FOURTH LOAN MODIFICATION AGREEMENT

 

                                                               EXHIBIT 10.42

                       FOURTH LOAN MODIFICATION AGREEMENT

         This Fourth Loan Modification Agreement is entered into as of December
1, 1999 by and between BLUESTONE SOFTWARE, INC., a Delaware corporation with its
principal place of business at 1000 Briggs Road, Mount Laurel, New Jersey
08054-4101 ("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 5 Radnor Corporate
Center, Suite 555, 100 Matsonford Road, Radnor, Pennsylvania 19087.

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 as of December 8, 1997, evidenced by, among other
documents, a certain Loan and Security Agreement dated as of December 8, 1997
between Borrower and Bank, as amended by a First Loan Modification Agreement
dated as of August 16, 1998, as amended by a Second Loan Modification Agreement
dated as of January 21, 1999, and as amended by a Third Loan Modification
Agreement dated as of March 30, 1999 (as amended, the "Loan Agreement"). The
Loan Agreement established in favor of the Borrower: (i) a revolving line of
credit in the maximum principal amount of One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000.00) (the "Committed Revolving Line"), and (ii) an
equipment line of credit in the maximum principal amount of Two Million Dollars
($2,000,000.00) (the "1998 Committed Equipment 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 "Indebtedness".

2.       DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness 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 Indebtedness shall be referred to as the "Existing
Loan Documents".

3.       DESCRIPTION OF CHANGE IN TERMS.

         A.       MODIFICATION(S) TO LOAN AGREEMENT.

                  1.       All references to "Committed Equipment Line" in the
                           Loan Agreement shall mean and refer to the "1998
                           Committed Equipment Line".

                  2.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Committed Revolving Line" shall mean a
                                    credit extension of up to One Million Seven
                                    Hundred Fifty Thousand Dollars
                                    ($1,750,000.00)."

                           and inserting in lieu thereof the following:

                                    ""Committed Revolving Line" shall mean an
                                    Advance or Advances of up to Three Million
                                    Dollars ($3,000,000.00)."

                  3.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Credit Extension" means each Advance,
                                    Equipment Advance or any other extension of
                                    credit by Bank for the benefit of Borrower
                                    hereunder."

                           and inserting in lieu thereof the following:

                                    ""Credit Extension" means each Advance,
                                    Equipment Advance, Letter of Credit or any
                                    other extension of credit by Bank for the
                                    benefit of Borrower hereunder."

                  4.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Equipment Advance" has the meaning set
                                    forth in Section 2.1.1."

                           and inserting in lieu thereof the following:

                                    ""Equipment Advance" or "Equipment Advances"
                                    shall mean any advance made pursuant to
                                    Sections 2.1.2, 2.1.2.A or 2.1.2.B hereof."

                  5.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Maturity Date" means the later of the
                                    Second Equipment Maturity Date or the
                                    Revolving Maturity Date."

                           and inserting in lieu thereof the following:

                                    ""Maturity Date" means, as applicable, (i)
                                    the Revolving Maturity Date for Advances
                                    pursuant to Section 2.1.1; (ii) the
                                    Equipment Maturity Date for Equipment
                                    Advances pursuant to Section 2.1.2; (iii)
                                    the Second Equipment Maturity Date for
                                    Equipment Advances pursuant to Section
                                    2.1.2.A; and (iv) the 1999 Equipment
                                    Maturity Date No. 1 and 1999 Equipment
                                    Maturity Date No. 2 for Equipment Advances
                                    pursuant to Section 2.1.2.B."

                  6.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Obligations" means all debt, principal,
                                    interest, Bank Expenses and other amounts
                                    owed to Bank by Borrower pursuant to this
                                    Agreement or any other agreement, whether
                                    absolute or contingent, due or to become
                                    due, now existing or hereafter arising,
                                    including any interest that accrues after
                                    the commencement of an Insolvency Proceeding
                                    and including any debt, liability, or
                                    obligation owing from Borrower to others
                                    that Bank may have obtained by assignment or
                                    otherwise."

                           and inserting in lieu thereof the following:

                                    ""Obligations" means all debt, principal,
                                    interest, Bank Expenses and other amounts
                                    owed to Bank by Borrower pursuant to this
                                    Agreement or any other agreement, including,
                                    without limitation, all Obligations under
                                    the EXIM Agreement, whether absolute or
                                    contingent, due or to become due, now
                                    existing or hereafter arising, including any
                                    interest that accrues after

                                    the commencement of an Insolvency Proceeding
                                    and including any debt, liability, or
                                    obligation owing from Borrower to others
                                    that Bank may have obtained by assignment or
                                    otherwise."

                  7.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Payment Date" means the first calendar day
                                    of each month commencing on the first such
                                    date after the Closing Date and ending on
                                    the Revolving Maturity Date."

                           and inserting in lieu thereof the following:

                                    ""Payment Date" means the first calendar day
                                    of each month commencing on the first such
                                    date after the Closing Date and ending on
                                    the Maturity Date."

                  8.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Revolving Maturity Date" shall mean April
                                    1, 2000."

                           and inserting in lieu thereof the following:

                                    ""Revolving Maturity Date" shall mean
                                    December 1, 2000."

                  9.       The Loan Agreement shall be amended by incorporating
                           into Section 1.1 thereof the following new
                           definitions:

                                    "EXIM Agreement" is that certain
                                    Export-Import Bank Loan and Security
                                    Agreement dated as of December 1, 1999 by
                                    and between the Borrower and the Bank and
                                    all documents, instruments and agreements
                                    executed in conjunction therewith.

                                    "Letter of Credit" means a letter of credit
                                    or similar undertaking issued by Bank
                                    pursuant to Section 2.1.3.

                                    "Letter of Credit Reserve" has the meaning
                                    set forth in Section 2.1.3.

                                    "1999 Committed Equipment Line" shall mean
                                    an Equipment Advance or Equipment Advances
                                    of up to Five Hundred Thousand Dollars
                                    ($500,000.00).

                                    "1999 Equipment Availability End Date No. 1"
                                    has the meaning set forth in Section 2.1.2.
                                    B.

                                    "1999 Equipment Availability End Date No. 2"
                                    has the meaning set forth in Section 2.1.2.
                                    B.

                                    "1999 Equipment Maturity Date No. 1" means
                                    that date which is thirty-six (36) months
                                    following the 1999 Equipment Availability
                                    End Date No. 1.

                                    "1999 Equipment Maturity Date No. 2" means
                                    that date which is thirty-six (36) months
                                    following the 1999 Equipment Availability
                                    End Date No. 2.

                  10.      The Loan Agreement shall be amended by deleting the
                           following text appearing as the first sentence of
                           paragraph (a) of Section 2.1.1 entitled "Credit
                           Extensions":

                                    "Subject to and upon the terms and
                                    conditions of this Agreement, Bank agrees to
                                    make Advances to Borrower in an aggregate
                                    outstanding amount not to exceed the
                                    Committed Revolving Line or the Borrowing
                                    Base, whichever is less."

                           and inserting in lieu thereof the following:

                                    "Subject to and upon the terms and
                                    conditions of this Agreement, Bank agrees to
                                    make Advances to Borrower in an aggregate
                                    outstanding amount not to exceed: (i) the
                                    Committed Revolving Line or the Borrowing
                                    Base, whichever is less, minus (ii) the face
                                    amount of all outstanding Letters of Credit
                                    (including drawn but unreimbursed Letters of
                                    Credit)."

                  11.      No further Equipment Advances shall be made under
                           Sections 2.1.2 and 2.1.2.A. All Equipment Advances
                           currently amortizing under Sections 2.1.2 and 2.1.2.A
                           shall continue to be repaid as provided in Sections
                           2.1.2 and 2.1.2.A.

                  12.      The Loan Agreement shall be amended by inserting
                           after Section 2.1.2.A thereof entitled "1998-1999
                           Equipment Advances" the following new section:

                                    "2.1.2.B.    1999 EQUIPMENT ADVANCES.

                                    (a)      Subject to and upon the terms and
                                    conditions of this Agreement, Bank agrees to
                                    make advances (each an "Equipment Advance"
                                    and collectively, the "Equipment Advances")
                                    to Borrower under this Section 2.1.2.B in an
                                    aggregate amount not to exceed the 1999
                                    Committed Equipment Line in the following
                                    manner: (i) at any time through June 1, 2000
                                    (the "1999 Equipment Availability End Date
                                    No. 1") in an aggregate amount not greater
                                    than the 1999 Committed Equipment Line (the
                                    "1999 Equipment Line No. 1"), and (ii) at
                                    any time from the 1999 Equipment
                                    Availability End Date No. 1 through that
                                    date which is six (6) months following the
                                    1999 Equipment Availability End Date No. 1
                                    (the "1999 Equipment Availability End Date
                                    No. 2"), in an aggregate amount not to
                                    exceed the 1999 Committed Equipment Line,
                                    less the outstanding principal amounts
                                    advanced pursuant to 1999 Equipment Line No.
                                    1 (the "1999 Equipment Line No. 2"). To
                                    evidence the Equipment Advance or Equipment
                                    Advances, Borrower shall deliver to Bank, at
                                    the time of each Equipment Advance request,
                                    an invoice for the equipment to be
                                    purchased. The Equipment Advances under this
                                    Section 2.1.2.B shall be used only to
                                    purchase Equipment and shall not exceed One
                                    Hundred Percent (100%) of the invoice amount
                                    of such equipment approved from time to time
                                    by Bank, excluding taxes, shipping, warranty
                                    charges, freight discounts and installation
                                    expense. Software shall be limited to
                                    twenty-five percent (25.0%) of aggregate
                                    Equipment Advances under this Section
                                    2.1.2.B.

                                    (b)      Interest shall accrue from the date
                                    of each Equipment Advance under this Section
                                    2.1.2.B at the per annum rate equal to the
                                    aggregate of the Prime Rate PLUS Three
                                    Quarters of One percent (0.75%), and shall
                                    be payable monthly on the Payment Date of
                                    each month. Any Equipment Advances made
                                    pursuant to the 1999 Equipment Line No. 1
                                    that are outstanding on the 1999 Equipment
                                    Availability End Date No. 1 will be payable
                                    in Thirty-Six (36) equal monthly
                                    installments of principal, plus all accrued
                                    interest, beginning on the Payment Date of
                                    the month following the 1999 Equipment
                                    Availability End Date No. 1 and ending on
                                    the 1999 Equipment Maturity Date No. 1. Any
                                    Equipment Advances made pursuant to the 1999
                                    Equipment Line No. 2 that are outstanding on
                                    the 1999 Equipment Availability End Date No.
                                    2 will be payable in Thirty-Six (36) equal
                                    monthly installments of principal, plus all
                                    accrued interest, beginning on the Payment
                                    Date of the month following the 1999
                                    Equipment Availability End Date No. 2 and
                                    ending on the 1999 Equipment Maturity Date
                                    No. 2. Equipment Advances, once repaid, may
                                    not be reborrowed. Equipment Advances may be
                                    prepaid at any time in whole or in part
                                    without penalty or premium.

                                    (c)      When Borrower desires to obtain an
                                    Equipment Advance, Borrower shall notify
                                    Bank (which notice shall be irrevocable) by
                                    facsimile transmission to be received no
                                    later than 3:00 p.m. Eastern time one (1)
                                    Business Day before the day on which the
                                    Equipment Advance is to be made. Such notice
                                    shall be substantially in the form of
                                    Exhibit B. The notice shall be signed by a
                                    Responsible Officer or its designee and
                                    include a copy of the invoice for the
                                    Equipment to be financed."

                  13.      The Loan Agreement shall be amended by inserting
                           after Section 2.1.2.B thereof the following new
                           section:

                                    "2.1.3  LETTERS OF CREDIT.

                                    (a)      Subject to the terms and conditions
                                    of this Agreement, Bank agrees to issue or
                                    cause to be issued Letters of Credit for the
                                    account of Borrower in an aggregate
                                    outstanding face amount not to exceed (i)
                                    the Committed Revolving Line or the
                                    Borrowing Base, whichever is less, minus
                                    (ii) the then outstanding principal balance
                                    of the Advances; PROVIDED that the face
                                    amount of outstanding Letters of Credit
                                    (including drawn but unreimbursed Letters of
                                    Credit and any Letter of Credit Reserve)
                                    shall not in any case exceed One Million
                                    Dollars ($1,000,000.00). Each Letter of
                                    Credit shall have an expiry date no later
                                    than one hundred eighty (180) days after the
                                    Maturity Date provided that Borrower's
                                    Letter of Credit reimbursement obligation
                                    shall be secured by cash on terms acceptable
                                    to Bank at any time after the Maturity Date
                                    if the term of this Agreement is not
                                    extended by Bank. All Letters of Credit
                                    shall be, in form and substance, acceptable
                                    to Bank in its sole discretion and shall be
                                    subject to the terms and conditions of
                                    Bank's form of standard Application and
                                    Letter of Credit Agreement.

                                    (b)      The obligation of Borrower to
                                    reimburse Bank within two (2) business days
                                    of notice by Bank for drawings made under
                                    Letters of Credit shall be absolute,
                                    unconditional and irrevocable, and shall be
                                    performed strictly in

                                    accordance with the terms of this Agreement
                                    and such Letters of Credit, under all
                                    circumstances whatsoever. Borrower shall
                                    indemnify, defend, protect, and hold Bank
                                    harmless from any loss, cost, expense or
                                    liability, including, without limitation,
                                    reasonable attorneys' fees, arising out of
                                    or in connection with any Letters of Credit,
                                    except for losses, costs, expenses or
                                    liability resulting from gross negligence or
                                    willful misconduct of Bank.

                                    (c)      Borrower may request that Bank
                                    issue a Letter of Credit payable in a
                                    currency other than United States Dollars.
                                    If a demand for payment is made under any
                                    such Letter of Credit, Bank shall treat such
                                    demand as an Advance to Borrower of the
                                    equivalent of the amount thereof (plus cable
                                    charges) in United States currency at the
                                    then prevailing rate of exchange in San
                                    Francisco, California, for sales of that
                                    other currency for cable transfer to the
                                    country of which it is the currency.

                                    (d)      Upon the issuance of any letter of
                                    credit payable in a currency other than
                                    United States Dollars, Bank shall create a
                                    reserve (the "Letter of Credit Reserve")
                                    under the Committed Revolving Line for
                                    letters of credit against fluctuations in
                                    currency exchange rates, in an amount equal
                                    to ten percent (10%) of the face amount of
                                    such letter of credit. The amount of such
                                    reserve may be amended by Bank from time to
                                    time to account for fluctuations in the
                                    exchange rate. The availability of funds
                                    under the Committed Revolving Line shall be
                                    reduced by the amount of such reserve for so
                                    long as such letter of credit remains
                                    outstanding."

                  14.      The Loan Agreement shall be amended by deleting the
                           following text appearing as Section 2.2 entitled
                           "Overadvances":

                                    "2.2     OVERADVANCES. If, at any time or
                                    for any reason, the amount of Obligations
                                    owed by Borrower to Bank pursuant to Section
                                    2.1.1 of this Agreement is greater than the
                                    lesser of (i) the Committed Revolving Line
                                    or (ii) the Borrowing Base, Borrower shall
                                    immediately pay to Bank, in cash, the amount
                                    of such excess."

                           and inserting in lieu thereof the following:

                                    "2.2     OVERADVANCES. If, at any time or
                                    for any reason, the amount of Obligations
                                    owed by Borrower to Bank pursuant to Section
                                    2.1.1 and 2.1.3 of this Agreement is greater
                                    than: (i) the lesser of the Committed
                                    Revolving Line or the Borrowing Base, minus
                                    (ii) the face amount of all outstanding
                                    Letters of Credit (including drawn but
                                    unreimbursed Letters of Credit), Borrower
                                    shall immediately pay to Bank, in cash, the
                                    amount of such excess."

                  15.      The Loan Agreement shall be amended by deleting the
                           following text appearing as paragraph (a) of Section
                           2.3 entitled "Interest Rates, Payments, and
                           Calculations":

                                    "(a)     INTEREST RATE. Except as set forth
                                    in Section 2.3(b) any Advances made pursuant
                                    to Section 2.1.1 shall bear interest, on the
                                    average daily balance thereof, at a per
                                    annum rate equal to Three Quarters of One
                                    percentage point (0.75%) above the Prime
                                    Rate. Notwithstanding the foregoing, if the
                                    Borrower fails to achieve the Net Revenue
                                    Requirement

                                    for ANY fiscal quarter, any Advances shall
                                    bear interest (except as set forth in
                                    Section 2.3(b)), on an average daily balance
                                    thereof, effective as of the first day of
                                    the month following the quarter end in which
                                    Borrower failed to achieve such Net Revenue
                                    Requirement, at a per annum rate equal to
                                    the aggregate of the Prime Rate, PLUS One
                                    and One-Quarter percent (1.25%). The
                                    effective interest rate shall not decrease
                                    as a result of the compliance by the
                                    Borrower with the Net Revenue Requirement
                                    for subsequent periods."

                           and inserting in lieu thereof the following:

                                    "(a)     INTEREST RATE. Except as set forth
                                    in Section 2.3(b): (i) any Advances made
                                    pursuant to Section 2.1.1 shall bear
                                    interest, effective as of December 1, 1999,
                                    on the average daily balance thereof, at a
                                    per annum rate equal to the aggregate of the
                                    Prime Rate PLUS One Half of One percent
                                    (0.50%), (ii) any Equipment Advances made
                                    pursuant to Section 2.1.2 shall bear
                                    interest in accordance with terms of Section
                                    2.1.2, (iii) any Equipment Advances made
                                    pursuant to Section 2.1.2.A shall bear
                                    interest in accordance with terms of Section
                                    2.1.2.A, and (iv) any Equipment Advances
                                    made pursuant to Section 2.1.2.B shall bear
                                    interest in accordance with terms of Section
                                    2.1.2.B."

                  16.      The Loan Agreement shall be amended by incorporating
                           into Section 4.1 entitled "Grant of Security
                           Interest" the following text to appear as the last
                           sentence in Section 4.1:

                                    "Notwithstanding the foregoing, it is
                                    expressly acknowledged and agreed that the
                                    security interest created in this Agreement
                                    only with respect to EXIM Eligible Foreign
                                    Accounts (as such term is defined in the
                                    EXIM Agreement) is subject to and
                                    subordinate to the security interest granted
                                    to the Bank in the EXIM Agreement with
                                    respect to such EXIM Eligible Foreign
                                    Accounts, but only to the extent any
                                    advances are actually made to the Borrower
                                    under the EXIM Agreement based upon such
                                    EXIM Eligible Foreign Accounts."

                  17.      The Loan Agreement shall be amended by deleting the
                           following text appearing in the first paragraph of
                           Section 6.3 entitled "Financial Statements, Reports,
                           Certificates":

                                    "(a)     as soon as available, but in any
                                    event within twenty-five (25) days after the
                                    end of each month, a company prepared
                                    consolidated balance sheet and income
                                    statement covering Borrower's consolidated
                                    operations during such period, in a form and
                                    certified by an officer of Borrower
                                    reasonably acceptable to Bank;"

                           and inserting in lieu thereof the following:

                                    "(a)     as soon as available, but in any
                                    event within thirty (30) days after the end
                                    of each month, a company prepared
                                    consolidated balance sheet and income
                                    statement covering Borrower's consolidated
                                    operations during such period, in a form and
                                    certified by an officer of Borrower
                                    reasonably acceptable to Bank;"

                  18.      The Loan Agreement shall be amended by deleting the
                           following text appearing as the second paragraph of
                           Section 6.3 entitled "Financial Statements, Reports,
                           Certificates":

                                    "Borrower shall deliver to Bank, on a
                                    semi-monthly basis within seven (7) business
                                    days of the fifteenth (15th) and last day of
                                    each month, a Borrowing Base Certificate
                                    signed by a Responsible Officer in
                                    substantially the form of EXHIBIT C hereto,
                                    together with aged listings of accounts
                                    receivable. Notwithstanding the foregoing,
                                    if at any time during the preceding month
                                    the outstanding principal balance under the
                                    Committed Revolving Line is no greater than
                                    $1,000,000.00, the Borrowing Base
                                    Certificate and the aged listings of
                                    accounts receivable shall be delivered by
                                    Borrower to Bank within fifteen (15) days of
                                    the last day of each such month."

                           and inserting in lieu thereof the following:

                                    "Within thirty (30) days after the last day
                                    of each month, Borrower shall deliver to
                                    Bank a Borrowing Base Certificate signed by
                                    a Responsible Officer in substantially the
                                    form of EXHIBIT C hereto, together with aged
                                    listings of accounts receivable."

                  19.      The Loan Agreement shall be amended by deleting the
                           following text appearing as the third paragraph of
                           Section 6.3 entitled "Financial Statements, Reports,
                           Certificates":

                                    "Within twenty-five (25) days after the last
                                    day of each month, Borrower shall deliver to
                                    Bank with the monthly financial statements a
                                    Compliance Certificate signed by a
                                    Responsible Officer in substantially the
                                    form of EXHIBIT D hereto."

                           and inserting in lieu thereof the following:

                                    "Within thirty (30) days after the last day
                                    of each month, Borrower shall deliver to
                                    Bank with the monthly financial statements a
                                    Compliance Certificate signed by a
                                    Responsible Officer in substantially the
                                    form of EXHIBIT D hereto."

                  20.      The Loan Agreement shall be amended by deleting the
                           following text appearing as Section 6.8 thereof:

                                    "6.8 TANGIBLE NET WORTH. Borrower shall
                                    maintain, as of the last day of each
                                    calendar month, a Tangible Net Worth of not
                                    less than: (i) One Million Seven Hundred
                                    Fifty Thousand Dollars ($1,750,000.00) for
                                    each month through the month ending May 31,
                                    1999, (ii) Three Million Dollars
                                    ($3,000,000.00) for the months ending June
                                    30, 1999, July 31, 1999 and August 31, 1999,
                                    and (iii) Four Million Five Hundred Thousand
                                    Dollars ($4,500,000.00) for each month
                                    thereafter. The Bank hereby reserves the
                                    right, in its sole and absolute discretion,
                                    to reset such Tangible Net Worth covenant
                                    upon a public offering of stock by the
                                    Borrower. For purposes hereof, Tangible Net
                                    Worth shall be defined as Borrower's equity
                                    plus Subordinated Debt less intangible
                                    assets."

                           and inserting in lieu thereof the following:

                                    "6.8     TANGIBLE NET WORTH. Borrower shall
                                    maintain, as of the last day of each
                                    calendar month, a Tangible Net Worth plus
                                    Subordinated Debt of not less than the
                                    aggregate of (i) Eight Million Dollars
                                    ($8,000,000.00), PLUS (ii) fifty percent
                                    (50.0%) of the amount of cash received by
                                    Borrower from any new equity issued by
                                    Borrower (except for issuances pursuant to
                                    employee or director stock option plans of
                                    Borrower)."

                  21.      The Loan Agreement shall be amended by deleting the
                           following text appearing as paragraph (a) of Section
                           9.1 entitled "Rights and Remedies":

                                    "(a)     Declare all Obligations, whether
                                    evidenced by this Agreement, by any of the
                                    other Loan Documents, or otherwise,
                                    immediately due and payable (provided that
                                    upon the occurrence of an Event of Default
                                    described in Section 8.5 all Obligations
                                    shall become immediately due and payable
                                    without any action by Bank);"

                           and inserting in lieu thereof the following:

                                    "(a)     Declare all Obligations (including,
                                    without limitation, all obligations under
                                    the EXIM Agreement), whether evidenced by
                                    this Agreement, by any of the other Loan
                                    Documents, or otherwise, immediately due and
                                    payable (provided that upon the occurrence
                                    of an Event of Default described in Section
                                    8.5 all Obligations shall become immediately
                                    due and payable without any action by
                                    Bank);"

                  22.      The Loan Agreement shall be amended in Section 9.1
                           entitled "Rights and Remedies" by incorporating
                           therein immediately after paragraph (i) the following
                           new paragraph:

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

                  23.      An Event of Default under the EXIM Agreement shall be
                           an Event of Default under the Loan Agreement, as
                           amended hereby.

                  24.      The Borrower hereby ratifies, confirms and reaffirms,
                           all and singular, the terms and conditions of a
                           certain Negative Pledge Agreement dated as of August
                           16, 1998 between Borrower and Bank, and acknowledges,
                           confirms and agrees that said Negative Pledge
                           Agreement shall remain in full force and effect.

                  25.      The Borrowing Base Certificate appearing as EXHIBIT C
                           to the Loan Agreement is hereby replaced with the
                           Borrowing Base Certificate attached as EXHIBIT A
                           hereto.

                  26.      The Compliance Certificate appearing as EXHIBIT D to
                           the Loan Agreement is hereby replaced with the
                           Compliance Certificate attached as EXHIBIT B hereto.

4.       FEE. Borrower shall pay to Bank the following fully earned and
non-refundable modification fees: (i) a working capital line commitment fee
equal to Six Thousand Two Hundred Fifty Dollars ($6,250.00), which fee shall be
due on the date hereof, and (ii) an equipment line commitment fee equal to Two
Thousand Five Hundred Dollars ($2,500.00), which fee shall be due on 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 Indebtedness.

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 Indebtedness.

8.       CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the existing Indebtedness, 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 Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. 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).

         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:

BLUESTONE SOFTWARE, INC.                   SILICON VALLEY BANK

By:_______________________________________ By:__________________________________

Name:__________________________________    Name:________________________________

Title:_________________________________    Title:_______________________________

                                    EXHIBIT A
                           BORROWING BASE CERTIFICATE

Borrower:  BLUESTONE SOFTWARE, INC.        Bank:            Silicon Valley Bank

Commitment Amount: $3,000,000.00

ACCOUNTS RECEIVABLE

                         1)       Accounts Receivable Book Value as of______
                                  $__________

                         2)       Additions (please explain on reverse)
                                  $__________

                         3)       TOTAL ACCOUNTS RECEIVABLE
                                  $__________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

                         4)       Amounts over 90 days due
                                  $__________

                         5)       Balance of 50% over 90 day accounts
                                  $__________

                         6)       Concentration Limits
                                  $__________

                         7)       Foreign Accounts
                                                         $__________

                         8)       Governmental Accounts
                                  $__________

                         9)       Contra Accounts
                                  $__________

                         10)      Promotion or Demo Accounts
                                  $__________

                         11)      Intercompany/Employee Accounts
                                  $__________

                         12)      Other (please explain on reverse)
                                  $__________

                         13)      TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
                                  $__________

                         14)      Eligible Accounts (#3 minus #13)
                                  $__________

                         15)      LOAN VALUE OF ACCOUNTS (80.0% of #14)
                                  $__________

BALANCES

                         16)      Maximum Loan Amount
                                  $__________

                         17)      Total Funds Available [Lesser of #16 or #15]
                                  $__________

                         18)      Present balance owing on Line of Credit
                                  $__________

                         19)      Outstanding under Sublimit (Letters of Credit)
                                  $__________

                         20)      RESERVE POSITION (#17 minus #18 and #19)
                                  $__________

THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE AND
CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE CERTIFICATE
COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE LOAN AND
SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK, INCLUDING,
WITHOUT LIMITATION, THOSE APPEARING IN SECTION 2.1.1 OF THE LOAN AND SECURITY
AGREEMENT, AS AMENDED.

COMMENTS:

___________________________

By: _______________________
    Authorized Signer

                                    EXHIBIT B
                             COMPLIANCE CERTIFICATE

TO:               SILICON VALLEY BANK

FROM:             BLUESTONE SOFTWARE, INC.

         The undersigned authorized officer of BLUESTONE SOFTWARE, INC. 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 ------------------ -------- -------- Monthly financial statements & CC Monthly within 30 days Yes No Annual (CPA Audited) FYE within 120 days Yes No BBC & A/R Agings Monthly within 30 days Yes No 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 $8,000,000 plus 50% of $________ Yes No new equity (except for stock option plans)
COMMENTS REGARDING EXCEPTIONS: Sincerely, _______________________ Date:_______________ SIGNATURE _______________________ TITLE

Basic Info X:

Name: FOURTH LOAN MODIFICATION AGREEMENT
Type: Fourth Loan Modification Agreement
Date: Feb. 1, 2000
Company: BLUESTONE SOFTWARE INC
State: Delaware

Other info:

Date:

  • December 8 , 1997
  • January 21 , 1999
  • March 30 , 1999
  • April 1 , 2000
  • December 1 , 2000
  • June 1 , 2000
  • Thirty-Six 36
  • first day of the month following the quarter end
  • December 1 , 1999
  • thirty 30
  • May 31 , 1999
  • June 30 , 1999
  • July 31 , 1999
  • August 31 , 1999
  • August 16 , 1998

Organization:

  • Fourth Loan Modification Agreement
  • Radnor Corporate Center
  • First Loan Modification Agreement
  • Second Loan Modification Agreement
  • Third Loan Modification Agreement
  • One Million Seven Hundred Fifty Thousand Dollars
  • Three Million Dollars
  • Revolving Maturity Date
  • Second Equipment Maturity Date for Equipment Advances
  • Committed Equipment Line
  • Equipment Advance or Equipment Advances
  • Prime Rate PLUS Three Quarters of
  • Equipment Maturity Date No
  • Letter of Credit Reserve
  • Letter of Credit Agreement
  • United States Dollars
  • EXIM Eligible Foreign
  • Borrower to Bank
  • Bank a Borrowing Base Certificate
  • Million Five Hundred Thousand Dollars
  • Letters of Credit
  • Event of Default
  • Two Thousand Five Hundred Dollars
  • Existing Loan Documents
  • Commonwealth of Massachusetts
  • INC. Bank : Silicon Valley Bank Commitment Amount
  • BLUESTONE SOFTWARE , INC.
  • BBC & AR Agings Monthly

Location:

  • Delaware
  • Mount Laurel
  • New Jersey
  • Radnor
  • Pennsylvania
  • San Francisco
  • United States Dollars
  • Santa Clara County
  • California
  • Massachusetts

Money:

  • Two Million Dollars
  • $ 2,000,000.00
  • $ 500,000.00
  • $ 1,000,000.00
  • $ 1,750,000.00
  • Three Million Dollars
  • $ 4,500,000.00
  • Eight Million Dollars
  • $ 8,000,000.00
  • $ 6,250.00
  • $ 2,500.00
  • $ 3,000,000.00

Time:

  • 3:00 p.m.

Percent:

  • 100 %
  • twenty-five percent 25.0 %
  • ten percent
  • 10 %
  • 0.75 %
  • One-Quarter percent
  • 1.25 %
  • One percent
  • 0.50 %
  • fifty percent
  • 50.0 %
  • 80.0 %