Exhibit 10.3

 

SECOND AMENDMENT TO AMENDED and RESTATED LOAN AND SECURITY AGREEMENT

This Second Amendment to Amended and Restated Loan and Security Agreement (this
“Amendment”) is entered into as of August 14, 2012, by and between COMERICA BANK
(“Bank”) and SCIENTIFIC LEARNING CORPORATION (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Amended and Restated Loan and
Security Agreement dated as of February 9, 2012 (as amended from time to time,
including by that certain First Amendment to Amended and Restated Loan and
Security Agreement dated as of June 11, 2012, 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 defined terms are hereby added to Section 1.1 of the Agreement:

“Bookings” means new booked sales as set forth in the forecast provided by
Borrower to Bank on August 7, 2012.

“Intellectual Property Collateral” means all of Borrower’s right, title, and
interest in and to the following:

 

 

(a)

Copyrights, Trademarks and Patents;

(b)

Any and all trade secrets, and any and all intellectual property rights in
computer software and computer software products now or hereafter existing,
created, acquired or held;

(c)

Any and all design rights which may be available to Borrower now or hereafter
existing, created, acquired or held;

(d)

Any and all claims for damages by way of past, present and future infringement
of any of the rights included above, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
intellectual property rights identified above;

(e)

All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

(f)

All amendments, renewals and extensions of any of the Copyrights, Trademarks or
Patents; and

(g)

All proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.

 

2.

New Section 2.5(c) is hereby added as follows:

“(c)            Amendment Fees.  An amendment fee equal to Twenty Thousand
Dollars ($20,000) on each of August 14, 2012 and September 13, 2012.”

3.

Section 6.8 of the Agreement hereby is amended and restated in its entirety to
read as follows:

            “6.8            Adjusted Quick Ratio.  Borrower shall maintain a
ratio of (I) unrestricted cash maintained at Bank or at Bank’s affiliates
covered by control agreements in form and substance satisfactory to Bank (which
must be in an amount not less than Two Million Dollars ($2,000,000) at all
times), plus net trade accounts receivable less than 90 days from invoice date
to Current Liabilities less non-refundable deferred revenues plus, (to the
extent not already included therein) all Indebtedness to Bank, of at least (i)
1.00 to 1.00 at all times through October 31, 2012, (ii) 0.70  to 1.00 at all
times from November 1, 2012 through January 31, 2013, (ii) 0.60 to 1.00 at all
times from February 1, 2013 through May 31, 2013 and (iv) 1.00 to 1.00 at all
times starting on June 1, 2013.  The foregoing covenant shall be measured as of
the last day of each month.”

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4.

Section 6.9 of the Agreement hereby is amended and restated in its entirety to
read as follows:

“6.9            Bookings.   Borrower shall achieve Bookings, measured monthly on
a trailing three (3) month basis of greater than or equal to the following
amounts as of the relevant measurement date:

 

 

Measuring Period Ending

Minimum Trailing 3 Month Bookings

July 31, 2012

$7,161,000

August 31, 2012

$8,432,000

September 30, 2012

$7,817,000

October 31, 2012

$7,495,000

November 30, 2012

$5,682,000

December 31, 2012

$3,866,000

January 31, 2013

$4,058,000

February 28, 2013

$4,145,000

March 31, 2013

$4,263,000

April 30, 2013

$3,868,000

May 31, 2013

$4,556,000

June 30, 2013

$7,361,000

July 31, 2013

$8,135,000

August 31, 2013

$9,554,000

September 30, 2013

$8,931,000

October 31, 2013

$8,557,000

November 30, 2013

$6,483,000

December 31, 2013

$4,402,000

 

            The foregoing covenant shall be measured as of the last day of each
month.”

5.

Section 6.10 of the Agreement hereby is amended and restated in its entirety to
read as follows:

“6.10            Registration of Intellectual Property Rights.

 

 

(a)

Borrower shall register or cause to be registered on an expedited basis (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as the case may be, those
registrable intellectual property rights now owned or hereafter developed or
acquired by Borrower, to the extent that Borrower, in its reasonable business
judgment, deems it appropriate to so protect such intellectual property rights.

(b)

Borrower shall promptly give Bank written notice of any applications or
registrations of intellectual property rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any.

(c)

Borrower shall (i) give Bank not less than thirty (30) days prior written notice
of the filing of any applications or registrations with the United States
Copyright Office, including the title of such intellectual property rights to be
registered, as such title will appear on such applications or registrations, and
the date such applications or registrations will be filed; (ii) prior to the
filing of any such applications or registrations, execute such documents as Bank
may reasonably request for Bank to maintain its perfection in such intellectual
property rights to be registered by Borrower; (iii) upon the request of Bank,
either deliver to Bank or file such documents simultaneously with the filing of
any such applications or registrations; (iv) upon filing any such applications
or registrations, promptly provide Bank with a copy of such applications or
registrations together with any exhibits, evidence of the filing of any
documents requested by Bank to be filed for Bank to maintain the perfection and
priority of its security interest in such intellectual property rights, and the
date of such filing.

(d)

Borrower shall execute and deliver such additional instruments and documents
from time to time as Bank shall reasonably request to perfect and maintain the
perfection and priority of Bank’s security interest in the Intellectual Property
Collateral.

(e)

Borrower shall use commercially reasonably efforts to (i) protect, defend and
maintain the validity and enforceability of the Trademarks, Patents, Copyrights,
and trade secrets, (ii) detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any material Trademarks, Patents or Copyrights to
be abandoned, forfeited or dedicated to the public without the written consent
of Bank, which shall not be unreasonably withheld.

(f)

Bank may audit Borrower’s Intellectual Property Collateral to confirm compliance
with this Section 6.8, provided such audit may not occur more often than twice
per year, unless an Event of Default has occurred and is continuing.  Bank shall
have the right, but not the obligation, to take, at Borrower’s sole expense, any
actions that Borrower is required under this Section 6.10 to take but which
Borrower fails to take, after fifteen (15) days’ notice to Borrower.  Borrower
shall reimburse and indemnify Bank for all reasonable costs and reasonable
expenses incurred in the reasonable exercise of its rights under this Section
6.10.”

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6.

Section 9.2 of the Agreement hereby is amended and restated in its entirety to
read as follows:

“9.2       Power of Attorney.  Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank’s designated officers, or employees) as Borrower’s true and
lawful attorney to:  (a) send requests for verification of Accounts or notify
account debtors of Bank’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower’s policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (g)
enter into a short-form  intellectual property security agreement consistent
with the terms of this Agreement for recording purposes only or modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower’s approval of or
signature to such modification by amending Exhibits A,  B, and C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Borrower no longer has or claims to
have any right, title or interest; and (h) file, in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Borrower where permitted by law;
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in clauses (g) and (h) above, regardless of
whether an Event of Default has occurred.  The appointment of Bank as Borrower’s
attorney in fact, and each and every one of Bank’s rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank’s obligation to provide advances hereunder
is terminated.”

 

 

7.

Exhibit A to the Agreement hereby is replaced with Exhibit A attached hereto.

8.

Exhibit D to the Agreement hereby is replaced with Exhibit D attached hereto.

9.

No course of dealing on the part of Bank or its officers, nor any failure or
delay in the exercise of any right by Bank, shall operate as a waiver thereof,
and any single or partial exercise of any such right shall not preclude any
later exercise of any such right.  Bank’s failure at any time to require strict
performance by Borrower of any provision shall not affect any right of Bank
thereafter to demand strict compliance and performance.  Any suspension or
waiver of a right must be in writing signed by an officer of Bank.

10.

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.

11.

Borrower represents and warrants that the Representations and Warranties
contained in the Agreement, as qualified by the Schedule included with this
Amendment, are true and correct as of the date of this Amendment, and that no
Event of Default has occurred and is continuing. 

12.

As a condition to the effectiveness of this Amendment, Bank shall have received,
in form and substance satisfactory to Bank, the following:

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(a)

this Amendment, duly executed by Borrower;

(b)

a Certificate of the Secretary of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Amendment;

(c)

an Intellectual Property Security Agreement;

(d)

the amendment fee due and owing in accordance with Section 2.5(c) of the
Agreement;

(e)

all reasonable Bank Expenses incurred through the date of this Amendment, which
may be debited from any of Borrower's accounts; and

(f)

such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.

 

This Amendment may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one
instrument.

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.

 

 

 

SCIENTIFIC LEARNING CORPORATION

 

 

 

 

 

By:    /s/ Robert C. Bowen

 

 

 

Title:   Chairman and CEO

 

 

 

COMERICA BANK

 

 

 

 

 

By:    /s/ Dennis Rapoport

 

 

 

Title:   Vice President

 

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DEBTOR

SCIENTIFIC LEARNING CORPORATION

SECURED PARTY

COMERICA BANK

 

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

(a)            all accounts (including health‑care‑insurance receivables),
chattel paper (including tangible and electronic chattel paper), deposit
accounts, documents (including negotiable documents), equipment (including all
accessions and additions thereto), general intangibles (including payment
intangibles and software), goods (including fixtures), instruments (including
promissory notes), inventory (including all goods held for sale or lease or to
be furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records; and

(b)            and all cash proceeds and/or noncash proceeds of any of the
foregoing, including, without insurance proceeds, and all supporting obligations
and the security therefore or for any right to payment.  All terms above have
the meanings given to them in the California Uniform Commercial Code, as amended
or supplemented from time to time, including revised Division 9 of the Uniform
Commercial Code-Secured Transaction, added by Stats. 1999, c. 991 (S.B. 45),
Section 35, operative July 1, 2001.

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EXHIBIT D
COMPLIANCE CERTIFICATE

 

TO:                    COMERICA BANK

FROM:                 SCIENTIFIC LEARNING CORPORATION

The undersigned authorized officer of SCIENTIFIC LEARNING CORPORATION hereby
certifies that in accordance with the terms and conditions of the Amended and
Restated Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (i) Borrower is in 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 provided, however, that
those representations and warranties the date expressly referring to another
date shall be true, correct and complete in all material respects as of such
date.  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 (subject to year-end adjustments with the
absence of footnotes).

Please indicate compliance status by circling Yes/No under “Complies” column.

 

 

 

 

 

Reporting Covenant

Required

Complies

 

 

 

 

Monthly financial statements

Monthly within 25 days*

Yes

No

Annual (CPA Audited)

FYE within 90 days

Yes

No

10K and 10Q

(as applicable)

Yes

No

A/R & A/P Agings and Eligible Accounts Certificate

Within 15 days of 15th and end of each month*

Yes

No

A/R Audit

Prior to First Advance and semi-annually thereafter

Yes

No

IP Report

Within 60 days of new filings

Yes

No

Total amount of Borrower’s cash and investments

Amount:  $________

Yes

No

Total amount of Borrower’s cash and investments maintained with Bank

Amount:  $________

Yes

No

 

 

 

 

Financial Covenant

Required

Actual

Complies

 

 

 

 

 

Adjusted Quick Ratio**

See Section 1.8

_____:1.00

Yes

No

Bookings**

See Section 1.9

$_________

Yes

No

 

 

 

 

 

*provided however if there are no Advances such financial statements shall be
delivered on a quarterly basis and not a monthly basis.

 

**measured (i) as of the last day of each month

 

Comments Regarding Exceptions:  See Attached.

 

 

Received by:

Sincerely,

AUTHORIZED SIGNER

 

 

 

Date:

 

 

 

Verified:

SIGNATURE

AUTHORIZED SIGNER

 

 

 

 

 

Date:

TITLE

 

 

Compliance Status

 

 

 

 

DATE

 

 

 

 

 

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Corporation Resolutions and Incumbency Certification

Authority to Procure Loans

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I certify that I am the duly elected and qualified Secretary of SCIENTIFIC
LEARNING CORPORATION; that the following is a true and correct copy of
resolutions duly adopted by the Board of Directors of the Corporation in
accordance with its bylaws and applicable statutes.   

 

Copy of Resolutions:

 

Be it Resolved, That:

 

1. Any one (1) of the following __________________________ (insert titles only)
of the Corporation are/is authorized, for, on behalf of, and in the name of the
Corporation to:

 

 

 

(a)

Negotiate and procure loans, letters of credit and other credit or financial
accommodations from Comerica Bank (“Bank”), a Texas banking association, from
time to time, in an unlimited amount.

(b)

Discount with the Bank, commercial or other business paper belonging to the
Corporation made or drawn by or upon third parties, without limit as to amount;

(c)

Purchase, sell, exchange, assign, endorse for transfer and/or deliver
certificates and/or instruments representing stocks, bonds, evidences of
Indebtedness or other securities owned by the Corporation, whether or not
registered in the name of the Corporation;

(d)

Give security for any liabilities of the Corporation to the Bank by grant,
security interest, assignment, lien, deed of trust or mortgage upon any real or
personal property, tangible or intangible of the Corporation; and

(e)

Execute and deliver in form and content as may be required by the Bank any and
all notes, evidences of Indebtedness, applications for letters of credit,
guaranties, subordination agreements, loan and security agreements, financing
statements, assignments, liens, deeds of trust, mortgages, trust receipts and
other agreements, instruments or documents to carry out the purposes of these
Resolutions, ,and any and all amendments or modifications thereto, any or all of
which may relate to all or to substantially all of the Corporation's property
and assets.

 

2.Said Bank is authorized and directed to pay the proceeds of any such loans or
discounts as directed by the persons so authorized to sign, whether so payable
to the order of any of said persons in their individual capacities or not, and
whether such proceeds are deposited to the individual credit of any of said
persons or not;

 

3.Any and all agreements, instruments and documents previously executed and acts
and things previously done to carry out the purposes of these Resolutions are
ratified, confirmed and approved as the act or acts of the Corporation.

 

4.These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as set
forth in a certified copy of these Resolutions delivered to the Bank, until
notice to the contrary in writing is duly served on the Bank (such notice to
have no effect on any action previously taken by the Bank in reliance on these
Resolutions).

 

5.Any person, corporation or other legal entity dealing with the Bank may rely
upon a certificate signed by an officer of the Bank to effect that these
Resolutions and any

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agreement, instrument or document executed pursuant to them are still in full
force and effect and binding upon the Corporation.

 

6.The Bank may consider the holders of the offices of the Corporation and their
signatures, respectively, to be and continue to be as set forth in the
Certificate of the Secretary of the Corporation until notice to the contrary in
writing is duly served on the Bank.

 

I further certify that the above Resolutions are in full force and effect as of
the date of this Certificate; that these Resolutions and any borrowings or
financial accommodations under these Resolutions have been properly noted in the
corporate books and records, and have not been rescinded, annulled, revoked or
modified; that neither the foregoing Resolutions nor any actions to be taken
pursuant to them are or will be in contravention of any provision of the
articles of incorporation or bylaws of the Corporation or of any agreement,
indenture or other instrument to which the Corporation is a party or by which it
is bound; and that neither the articles of incorporation nor bylaws of the
Corporation nor any agreement, indenture or other instrument to which the
Corporation is a party or by which it is bound require the vote or consent of
shareholders of the Corporation to authorize any act, matter or thing described
in the foregoing Resolutions.

 

I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:

 

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(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)

 

 

NAME (Type or Print)

TITLE

SIGNATURE

______________________________

__________________

_________________________________

______________________________

__________________

_________________________________

______________________________

__________________

_________________________________

______________________________

__________________

_________________________________

______________________________

__________________

_________________________________

______________________________

__________________

_________________________________

______________________________

__________________

_________________________________

 

 

 

In Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal (where available) of said Corporation to be affixed on August 14,
2012

 

           ______________________________

                          Secretary

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The Above Statements are Correct.

 

 

signature of officer or director or, if none. a shareholder other than secretary
when secretary is authorized to sign alone.

 

Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.

 

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