LOAN MODIFICATION AGREEMENT

Exhibit 10.16

LOAN MODIFICATION AGREEMENT

     This Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of April 26, 2004, by and between SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan production office located at One Newton Executive Park, Suite 200, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, doing business under the name “Silicon Valley East” (“Bank”) and NSI SOFTWARE, INC., successor by merger with NETWORK SPECIALISTS, INCORPORATED, a Delaware corporation, with offices at Two Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxx Xxxxxx 00000 (“Borrower”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of October 16, 2003, evidenced by, among other documents, a certain Loan and Security Agreement dated as of October 16, 2003 between Borrower and Bank (the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Bank, 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.

Modification to Loan Agreement.

	A.		Section 1(B)(i) of the Schedule to the Loan Agreement is hereby amended by deleting the following text appearing therein:
			“(i) 75% of the amount of the Borrower’s Eligible Receivables, exclusive of Deferred Revenue Offsets and rebate accruals; provided, however, in the event that Borrower has an Adjusted Quick Ratio (to be tested on a monthly basis, as of the end of each month) of at least 1.0 to 1.0, then Silicon will not exclude such Deferred Revenue Offsets or rebate accruals; minus”
			and substituting the following text therefor:

			“(i) 75% of the amount of the Borrower’s Eligible Receivables; minus”
	B.		Section 3 of the Schedule to the Loan Agreement is hereby amended by adding the following subsection:
			“Sunbelt Based Borrowings Fee:
			(a) Sunbelt Based Borrowings up to $250,000.00 – No fee;
			(b) Sunbelt Based Borrowings between $250,000.00 and $500,000.00 – $1,000.00 per month, payable in arrears;
			(c) Sunbelt Based Borrowings between $500,000.00 and $1,000,000.00 – $2,000.00 per month, payable in arrears.”
	C.		Sections 5a.(i)(h)-(j) of the Schedule to the Loan Agreement are hereby amended by deleting same their entirety and substituting the following therefor:
			“(h) ($1,250,000) at March 31, 2004; (i) ($2,400,000) at April 30, 2004; (j) ($3,100,000) at May 31, 2004;”
	D.		Section 5 of the Schedule to the Loan Agreement is hereby amended by adding the following Subsection c. after subsection b.
			“c. Capitalization Event.
			Borrower shall, on or after April 7, 2004 but before June 30, 2004, receive cash proceeds from the issuance of equity securities of the Borrower and/or subordinated debt incurred by the Borrower in the aggregate amount of at least $5,000,000.00.”
	E.		The definitions of “Adjusted Quick Ratio” and “Deferred Revenue Offsets” set forth in Section 8 of the Loan Agreement are hereby deleted their entirety.”
	F.		The definition of “Eligible Receivables” set forth in Section 8 of the Loan Agreement is hereby amended by deleting the following text appearing therein:
			“(viii) the Receivable must not be owing from an Account Debtor located outside the United States (unless pre-approved

by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insurance satisfactory to Silicon), and”

and substituting the following text therefor:

“(viii) the Receivable must not be owing from an Account Debtor located outside the United States (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insurance satisfactory to Silicon) with the exception of Sunbelt International, provided that borrowings based upon Receivables owing from Sunbelt International (“Sunbelt Based Borrowings”) may not exceed the lesser of (a) twenty (20%) percent of all borrowings under this Agreement, or (b) $1,000,000.00, and”

4. WAIVER. The Bank hereby waives Borrower’s failure to comply with the “Minimum Tangible Net Worth” covenant set forth in Section 5.a. of the Schedule to the Loan Agreement for the periods ended December 31, 2003, January 31, 2004 and February 29, 2004. The Bank’s waiver of Borrower’s compliance with said foregoing affirmative covenant shall apply only to the foregoing specific periods.

5. FEES. Borrower shall pay to Bank on the date hereof a fully-earned, non-refundable modification fee of Three Thousand Dollars ($3,000.00). Borrower shall reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

6. RATIFICATION OF PERFECTION CERTIFICATE. Borrower hereby ratifies, confirms, and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate delivered to the Bank on or about October 16, 2003, and acknowledges, confirms and agrees the disclosures and information provided therein has not changed, as of the date hereof.

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

8. 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.

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

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

10. 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.

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

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     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:
NSI SOFTWARE, INC., successor by merger with
NETWORK SPECIALISTS, INCORPORATED
By:		/s/ S. Xxxxx Xxxx
Name:		S. Xxxxx Xxxx
Title:		Chief Financial Officer
BANK:
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By:		/s/ Xxxx X. Atenasoff
Name:		Xxxx X. Atenasoff
Title:		Vice President