Exhibit 10.1
 
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
 
This Amendment to Loan and Security Agreement is entered into as of February 4,
2010 (the “Amendment”), by and between Peninsula Bank Business Funding, a
division of The Private Bank of the Peninsula (“Bank”) and The Orchard
Enterprises, Inc. (“Orchard”), a Delaware corporation, Digital Rights Agency,
Inc. (“Digital”), a California corporation, and Orchard Enterprises NY, Inc., a
New York corporation (“Orchard NY” and collectively with Digital and Orchard,
“Borrowers” and each a “Borrower”).
 
RECITALS
 
Borrowers and Bank are parties to that certain Loan and Security Agreement dated
as of February 5, 2009, as amended from time to time (the “Agreement”).  The
parties desire to amend the Agreement in accordance with the terms of this
Amendment.
 
NOW, THEREFORE, the parties agree as follows:
 
1.            The following definitions in Section 1.1 of the Agreement are
amended in their entirety to read as follows:
 
“Revolving Line” means a credit extension of up to Three Million Dollars
($3,000,000).
 
“Revolving Maturity Date” means February 4, 2011.
 
 “Responsible Officer” means any of the Chief Executive Officer or any
individual performing similar functions, the Chief Financial Officer and the VP
of Finance of Lead Borrower.
 
2.            The following definitions are added to Section 1.1 of the
Agreement as follows:
 
“Borrowing Base Certificate” means the monthly certificate provided to Bank
within twenty (20) days after the last calendar month stating the Borrowing Base
for the previous calendar month, in substantially similar form as Exhibit D
attached hereto.
 
“Digital Receivables” means any Account arising from the digital exploitation of
any Borrower’s assets.
 
“Financial Targets” means Borrowers’ consolidated financial plan for fiscal year
2010, as such has been previously provided to Bank and certified by a
Responsible Officer, in form and substance satisfactory to Bank.
 
“Physical Receivables” means any Account arising from the shipment of physical
product (i.e. CDs and albums) by any Borrower to any account debtor of any
Borrower that purchases such physical product from a Borrower.
 
3.            Subsection (n) of the definition of “Eligible Accounts” in Section
1.1 of the Agreement is amended in its entirety to read as follows:
 
(n) all chargebacks, credits or debit memos;
 
4.            The following are added as new subsections (p) and (q) to the
definition of “Eligible Accounts” in Section 1.1 of the Agreement:
 
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(p) an outstanding Physical Receivable that the relevant account debtor has
failed to pay within sixty (60) days following the due date of the invoice
covering such Account (any outstanding Account that the relevant account debtor
has failed to pay within sixty (60) days following the due date of the invoice
covering such Account is hereinafter included in the definition of “Delinquent
Account”);
 
(q) Accounts arising from TVT Inventory, except as may be approved in writing by
Bank;
 
5.            The third sentence of Section 2.1(a)(ii) of the Agreement is
amended in its entirety to read as follows:
 
Upon Bank’s reasonable request, Lead Borrower will deliver copies of invoices in
connection with any Advance request and all supporting documents, plus
transaction files for all invoices and payment application in an electronic
format reasonably acceptable to Bank for processing.
 
6.            The first sentence of Section 2.4 of the Agreement is amended in
its entirety to read as follows:
 
Except during the continuation of an Event of Default, Bank shall credit a wire
transfer of funds, check or other item of payment to such deposit account or
Obligation as Lead Borrower specifies
 
7.            The following shall be added as a new Section 4.4 of the
Agreement:
 
4.4           Termination of Security Interest.   Bank agrees that it shall,
upon full and final payment of all Obligations and the termination of Bank’s
obligation to make Credit Extensions, at Borrowers’ cost and expense, execute
and deliver such documents, agreements or instruments which are necessary or
reasonably requested by Lead Borrower to terminate and release all Liens on the
Collateral and authorizes the filing of UCC termination statements in connection
with the foregoing.
 
8.            The opening clause in Section 5 of the Agreement is amended in its
entirety to read as follows:
 
Except as disclosed on the Schedule (which shall be delivered by Lead Borrower
from time to time and acceptable to Bank in its sole discretion), each Borrower
represents and warrants as follows:
 
9.            Section 5.17 of the Agreement is amended in its entirety to read
as follows:
 
5.17           Full Disclosure.  No representation, warranty or other statement
made by a Borrower in any Loan Document, including the Borrowing Base
Certificate, Compliance Certificate or any other certificate or written
statement furnished to Bank, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein taken as a whole, in light of the circumstances under which
they were made, not misleading; provided that with respect to projections and
other forward-looking information, each Borrower only represents that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time made, it being understood that projections and other
forward-looking information are subject to significant contingencies and
uncertainties, many of which are beyond the control of Borrowers and no
assurances can be given that such projections will be realized.
 
10.          Sections 6.3(a), 6.3(g) and 6.3(h) of the Agreement are each
amended in their entirety to read as follows:
 
(a)            as soon as available, but in any event within fifteen (15) days
after the end of each calendar month, a company prepared report of Borrowers’
cash balance, in a form reasonably acceptable to Bank and certified by a
Responsible Officer;
 
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(g)           Within twenty (20) days after the last day of each calendar month,
Lead Borrower shall deliver to Bank an aged listings of Accounts (including
Digital Receivables and Physical Receivables) and accounts payable, along with a
Borrowing Base Certificate in substantially similar form as Exhibit D attached
hereto;
 
(h)           Lead Borrower shall deliver to Bank with the quarterly and annual
financial statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto.
 
11.          Section 6.8 of the Agreement is amended in its entirety to read as
follows:
 
6.8           Minimum Cash.  Commencing with the calendar month ended January
31, 2010, Borrowers shall maintain a balance (determined on an aggregate basis
for all Borrowers) of unrestricted cash and cash equivalents in an aggregate
amount that is not less than the lesser of (a) 90% of the aggregate amounts of
unrestricted cash and cash equivalents that are set forth in the projections
with respect to such calendar month in Lead Borrower’s Financial Targets or (b)
$2,000,000.
 
12.          Section 6.9 of the Agreement is amended in its entirety to read as
follows:
 
6.9           Net Income/Loss.  Borrowers shall achieve quarterly income/loss
(determined on an aggregate basis for all Borrowers) for each calendar quarter,
beginning with the quarter ending March 31, 2010, that does not adversely
deviate from the quarterly projections of income/loss for the Borrowers
(determined on an aggregate basis for all Borrowers) for such quarter as set
forth in Lead Borrower’s Financial Targets.  
 
13.           The following is added to the end of Section 7.1 of the Agreement:
 
Notwithstanding the foregoing, Borrowers may engage in Transfers to any other
Borrower, or to any wholly owned domestic Subsidiary in which Bank has a
perfected, first priority security interest on terms acceptable to Bank.
 
14.           The Compliance Certificate attached hereto replaces Exhibit C to
the Agreement in its entirety. The Exhibit D attached hereto replaces Exhibit D
to the Agreement in its entirety.
 
15.           Borrowers and Bank agree that any Advances to be made on (a)
amounts owing to Borrowers from iTunes that have not yet been invoiced by
Borrowers to iTunes or (b) any Physical Receivables which do not otherwise
qualify as an Eligible Account, shall be at Bank’s sole discretion, based on
documentation in form and substance satisfactory to Bank, as may be reasonably
requested by Bank.
 
16.           Unless otherwise defined, all initially capitalized terms in this
Amendment shall be as defined in the Agreement.  The Agreement, as amended
hereby, shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects.  Except
as expressly set forth herein, the execution, delivery, and performance of this
Amendment shall not operate as a waiver of, or as an amendment of, any right,
power, or remedy of Bank under the Agreement, as in effect prior to the date
hereof.  Each Borrower ratifies and reaffirms the continuing effectiveness of
all agreements entered into in connection with the Agreement.
 
17.           Each Borrower represents and warrants that the representations and
warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
 
18.           This Amendment may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Amendment.  In the event that
any signature is delivered by facsimile transmission or by e-mail delivery of a
“.pdf” format data file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.  Notwithstanding the foregoing,
Borrower shall deliver all original signed documents requested by Bank no later
than ten (10) Business Days following the date of this Amendment.
 
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19.           As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:
 
(a)           this Amendment, duly executed by Borrowers;
 
(b)           the Financial Targets, certified by Lead Borrower and accepted in
writing by Bank;
 
(c)           an updated Schedule of Exceptions;
 
(d)           Corporate Resolutions certified by each Borrower;
 
(e)           Affirmation of Guaranty executed by each Guarantor;
 
(f)            a fee equal to $22,500, plus an amount equal to all Bank Expenses
incurred through the date of this Amendment; and
 
(g)           such other documents, and completion of such other matters, as
Lender may reasonably deem necessary or appropriate.
 
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the date first above written.
 

 
BANK:
     
Peninsula Bank Business Funding,
A Division Of The Private Bank of the Peninsula
 
By: /s/Victor Ragni                                                 
Title: Vice President                                                
       
BORROWERS:
 
The Orchard Enterprises, Inc.
By: /s/ Nathan Y. Fong                                  
Title: Chief Financial Officer                         
 
 
Digital Rights Agency, Inc.
By: /s/ Nathan Y. Fong                                  
Title: Treasurer                                                
 
 
Orchard Enterprises NY, Inc.
By: /s/ Nathan Y. Fong                                  
Title: Treasurer                                                
 

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