herewith) (1)4.2 Investment Agreement, dated as of January 12, 2001, by and among Datawatch Corporation, WC Capital, LLC, and Carnegie Hill Associates, LLC (Exhibit 4.1) 10.1 Registration Rights Agreement between Silicon Valley Bank and Datawatch Corporation, dated January 17, 2001 (filed herewith) 10.2 Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated January 17, 2001, by and among Datawatch Corporation, Datawatch International Limited, Datawatch Europe Limited, Guildsoft Limited and Silicon Valley Bank in favor of Export-Import Bank of the United States (filed herewith) 10.3 Second Loan Modification Agreement, dated January 17, 2001, by and between Datawatch Corporation and Silicon Valley Bank, doing business as Silicon Valley East (filed herewith) 10.4 First Loan Modification Agreement (EXIM Line), dated January 17, 2001, by and among Datawatch Corporation, Datawatch International Limited, Datawatch Europe Limited, Guildsoft Limited and Silicon Valley Bank, doing business as Silicon Valley East, in favor of Export-Import Bank of the United States (filed herewith) 10.5 Revolving Promissory Note (Export-Import Line), dated January 17, 2001, by and among Datawatch Corporation, Datawatch International Limited, Datawatch Europe Limited, Guildsoft Limited and Silicon Valley Bank (filed herewith) 10.6 Supplemental Deed of Guarantee, dated January 17, 2001, by and between Datawatch International Limited and Silicon Valley Bank (filed herewith) 10.7 Supplemental Deed of Guarantee, dated January 17, 2001, by and between Datawatch Europe Limited and Silicon Valley Bank (filed herewith) 10.8 Supplemental Deed of Guarantee, dated January 17, 2001, by and between Guildsoft Limited and Silicon Valley Bank (filed herewith) 10.9 Assignment and Consulting Agreement, effective June 30, 2000, by and between Datawatch Corporation and Russell Ryan, also doing business as Edge IT (filed herewith) (1)10.10 Indemnification Agreement between Datawatch Corporation and James Wood, dated January 12, 2001 (Exhibit 10.1) (1)10.11 Indemnification Agreement between Datawatch Corporation and Richard de J. Osborne, dated January 12, 2001 (Exhibit 10.2) - -------------------------------------------------------------------------------- (1) Previously filed as an exhibit to Registrant's Current Report on Form 8-K dated February 2, 2001 and incorporated herein by reference (the number in parenthesis indicates the corresponding exhibit in such Form 8-K) B. Reports on Form 8-K No Current Report on Form 8-K was filed during the quarterly period ended December 31, 2000. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 14, 2001. DATAWATCH CORPORATION /s/ Alan R. MacDougall ------------------------------------ Alan R. MacDougall Vice President of Finance and Chief Financial Officer (Principal Financial Officer) 15 EX-4.1 2 ex4-1_10557.txt WARRANT TO PURCHASE STOCK EXHIBIT 4.1 ----------- THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE STOCK Issuer: Datawatch Corporation, a Delaware corporation Number of Shares: 70,000, subject to adjustment Class of Stock: Common Stock Exercise Price: $ 0.50 per share, subject to adjustment Issue Date: January 17, 2001 Expiration Date: January 17, 2011 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, this Warrant is issued to SILICON VALLEY BANK ("Holder") by DATAWATCH CORPORATION, a Delaware corporation (the "Company"). Subject to the terms and conditions hereinafter set forth, the Holder is entitled upon surrender of this Warrant and the duly executed subscription form annexed hereto as Appendix 1, at the office of the Company, 175 Cabot Street, Suite 503, Lowell, Massachusetts 01851-3633, or such other office as the Company shall notify the Holder of in writing, to purchase from the Company Seventy Thousand (70,000) fully paid and non-assessable shares (the "Shares") of the Company's Common Stock, $.01 par value per share (the "Class"), at a purchase price per Share of Fifty Cents ($0.50) (the "Exercise Price"). Until such time as this Warrant is exercised in full or expires, the Exercise Price and the number of Shares are subject to adjustment from time to time as hereinafter provided. This Warrant may be exercised in whole or in part at any time and from time to time until 5:00 PM, Eastern time January 17, 2011 (the "Expiration Date"). ARTICLE 1. EXERCISE. -------- 1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Exercise Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Exercise Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.4. 1.3 Intentionally Omitted. 1.4 Fair Market Value. 1.4.1 If shares of the Class (or shares of the Company's stock into which shares of the Class are convertible or exchangeable) are traded on a nationally recognized securities exchange or over the counter market, the fair market value of a Share shall be the closing price of a share of the Class (or the closing price of a share of the Company's stock for which shares of the Class are convertible or exchangeable) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. 1.4.2 If shares of the Class (or shares of the Company's stock into which shares of the Class are convertible or exchangeable) are not traded on a nationally recognized securities exchange or over the counter market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. The valuation determined by such investment banking firm shall be conclusive in any event. 1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.7 Assumption Upon Sale, Merger, or Consolidation of the Company. 1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, transfer, exclusive license, or other disposition of all or substantially all of the assets of the Company, or any acquisition, reorganization, consolidation, or merger of the Company where the holders of the Company's outstanding voting equity securities immediately prior to the transaction beneficially own less than 50.1% of the outstanding voting equity securities of the surviving or successor entity immediately following the transaction. 1.7.2. Assumption of Warrant. Upon the closing of any Acquisition the successor or surviving entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Exercise Price shall be adjusted accordingly, and the Exercise Price and number and class of Shares shall continue to be subject to adjustment from time to time in accordance with the provisions hereof. ARTICLE 2. ADJUSTMENTS TO THE SHARES. ------------------------- 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on the outstanding shares of the Class, payable in Common Stock or other securities, or subdivides the outstanding 2 Common Stock into a greater amount of Common Stock of the outstanding shares of the Class into a greater number of shares of the Class, or subdivides the shares of the Class in a transaction that increases the amount of Common Stock into which such shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, reorganization or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, reorganization or other event. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, reorganizations or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Exercise Price shall be proportionately increased and the number of Shares for which this Warrant is exercisable shall be proportionately decreased. 2.4 No Impairment. The Company shall not, by amendment of the Certificate or its by-laws or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. 2.5 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded up to the nearest whole Share. 2.6 Certificate as to Adjustments. Upon each adjustment of the Exercise Price, number of class of Shares or number of shares of Common Stock or other securities for which the Shares are convertible or exchangeable, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Exercise Price, number and class of Shares and conversion ratio in effect upon the date thereof and the series of adjustments leading to such Exercise Price, number and class of Shares and conversion ratio. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. -------------------------------------------- 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: 3 (a) All Shares which may be issued upon the due exercise of this Warrant, and all Common Stock or other securities, if any, issuable upon due conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. (b) The execution and delivery by the Company of this Warrant and the performance of all obligations of the Company hereunder, including the issuance to Holder of the right to acquire the Shares, have been duly authorized by all necessary corporate action on the part of the Company, and this Warrant Agreement is not inconsistent with the Certificate and/or the Company's by-laws, does not contravene any law or governmental rule, regulation or order applicable to it, does not and will not contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms. (c) The authorized capital stock of the Company consists of 21,000,000 shares, consisting of 20,000,000 shares of Common Stock, $.01 par value per share and 1,000,000 shares of Preferred Stock, .01 par value per share. (d) The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued shares such number of shares of its Common Stock and other securities as will be sufficient to permit the exercise in full of this Warrant. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon any of its capital stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of any of its securities; or (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of securities of the Company shall be entitled to receive such dividend, distribution or rights) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; and (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of securities of the Company will be entitled to exchange their securities of the Company for securities or other property deliverable upon the occurrence of such event). 3.3 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the shareholders of the Company, and (b) within one-hundred and twenty (120) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing. 4 ARTICLE 4. MISCELLANEOUS. ------------- 4.1 Automatic Conversion upon Expiration. In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.4 above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to the Holder. 4.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if (a) there is no material question as to the availability of current information as referenced in Rule 144(c), (b) Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, (c) the selling broker represents that it has complied with Rule 144(f), and (d) the Company is provided with a copy of Holder's notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder may transfer all or part of this Warrant and/or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares or The Silicon Valley Bank Foundation, or, to any other transferee by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). 4.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or sent by electronic facsimile transmission, express overnight courier service, or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time, but in all cases, unless instructed in writing otherwise, the Company shall deliver a copy of all notices to Holder to Silicon Valley Bank, Treasury Department, 3003 Tasman Drive, HA-200, Santa Clara, California 95054. 5 4.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to its principles regarding conflicts of law. "COMPANY" ATTEST: DATAWATCH CORPORATION By: By: /s/ Bruce R. Gardner -------------------------------- ----------------------------- Name: Name: Bruce R. Gardner ------------------------------ --------------------------- Title: Title: President ----------------------------- -------------------------- 6 APPENDIX 1 ---------- NOTICE OF EXERCISE ------------------ 1. The undersigned hereby elects to purchase shares of the ____________ stock of __________________ pursuant to Section 1.1 of the attached Warrant, and tenders herewith payment of the Exercise Price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in Section 1.2 of the attached Warrant. This conversion is exercised with respect to ____________ of shares of the ________________________ Stock of ___________________. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------------------------- (Name) ------------------------------------------- ------------------------------------------- (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. ------------------------------------ (Signature) - -------------------- (Date) EX-10.1 3 ex10-1_10557.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.1 ------------ REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is entered into as of January 17, 2001, by and between Silicon Valley Bank ("Purchaser") and Datawatch Corporation, a Delaware corporation (the "Company"). RECITALS A. Concurrently with the execution of this Agreement, Purchaser is acquiring from the Company a Warrant to Purchase Stock (the "Warrant") pursuant to which Purchaser has rights to acquire from the Company the Shares (as defined in the Warrant), which Shares when issued shall be shares of the Company's common stock, $.01 par value per share ("Common Stock"). B. By this Agreement, Purchaser and the Company desire to set forth the registration rights of the Shares as provided herein. NOW, THEREFORE, in consideration of the premises and the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1: (1) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), and the declaration or ordering of effectiveness of such registration statement or document; (2) The term "Registrable Securities" means the Common Stock issuable upon the exercise of the Warrant or other security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of the shares of Common Stock. (3) The terms "Holder" or "Holders" means Purchaser and its qualifying transferees under subsection 1.9 hereof who hold Registrable Securities. (4) The term "SEC" means the Securities and Exchange Commission. (5) The terms "Form S-1," "Form S-3" etc. shall mean those forms with such designations as are required by the SEC and any successor or replacement forms adopted by the SEC. 1.2 Company Registration. (1) Registration. If at any time or from time to time, the Company shall determine to register any of its securities, for its own account other than a registration on Form S-8 relating solely to employee stock option or purchase plans or on Form S-4 relating solely to an acquisition, the Company will: (1) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (2) include in such registration (and qualifications), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 30 days after receipt of such written notice from the Company, by any Holder or Holders, except as set forth in subsection 1.2(c) below. (2) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving a firm-commitment underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to subsection 1.2(a)(i). In such event the right of any Holder to registration pursuant to this subsection 1.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other shareholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form (and not inconsistent with the terms hereof) with the underwriter or underwriters selected for such underwriting by the Company. (3) In the case of any registration of Common Stock by the Company in a firm-commitment underwriting, if the managing underwriters give written advice to the Company that marketing factors require a limitation on the number of shares of Common Stock (or other securities convertible into or exercisable or exchangeable for Common Stock) to be offered and sold by stockholders of Company in such offering, there shall be included in the offering: (i) first, all securities proposed by Company to be sold for its account; and (ii) second, that number of shares of Common Stock, if any, requested to be included in such registration statement by Holders and by other stockholders of the Company having contractual rights to include shares in such registration, on a pro rata basis based upon the number of shares of Common Stock each Holder and each such other stockholder beneficially owns. 1.3 Registration on Form S-3. If at any time (i) the Holder of Registrable Securities requests in writing that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Registrable Securities held by the requesting Holder, (ii) the aggregate price to the public of such offering would reasonably be expected to exceed $200,000, and (iii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Registrable Securities specified in such notice. Whenever the Company is required by this Section 1.3 to use its best efforts to effect the registration of Registrable Securities, each of the procedures and requirements of Section 1.5(d) shall apply to such registration; provided, however, that the Company shall not be obligated to register Registrable Securities under this Section 1.3 on more than one occasion in any six-month period. 1.4 Expenses of Registration. All expenses incurred in connection with any registration, qualification or compliance pursuant to this Section 1 including without limitation, all registration, filing and qualification fees, printing expenses, underwriting fees, discounts and commissions, fees and disbursements of counsel for the Company and expenses of any special audits incidental to or required by such registration, shall be borne by the Company. All expenses of any registered offering not otherwise borne by the Company will be borne pro rata among the Holders, any other shareholders of the Company participating in such offering and the Company. 1.5 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Registration Rights Agreement, the Company will keep each Holder participating therein advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (1) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 120 days (the "Effective Period"). 2 (2) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (3) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (4) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (5) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement provided that all other shareholders of the Company participating in such offering do the same. (6) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 1.6 Indemnification. (1) The Company will indemnify each Holder of Registrable Securities and each of its officers, directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act ("controlling person"), and each underwriter, if any, and each controlling person of such underwriter, with respect to which registration, qualification or compliance of Registrable Securities has been effected pursuant to this Registration Rights Agreement, against all claims, losses, expenses, damages and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder ("Exchange Act") or any state securities law applicable to the Company or any rule or regulation promulgated any such state law and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, within a reasonable amount of time after incurred for any reasonable legal and any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.6(a) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed); and provided further, that the Company will not be liable in any such case 3 to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission made in reliance upon and conformity with written information furnished to the Company by an instrument duly executed by such Holder specifically for use therein. (2) Each Holder will, if Registrable Securities held by or issuable to such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers and controlling persons, each underwriter, if any, of the Company's securities covered by such a registration statement, and each controlling person of such underwriter, and each other Holder, each of its officers, directors, partners and controlling persons, against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, partners, persons or underwriters for any reasonable legal or any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder specifically for use therein; provided, however, that the indemnity agreement contained in this subsection 1.6(b) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Holder, (which consent shall not be unreasonably withheld or delayed); and provided further, that the total amount for which any Holder shall be liable under this subsection 1.6(b) shall not in any event exceed the aggregate net proceeds received by such Holder from the sale of Registrable Securities held by such Holder in such registration. (3) Each party entitled to indemnification under this subsection 1.6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense; and provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations hereunder, unless such failure resulted in prejudice to the Indemnifying Party; and provided further, that an Indemnified Party (together with all other Indemnified Parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (4) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 1.6 is due in accordance with its terms but for any reason is judicially determined to be unenforceable against the Indemnifying Party or otherwise unavailable to the Indemnified Party in respect to any losses, claims, damages and liabilities referred to herein, then the Indemnifying Party shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified party as a result of such losses, claims, damages or liabilities to which such party may be subject in such proportion as is appropriate to reflect the relative fault of the Company, on the one 4 hand, and the selling Holders, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and such selling Holders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement, or omission or alleged omission, of material fact related to the information supplied by the Company or such selling Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and Holders agree that it would not be just and equitable if contribution pursuant to this Section 1.6(d) were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 1.6(d), (i) in no case shall any Holder be liable or responsible for any amount in excess of the net proceeds received by such Holder from the sale of Registrable Securities pursuant to such registration; and (ii) no person adjudged guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not adjudged guilty of such fraudulent misrepresentation. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 1.6(d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not, in the absence of actual prejudice to such party or parties, relieve it or them from such contribution obligation. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent. 1.7 Information by Holder. Any Holder or Holders of Registrable Securities included in any registration shall promptly furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to herein. 1.8 Rule 144 Reporting and Form S-3. With a view to making available to Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form S-3, the Company agrees at all times to: (1) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times; (2) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (3) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (4) so long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, or that it qualify as a registrant whose securities may be resold pursuant to S-3 (at any time after it so qualifies), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as the Holder may reasonably request in complying with any rule or regulation of the SEC allowing the Holder to sell any such securities without registration or pursuant to such form. 5 1.9 Transfer of Registration Rights. Holders' rights to cause the Company to register their securities and keep information available, granted to them by the Company under subsections 1.2, 1.3 and 1.8 may be assigned to a transferee or assignee of a Holder's Registrable Securities not sold to the public, provided, that the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. 2. General. 2.1 Waivers and Amendments. With the written consent of the record or beneficial holders of at least a majority of the Registrable Securities, the obligations of the Company and the rights of the Holders of the Registrable Securities under this agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement; provided, however, that no such modification, amendment or waiver shall reduce the aforesaid percentage of Registrable Securities without the consent of all of the Holders of the Registrable Securities. Upon the effectuation of each such waiver, consent, agreement of amendment or modification, the Company shall promptly give written notice thereof to the record holders of the Registrable Securities who have not previously consented thereto in writing. This Agreement or any provision hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this subsection 2.1. 2.2 Governing Law. This Agreement shall be governed in all respects by the laws of the Commonwealth of Massachusetts as such laws are applied to agreements between Massachusetts residents entered into and to be performed entirely within Massachusetts. 2.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 Entire Agreement. Except as set forth below, this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 2.5 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, certified or registered mail, return receipt requested, addressed (a) if to Holder, at such Holder's address(es) as set forth below, or at such other address(es) as such Holder shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address set forth below, or at such other address as the Company shall have furnished to the Holder in writing. 2.6 Severability. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement or any provision of the other Agreement s shall not in any way be affected or impaired thereby. 2.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 1.1 2.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be executed by their duly authorized representatives as of the date first above written. PURCHASER COMPANY SILICON VALLEY BANK DATAWATCH CORPORATION By: /s/ Jonathan L. Gray By: /s/ Bruce R. Gardner ------------------------------ ------------------------------- Name: Jonathan L. Gray Name: Bruce R. Gardner ---------------------------- ----------------------------- Title: SVP Title: President --------------------------- ---------------------------- Address: Address: ------------------------- ------------------------- copy to: Silicon Valley Bank Treasury Department 3003 Tasman Drive, HA-200 Santa Clara, CA 95054 EX-10.2 4 ex10-2_10557.txt PROGRAM BORROWER AGREEMENT EXHIBIT 10.2 ------------ ARTICLE I EXPORT-IMPORT BANK OF THE UNITED STATES WORKING CAPITAL GUARANTEE PROGRAM BORROWER AGREEMENT THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by the entity identified as Borrower on the signature page hereof ("Borrower") in favor of the Export-Import Bank of the United States ("Ex-Im Bank") and the institution identified as Lender on the signature page hereof ("Lender"). RECITALS Borrower has requested that Lender establish a Loan Facility in favor of Borrower for the purposes of providing Borrower with pre-export working capital to finance the manufacture, production or purchase and subsequent export sale of Items. It is a condition to the establishment of such Loan Facility that Ex-Im Bank guarantee the payment of ninety percent (90%) of certain credit accommodations subject to the terms and conditions of a Master Guarantee Agreement, the Loan Authorization Agreement, and to the extent applicable, the Delegated Authority Letter Agreement. Borrower is executing this Agreement for the benefit of Lender and Ex-Im Bank in consideration for and as a condition to Lender's establishing the Loan Facility and Ex-Im Bank's agreement to guarantee such Loan Facility pursuant to the Master Guarantee Agreement. NOW, THEREFORE, Borrower hereby agrees as follows: ARTICLE II DEFINITIONS 2.1 Definition of Terms. As used in this Agreement, including the Recitals to this Agreement and the Loan Authorization Agreement, the following terms shall have the following meanings: "Accounts Receivable" shall mean all of Borrower's now owned or hereafter acquired (a) "accounts" (as such term is defined in the UCC), other receivables, book debts and other forms of obligations, whether arising out of goods sold or services rendered or from any other transaction; (b) rights in, to and under all purchase orders or receipts for goods or services; (c) rights to any goods represented or purported to be represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) moneys due or to become due to such Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower), including the proceeds of the foregoing; (e) any notes, drafts, letters of credit, insurance proceeds or other instruments, documents and writings evidencing or supporting the foregoing; and (f) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing. "Advance Rate" shall mean the rate specified in Section 5(C) of the Loan Authorization Agreement for each category of Collateral. "Business Day" shall mean any day on which the Federal Reserve Bank of New York is open for business. "Buyer" shall mean a Person that has entered into one or more Export Orders with Borrower. "Collateral" shall mean all property and interest in property in or upon which Lender has been granted a Lien as security for the payment of all the Loan Facility Obligations including the Collateral identified in Section 6 of the Loan Authorization Agreement and all products and proceeds (cash and non-cash) thereof. "Commercial Letters of Credit" shall mean those letters of credit subject to the UCP payable in Dollars and issued or caused to be issued by Lender on behalf of Borrower under a Loan Facility for the benefit of a supplier(s) of Borrower in connection with Borrower's purchase of goods or services from the supplier in support of the export of the Items. "Country Limitation Schedule" shall mean the schedule published from time to time by Ex-Im Bank and provided to Borrower by Lender which sets forth on a country by country basis whether and under what conditions Ex-Im Bank will provide coverage for the financing of export transactions to countries listed therein. "Credit Accommodation Amount" shall mean, the sum of (a) the aggregate outstanding amount of Disbursements and (b) the aggregate outstanding face amount of Letter of Credit Obligations. "Credit Accommodations" shall mean, collectively, Disbursements and Letter of Credit Obligations. "Debarment Regulations" shall mean, collectively, (a) the Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (c) the revised Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037 (June 26, 1995). "Delegated Authority Letter Agreement" shall mean the Delegated Authority Letter Agreement, if any, between Ex-Im Bank and Lender. "Disbursement" shall mean, collectively, (a) an advance of a working capital loan from Lender to Borrower under the Loan Facility, and (b) an advance to fund a drawing under a Letter of Credit issued or caused to be issued by Lender for the account of Borrower under the Loan Facility. "Dollars" or "$" shall mean the lawful currency of the United States. "Effective Date" shall mean the date on which (a) the Loan Documents are executed by Lender and Borrower or the date, if later, on which agreements are executed by Lender and Borrower adding the Loan Facility to an existing working capital loan arrangement between Lender and Borrower and (b) all of the conditions to the making of 2 the initial Credit Accommodations under the Loan Documents or any amendments thereto have been satisfied. "Eligible Export-Related Accounts Receivable" shall mean an Export-Related Account Receivable which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Accounts Receivable include any Account Receivable: (a) that does not arise from the sale of Items in the ordinary course of Borrower's business; (b) that is not subject to a valid, perfected first priority Lien in favor of Lender; (c) as to which any covenant, representation or warranty contained in the Loan Documents with respect to such Account Receivable has been breached; (d) that is not owned by Borrower or is subject to any right, claim or interest of another Person other than the Lien in favor of Lender; (e) with respect to which an invoice has not been sent; (f) that arises from the sale of defense articles or defense services; (g) that is due and payable from a Buyer located in a country with which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule; (h) that does not comply with the requirements of the Country Limitation Schedule; (i) that is due and payable more than one hundred eighty (180) days from the date of the invoice; (j) that is not paid within sixty (60) calendar days from its original due date, unless it is insured through Ex-Im Bank export credit insurance for comprehensive commercial and political risk, or through Ex-Im Bank approved private insurers for comparable coverage, in which case it is not paid within ninety (90) calendar days from its due date; (k) that arises from a sale of goods to or performance of services for an employee of Borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a controlling interest in Borrower or a Person which shares common controlling ownership with Borrower; (l) that is backed by a letter of credit unless the Items covered by the subject letter of credit have been shipped; (m) that Lender or Ex-Im Bank, in its reasonable judgment, deems uncollectible for any reason; 3 (n) that is due and payable in a currency other than Dollars, except as may be approved in writing by Ex-Im Bank; (o) that is due and payable from a military Buyer, except as may be approved in writing by Ex-Im Bank; (p) that does not comply with the terms of sale set forth in Section 7 of the Loan Authorization Agreement; (q) that is due and payable from a Buyer who (i) applies for, suffers, or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) takes any action for the purpose of effecting any of the foregoing; (r) that arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper; (s) for which the Items giving rise to such Account Receivable have not been shipped and delivered to and accepted by the Buyer or the services giving rise to such Account Receivable have not been performed by Borrower and accepted by the Buyer or the Account Receivable otherwise does not represent a final sale; (t) that is subject to any offset, deduction, defense, dispute, or counterclaim or the Buyer is also a creditor or supplier of Borrower or the Account Receivable is contingent in any respect or for any reason; (u) for which Borrower has made any agreement with the Buyer for any deduction therefrom, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto; or (v) for which any of the Items giving rise to such Account Receivable have been returned, rejected or repossessed. "Eligible Export-Related Inventory" shall mean Export-Related Inventory which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Inventory include any Inventory: (a) that is not subject to a valid, perfected first priority Lien in favor of Lender; 4 (b) that is located at an address that has not been disclosed to Lender in writing; (c) that is placed by Borrower on consignment or held by Borrower on consignment from another Person; (d) that is in the possession of a processor or bailee, or located on premises leased or subleased to Borrower, or on premises subject to a mortgage in favor of a Person other than Lender, unless such processor or bailee or mortgagee or the lessor or sublessor of such premises, as the case may be, has executed and delivered all documentation which Lender shall require to evidence the subordination or other limitation or extinguishment of such Person's rights with respect to such Inventory and Lender's right to gain access thereto; (e) that is produced in violation of the Fair Labor Standards Act or subject to the "hot goods" provisions contained in 29 US.C.ss.215 or any successor statute or section; (f) as to which any covenant, representation or warranty with respect to such Inventory contained in the Loan Documents has been breached; (g) that is not located in the United States; (h) that is demonstration Inventory; (i) that consists of proprietary software (i.e. software designed solely for Borrower's internal use and not intended for resale); (j) that is damaged, obsolete, returned, defective, recalled or unfit for further processing; (k) that has been previously exported from the United States; (l) that constitutes defense articles or defense services; (m) that is to be incorporated into Items destined for shipment to a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule; (n) that is to be incorporated into Items destined for shipment to a Buyer located in a country in which Ex-Im Bank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, unless and only to the extent that such Items are to be sold to such country on terms of a letter of credit confirmed by a bank acceptable to Ex-Im Bank; or (o) that is to be incorporated into Items whose sale would result in an Account Receivable which would not be an Eligible Export-Related Account Receivable. "Eligible Person" shall mean a sole proprietorship, partnership, limited liability partnership, corporation or limited liability company which (a) is domiciled, organized, 5 or formed, as the case may be, in the United States; (b) is in good standing in the state of its formation or otherwise authorized to conduct business in the United States; (c) is not currently suspended or debarred from doing business with the United States government or any instrumentality, division, agency or department thereof; (d) exports or plans to export Items; (e) operates and has operated as a going concern for at least one (1) year; (f) has a positive tangible net worth determined in accordance with GAAP; and (g) has revenue generating operations relating to its core business activities for at least one year. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and the rules and regulations promulgated thereunder. "Export Order" shall mean a written export order or contract for the purchase by the Buyer from Borrower of any of the Items. "Export-Related Accounts Receivable" shall mean those Accounts Receivable arising from the sale of Items which are due and payable to Borrower in the United States. "Export-Related Accounts Receivable Value" shall mean, at the date of determination thereof, the aggregate face amount of Eligible Export-Related Accounts Receivable less taxes, discounts, credits, allowances and Retainages, except to the extent otherwise permitted by Ex-Im Bank in writing. "Export-Related Borrowing Base" shall mean, at the date of determination thereof, the sum of (a) the Export-Related Inventory Value multiplied by the Advance Rate applicable to Export-Related Inventory set forth in Section 5(C)(1) of the Loan Authorization Agreement, (b) the Export-Related Accounts Receivable Value multiplied by the Advance Rate applicable to Export-Related Accounts Receivable set forth in Section 5(C)(2) of the Loan Authorization Agreement, (c) if permitted by Ex-Im Bank in writing, the Retainage Value multiplied by the Retainage Advance Rate set forth in Section 5(C)(3) of the Loan Authorization Agreement and (d) the Other Assets Value multiplied by the Advance Rate applicable to Other Assets set forth in Section 5(C)(4) of the Loan Authorization Agreement. "Export-Related Borrowing Base Certificate" shall mean a certificate in the form provided or approved by Lender, executed by Borrower and delivered to Lender pursuant to the Loan Documents detailing the Export-Related Borrowing Base supporting the Credit Accommodations which reflects, to the extent included in the Export-Related Borrowing Base, Export-Related Accounts Receivable, Eligible Export-Related Accounts Receivable, Export-Related Inventory and Eligible Export-Related Inventory balances that have been reconciled with Borrower's general ledger, Accounts Receivable aging report and Inventory schedule. "Export-Related General Intangibles" shall mean those General Intangibles necessary or desirable to or for the disposition of Export-Related Inventory. "Export-Related Inventory" shall mean the Inventory of Borrower located in the United States that has been purchased, manufactured or otherwise acquired by Borrower for resale pursuant to Export Orders. "Export-Related Inventory Value" shall mean, at the date of determination thereof, the lower of cost or market value of Eligible Export-Related Inventory of Borrower as determined in accordance with GAAP. 6 "Final Disbursement Date" shall mean, unless subject to an extension of such date agreed to by Ex-Im Bank, the last date on which Lender may make a Disbursement set forth in Section 10 of the Loan Authorization Agreement or, if such date is not a Business Day, the next succeeding Business Day; provided, however, to the extent that Lender has not received cash collateral or an indemnity with respect to Letter of Credit Obligations outstanding on the Final Disbursement Date, the Final Disbursement Date with respect to an advance to fund a drawing under a Letter of Credit shall be no later than thirty (30) Business Days after the expiry date of the Letter of Credit related thereto. "GAAP" shall mean the generally accepted accounting principles issued by the American Institute of Certified Public Accountants as in effect from time to time. "General Intangibles" shall mean all intellectual property and other "general intangibles" (as such term is defined in the UCC) necessary or desirable to or for the disposition of Inventory. "Guarantor" shall mean each Person, if any, identified in Section 3 of the Loan Authorization Agreement who shall guarantee (jointly and severally if more than one) the payment and performance of all or a portion of the Loan Facility Obligations. "Guaranty Agreement" shall mean a valid and enforceable agreement of guaranty executed by each Guarantor in favor of Lender. "Inventory" shall mean all "inventory" (as such term is defined in the UCC), now or hereafter owned or acquired by Borrower, wherever located, including all inventory, merchandise, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies. "ISP" shall mean the International Standby Practices-ISP98, International Chamber of Commerce Publication No. 590 and any amendments and revisions thereof. "Issuing Bank" shall mean the bank that issues a Letter of Credit, which bank is Lender itself or a bank that Lender has caused to issue a Letter of Credit by way of guarantee. "Items" shall mean the finished goods or services which are intended for export from the United States, as specified in Section 4(A) of the Loan Authorization Agreement. "Letter of Credit" shall mean a Commercial Letter of Credit or a Standby Letter of Credit. "Letter of Credit Obligations" shall mean all outstanding obligations incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee by Lender or the Issuing Bank of Letters of Credit. "Lien" shall mean any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, 7 security title, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction) by which property is encumbered or otherwise charged. "Loan Agreement" shall mean a valid and enforceable agreement between Lender and Borrower setting forth the terms and conditions of the Loan Facility. "Loan Authorization Agreement" shall mean the Loan Authorization Agreement entered into between Lender and Ex-Im Bank or the Loan Authorization Notice setting forth certain terms and conditions of the Loan Facility, a copy of which is attached hereto as Annex A. "Loan Authorization Notice" shall mean the Loan Authorization Notice executed by Lender and delivered to Ex-Im Bank in accordance with the Delegated Authority Letter Agreement setting forth the terms and conditions of each Loan Facility. "Loan Documents" shall mean the Loan Authorization Agreement, the Loan Agreement, this Agreement, each promissory note (if applicable), each Guaranty Agreement, and all other instruments, agreements and documents now or hereafter executed by Borrower or any Guarantor evidencing, securing, guaranteeing or otherwise relating to the Loan Facility or any Credit Accommodations made thereunder. "Loan Facility" shall mean the Revolving Loan Facility, the Transaction Specific Loan Facility or the Transaction Specific Revolving Loan Facility established by Lender in favor of Borrower under the Loan Documents. "Loan Facility Obligations" shall mean all loans, advances, debts, expenses, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower to Lender, of any kind or nature, present or future, arising in connection with the Loan Facility. "Loan Facility Term" shall mean the number of months from the Effective Date to the Final Disbursement Date as originally set forth in the Loan Authorization Agreement. "Master Guarantee Agreement" shall mean the Master Guarantee Agreement between Ex-Im Bank and Lender, as amended, modified, supplemented and restated from time to time. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of Borrower or any Guarantor, (b) Borrower's ability to pay or perform the Loan Facility Obligations in accordance with the terms thereof, (c) the Collateral or Lender's Liens on the Collateral or the priority of such Lien or (d) Lender's rights and remedies under the Loan Documents. "Maximum Amount" shall mean the maximum principal balance of Credit Accommodations that may be outstanding at any time under the Loan Facility specified in Section 5(A) of the Loan Authorization Agreement. 8 "Other Assets" shall mean the Collateral, if any, described in Section 5(C)(4) of the Loan Authorization Agreement. "Other Assets Value" shall mean, at the date of determination thereof, the value of the Other Assets as determined in accordance with GAAP. "Permitted Liens" shall mean (a) Liens for taxes, assessments or other governmental charges or levies not delinquent, or, being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by Borrower; provided, that, the Lien shall have no effect on the priority of the Liens in favor of Lender or the value of the assets in which Lender has such a Lien and a stay of enforcement of any such Lien shall be in effect; (b) deposits or pledges securing obligations under worker's compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) deposits or pledges securing bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of Borrower's business; (d) judgment Liens that have been stayed or bonded; (e) mechanics', workers', materialmen's or other like Liens arising in the ordinary course of Borrower's business with respect to obligations which are not due; (f) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided, that, any such Lien shall not encumber any other property of Borrower; (g) security interests being terminated concurrently with the execution of the Loan Documents; (h) Liens in favor of Lender securing the Loan Facility Obligations; and (i) Liens disclosed in Section 6(D) of the Loan Authorization Agreement. "Person" shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether national, federal, provincial, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person's successors and assigns. "Principals" shall mean any officer, director, owner, partner, key employee, or other Person with primary management or supervisory responsibilities with respect to Borrower or any other Person (whether or not an employee) who has critical influence on or substantive control over the transactions covered by this Agreement. "Retainage" shall mean that portion of the purchase price of an Export Order that a Buyer is not obligated to pay until the end of a specified period of time following the satisfactory performance under such Export Order. "Retainage Accounts Receivable" shall mean those portions of Eligible Export-Related Accounts Receivable arising out of a Retainage. "Retainage Advance Rate" shall mean the percentage rate specified in Section 5(C)(3) of the Loan Authorization Agreement as the Advance Rate for the Retainage Accounts Receivable of Borrower. "Retainage Value" shall mean, at the date of determination thereof, the aggregate face amount of Retainage Accounts Receivable, less taxes, discounts, credits and allowances, except to the extent otherwise permitted by Ex-Im Bank in writing. 9 "Revolving Loan Facility" shall mean the credit facility or portion thereof established by Lender in favor of Borrower for the purpose of providing pre-export working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations may be made and repaid on a continuous basis based solely on the Export-Related Borrowing Base during the term of such credit facility. "Special Conditions" shall mean those conditions, if any, set forth in Section 13 of the Loan Authorization Agreement. "Specific Export Orders" shall mean those Export Orders specified in Section 5(D) of the Loan Authorization Agreement. "Standby Letter of Credit" shall mean those letters of credit subject to the ISP or UCP issued or caused to be issued by Lender for Borrower's account that can be drawn upon by a Buyer only if Borrower fails to perform all of its obligations with respect to an Export Order. "Transaction Specific Loan Facility" shall mean a credit facility or a portion thereof established by Lender in favor of Borrower for the purpose of providing pre-export working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations are made based solely on the Export-Related Borrowing Base relating to Specific Export Orders and once such Credit Accommodations are repaid they may not be reborrowed. "Transaction Specific Revolving Loan Facility" shall mean a Revolving Credit Facility established to provide financing of Specific Export Orders. "UCC" shall mean the Uniform Commercial Code as the same may be in effect from time to time in the jurisdiction in which Borrower or Collateral is located. "UCP" shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 and any amendments and revisions thereof. "U.S." or "United States" shall mean the United States of America and its territorial possessions. "U.S. Content" shall mean with respect to any Item all the labor, materials and services which are of U.S. origin or manufacture, and which are incorporated into an Item in the United States. "Warranty" shall mean Borrower's guarantee to Buyer that the Items will function as intended during the warranty period set forth in the applicable Export Order. "Warranty Letter of Credit" shall mean a Standby Letter of Credit which is issued or caused to be issued by Lender to support the obligations of Borrower with respect to a Warranty or a Standby Letter of Credit which by its terms becomes a Warranty Letter of Credit. 10 2.2 Rules of Construction. For purposes of this Agreement, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term "or" is not exclusive; (c) the term "including" (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) the words "this Agreement", "herein", "hereof", "hereunder" or other words of similar import refer to this Agreement as a whole including the schedules, exhibits, and annexes hereto as the same may be amended, modified or supplemented; (f) all references in this Agreement to sections, schedules, exhibits, and annexes shall refer to the corresponding sections, schedules, exhibits, and annexes of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, or the Delegated Authority Letter Agreement shall include any and all modifications, amendments and supplements thereto and any and all extensions or renewals thereof to the extent permitted under this Agreement. 2.3 Incorporation of Recitals. The Recitals to this Agreement are incorporated into and shall constitute a part of this Agreement. ARTICLE III OBLIGATIONS OF BORROWER Until payment in full of all Loan Facility Obligations and termination of the Loan Documents, Borrower agrees as follows: 3.1 Use of Credit Accommodations. (a) Borrower shall use Credit Accommodations only for the purpose of enabling Borrower to finance the cost of manufacturing, producing, purchasing or selling the Items. Borrower may not use any of the Credit Accommodations for the purpose of: (i) servicing or repaying any of Borrower's pre-existing or future indebtedness unrelated to the Loan Facility (unless approved by Ex-Im Bank in writing); (ii) acquiring fixed assets or capital goods for use in Borrower's business; (iii) acquiring, equipping or renting commercial space outside of the United States; (iv) paying the salaries of non U.S. citizens or non-U.S. permanent residents who are located in offices outside of the United States; or (v) in connection with a Retainage or Warranty (unless approved by Ex-Im Bank in writing). (b) In addition, no Credit Accommodation may be used to finance the manufacture, purchase or sale of any of the following: (i) Items to be sold or resold to a Buyer located in a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule; (ii) that part of the cost of the Items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the Items and is incorporated into the Items in the United States; 11 (iii) defense articles or defense services; or (iv) without Ex-Im Bank's prior written consent, any Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities. 3.2 Loan Documents and Loan Authorization Agreement. (a) Each Loan Document and this Agreement have been duly executed and delivered on behalf of Borrower, and each such Loan Document and this Agreement are and will continue to be a legal and valid obligation of Borrower, enforceable against it in accordance with its terms. (b) Borrower shall comply with all of the terms and conditions of the Loan Documents, this Agreement and the Loan Authorization Agreement. 3.3 Export-Related Borrowing Base Certificates and Export Orders. In order to receive Credit Accommodations under the Loan Facility, Borrower shall have delivered to Lender an Export-Related Borrowing Base Certificate as frequently as required by Lender but at least within the past thirty (30) calendar days and a copy of the Export Order(s) (or, for Revolving Loan Facilities, if permitted by Lender, a written summary of the Export Orders) against which Borrower is requesting Credit Accommodations. If Lender permits summaries of Export Orders, Borrower shall also deliver promptly to Lender copies of any Export Orders requested by Lender. In addition, so long as there are any Credit Accommodations outstanding under the Loan Facility, Borrower shall deliver to Lender at least once each month no later than the twentieth (20th) day of such month or more frequently as required by the Loan Documents, an Export-Related Borrowing Base Certificate. 3.4 Exclusions from the Export-Related Borrowing Base. In determining the Export-Related Borrowing Base, Borrower shall exclude therefrom Inventory which is not Eligible Export-Related Inventory and Accounts Receivable which are not Eligible Export-Related Accounts Receivable. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender (a) if any then existing Export-Related Inventory no longer constitutes Eligible Export-Related Inventory or (b) of any event or circumstance which to Borrower's knowledge would cause Lender to consider any then existing Export-Related Accounts Receivable as no longer constituting an Eligible Export-Related Accounts Receivable. 3.5 Financial Statements. Borrower shall deliver to Lender the financial statements required to be delivered by Borrower in accordance with Section 11 of the Loan Authorization Agreement. 3.6 Schedules, Reports and Other Statements. Borrower shall submit to Lender in writing each month (a) an Inventory schedule for the preceding month and (b) an Accounts Receivable aging report for the preceding month detailing the terms of the amounts due from each Buyer. Borrower shall also furnish to Lender promptly upon request such information, reports, contracts, invoices and other data concerning the Collateral as Lender may from time to time specify. 12 3.7 Additional Security or Payment. (a) Borrower shall at all times ensure that the Export-Related Borrowing Base equals or exceeds the Credit Accommodation Amount. If informed by Lender or if Borrower otherwise has actual knowledge that the Export-Related Borrowing Base is at any time less than the Credit Accommodation Amount, Borrower shall, within five (5) Business Days, either (i) furnish additional Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank or (ii) pay to Lender an amount equal to the difference between the Credit Accommodation Amount and the Export-Related Borrowing Base. (b) For purposes of this Agreement, in determining the Export-Related Borrowing Base there shall be deducted from the Export-Related Borrowing Base (i) an amount equal to twenty-five percent (25%) of the outstanding face amount of Commercial Letters of Credit and Standby Letters of Credit and (ii) one hundred percent (100%) of the face amount of Warranty Letters of Credit less the amount of cash collateral held by Lender to secure Warranty Letters of Credit. (c) Unless otherwise approved in writing by Ex-Im Bank, for Revolving Loan Facilities (other than Transaction Specific Revolving Loan Facilities), Borrower shall at all times ensure that the outstanding principal balance of the Credit Accommodations that is supported by Export-Related Inventory does not exceed sixty percent (60%) of the sum of the total outstanding principal balance of the Disbursements and the undrawn face amount of all outstanding Commercial Letters of Credit. If informed by Lender or if Borrower otherwise has actual knowledge that the outstanding principal balance of the Credit Accommodations that is supported by Inventory exceeds sixty percent (60%) of the sum of the total outstanding principal balance of the Disbursements and the undrawn face amount of all outstanding Commercial Letters of Credit, Borrower shall, within five (5) Business Days, either (i) furnish additional non-Inventory Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank, or (ii) pay down the applicable portion of the Credit Accommodations so that the above described ratio is not exceeded. 3.8 Continued Security Interest. Borrower shall not change (a) its name or identity in any manner, (b) the location of its principal place of business, (c) the location of any of the Collateral or (d) the location of any of the books or records related to the Collateral, in each instance without giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender's Liens upon the Collateral. 3.9 Inspection of Collateral. Borrower shall permit the representatives of Lender and Ex-Im Bank to make at any time during normal business hours inspections of the Collateral and of Borrower's facilities, activities, and books and records, and shall cause its officers and employees to give full cooperation and assistance in connection therewith. 3.10 General Intangibles. Borrower represents and warrants that it owns, or is licensed to use, all General Intangibles necessary to conduct its business as currently conducted except where the failure of Borrower to own or license such General Intangibles could not reasonably be expected to have a Material Adverse Effect. 13 3.11 Notice of Certain Events. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender in writing of the occurrence of any of the following: (a) Borrower or any Guarantor (i) applies for, consents to or suffers the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) takes any action for the purpose of effecting any of the foregoing; (b) any Lien in any of the Collateral, granted or intended by the Loan Documents to be granted to Lender, ceases to be a valid, enforceable, perfected, first priority Lien (or a lesser priority if expressly permitted pursuant to Section 6 of the Loan Authorization Agreement) subject only to Permitted Liens; (c) the issuance of any levy, assessment, attachment, seizure or Lien, other than a Permitted Lien, against any of the Collateral which is not stayed or lifted within thirty (30) calendar days; (d) any proceeding is commenced by or against Borrower or any Guarantor for the liquidation of its assets or dissolution; (e) any litigation is filed against Borrower or any Guarantor which has had or could reasonably be expected to have a Material Adverse Effect and such litigation is not withdrawn or dismissed within thirty (30) calendar days of the filing thereof; (f) any default or event of default under the Loan Documents; (g) any failure to comply with any terms of the Loan Authorization Agreement; (h) any material provision of any Loan Document or this Agreement for any reason ceases to be valid, binding and enforceable in accordance with its terms; (i) any event which has had or could reasonably be expected to have a Material Adverse Effect; or (j) the Credit Accommodation Amount exceeds the applicable Export-Related Borrowing Base. 14 3.12 Insurance. Borrower will at all times carry property, liability and other insurance, with insurers acceptable to Lender, in such form and amounts, and with such deductibles and other provisions, as Lender shall require, and Borrower will provide evidence of such insurance to Lender, so that Lender is satisfied that such insurance is, at all times, in full force and effect. Each property insurance policy shall name Lender as loss payee and shall contain a lender's loss payable endorsement in form acceptable to Lender and each liability insurance policy shall name Lender as an additional insured. All policies of insurance shall provide that they may not be cancelled or changed without at least ten (10) days' prior written notice to Lender and shall otherwise be in form and substance satisfactory to Lender. Borrower will promptly deliver to Lender copies of all reports made to insurance companies. 3.13 Taxes. Borrower has timely filed all tax returns and reports required by applicable law, has timely paid all applicable taxes, assessments, deposits and contributions owing by Borrower and will timely pay all such items in the future as they became due and payable. Borrower may, however, defer payment of any contested taxes; provided, that Borrower (a) in good faith contests Borrower's obligation to pay such taxes by appropriate proceedings promptly and diligently instituted and conducted; (b) notifies Lender in writing of the commencement of, and any material development in, the proceedings; (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a Lien upon any of the Collateral; and (d) maintains adequate reserves therefor in conformity with GAAP. 3.14 Compliance with Laws. Borrower represents and warrants that it has complied in all material respects with all provisions of all applicable laws and regulations, including those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, the payment and withholding of taxes, ERISA and other employee matters, safety and environmental matters. 3.15 Negative Covenants. Without the prior written consent of Ex-Im Bank and Lender, Borrower shall not (a) merge, consolidate or otherwise combine with any other Person; (b) acquire all or substantially all of the assets or capital stock of any other Person; (c) sell, lease, transfer, convey, assign or otherwise dispose of any of its assets, except for the sale of Inventory in the ordinary course of business and the disposition of obsolete equipment in the ordinary course of business; (d) create any Lien on the Collateral except for Permitted Liens; (e) make any material changes in its organizational structure or identity; or (f) enter into any agreement to do any of the foregoing. 3.16 Reborrowings and Repayment Terms. (a) If the Loan Facility is a Revolving Loan Facility, provided that Borrower is not in default under any of the Loan Documents, Borrower may borrow, repay and reborrow amounts under the Loan Facility until the close of business on the Final Disbursement Date. Unless the Revolving Loan Facility is renewed or extended by Lender with the consent of Ex-Im Bank, Borrower shall pay in full the outstanding Loan Facility Obligations and all accrued and unpaid interest thereon no later than the first Business Day after the Final Disbursement Date. (b) If the Loan Facility is a Transaction Specific Loan Facility, Borrower shall, within two (2) Business Days of the receipt thereof, pay to Lender (for application against 15 the outstanding Loan Facility Obligations and accrued and unpaid interest thereon) all checks, drafts, cash and other remittances it may receive in payment or on account of the Export-Related Accounts Receivable or any other Collateral, in precisely the form received (except for the endorsement of Borrower where necessary). Pending such deposit, Borrower shall hold such amounts in trust for Lender separate and apart and shall not commingle any such items of payment with any of its other funds or property. 3.17 Cross Default. Borrower shall be deemed in default under the Loan Facility if Borrower fails to pay when due any amount payable to Lender under any loan or other credit accommodations to Borrower whether or not guaranteed by Ex-Im Bank. 3.18 Munitions List. If any of the Items are articles, services, or related technical data that are listed on the United States Munitions List (part 121 of title 22 of the Code of Federal Regulations), Borrower shall send a written notice promptly, but in any event within five (5) Business Days, of Borrower learning thereof to Lender describing the Items(s) and the corresponding invoice amount. 3.19 Suspension and Debarment, etc. On the date of this Agreement neither Borrower nor its Principals are (a) debarred, suspended, proposed for debarment with a final determination still pending, declared ineligible or voluntarily excluded (as such terms are defined under any of the Debarment Regulations referred to below) from participating in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations or (b) indicted, convicted or had a civil judgment rendered against Borrower or any of its Principals for any of the offenses listed in any of the Debarment Regulations. Unless authorized by Ex-Im Bank, Borrower will not knowingly enter into any transactions in connection with the Items with any person who is debarred, suspended, declared ineligible or voluntarily excluded from participation in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations. Borrower will provide immediate written notice to Lender if at any time it learns that the certification set forth in this Section 2.19 was erroneous when made or has become erroneous by reason of changed circumstances. ARTICLE IV RIGHTS AND REMEDIES 4.1 Indemnification. Upon Ex-Im Bank's payment of a Claim to Lender in connection with the Loan Facility pursuant to the Master Guarantee Agreement, Ex-Im Bank may assume all rights and remedies of Lender under the Loan Documents and may enforce any such rights or remedies against Borrower, the Collateral and any Guarantors. Borrower shall hold Ex-Im Bank and Lender harmless from and indemnify them against any and all liabilities, damages, claims, costs and losses incurred or suffered by either of them resulting from (a) any materially incorrect certification or statement knowingly made by Borrower or its agent to Ex-Im Bank or Lender in connection with the Loan Facility, this Agreement, the Loan Authorization Agreement or any other Loan Documents or (b) any material breach by Borrower of the terms and conditions of this Agreement, the Loan Authorization Agreement or any of the other Loan Documents. Borrower also acknowledges that any statement, certification or representation 16 made by Borrower in connection with the Loan Facility is subject to the penalties provided in Article 18 U.S.C. Section 1001. 4.2 Liens. Borrower agrees that any and all Liens granted by it to Lender are also hereby granted to Ex-Im Bank to secure Borrower's obligation, however arising, to reimburse Ex-Im Bank for any payments made by Ex-Im Bank pursuant to the Master Guarantee Agreement. Lender is authorized to apply the proceeds of, and recoveries from, any property subject to such Liens to the satisfaction of Loan Facility Obligations in accordance with the terms of any agreement between Lender and Ex-Im Bank. ARTICLE V MISCELLANEOUS 5.1 Governing Law. This Agreement and the Loan Authorization Agreement and the obligations arising under this Agreement and the Loan Authorization Agreement shall be governed by, and construed in accordance with, the law of the state governing the Loan Documents. 5.2 Notification. All notices required by this Agreement shall be given in the manner and to the parties provided for in the Loan Agreement. 5.3 Partial Invalidity. If at any time any of the provisions of this Agreement becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, the validity nor the enforceability of the remaining provisions hereof shall in any way be affected or impaired. 5.4 Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMISSIONS OF LENDER, EX-IM BANK, OR ANY OTHER PERSON, RELATING TO THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT OR ANY OTHER LOAN DOCUMENT. 17 IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly executed on the 17th day of January, 2001, to be effective as of December 29, 2000. DATAWATCH CORPORATION By: /s/ Bruce R. Gardner ----------------------------- (Signature) Name: Bruce R. Gardner --------------------------- (Print or Type) Title: President -------------------------- (Print or Type) DATAWATCH INTERNATIONAL LIMITED By: /s/ Bruce R. Gardner ----------------------------- (Signature) Name: Bruce R. Gardner --------------------------- (Print or Type) Title: President -------------------------- (Print or Type) DATAWATCH EUROPE LIMITED By: /s/ Bruce R. Gardner ----------------------------- (Signature) Name: Bruce R. Gardner --------------------------- (Print or Type) Title: President -------------------------- (Print or Type) 18 GUILDSOFT LIMITED By: /s/ Bruce R. Gardner ----------------------------- (Signature) Name: Bruce R. Gardner --------------------------- (Print or Type) Title: President -------------------------- (Print or Type) ACKNOWLEDGED: SILICON VALLEY BANK By: /s/ Maggie Garcia ----------------------------- (Signature) Name: Maggie Garcia --------------------------- (Print or Type) Title: Loan Administrative Team Leader -------------------------------- (Print or Type) 19 ANNEXES: Annex A - Loan Authorization Agreement or Loan Authorization Notice 20 CONSENT OF GUARANTORS Each of the undersigned as a Guarantor of the obligations of Borrower to the Lender executing the foregoing Agreement hereby agrees that the foregoing Agreement, each of their respective Guaranty Agreements and each other Loan Documents may be assigned to the Export-Import Bank of the United States. ------------------------------------ [INDIVIDUAL GUARANTOR] [CORPORATE GUARANTOR] By:________________________________ Name:______________________________ Title:_____________________________ 21 EX-10.3 5 ex10-3_10557.txt SECOND LOAN MODIFICATION AGREEMENT EXHIBIT 10.3 ------------ SECOND LOAN MODIFICATION AGREEMENT This Second Loan Modification Agreement is executed on January 17, 2001, to be effective as of December 29, 2000, by and between DATAWATCH CORPORATION, a Delaware corporation with its chief executive office located at 175 Cabot Street, Suite 503, Lowell, Massachusetts 01854-3633 ("Borrower") and SILICON VALLEY BANK, a California-chartered bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, MA 02462, doing business under the name "Silicon Valley East". 1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated March 16, 1999, evidenced by, among other documents, a certain Amended and Restated Loan and Security Agreement dated as of March 16, 1999 by and among the Borrower, Personics Corporation, and the Bank, as amended by a certain First Loan Modification Agreement dated as of December 27, 1999 by Borrower and Bank (as amended, the "Loan Agreement"). The Loan Agreement established a working capital line of credit in favor of the Borrower in the maximum principal amount of One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Committed Revolving Line"). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Obligations". 2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement, and a certain Intellectual Property Security Agreement dated as of December 27, 1999 by Borrower in favor of Bank (the "Intellectual Property Security Agreement") (hereinafter, the Loan Agreement, as amended hereby, and the Intellectual Property Security Agreement, together with any other collateral security granted to Bank, shall be referred to as 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. Modification(s) to Loan Agreement. 1. The Loan Agreement shall be amended by deleting the Tangible Net Worth covenants appearing as Section 6.7(a)(ii) and Section 6.7(b)(ii) and inserting in lieu thereof the following text to appear as Section 6.7(c) thereof: "(c) Tangible Net Worth. The Borrower shall maintain, as of the last day of each month, commencing with the month ending September 30, 2000, a Tangible Net Worth of not less than Four Million Five Hundred Thousand Dollars ($4,500,000.00)." 2. The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof: ""EXIM Agreement" shall mean that certain Export-Import Loan and Security Agreement dated December 27, 1999 by and between the Borrower and the Bank." and inserting in lieu thereof the following: ""EXIM Agreement" shall mean that certain Export-Import Loan and Security Agreement dated December 27, 1999 by and between the Borrower and the Bank, as amended by a certain First Loan Modification Agreement (EXIM Line) dated January 17, 2001, as may be further amended from time to time." 3. The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof: ""Revolving Maturity Date" means December 27, 2000." and inserting in lieu thereof the following: ""Revolving Maturity Date" means December 31, 2001." 4. The Compliance Certificate appearing as Exhibit D to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit A hereto. 5. The Borrower ratifies, confirms and reaffirms, all and singular, the terms and conditions of: (i) a certain Collateral Assignment, Patent Mortgage and Security Agreement dated as of November 1, 1994 (the "1994 IP Agreement") between Borrower and Bank, and acknowledges, confirms and agrees that said Collateral Assignment, Patent Mortgage and Security Agreement shall remain in full force and effect, and (ii) a certain Intellectual Property Security Agreement dated as of December 27, 1999 (the "1999 IP Agreement") by Borrower in favor of Bank, and acknowledges, confirms and agrees that said Intellectual Property Security Agreement shall remain in full force and effect. The Borrower hereby acknowledges, confirms and agrees that the Collateral under the 1994 IP Agreement and the Intellectual Property Collateral under the 1999 IP Agreement shall be amended to include, without limitation, the intellectual property owed by the Borrower appearing on Exhibit B attached hereto and made a part hereof. 4. FEE. Borrower shall pay to Bank a fee for the modification of the domestic line equal to Twelve Thousand Five Hundred Dollars ($12,500.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. The Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 6. 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. 7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Obligations. 8. 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 2 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. 9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its properties, unconditionally, the non-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. 10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Bank in California). 3 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. BORROWER: BANK: DATAWATCH CORPORATION SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Bruce R. Gardner By: /s/ Jonathan L. Gray ----------------------- -------------------------------- Name: Bruce R. Gardner Name: Jonathan L. Gray --------------------- ------------------------------ Title: President Title: SVP --------------------- ----------------------------- SILICON VALLEY BANK By: /s/ Maggie Garcia -------------------------------- Name: Maggie Garcia ------------------------------ Title: Loan Administrative Team Leader -------------------------------------- (signed in Santa Clara County, California) 4 EXHIBIT A COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK FROM: DATAWATCH CORPORATION The undersigned authorized officer of DATAWATCH CORPORATION hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer expressly acknowledges that no borrowings may be requested by the Borrower at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that such compliance is determined not just at the date this certificate is delivered. Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies ------------------ -------- -------- Financial Statements & CC Monthly within 35 days* Yes No Annual (CPA Audited) FYE within 120 days Yes No 10-Q, 10-K and 8-K Within 5 days after filing w/ SEC Yes No BBC & A/R Agings Monthly within 25 days* Yes No *when Advances are outstanding or have been requested Financial Covenant Required Actual Complies ------------------ -------- ------ -------- Maintain on a Monthly Basis: Minimum Adjusted Quick Ratio** 1.50:1.0 _____:1.0 Yes No Minimum Tangible Net Worth $4,500,000(begin 9/30/00) $________ Yes No **only for months ending January, February, April, May, July, August, October and November Maintain on a Quarterly Basis: Minimum Adjusted Quick Ratio 1.75:1.0 _____:1.0 Yes No
================================ BANK USE ONLY Received By:____________________ Date:________________ Reviewed By:____________________ Compliance Status: Yes / No ================================ Comments Regarding Exceptions: Sincerely, _______________________ Date:_______________ SIGNATURE - ------------------------ TITLE 5 Exhibit B to Second Loan Modification Agreement ----------------------------------------------- Trademark: QUETZAL/SC Status: Pending Application Number: 821,537 Country: Australia Owner: Datawatch Corporation Filed: 28-Jan-2000 Classes: 9 Trademark: QUETZAL/SC Status: Pending Application Number: 1,045,423 Country: Canada Owner: Datawatch Corporation Filed: 03-Feb-2000 Classes: 9 EX-10.4 6 ex10-4_10557.txt FIRST LOAN MODIFICATION AGREEMENT EXHIBIT 10.4 ------------ FIRST LOAN MODIFICATION AGREEMENT (EXIM Line) This First Loan Modification Agreement (EXIM Line) is executed on January 17, 2001, to be effective as of December 29, 2000, by and between SILICON VALLEY BANK, a California-chartered bank with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, MA 02462, doing business under the name "Silicon Valley East" ("Bank") and DATAWATCH CORPORATION, a Delaware corporation with its chief executive office located at 175 Cabot Street, Suite 503, Lowell, Massachusetts 01854-3633 (Datawatch US"), DATAWATCH INTERNATIONAL LIMITED, a company registered under the laws of England and Wales with its principal place of business at 10th Floor, Maple House, High Street, Potters Bar, Hertfordshire, England EN6 5BS ("Datawatch International"), DATAWATCH EUROPE LIMITED, a company registered under the laws of England and Wales with its principal place of business at The Software Centre East Way, Lee Mill Industrial Estate, Ivybridge, Plymouth, England PL21 9PE ("Datawatch Europe"), and GUILDSOFT LIMITED, a company registered under the laws of England and Wales with its principal place of business at The Software Centre East Way, Lee Mill Industrial Estate, Ivybridge, Plymouth, England PL21 9PE ("Guildsoft") (hereinafter Datawatch US, Datawatch International, Datawatch Europe and Guildsoft are referred to herein jointly and severally as the "Borrower"). 1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated March 16, 1999, evidenced by, among other documents, a certain Export-Import Bank Loan and Security Agreement dated as of December 27, 1999 between Borrower and Bank (the "Loan Agreement"). The Loan Agreement established a working capital line of credit in favor of the Borrower in the maximum principal amount of Two Million Dollars ($2,000,000.00) (the "Exim Committed Line"). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Obligations". 2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement, and a certain Intellectual Property Security Agreement dated as of December 27, 1999 by Datawatch US in favor of Bank (the "Intellectual Property Security Agreement") (hereinafter, the Loan Agreement, as amended hereby, and the Intellectual Property Security Agreement, together with any other collateral security granted to Bank, shall be referred to as 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. Modification(s) to Loan Agreement. 1. The Loan Agreement shall be amended by deleting the following text appearing as recital paragraph (A) on Page 1 thereof: "A. Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated March 16, 1999, as affected and amended to date, including without limitation, pursuant to Loan Modification Agreement of even date (as so amended and as amended to date, the "Domestic Agreement"), together with related documents executed in conjunction therewith." and inserting in lieu thereof the following: "A. Datawatch US and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated March 16, 1999, as affected and amended to date, including without limitation, pursuant to Second Loan Modification Agreement of even date (as so amended and as may be further amended from time to time, the "Domestic Agreement"), together with related documents executed in conjunction therewith." 2. The Loan Agreement shall be amended by deleting the following definition appearing in Section 1.1 thereof: ""Exim Maturity Date" means the earliest of (i) the Maturity Date under the Domestic Loan Documents, or (ii) the date which is one day prior to one (1) year from the date of this Exim Agreement." and inserting in lieu thereof the following: ""Exim Maturity Date" means the earliest of (i) the Maturity Date under the Domestic Loan Documents, or (ii) December 31, 2001." 3. The Borrower acknowledges, confirms and agrees that its representations, warranties and covenants with respect to the Domestic Loan Documents under Sections 5.1, 6.1, 7.1 of the Loan Agreement, and all such other representations, warranties and covenants appearing in the Loan Agreement, remain true and in full force and effect. The Borrower acknowledges, confirms and agrees that it shall continue to comply with all such representations, warranties and covenants described in the foregoing sentence notwithstanding any termination of the Domestic Loan Documents or the repayment of all obligations under the Domestic Loan Documents. 4. Datawatch US ratifies, confirms and reaffirms, all and singular, the terms and conditions of: (i) a certain Collateral Assignment, Patent Mortgage and Security Agreement dated as of November 1, 1994 (the "1994 IP Agreement") between Datawatch US and Bank, and acknowledges, confirms and agrees that said Collateral Assignment, Patent Mortgage and Security Agreement shall remain in full force and effect, and (ii) a certain Intellectual Property Security Agreement dated as of December 27, 1999 (the "1999 IP Agreement") by Datawatch US in favor of Bank, and acknowledges, confirms and agrees that said Intellectual Property Security Agreement shall remain in full force and effect. Datawatch US hereby acknowledges, confirms and agrees that the Collateral under the 1994 IP Agreement and the Intellectual Property Collateral under the 1999 IP Agreement shall be amended to include, without limitation, the intellectual property owed by the Datawatch US appearing on Exhibit B attached hereto and made a part hereof. 4. FEE. Borrower shall pay to Bank a fee for the modification of the Export-Import Bank line equal to Thirty Thousand Dollars ($30,000.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. The Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 2 6. 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. 7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Obligations. 8. 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. 9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its properties, unconditionally, the non-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. 10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Bank in California). 3 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. BORROWER: BANK: DATAWATCH CORPORATION SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Bruce R. Gardner By: /s/ Jonathan L. Gray ---------------------------------- ----------------------------------- Name: Bruce R. Gardner Name: Jonathan L. Gray -------------------------------- --------------------------------- Title: President Title: SVP ------------------------------- -------------------------------- DATAWATCH INTERNATIONAL LIMITED SILICON VALLEY BANK By: /s/ Bruce R. Gardner By: /s/ Maggie Garcia ---------------------------------- ----------------------------------- Name: Bruce R. Gardner Name: Maggie Garcia -------------------------------- --------------------------------- Title: President Title: Loan Administrative Manager ------------------------------- -------------------------------- (signed in Santa Clara County, California) DATAWATCH EUROPE LIMITED By: /s/ Bruce R. Gardner ---------------------------------- Name: Bruce R. Gardner -------------------------------- Title: President ------------------------------- GUILDSOFT LIMITED By: /s/ Bruce R. Gardner ---------------------------------- Name: Bruce R. Gardner -------------------------------- Title: President ------------------------------- 4 Exhibit B to First Loan Modification Agreement ---------------------------------------------- Trademark: QUETZAL/SC Status: Pending Application Number: 821,537 Country: Australia Owner: Datawatch Corporation Filed: 28-Jan-2000 Classes: 9 Trademark: QUETZAL/SC Status: Pending Application Number: 1,045,423 Country: Canada Owner: Datawatch Corporation Filed: 03-Feb-2000 Classes: 9 5 EX-10.5 7 ex10-5_10557.txt REVOLVING PROMISSORY NOTE EXHIBIT 10.5 ------------ Revolving Promissory Note (Export-Import Line) $2,000,000.00 January 17, 2001 FOR VALUE RECEIVED, the undersigned (the "Borrower"), promises to pay to the order of Silicon Valley Bank ("Bank"), at such place as the holder hereof may designate, in lawful money of the United States of America, the aggregate unpaid principal amount of all advances ("Advances") made by Bank to Borrower, up to a maximum principal amount of Two Million Dollars ($2,000,000.00), plus interest on the aggregate unpaid principal amount of such Advances, at the rates and in accordance with the terms of the Export-Import Bank Loan and Security Agreement between Borrower and Bank dated as of December 27, 1999, as amended from time to time (the "Loan Agreement") on the first calendar day of each month after an Advance has been made. The entire principal amount and all accrued interest shall be due and payable on December 31, 2001, or on such earlier date, as provided for in the Loan Agreement. Borrower irrevocably waives the right to direct the application of any and all payments at any time hereafter received by Bank from or on behalf of Borrower, and Borrower irrevocably agrees that Bank shall have the continuing exclusive right to apply any and all such payments against the then due and owing obligations of Borrower as Bank may deem advisable. In the absence of a specific determination by Bank with respect thereto, all payments shall be applied in the following order: (a) then due and payable fees and expenses; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable principal payments and optional prepayments. Bank is hereby authorized by Borrower to endorse on Bank's books and records each Advance made by Bank under this Note and the amount of each payment or prepayment of principal of each such Advance received by Bank; it being understood, however, that failure to make any such endorsement (or any errors in notation) shall not affect the obligations of Borrower with respect to Advances made hereunder, and payments of principal by Borrower shall be credited to Borrower notwithstanding the failure to make a notation (or any errors in notation) thereof on such books and records. Borrower promises to pay Bank all reasonable costs and reasonable expenses including all reasonable attorneys' fees, incurred in such collection or in any suit or action to collect this Note or in any appeal thereof, unless a final court of competent jurisdiction finds that the Bank acted with gross negligence or willful misconduct. Borrower waives presentment, demand, protest, notice of protest, notice of dishonor, notice of nonpayment, and any and all other notices and demands in connection with the delivery, acceptance, performance, default or enforcement of this Note, as well as any applicable statute of limitations. No delay by Bank in exercising any power or right hereunder shall operate as a waiver of any power or right. Time is of the essence as to all obligations hereunder. This Note is issued pursuant to the Loan Agreement, which shall govern the rights and obligations of Borrower with respect to all obligations hereunder. The law of the Commonwealth of Massachusetts shall apply to this Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-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 NOTE OR THE LOAN AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE EXIM LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. BORROWER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. DATAWATCH CORPORATION By: /s/ Bruce R. Gardner --------------------------------------- Name: Bruce R. Gardner ------------------------------------- Title: President ------------------------------------ DATAWATCH INTERNATIONAL LIMITED By: /s/ Bruce R. Gardner --------------------------------------- Name: Bruce R. Gardner ------------------------------------- Title: President ------------------------------------ DATAWATCH EUROPE LIMITED By: /s/ Bruce R. Gardner --------------------------------------- Name: Bruce R. Gardner ------------------------------------- Title: President ------------------------------------ GUILDSOFT LIMITED By: /s/ Bruce R. Gardner --------------------------------------- Name: Bruce R. Gardner ------------------------------------- Title: President ------------------------------------ EX-10.6 8 ex10-6_10557.txt SUPPLEMENTAL DEED OF GUARANTEE EXHIBIT 10.6 ------------ THIS SUPPLEMENTAL DEED OF GUARANTEE is made this 17th day of January 2001 by DATAWATCH INTERNATIONAL LIMITED a company registered under the laws of England and Wales under company number 02515018 with its registered office at Novartis House, Station Road, Kings Langley, Hertfordshire WD4 8LJ (the "Guarantor") in favour of SILICON VALLEY BANK a California chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 USA (the "Bank") WHEREAS: (A) This Deed is supplemental to the Deed of Guarantee dated 27 December 1999 and made between the same parties as this Deed (the "Principal Deed"). (B) At the request of (inter alia) the Guarantor the Bank has agreed to vary the terms of the Loan Agreements (as defined in the Principal Deed) and the Guarantor has agreed to vary the terms of the Principal Deed in manner hereafter appearing. WITNESSES as follows: 1. Interpretation 1.1 In this Deed words and expressions defined in the Principal Deed shall have the same meanings herein. 1.2 "Effective Date" means 29 December 2000. 2. Amendment 2.1 As from the Effective Date the Principal Deed shall be amended by the deletion of Clause 1(i) and substitution of the following:- "(i) the expression the "Loan Agreements" means the Amended and Restated Loan and Security Agreement dated 16 March 1999 made between the Bank and the Principal and Personics Corporation as amended by the Loan Modification Agreement dated of even date herewith and made between Datawatch Corporation and the Bank and the Export-Import Loan and Security Agreement of even date herewith made between (inter alia) the Bank and Datawatch Corporation as each of them may be amended, renewed and/or restated from time to time." 2.2 Save as amended by Clause 2.1 above, all the terms of the Principal Deed shall remain in full force and effect. 3. Miscellaneous Where the context admits the provisions of Clause 1 of the Principal Deed (Interpretation) and the provisions of Clause 22 of the Principal Deed (Law and Jurisdiction) shall apply (mutatis mutandis) to this Deed. IN WITNESS whereof this Deed has been executed as a deed and delivered by the parties hereto on the day and year first before written. EXECUTED AND DELIVERED as a Deed by DATAWATCH INTERNATIONAL LIMITED acting by:- /s/ Robert H. Hagger - ----------------------------- Director /s/ Bruce R. Gardner - ----------------------------- Director/Secretary EXECUTED AND DELIVERED as a Deed by SILICON VALLEY BANK by:- /s/ Maggie Garcia - ----------------------------- A person authorised under the laws of California to execute and deliver a document as a deed EX-10.7 9 ex10-7_10557.txt SUPPLEMENTAL DEED OF GUARANTEE EXHIBIT 10.7 ------------ THIS SUPPLEMENTAL DEED OF GUARANTEE is made this 17th day of January 2001 by DATAWATCH EUROPE LTD a company registered under the laws of England and Wales under company number 02887429 with its principal place of business at The Software Centre, East Way, Lee Mill Industrial Estate, Ivybridge, Plymouth PL21 9PE (the "Guarantor") in favour of SILICON VALLEY BANK a California chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 USA (the "Bank") WHEREAS: (A) This Deed is supplemental to the Deed of Guarantee dated 27 December 1999 and made between the same parties as this Deed (the "Principal Deed"). (B) At the request of (inter alia) the Guarantor, the Bank has agreed to vary the terms of the Loan Agreements (as defined in the Principal Deed) and the Guarantor has agreed to vary the terms of the Principal Deed in manner hereafter appearing. WITNESSES as follows: 1. INTERPRETATION 1.1 In this Deed words and expressions defined in the Principal Deed shall have the same meanings herein. 1.2 "Effective Date" means 29 December 2000. 2. AMENDMENT 2.1 As from the Effective Date the Principal Deed shall be amended by the deletion of Clause 1(i) and substitution of the following:- "(i) the expression the "Loan Agreements" means the Amended and Restated Loan and Security Agreement dated 16 March 1999 made between the Bank and the Principal and Personics Corporation as amended by the Loan Modification Agreement dated of even date herewith and made between Datawatch Corporation and the Bank and the Export-Import Loan and Security Agreement of even date herewith made between (inter alia) the Bank and Datawatch Corporation as each of them may be amended, renewed and/or restated from time to time." 2.2 Save as amended by Clause 2.1 above, all the terms of the Principal Deed shall remain in full force and effect. 3. MISCELLANEOUS Where the context admits the provisions of Clause 1 of the Principal Deed (Interpretation) and the provisions of Clause 22 of the Principal Deed (Law and Jurisdiction) shall apply (mutatis mutandis) to this Deed. IN WITNESS whereof this Deed has been executed as a deed and delivered by the parties hereto on the day and year first before written. EXECUTED AND DELIVERED as a Deed by DATAWATCH EUROPE LTD acting by:- /s/ Bruce R. Gardner - ----------------------------- Director /s/ John F. Cave - ----------------------------- Director/Secretary EXECUTED AND DELIVERED as a Deed by SILICON VALLEY BANK by:- /s/ Maggie Garcia . - ----------------------------- A person authorised under the laws of Californiato execute and deliver a document as a deed EX-10.8 10 ex10-8_10557.txt SUPPLEMENTAL DEED OF GUARANTEE Exhibit 10.8 ------------ THIS SUPPLEMENTAL DEED OF GUARANTEE is made this 17th day of January 2001 by GUILDSOFT LIMITED a company registered under the laws of England and Wales under company number 02567351 with its registered office at Unit A, The Software Centre, East Way, Lee Mill Industrial Estate, Ivybridge, Devon PL21 9PE (the "Guarantor") in favour of SILICON VALLEY BANK a California chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 USA (the "Bank") WHEREAS: (A) This Deed is supplemental to the Deed of Guarantee dated 27 December 1999 and made between the same parties as this Deed (the "Principal Deed") (B) At the request of (inter alia) the Guarantor the Bank has agreed to vary the terms of the Loan Agreements (as defined in the Principal Deed) and the Guarantor has agreed to vary the terms of the Principal Deed in manner hereafter appearing WITNESSES as follows: 1. INTERPRETATION 1.1 In this Deed words and expressions defined in the Principal Deed shall have the same meanings herein. 1.2 "Effective Date" means 29 December 2000. 2. AMENDMENT 2.1 As from the Effective Date the Principal Deed shall be amended by the deletion of Clause 1(i) and substitution of the following:- "(i) the expression the "Loan Agreements" means the Amended and Restated Loan and Security Agreement dated 16 March 1999 made between the Bank and the Principal and Personics Corporation as amended by the Loan Modification Agreement dated of even date herewith and made between Datawatch Corporation and the Bank and the Export-Import Loan and Security Agreement of even date herewith made between (inter alia) the Bank and Datawatch Corporation as each of them may be amended, renewed and/or restated from time to time." 2.2 Save as amended by Clause 2.1 above, all the terms of the Principal Deed shall remain in full force and effect. 3. MISCELLANEOUS Where the context admits the provisions of Clause 1 of the Principal Deed (Interpretation) and the provisions of Clause 22 of the Principal Deed (Law and Jurisdiction) shall apply (mutatis mutandis) to this Deed. IN WITNESS whereof this Deed has been executed as a deed and delivered by the parties hereto on the day and year first before written. EXECUTED AND DELIVERED as a Deed by GUILDSOFT LIMITED acting by:- /s/ Bruce R. Gardner - ------------------------------- Director /s/ John F. Cave - ------------------------------- Director/Secretary EXECUTED AND DELIVERED as a Deed by SILICON VALLEY BANK by:- /s/ Maggie Garcia . - ------------------------------- A person authorised under the laws of California to execute and deliver a document as a deed EX-10.9 11 ex10-9_10557.txt ASSIGNMENT AND CONSULTING AGREEMENT EXHIBIT 10.9 ------------ ASSIGNMENT AND CONSULTING AGREEMENT THIS CONSULTING AGREEMENT ("Agreement"), effective this 30th day of June, 2000 (the "Effective Date"), is made by and among Datawatch Corporation, with a business address at 900 Chelmsford Street, Tower 3, Fifth Floor, Lowell, MA 01851, its successors and its subsidiaries worldwide ("Company"); and Russell Ryan, with an address at 6 Homebush Court, Joyner, Australia 4500 (also doing business as "Edge IT") ("Consultant"). WHEREAS, Consultant desires to provide services to Company and Company desires to obtain the services of Consultant, as set forth in the Statement of Work attached hereto as Exhibit A and incorporated herein by reference ("Statement of Work"); WHEREAS, such services shall include, without limitation, modifications and enhancements to Company's products, Q-Flow and Quetzal SC, and the development of web-based versions of these products, in accordance with the Statement of Work; WHEREAS, Consultant desires to convey to Company, and Company desires to obtain from Consultant, whatever right, title or interest Consultant may have or claim to have in Q-Flow (resulting from Consultant's role in developing Q-Flow or otherwise), as well as in any other software, work product or technology developed by Consultant in connection with Consultant's performance of services for Workgroup Systems Australia Pty. Ltd., Company or any affiliated entity (such software, work product and/or technology hereinafter collectively referred to as the "Software"); and WHEREAS, the parties wish to establish the terms of their consulting arrangement, and to effectuate the transfer to Company of any rights Consultant may have or claim to have in Q-Flow and the Software, in the manner, and upon the terms and conditions, hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual obligations specified in this Agreement, and the compensation paid to Consultant hereunder, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms in quotation marks shall have the following meanings unless otherwise indicated: 1.1 "Deliverables" shall mean software (in both source and object code form) and other items provided by Consultant to Company pursuant to the Statement of Work. 1.2 "Developments" shall mean all ideas, concepts, designs, know-how, inventions, techniques, developments, works of authorship, proposals, algorithms, systems, processes, research, information, methods, code, formulae, software programs, discoveries, improvements, and all related notes, drawings, reports, specifications, logic diagrams, flow charts, operating instructions, manuals, notebooks, data, memoranda and other documentation, whether or not patentable, made, conceived, created, discovered, invented or first reduced to practice by Consultant, his affiliates or subcontractors, during the term of this Agreement and pursuant to the performance of Services hereunder, including all work resulting from use of Information (as defined in Section 5.1). 1.3 "Intellectual Property Rights" shall mean all intellectual property rights worldwide arising under statutory or common law or by contract and whether or not perfected, now existing or hereafter filed, issued or acquired, including all Patent Rights; copyrights, moral rights and all other rights associated with works of authorship; trademarks; rights relating to the protection of trade secrets and confidential information; and any right analogous to those set forth herein and any other proprietary rights relating to intangible property. 1.4 "Patent Rights" shall mean any and all: (i) United States and foreign patent applications containing one or more claims of an invention(s); (ii) continuations, continuations-in-part and divisional of Patent Rights described in (i) above; and (iii) United States and foreign patents issuing on Patent Rights described in (i) and (ii) above, and reissues, reexaminations and extensions thereof. 1.5 "Q-Flow" shall mean Company's proprietary Workflow software application which automates and monitors standardized business processes within an organization. 1.6 "Quetzal SC" shall mean Company's proprietary Help Desk Automation software which provides call-tracking, service level management, asset management, problem resolution, change management, data analysis and other capabilities to improve support center productivity. 1.7 "Work Product" shall mean Developments, Deliverables, and all versions, releases, updates, upgrades, modifications, enhancements, improvements and derivatives of the foregoing. 1.8 "Maintenance Services" shall mean all maintenance and support services, as well as enhancements and releases, which correct defects and malfunctions in the Work Product after its accepted release date or which are required to maintain compatibility with supported 3rd-party products. The scope of these services shall be limited to corrections to functionality existent in the Work Product at the time of release or as defined in the Statement of Work. 2. SCOPE OF WORK: 2.1 Company hereby retains Consultant to perform, and Consultant hereby agrees to perform for Company, certain software development work and related consulting, advisory and technical services, as described in the Statement of Work, including, without limitation, modifications and enhancements to Company's products, Q-Flow and Quetzal SC, and the development of web-based versions of these products (collectively, the "Services"), upon the terms and conditions set forth in this Agreement. 2.2 On a bi-weekly basis, or at such other interval as the parties may agree, Consultant shall submit to Company a written status report describing Consultant's progress under the Statement of Work. Concurrently with the submission of such report, Consultant shall deliver to Company a current version of all work in process, including source code, program documentation and a compiled version of the software under development. Company shall have the right at any time to request additional information or materials regarding the Services being rendered by Consultant hereunder. 2.3 Company shall engage Consultant to provide and Consultant shall also provide ongoing support and maintenance for the Phase 2 product (the "Maintenance Services") for a period of five (5) years from the date of first customer shipment of the Phase 2 product on a mutually agreed upon delivery schedule. 2.4 During the term of this Agreement, Consultant will devote such time, effort and resources to the Services as may be necessary to fulfill Consultant's obligations hereunder in accordance with the Schedule set forth in the Statement of Work, and will not undertake commitments to third parties that would conflict or interfere with his ability to perform and complete such Services in a timely manner. 3. ASSIGNMENT OF RIGHTS 3.1 Consultant agrees to, and does hereby, irrevocably, perpetually and unconditionally grant, deliver, convey, transfer and assign to Company, its successors and assigns, any and all worldwide right, title and interest Consultant may have in Q-Flow, the Software, and Intellectual Property Rights therein, it being understood that Consultant shall retain no right, title or interest of any kind whatsoever in or to, and expressly waives any and all claims of any nature whatsoever Consultant may have with respect to, Q-Flow, the Software, or Intellectual Property Rights therein (the "Assignment"). 3.2 Consultant represents and warrants that he (a) has not assigned, transferred, licensed or conveyed to any third party any right, title or interest Consultant may have in Q-Flow or the Software, or Intellectual Property Rights therein; and (b) is not aware of any injunction, judgment, decree, ruling, order, right, charge, lien or claim that would prevent full transfer and benefit of the rights conveyed herein. 3.3 Consultant further represents and warrants that as of the Effective Date he has no right, title, interest, lien or claim of ownership of any kind whatsoever in or to any Company product or technology and expressly waives any and all claims of any nature whatsoever related thereto (such representation, warranty and waiver herein collectively referred to as "Waiver"). 4. COMPENSATION: 4.1 In consideration of the Assignment and Waiver, Company shall issue 50,000 shares of Company's Common Stock, par value $.01 per share (the "Common Stock") to Consultant, promptly after the execution of this Agreement, which shares shall constitute full and complete compensation for such Assignment and Waiver. The issuance of the shares is subject to the provisions of Section 4.7 hereof. 4.2 In consideration of Consultant's performance of the Phase 1 and Phase 2 Tasks, as set forth in the Statement of Work, Company shall compensate Consultant on a time and materials basis, at the rates set forth in Exhibit B; provided, however, that the amounts specified in Exhibit B shall constitute the maximum amount Company shall be required to pay Consultant for performance of the Phase 1 and Phase 2 Tasks, unless otherwise agreed by the parties in writing. At the option of Company, the compensation payable pursuant to this Section 4.2 may be paid in cash or by the issuance of shares of Common Stock. The value of the shares of Common Stock to be so issued shall be determined as the average of the closing price of the Common Stock on the NASDAQ National Market for the five trading days immediately preceding the date on which Company becomes obligated to make such payment. The issuance of such shares is subject to the provisions of Sections 4.7 and 4.8 hereof. 4.3 Company shall also pay to Consultant a ten percent (10%) royalty based upon Company's Net Sales of Q-Flow; provided, however, that such royalty shall only be payable with respect to sales made prior to the date of first customer shipment of the Phase 2 product, upon which date such royalty obligation shall automatically terminate. 4.4 In consideration of Consultant's performance of the Maintenance Services as set forth in Section 2.3, Company shall pay Consultant a royalty of three percent (3%) based upon Company's Net Sales of the Phase 2 product. 4.5 "Net Sales" shall mean payments collected by Company from its customers on account of sales of licenses for the Phase 1 or Phase 2 product, as the case may be ("License Payments"), less any sales, use, excise, value-added or similar taxes, shipping charges, import duties, customs fees, discounts, allowances, and returns actually made or allowed as supported by credit memoranda issued to customers. The royalties owed Consultant hereunder shall be calculated on a quarterly calendar basis and shall be payable no later than thirty (30) days following the close of Company's fiscal quarter during which such License Payments are received. Concurrently with the payment of royalties, Consultant shall be provided with a summary statement of the transactions on which the royalties are based. 4.6 Consultant shall not be entitled to receive any other compensation or any benefits from Company. Except as otherwise required by law, Company shall not withhold any sums from payments made to Consultant for Social Security or other federal, state or local tax liabilities or contributions, and all such withholdings, liabilities, and contributions shall be solely Consultant's responsibility. 4.7 In connection with the issuance of shares of Common Stock to Consultant pursuant to Section 4.1 and, if any, Section 4.2, Consultant hereby represents and warrants to, and agrees with, Company as follows: (a) The Consultant has sufficient knowledge and experience in investing in companies similar to Company so as to be able to evaluate the risks and merits of the Consultant's receipt of shares of Common Stock of Company and the Consultant is able financially to bear the risks thereof. (b) The Consultant has had an opportunity to discuss Company's business, management and financial affairs with the Company's management. (c) The shares of Common Stock being acquired by the Consultant are being acquired for the Consultant's own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof. (d) The Consultant understands that (i) the shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities act, (ii) the shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration and (iii) the shares will bear a legend to such effect. With respect to the shares of Common Stock issued pursuant to Section 4.1 hereof, Consultant hereby further agrees that he will not sell, transfer, pledge or otherwise dispose of the shares (except in connection with an acquisition of Company) for a period of one year from the date of issuance of the shares. 4.8 Company agrees that promptly after a request from Consultant after the issuance of shares, if any, pursuant to Section 4.2 hereof, Company will prepare and file with the Securities and Exchange Commission a registration statement on Form S-3 to register such shares, and the Company will use commercially reasonable efforts to have such registration statement declared effective and to maintain the effectiveness of such registration statement for a period of at least six months. 5. NONDISCLOSURE AND TRADE SECRETS: 5.1 During the term of this Agreement and in the course of Consultant's performance hereunder, Consultant may receive and otherwise be exposed to Company confidential and proprietary information relating to Company's business practices, strategies, and technologies (the "Information"). The Information includes, but is not limited to, Company's marketing and customer support strategies, Company's financial information including sales, costs, profits, and pricing methods, Company's internal organization, employee lists and customer lists, and Company's technology including designs, inventions, know-how, techniques, developments, works of authorship, algorithms, systems, processes, methods, code, formulae, software programs, discoveries, research and development efforts, manufacturing processes, hardware/software design and maintenance tools, hardware/software product know-how and show-how, and all related notes, drawings, reports, specifications, logic diagrams, flow charts, operating instructions, manuals, notebooks, data, memoranda and other documentation, and all derivatives, improvements, and enhancements to any of the above which were created or developed by Consultant under this Agreement. 5.2 Consultant acknowledges that the Information is the sole, exclusive and extremely valuable property of Company. Accordingly, Consultant agrees to segregate all Information from information of other companies and agrees not to reproduce any of the Information without Company's prior written consent, not to use the Information except in the performance of this Agreement, and not to divulge all or any part of the Information in any form to any third party, either during or after the term of this Agreement. Upon termination of this Agreement for any reason including expiration of term, Consultant agrees to cease using and to return to Company all whole and partial copies and derivatives of Company's Information, whether in Consultant's possession or under Consultant's direct or indirect control, including any computer access nodes and/or codes. 5.3 Consultant shall not disclose or otherwise make available to Company in any manner any confidential and proprietary information received by Consultant from third parties. Consultant has not entered into, and agrees to not enter into, any agreement, either written or oral, in conflict herewith. 6. OWNERSHIP OF WORK PRODUCT: 6.1 Consultant has specifically described and identified in Exhibit C to this Agreement any and all technology which Consultant intends to use in performing under this Agreement ("Background Technology"). Consultant represents and warrants that all of the Background Technology is either owned solely by Consultant or licensed to Consultant with a right to sublicense. 6.2 Consultant hereby acknowledges and agrees that Company shall own, solely and exclusively, all right, title and interest, including all Intellectual Property Rights, in and to the Work Product. In furtherance of the foregoing, Consultant hereby irrevocably and unconditionally transfers and assigns to Company all right, title and interest Consultant may have or acquire in or to any Work Product, and agrees to execute and deliver such documents, certificates, assignments and other writings, and take such other actions, as may be necessary or desirable to vest in Company the ownership rights granted to Company hereunder. 6.3 Consultant further agrees that any and all works of authorship created, authored or developed by Consultant for Company pursuant to this Agreement shall be deemed to be "works made for hire" within the meaning of the United States Copyright Law and, as such, all rights therein including copyright shall belong solely and exclusively to Company from the time of their creation. To the extent any such work of authorship may not be deemed to be a work made for hire, Consultant agrees to, and does hereby, irrevocably and unconditionally transfer and assign to Company all right, title and interest including copyright in and to such work. 6.4 Consultant shall ensure that all personnel, including employees, agents, consultants and subcontractors of Consultant, who contribute to or participate in the creation of any Development or Deliverables are parties to a "work-for-hire" agreement with Consultant in accordance with applicable federal and state law, and have executed appropriate instruments of assignment in favor of Consultant as assignee that have conveyed to Consultant full, effective and exclusive ownership of all tangible and intangible property thereby arising. 6.5 Consultant agrees to grant and hereby grants to Company, under any and all Intellectual Property Rights in Background Technology, a non-exclusive, irrevocable, royalty free, and worldwide license to use the Background Technology, including, without limitation, the right to make, have made, sell, offer for sale, rent, lease, import, copy, create derivative works, display, perform and distribute the Background Technology (including the right to sublicense, assign or otherwise transfer all of the foregoing rights). 7. FURTHER ASSURANCES 7.1 Consultant shall, during the term of this Agreement and at any time thereafter, at the request and cost of Company, promptly sign, execute, make and do all such deeds, documents, acts and things as Company may reasonably require: (a) to give effect to or evidence the Assignment set forth herein, and to protect, prosecute, enforce, maintain and defend Company's ownership rights in Q-Flow; (b) to apply for, obtain, register and vest in the name of Company alone (unless Company otherwise directs) patents, copyrights, mask works, trademarks or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and (c) to defend any judicial, opposition or other proceedings in respect of such applications and any judicial, opposition or other proceedings or petitions or applications for revocation of such patent, copyright, mask work, trademark or other analogous protection. 7.2 In the event that Consultant fails to take any action reasonably requested by Company pursuant to this Section 7, then Company may, and Consultant hereby irrevocably designates and appoints Company and its duly authorized officers and agents as Consultant's agent and attorney in fact to, act for and in Consultant's behalf and stead, to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of patent, copyright, mask work and trademark registrations thereon with the same legal force and effect as if executed and filed by Consultant. 8. INDEMNIFICATION/RELEASE: 8.1 Consultant agrees to take all necessary precautions to prevent injury to any persons (including employees of Company) or damage to property (including Company's property) during the term of this Agreement and shall indemnify and hold Company and its officers, agents, directors and employees harmless against all claims, losses, expenses (including reasonable attorney's fees) and injuries to person or property (including death) resulting in any way, from any act, omission or negligence on the part of Consultant in the performance or failure to fulfill any Services under this Agreement. 8.2 Consultant warrants that he has or will have good and marketable title to all Work Product assigned by Consultant to Company pursuant to the provisions of this Agreement. Consultant further warrants that the Work Product and Background Technology shall be free and clear of all liens, claims, encumbrances or demands of third parties, including any claims by any such third parties of any right, title or interest in or to the Work Product or Background Technology arising out of any trade secret, copyright, trademark, patent, or other intellectual property right. Consultant shall indemnify, defend and hold harmless Company and its customers from any and all liability, loss, cost, damage, judgment or expense (including reasonable attorney's fees) resulting from or arising in any way out of any such claims by any third parties, and/or which are based upon, or are the result of any breach of the warranties contained in this Section 5. In the event of such a breach or claim, Consultant shall, at no additional cost to Company, at the Company's option, either (a) replace or modify the Work Product or Background Technology, as the case may be, with functionally equivalent and conforming Work Product or Background Technology or (b) obtain for Company the right to continue using the Work Product or Background Technology, and in all other respects use his best efforts to remedy the breach. Notwithstanding anything else in this Section 8 to the contrary, Consultant shall have no liability under this Section 5 for any Deliverable created in accordance with detailed and specific design instructions furnished to Consultant by Company. 8.3 Should Company permit Consultant to use any of Company's equipment, tools or facilities during the term of this Agreement, such permission shall be gratuitous and Consultant shall indemnify and hold harmless Company and its officers, directors, agents and employees, from and against any claim, loss, expense or judgment for injury to person or property (including death) arising out of the use of any such equipment, tools or facilities, whether or not such claim is based upon its condition or on the alleged negligence of Company in permitting its use. 9. NON-COMPETITION 9.1 Consultant hereby agrees that he will not, during the term of this Agreement, and for a period of two years following termination hereof, (a) directly or indirectly engage in any Competitive Business (as defined below), whether such engagement shall be as an employer, officer, director, owner, employee, partner or in any other capacity, (b) assist others in engaging in any Competitive Business or (c) develop, enhance, produce, market, promote or support, or render consulting or other services to a third party with respect to, a Similar Application (as defined below). As used in this Section 9, "Competitive Business" shall mean a business providing products or services similar to, or competitive with, those provided by Company during the term of this Agreement, and "Similar Application" shall mean a software program having substantially similar functionality to Q-Flow or Quetzal SC. 10. TERM AND TERMINATION: 10.1 The term of this Agreement shall begin on the Effective Date and shall continue through September 30, 2001 (the "Initial Term"), unless earlier terminated in accordance with the terms hereof; provided, however, that this Agreement shall remain in effect with respect to any Statement of Work entered into hereunder until such Statement of Work is itself terminated or performance thereunder is completed. 10.2 Either Company or Consultant may terminate this Agreement immediately in the event of a material breach of the Agreement which is not cured within fifteen (15) days of written notice to the other of such breach. 10.3 Company may terminate this Agreement for convenience with ten (10) days' prior written notice. In the event of termination by Company for convenience, unless otherwise advised by Company, Consultant shall cease work immediately after receiving notice from Company but shall upon request perform such work as may be requested to transfer work in process to Company or to a party designated by Company. 11. COMPLIANCE WITH APPLICABLE LAWS: 11.1 Consultant warrants that any materials supplied and work performed under this Agreement comply with or will comply with all applicable United States and foreign laws and regulations. 11.2 Notwithstanding any other provisions of this Agreement, Consultant agrees not to export, directly or indirectly, any information, data, or other materials to any countries outside the United States except in compliance with all United States or local laws or regulations. Nothing in this section releases Consultant from any obligation stated elsewhere in this Agreement not to disclose such materials. 12. INDEPENDENT CONTRACTOR: 12.1 Consultant is an independent contractor, is not an agent, or employee of Company and is not authorized to act on behalf of Company. While Company is entitled to provide Consultant with general guidance to assist Consultant in completing the scope of work to Company's satisfaction, nevertheless Consultant is ultimately responsible for directing and controlling the performance of the task comprising the scope of work, in accordance with the terms and conditions of this Agreement. 13. PRIOR CONSULTING AGREEMENT: 13.1 This Agreement expressly replaces and supersedes the Consulting Agreement between WorkGroup Systems Australia dated 10 February 1997 as amended. Upon execution hereof by the parties hereto, the Consulting Agreement between WorkGroup Systems Australia dated 10 February 1997 with amendments will terminate and be of no further force or effect. 14. GENERAL: 14.1 This Agreement may not be changed unless mutually agreed upon in writing by both parties. 14.2 This Agreement does not create an obligation on Company to continue to retain Consultant beyond its term. 14.3 Consultant hereby agrees that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 14.4 Company shall have the right to assign this Agreement or any rights and obligations hereunder to its successors and assigns, and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by said successors or assigns. Contractor may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company. 14.5 Sections 3 through 7 and 9 shall survive the termination of this Agreement for any reason, including expiration of term. 14.6 This Agreement and all aspects of the relationship between the parties hereto shall be construed and enforced in accordance with and governed by the internal laws of the Commonwealth of Massachusetts without regard to its conflict of laws provisions. Any claims or legal actions by one party against the other shall be commenced and maintained in any state or federal court located in the Commonwealth of Massachusetts, and both parties hereby submit to the jurisdiction and venue of any such court. 14.7 All notices provided for in this Agreement shall be given in writing and shall be effective when either served by hand delivery, electronic facsimile transmission, express overnight courier service, or by registered or certified mail, return receipt requested, addressed to the parties at their respective addresses set forth below, or to such other address or addresses as either party may later specify by written notice to the other: If to Company: If to Consultant: Datawatch Corporation Russell Ryan 900 Chelmsford Street 6 Homebush Court Tower 3, Fifth Floor Joyner, Australia.4500 Lowell, MA 01851 Tel: +617 3882 3764 Tel: 978-441-2200 -------------- ------------ Fax: +617 3882 1490 Fax: 978-441-1114 -------------- ------------ 14.8 This Agreement constitutes the complete and exclusive statement of the agreement between the parties, and supersedes all prior agreements, proposals, negotiations and communications between the parties, both oral and written, regarding the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement as of the date first above written. DATAWATCH CORPORATION CONSULTANT By: /s/ Linda Lammi /s/ R. B. Ryan ---------------------------- ------------------------------- Signature (Duly Authorized) Signature Linda Lammi Russell Ryan - -------------------------------- ------------------------------- Authorized Agent of Corporation Name (print) Dated: 10/26/2000 Dated: 31 Oct 2000 ---------- ----------- Exhibit A Statement of Work - -------------------------------------------------------------------------------- Phase 1 Tasks - -------------------------------------------------------------------------------- Summary To produce, at a minimum, a functionally equivalent web only based application that has the same level of functionality as the current version of Q-Browser (v1.03) and the Q-Flow Process Module (build 21). The following functionality is also to be included in Phase 1: o Ability to add/modify/view/delete call subjects to a call and to include call subject information, and scripting o Include a "Universal Field Control (UFC)" object which, by manipulation of object properties, can be used to add/modify/view/delete data contained in any accessible database table o Ability to add/modify/view/delete call reference codes o Ability to add/modify/view/delete call comments in a read-only, full edit access and append only mode (object property selectable) o Ability to add/modify/view/delete dual SLTs for a call. o Ability to add/modify/view/delete call priorities o Ability to add/modify/view/delete Allocation and/or Assignments including the ability for the application to set these automatically based on system defaults o Ability to perform the call functions of (including the modification of the function's timer): 1. Respond to Call (SLT1 and SLT2) 2. Fix Call (SLT1 and SLT2), including the ability to add/ modify/view/delete call fix codes o Ability to add/modify/view/delete inventory (client/logon/config/ item) to a call, including the ability to perform QBE functions from within the call. The ability to auto-select inventory based on a parent/child relationship is to be preserved. o Ability to add/modify/view/delete the organization structure (including location and cost code) to a call o Ability to search for, list and browse calls based on List, List+, and by the general QBE function. When listing and browsing calls, the full use of system indicators must be used. System security parameters should be sourced from within the Quetzal|SC database and from object property settings. The expected milestones for Phase 1 tasks are: o October 30, 2000- All functionality listed above ready for beta trials o November 30, 2000- All functionality listed above ready for general production release. - -------------------------------------------------------------------------------- Phase 2 Tasks - -------------------------------------------------------------------------------- Summary To produce, at a minimum, a functionally equivalent web only based that has the same level of functionality as the current version of Quetzal|SC (v1.04) and the Q-Flow Module (build 21) as a thin-client web application. This functionality is to include: o Inventory Management o Q-Flow Designer and Administration Modules o Quetzal|SC Administration o Q-Alert Functionality and Administration o Q-Mail Functionality and Administration o Integration with K-Commerce (Inference) o Remote call notification similar in functionality to Q-IconPlus o Shell to Crystal Reports v8 (or above) via a web browser (including the passing of parameters) o Monarch Integration o Screen designer o HTML Forms access o Call actions o Manual manipulation of SLT timers o Hold / release calls o Bookmark a call to the user or group of users The following are excluded: o Q-Import o Data conversion utility (v4.1 to Quetzal|SC component only) o Database administration utility (QSC-Utils) o Q-Icon o Q-View o Quetzal|SC Daemon o Network Management System (HP Openview ITO/NNM, BMC Patrol and the proprietary Datawatch Network Management System (Internal code "Q-Net") o Crystal Report Templates o All Monarch Models The current Quetzal|SC developers/contractors (HCL America) will be undertaking the conversion of existing code to use all objects being developed by Edge IT. Edge IT will co-operate fully with HCL in supplying the necessary information, skill and software to allow the conversion to occur in a timely manner. The expected milestones for Phase 2 tasks are: o September 30, 2001 - All functionality listed above ready for general production release. Exhibit B [OBJECT OMITTED] Note: Amounts shown are in US dollars and do not reflect expenses for additional services such as testing and test plan development. Exhibit C The following is a complete list of all Background Technology relevant to Consultant's Services with Company: ____X____ No Background Technology _________ See Below Background Technology owned by Consultant: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Background Technology provided by sublicense (copies of license(s) to Consultant is/are attached): ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ _________ Additional sheets attached -----END PRIVACY-ENHANCED MESSAGE-----