exv4w1



 



EXHIBIT 4.1


MAKEMUSIC! INC.



BRIDGE LOAN AND INVESTMENT AGREEMENT



     This Bridge Loan and Investment Agreement (the “Agreement”), submitted as
of the date set forth on the Signature Page, is between MakeMusic! Inc., a
Minnesota corporation (the “Company”), and the undersigned investor (the
“Investor”).


RECITALS



     The Company needs capital to fund its operations. The Investor desires to
lend funds to the Company on the terms and conditions set forth in this
Agreement. The Investor and other investors (collectively, the “Bridge
Investors”) acquiring Bridge Notes (as defined below) on terms equivalent to
those set forth herein may lend the Company up to an aggregate maximum of
$800,000 in principal amount to the Company.


AGREEMENT



     In consideration of the foregoing, the mutual promises set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:


1.     Investment. The Investor hereby purchases a 10% Subordinated Promissory
Note (the “Bridge Note”), in substantially the form of Exhibit A attached to
and incorporated into this Agreement in the aggregate maximum principal dollar
amount set forth on the Signature Page (“Principal”). The shares of the
Company’s $0.01 par value per share common stock (“Common Stock”) issuable upon
conversion of the Bridge Note are herein referred to as the “Conversion
Shares”. In the event the Next Financing (as defined below) has not occurred
on or prior to March 31, 2003, the Investor shall be issued warrants (“Bridge
Warrant”) in substantially the form of Exhibit B attached to and incorporated
into this Agreement, to purchase three (3) shares of Common Stock for every
$1.00 in outstanding principal of the Bridge Note on March 31, 2003. The “Next
Financing” shall mean the Company’s next financing of equity or debt with
equity features involving the receipt on or before March 31, 2003 of
commitments for aggregate gross proceeds of at least $1 million, inclusive of
the converted Bridge Notes.


     The information contained in this Agreement is only a summary of the terms
and provisions of the Bridge Notes and the Bridge Warrants, and is qualified by
more detailed information included in the form of Bridge Note and the form of
Bridge Warrant. If the terms of this Agreement conflict with the terms of the
Bridge Note or the Bridge Warrant, the terms of the Bridge Note and the Bridge
Warrant shall control. By execution of this Agreement, the Investor
acknowledges that the Company is relying upon the accuracy and completeness of
the representations contained in this Agreement in complying with its
obligations under applicable securities laws. The Bridge Note, the Bridge
Warrant, the Conversion Shares and the Warrant Shares (as defined in the Bridge
Warrant) are collectively referred to in this Agreement as the “Securities.”


 






 



2.     Loan/Promissory Note. The Investor shall tender the Investor’s checks
payable to “MakeMusic! Inc.” to the Company at 6210 Bury Drive, Eden Prairie,
MN 55346 or make a wire transfer to the Company in an aggregate dollar amount
equal to the Principal concurrently with the delivery of this Agreement signed
by the Investor. Instructions for a wire transfer are as follows:



	 	Associated Bank

7760 France Avenue South

Bloomington, MN 55435

Routing # 091001270

Account # 1529328



3.     Payment of Principal and Interest. Fifty percent (50%) of the outstanding
principal and unpaid accrued interest on the Bridge Notes shall be due and
payable in four (4) equal monthly installments beginning September 30, 2003 and
ending December 31, 2003. The remaining outstanding principal and unpaid
accrued interest shall be due and payable in four (4) equal monthly
installments beginning September 30, 2004 and ending December 31, 2004. The
Bridge Note shall accrue interest at the rate of 10% per annum as set forth in
the Bridge Note. The outstanding principal and accrued interest on the Bridge
Notes shall be automatically converted upon the occurrence of the Next
Financing in accordance with the terms of the Bridge Note. U.S. Investors
shall complete the Form W-9 and non-U.S. Investors shall complete the form
W-8BEN, each of which has been provided by the Company. The relevant form
should be returned concurrently with the delivery of this Agreement executed by
the Investor.


4.     Security. Except as provided below, payment of this Bridge Note is
unsecured in all respects. If the Next Financing has not occurred on or prior
to March 31, 2003, the Bridge Notes shall become secured by all of the
Company’s assets pursuant to a Security Agreement between the Company and the
Agent (as defined in the Security Agreement) for and on behalf of the Investor,
in substantially the form attached hereto as Exhibit C (the “Security
Agreement”).


5.     Subordination. The payment of principal and interest under the Bridge Note
is subordinated to the payment by the Company of “Senior Indebtedness” as
defined in the Bridge Note. Payment of principal or interest may not be made
on the Bridge Note if the Company is in default, or if the making of any
payment would result in a default, with respect to the payment of amounts of
any Senior Indebtedness.


6.     Default. The Company shall be in default under this Agreement and under the
Bridge Note upon the happening after the date of this Agreement of any Event of
Default as defined in Section 7 of the Bridge Note. In the event of a default,
the holders of Bridge Notes (i) shall have the right, at their option and not
subject to demand or notice, to declare all or any part of the Bridge Notes
immediately due and payable and (ii) may exercise, in addition to the rights
and remedies granted in this Agreement, all of the rights and remedies of a
holder under the Bridge Note and under applicable law.


7.     Bridge Warrant. The Bridge Warrant will have an exercise price of $0.01 per
share and will be exercisable at any time after the issuance of the Bridge
Warrant. The Bridge Warrant will expire five (5) years from the date of
issuance.


2






 


8.     Reservation of Shares of Common Stock. The Company shall, during the time
that the Bridge Note or the Bridge Warrant remain outstanding, reserve and keep
available from its authorized but unissued shares of Common Stock, a sufficient
number of shares to issue the Conversion Shares and the Warrant Shares.


9.     Transfer Restrictions. The Securities shall be subject to certain
restrictions on transfer as identified in this Agreement, the Bridge Note and
the Bridge Warrant.


10.   Representations and Warranties of the Company. The Company represents and
warrants to the Investor the following:



	 	(a)	 	The Company is duly organized, validly existing and in good
standing under the laws of the State of Minnesota.
	 
	 	(b)	 	This Agreement has been duly authorized by all necessary
corporate action on behalf of the Company, has been duly executed
and delivered by an authorized officer of the Company, and is a
valid and binding agreement on the part of the Company. All
corporate action necessary to the authorization, issuance, and
delivery of the Securities will be taken prior to issuance of the
Securities.
	 
	 	(c)	 	The Bridge Note and Bridge Warrant, when issued and delivered
to the Investor, will constitute valid and binding obligations of
the Company in accordance with their terms, except as enforceability
may be limited by the application of bankruptcy, insolvency,
moratorium or similar laws affecting the rights of creditor
generally and by judicial limitations on the right of specific
performance. The Conversion Shares and Warrant Shares have been
reserved for issuance and, when issued upon conversion of the Bridge
Note or exercise of the Bridge Warrant, as the case may be, will be
duly authorized, validly issued and outstanding, fully paid,
nonassessable.



11.     Representations and Warranties of Investor. The Investor hereby represents
and warrants to the Company and its officers, directors, shareholders,
employees and agents as follows:



	 	(a)	 	Information About the Company. The Investor has obtained and
reviewed all information about the Company as the Investor believes
relevant to the decision to purchase the Securities including,
without limitation, filings that the Company has made with the
Securities and Exchange Commission (“SEC”). The Investor has also
had the opportunity to ask questions of, and to receive answers
from, the Company or an agent or a representative of the Company
concerning the terms and conditions of the investment and the
business and affairs of the Company.
	 
	 	(b)	 	High Degree of Risk. The Investor realizes that this
investment involves a high degree of risk, including, without
limitation, the risks related to the business and industry of the
Company identified in the Company’s annual report on Form 10-KSB for
the year ended December 31, 2001 and other filings the Company has
made with the SEC and the following risks related to this offering:




	 	•	 	the Company needs additional capital, which it
may not obtain;



3






 





	 	•	 	 if additional financing is not obtained, the
Company may be unable to repay the Bridge Notes and may need
to pursue other strategic courses of action, which may
significantly adversely impact the liquidity of the Company’s
securities, the status of the Company as a public company and
the business operations of the Company;
	 
	 	•	 	there are substantial restrictions on the transfer of the Securities;
	 
	 	•	 	the market price for the Company’s stock is volatile;
	 
	 	•	 	the market for the Company’s common stock is
limited and may be further limited if the Company’s common
stock is delisted from the Nasdaq SmallCap Market; and
	 
	 	•	 	investors will be relying on management’s
judgment regarding the use of proceeds from this offering.




	 	(c)	 	Ability to Bear the Risk. The Investor is able to bear the
economic risk of the investment, including the total loss of such
investment.
	 
	 	(d)	 	Business Sophistication. The Investor is experienced and
knowledgeable in financial and business matters to the extent that
the Investor is capable of evaluating the merits and risks of the
prospective investment in the Securities.
	 
	 	(e)	 	Residency. The Investor is a resident of the state and
country set forth on the Signature Page. The Securities are being
purchased by the Investor in the Investor’s name solely for the
Investor’s own beneficial interest and not as nominee for, on behalf
of, for the beneficial interest of, or with the intention to
transfer to, any other person, trust, or organization.
	 
	 	(f)	 	Accredited Status. To the extent so indicated on the
signature page, the Investor is an “accredited investor” as such
term is defined by Regulation D of the Securities Act of 1933, as
amended (the “Act”).
	 
	 	(g)	 	Each Investor that is not a “U.S. Person” as that term is
defined in Regulation S of the Act:




	 	 	 	 	 	 	 
	 	 	 	 	(1)	 	certifies that he/she/it is not a “U.S. Person”
as that term is defined in Regulation S of the Act, and is not
acquiring the Securities for the account or benefit of any
U.S. Person, or else is a U.S. Person purchasing securities in
a transaction that does not require registration under the
Act; and
	 	 	 	 	 	 	 
	 	 	 	 	(2)	 	agrees to exercise his/her/its rights under the
Bridge Note and Bridge Warrant, if at all, only in accordance
with the provisions of Regulation S, in conjunction with a
registration under the Act, or pursuant to an available
exemption from such registration, and further agrees not to engage in hedging transactions with regard to the Conversion
Shares and Warrant Shares unless in compliance with the Act.





4






 


12.     Investment Purpose in Acquiring the Securities. The Investor and the
Company acknowledge that the Securities have not been registered under the Act
or applicable state securities laws and that the Securities will be issued to
the Investor in reliance on exemptions from the registration requirements of
the Act and applicable state securities laws and in reliance on the Investor’s
and the Company’s representations and agreements contained herein. The
Investor is acquiring the Securities for the account of the Investor for
investment purposes only and not with a view to their immediate resale or
distribution. The Investor has no present intention to divide his, her or its
participation with others or to resell or otherwise dispose of all or any part
of the Securities. In making these representations, the Investor understands
that, in the view of the Commission, exemption of the Securities from the
registration requirements of the Act would not be available if, notwithstanding
the representations of the Investor, the Investor has in mind merely acquiring
the Securities for resale upon the occurrence or non-occurrence of some
predetermined event.


13.     Compliance with Securities Act. The Investor agrees that if the Securities
or any part thereof are sold or distributed in the future, the Investor shall
sell or distribute them pursuant to the requirements of the Act and applicable
state securities laws. The Investor agrees that the Investor will not transfer
any part of the Securities without: (i) obtaining a “no action” letter from the
Commission and applicable state securities commissions; (ii) obtaining an
opinion of counsel satisfactory in form and substance to the Company to the
effect that such transfer is exempt from the registration requirements under
the Act and applicable state securities laws; or (iii) registration.


14.     Lockup. The Investor will not, for a period of 180 days after the issuance
of each of the Securities (i.e., Bridge Note, Bridge Warrant, Conversion Shares
and Warrant Shares), sell, transfer or otherwise dispose of, or agree to sell,
transfer or otherwise dispose of any of the Securities or sell, transfer or
otherwise dispose of, or agree to sell, transfer or otherwise dispose of any
options, rights or warrants to purchase any of the Securities beneficially held
by the Investor except in accordance with the terms of this Agreement, the
Bridge Note and Bridge Warrant. The foregoing restrictions do not prohibit
gifts to donees or transfers by will or the laws of descent to heirs or
beneficiaries provided that such donees, heirs and beneficiaries shall be bound
by these restrictions.


15.     Restrictive Legends. The Investor agrees that the Company may place one or
more restrictive legends on any certificates evidencing the Securities
containing substantially the following language:



	 	 	 	The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, have not been registered
under any state securities law, and are subject to a subscription and
investment representation agreement. They may not be sold, offered for
sale, transferred, assigned, pledged or otherwise distributed for value
unless there is an effective registration under the Securities Act of
1933, as amended, and under the applicable state securities laws, or the
Company receives an opinion of counsel acceptable to the Company stating
that such transaction is exempt from registration and
prospectus delivery requirements of the Securities Act of 1933, as
amended, and under the applicable state securities laws.



5






 





	 	 	 	Sale or other transfer of these securities is further restricted for up
to 180 days following the issuance hereof by the terms of a Bridge Loan
and Investment Agreement, a copy of which is available for inspection at
the offices of the Company.



16.     Transfer Order. The Investor agrees that the Company may place a stop
transfer order with its registrar and transfer agent (if any) covering the
Securities.


17.     Knowledge of Restrictions upon Transfer of the Securities. The Investor
understands that the Securities are not freely transferable and may in fact be
prohibited from sale for an extended period of time and that, as a consequence
thereof, the Investor must bear the economic risk of an investment in the
Securities for an indefinite period of time and may have extremely limited
opportunities to dispose of the Securities.


18.     Relationship to Brokerage Firms. If any of the following questions can be
answered in the affirmative by the Investor, the Investor agrees to provide the
Company with a written notice that includes an explanation of such brokerage
firm relationships:



	 	(a)	 	Are you a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly
related to or employed by, a brokerage firm?
	 
	 	(b)	 	Is your spouse, father, mother, father-in-law, mother-in-law,
or any of your brothers, sisters, brothers-in-laws, sisters-in-law
or children, or any relative which you support, a director, officer,
partner, branch manager, registered representative, employee,
shareholder of, or similarly related to or engaged by, a brokerage
firm?
	 
	 	(c)	 	Do you own 5% or more of the voting securities of any
brokerage firm?
	 
	 	(d)	 	If the Investor is an entity, is any director, officer,
partner or 5% owner of the Investor also a director, officer,
partner, branch manager, registered representative, employee,
shareholder of, or similarly related to or employed by a brokerage
firm?



19.     Delivery of Bridge Note and Bridge Warrant. Upon acceptance of this
Agreement by the Company, the Bridge Note will be registered in the name of the
Investor and will be delivered via certified mail or overnight delivery to the
address of the Investor set forth on the Signature Page. If the Next Financing
has not occurred on or prior to March 31, 2003, the Bridge Warrants will be
registered in the name of the Investor and will be delivered via certified mail
or express delivery to the address of the Investor set forth on the signature
page.


20.      Binding Effect. Neither this Agreement nor any interest herein shall be
assignable by the Investor without the prior written consent of the Company.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto, and their respective heirs, legal representatives,
successors and assigns.


6






 


21.     Representations to Survive Delivery. The representations, warranties and
agreements of the Company and of the Investor contained in this Agreement will
remain operative and in full force and effect and will survive the receipt of
funds by the Company, and the issuance to the Investor of the Bridge Notes and
Bridge Warrants.


22.     Miscellaneous Provisions.



	 	(a)	 	Indemnification. The Investor agrees to indemnify the
Company, and each current and future officer, director, employee,
agent and shareholder of the Company, against and to hold them
harmless from any damage, loss, liability, claim or expense
including, without limitation, reasonable attorneys’ fees resulting
from or arising out of the inaccuracy or alleged inaccuracy of any
of the representations, warranties or statements of the Investor
contained in this Agreement, including without limitation any
violation or alleged violation of the registration requirements of
the Act or applicable state law in connection with any subsequent
sale of the Securities or any portion thereof by Investor.
	 
	 	(b)	 	Arbitration. Any dispute regarding this Agreement or the
Investor’s investment in the Company (including without limitation
claims pursuant to federal or state securities laws), including any
claim which is made against any placement agent or broker-dealer
involved in the offer or sale of the Securities, shall be resolved
by arbitration which shall be the sole forum for resolution of any
such disputes. Unless otherwise agreed by the parties, any such
proceedings shall be brought in Minneapolis, Minnesota U.S.A.
pursuant to the Rules and Code of Arbitration of the American
Arbitration Association, except that if a bona fide claim is made
against the Company, and a placement agent or broker-dealer is named
in connection with such claim, then such claim shall be brought
pursuant to the Rules and Code of Arbitration of the National
Association of Securities Dealers, Inc.
	 
	 	(c)	 	Governing Law; Venue. This Agreement shall be governed by,
and construed in accordance with, the substantive laws of the State
of Minnesota without reference to Minnesota conflict of laws
provisions. Actions or proceedings litigated in connection with
this Agreement, if any, shall be venued exclusively in the state and
federal courts located in the County of Hennepin, State of
Minnesota.
	 
	 	(d)	 	Notice. All notices or other communications required or
permitted hereunder shall be in writing. A written notice or other
communication shall be deemed to have been delivered hereunder: (i)
if delivered by hand, when such notice is received from the
notifying party; (ii) if transmitted by facsimile or timely
delivered to a reputable express courier, on the next business day
following the day so transmitted or delivered; or (iii) if delivered
by mail, on the seventh business day following the date such notice
or other communication is deposited in the U.S. Mail for delivery by
certified or registered mail addressed to the other party, or when
actually received, whichever occurs earlier.



7






 





	 	(e)	 	Counterparts. This Agreement may be executed by the Company
and by the Investor in separate counterparts, each of which shall be
deemed an original.



(signature pages follow)



8






 



INDIVIDUAL SIGNATURE PAGE



     All individual Investors must complete and sign this page. If the
individual is investing through an Individual Retirement Account, then both the
individual investor and the IRA Custodian must sign this page. Where the
Bridge Notes and Bridge Warrants are to be held in joint tenancy or tenancy in
common, both parties must sign and, if applicable, both Social Security numbers
should be indicated.



	1.	 	Investor Name(s) (please print):                        
                            
                                   
                         
                                  
	 
	2.	 	Social Security Number(s) for U.S. Investors:                       
                            
                          
                
                             
	 
	3.	 	Form of Ownership (e.g.,
individual, joint, tenants in common, community property):                       
                      
          
	 
	4.	 	Residence Address:                                                                                                                                                  
                       


	 
	5.	 	Mailing Address: 
                                                                                                                                                
                            

	 
	6.	 	Home: Tel. No.                                                                        ;
Facsimile No.             
                                                                   

Business: Tel. No.              
                
                  
                   
; Facsimile No.                               
                  
                         
	 
	7.	 	Principal Amount of Bridge
Note:            
              
              
              
              
              
              
              
              
             
	 
	8.	 	Accredited Investor  o      Non-Accredited Investor  o



INDIVIDUAL INVESTOR SIGNATURE:




	 	 	 
	                                                                                                                                              	 	
Date:                       
	 	 	 
	SECOND SIGNATURE (if applicable):	 	 
	 	 	 
	                                                                                                                                              	 	
Date:                       
	 	 	 
	IRA CUSTODIAN SIGNATURE (if applicable):	 	 
	 	 	 
	                                                                                                                                              	 	
Date:                       
	 	 	 
	By (print name):                                                                                                                  	 	 
	                
              IRA Custodian	 	 



9






 



ENTITY INVESTOR SIGNATURE:




	 	 	 	 	 	 	 	 	 
	By	 	___________________________________________	 	Date:	 	________________________
	 	 	
Its	 	________________________________________	 	 	 



ACCEPTANCE:



MAKEMUSIC! INC. hereby executes this Agreement as of the date set forth below.



	 	 	 	 	 	 	 	 	 
	By	 	___________________________________________	 	Date:	 	________________________
	 	 	
Its	 	________________________________________	 	 	 



10






 



Schedule to Bridge Loan and Investment Agreement between MakeMusic! Inc. and
Investors identified below



	 	 	 	 	 	 	 	 	 
	 	 	Principal Amount of	 	 	 	 
	Investor Name	 	Bridge Note	 	Date
	
	 	
	 	

	Gordon Buchanan
	 	$	37,000	 	 	 	10/15/2002	 
	François de Gaspé Beaubien
	 	 	63,380	 	 	 	09/30/2002	 
	Chantal Debizet
	 	 	10,000	 	 	 	09/29/2002	 
	François Duliège
	 	 	50,000	 	 	 	09/27/2002	 
	FCPR Robertsau Investment
	 	 	40,000	 	 	 	09/30/2002	 
	Philip A. Forman
	 	 	25,000	 	 	 	09/26/2002	 
	Roy L. Heenan
	 	 	15,000	 	 	 	09/28/2002	 
	International Sequoia Investments Ltd.
	 	 	50,000	 	 	 	09/30/2002	 
	J. M. Hixon Partners LLC
	 	 	40,000	 	 	 	09/30/2002	 
	Anthony J. Lafleur
	 	 	25,000	 	 	 	09/30/2002	 
	Philip Sean Lafleur
	 	 	100,000	 	 	 	09/30/2002	 
	James C. Larmett
	 	 	37,000	 	 	 	10/15/2002	 
	Les Placements Monteyric Inc.
	 	 	75,000	 	 	 	09/29/2002	 
	Jasper Malcolmson
	 	 	18,000	 	 	 	09/27/2002	 
	William Morneau Jr
	 	 	15,000	 	 	 	09/30/2002	 
	Clinton H. Morrison
	 	 	25,000	 	 	 	09/26/2002	 
	Morrison Associates Limited Partnership
	 	 	25,000	 	 	 	09/26/2002	 
	Claude Ronco
	 	 	10,000	 	 	 	09/29/2002	 
	Nicolas Ronco
	 	 	20,000	 	 	 	09/30/2002	 
	Robert Vinci
	 	 	10,000	 	 	 	09/27/2002	 
	Benson K. Whitney
	 	 	60,000	 	 	 	09/30/2002	 




11









 



Exhibit A


THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE
MADE ONLY (i) IN A REGISTRATION OR QUALIFICATION OR (ii) IF AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE AND THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO THE COMPANY.


SALE OR OTHER TRANSFER OF THESE SECURITIES IS FURTHER RESTRICTED FOR UP TO 180
DAYS FOLLOWING THE ISSUANCE DATE OF THIS NOTE BY THE TERMS OF A SUBSCRIPTION
AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
COMPANY.


MAKEMUSIC! INC.



10% SUBORDINATED PROMISSORY NOTE




	 	 	 	 
	Principal: $     	 	
,2002	 
	 	 	 	 
	Note No.: 2002 BN-     	 	
Minneapolis, Minnesota	 



     FOR VALUE RECEIVED, the undersigned, MakeMusic! Inc., organized and
existing under the laws of the State of Minnesota, whose mailing address is
6210 Bury Drive, Eden Prairie, MN 55346, and its successors and assigns (the
“Maker”), for value received, hereby unconditionally promises to pay to the
order of          , a resident of            , having a mailing address of           ,
and its successors and
assigns (the “Holder”), at such place as may be designated from time to time by
the Holder, any outstanding unpaid principal together with all accrued and
unpaid interest thereon in accordance with the terms of this promissory note
(the “Bridge Note”). The Bridge Note is being issued in connection with a
placement of Bridge Notes being conducted by the Company to raise up to
$800,000 pursuant to the terms of Bridge Loan and Investment Agreements. This
Bridge Note and the Holder hereof are entitled to all the benefits provided for
in the Bridge Loan and Investment Agreement, or which are referred to therein,
pursuant to which this indebtedness was incurred and is to be repaid. The
provisions of the Bridge Loan and Investment Agreement are incorporated herein
by reference with the same force and effect as if fully set forth herein.


12






 


Acceptance of this Bridge Note by the Holder shall be deemed agreement by the
Holder of the terms in this Bridge Note.


1.     Accrued Interest and Payment. This Bridge Note shall accrue interest at the
rate of 10% per annum. Interest shall be calculated on the basis of a 360-day
year comprised of twelve (12) 30-day months. All payments under this Section
shall be made in U.S. dollars and by check mailed by the Maker to the address
of the Holder set forth above. If not converted as set forth in Section 5
below, fifty percent (50%) of the outstanding principal and unpaid accrued
interest on the Bridge Notes shall be due and payable in four (4) equal monthly
installments beginning September 30, 2003 and ending December 31, 2003. The
remaining outstanding principal and unpaid accrued interest shall be due and
payable in four (4) equal monthly installments beginning September 30, 2004 and
ending December 31, 2004. The Bridge Notes may be prepaid in whole or in part
without penalty any time after March 31, 2003.


2.     Security. Except as provided below, payment of this Bridge Note is
unsecured in all respects. In the event the Next Financing (as defined below)
has not occurred on or before March 31, 2003, the Bridge Notes shall become
secured by all of the Company assets pursuant to a Security Agreement between
the Company and Holder (the “Security Agreement”), the form of which is
attached to the Bridge Loan and Investment Agreement as Exhibit C.


3.     Subordination. The term “Senior Indebtedness” shall mean all principal of
(and premium of, if any) and unpaid interest on all indebtedness of the Maker,
and with respect to which the Maker is a guarantor (but excluding indebtedness
guaranteed solely for the benefit of officers, directors, employees or
consultants of the Maker), and except as provided to the contrary herein,
regardless of whether incurred on, before or after the date of this Bridge Note
up to an aggregate amount of $1,000,000: (i) for money borrowed from any bank,
insurance company, or other lending institution regularly engaged in the
business of lending money, whether or not secured including, without
limitation, Itasca Business Credit, Inc.; (ii) for indebtedness in connection
with the acquisition or lease of capital equipment; and (iii) in connection
with any deferral, renewal or extension of any indebtedness described in (i) or
(ii) above or any debentures, notes, or other evidence of the Maker’s
indebtedness issued in exchange for indebtedness described in (i) or (ii)
above. The Maker covenants and agrees and the Holder, by acceptance hereof,
covenants, expressly for the benefit of the present and future holders of
Senior Indebtedness, that the payment of the principal and the interest on this
Bridge Note is expressly subordinated in right of payment to the payment in
full of all principal and interest of Senior Indebtedness of the Maker.
Notwithstanding the foregoing, payment of principal or interest may be made
hereunder unless the Company is in default, or if the making of any payment
hereunder would result in a default, with respect to the payment of amounts of
any Senior Indebtedness. This note or instrument is subject to the Debt
Subordination Agreement dated of even date herewith between Holder, the Maker
and Itasca Business Credit, Inc., which agreement is made a part hereof by
reference. The Holder of the Bridge Note agrees to execute such other
documents regarding this subordination provision as may be required by any
holder of senior indebtedness.


13






 


4.     Compliance with Securities Laws and Other Transfer Restrictions.


     (a)  The Holder of this Bridge Note, by acceptance hereof, agrees,
represents and warrants that this Bridge Note is being acquired for investment,
that the Holder has no present intention to resell or otherwise dispose of all
or any part of this Bridge Note, and that the Holder will not offer, sell or
otherwise dispose of all or any part of this Bridge Note except under
circumstances which will not result in a violation of the Act or applicable
state securities laws. The Maker may condition any transfer, sale, pledge,
assignment or other disposition on the receipt, from the party to whom this
Bridge Note is to be so transferred, of any representations and agreements
requested by the Maker in order to permit such issuance or transfer to be made
pursuant to exemptions from registration under federal and applicable state
securities laws.


     (b)  In the event the Holder of this Bridge Note desires to transfer this
Bridge Note, the Holder shall provide the Maker with a Form of Assignment, in
the form attached hereto describing the manner of such transfer, and an opinion
of counsel (reasonably acceptable to the Maker) that the proposed transfer may
be effected without registration or qualification under applicable securities
laws, whereupon such Holder shall be entitled to transfer this Bridge Note in
accordance with the notice delivered by such Holder to the Maker. If, in the
opinion of the counsel referred to in this Subsection, the proposed transfer or
disposition described in the written notice given may not be effected without
registration or qualification of this Bridge Note, the Maker shall give written
notice thereof to the Holder hereof, and such Holder will limit its activities
in respect to such proposed transfer or disposition as, in the opinion of such
counsel, are permitted by law.


     (c)  The Maker may place one or more restrictive legends on the Bridge
Note, which legends set forth the restrictions contained herein, and may
further place a “stop transfer” restriction in the Maker’s books and records
with respect to the Bridge Note. The restrictions set forth in this Bridge
Note shall be binding upon any holder, donee, assignee or transferee of the
Bridge Note.


5.     Automatic Conversion of Bridge Note.


     (a)  Conversion. Subject to and upon compliance with the provisions of
this Bridge Note, the principal amount of this Bridge Note or any Bridge Notes
issued in exchange for it and accrued interest up to the date of conversion
shall be automatically converted in whole into fully paid and nonassessable
Conversion Shares (as defined below) at the Conversion Price (as defined
below), upon the occurrence of the Next Financing (as defined below) prior to
March 31, 2003. The “Next Financing” shall mean the next financing of equity
or debt with equity features by the Company involving the receipt by the
Company on or before March 31, 2003 of commitments for aggregate gross proceeds
of at least $1 million inclusive of the converted Bridge Notes. The
“Conversion Shares” shall mean the shares of capital stock issued by the
Company in the Next Financing. The “Conversion Price” shall be equal to the
price per share of the capital stock issued in the Next Financing multiplied by
0.75. The number of Conversion Shares issuable upon conversion of the Bridge
Notes under this Section 5 shall be calculated by dividing the outstanding
principal and accrued interest of the Bridge Notes by the Conversion Price,
which is the per share offering price in the Next Financing multiplied by 0.75.
To the extent warrants are issued in the Next Financing, (i) the warrant
exercise price of such warrants issued to holders of Bridge Notes


14






 


upon
conversion shall be the lesser of $0.05 per share or the warrant exercise price
of the warrants issued to investors in the Next Financing, and (ii) the
warrants issued to holders of Bridge Notes shall expire five (5) years from the
date of issuance, or earlier upon a merger or sale of substantially all of the
Company’s assets and (iii) the sale or transfer of any shares acquired upon the
exercise of any such warrants issued to holders of Bridge Notes shall be
prohibited for no less than six (6) months.


     (b)  Surrender of Bridge Note. Upon the occurrence of the Next Financing,
the Company shall issue the Holder of the Bridge Note a written notice
indicating that the Next Financing has occurred, the terms of the Next
Financing and the number of shares into which the Bridge Note has converted.
Within ten (10) business days of delivery of this written notice, the Company
shall issue the securities to which the Bridge Note Holder is entitled in the
name of the Bridge Note Holder as it appears on the Company’s records. Such
securities shall be delivered by express mail or certified mail to the Bridge
Note Holder at the address specified for such holder in the Company’s records.
Upon receipt of the notice regarding the occurrence of the Next Financing, the
Bridge Note Holder shall surrender the Bridge Note to the Company. As of the
date of the Next Financing, conversion pursuant to Section 5(a)(i) shall be
deemed to have been made and the Bridge Notes shall be deemed cancelled with no
further obligations thereunder by the Company, regardless of surrender of the
Bridge Note to the Company. The person or persons entitled to receive the
Conversion Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares on such date. Upon
conversion of this Bridge Note, the Company may require the Holder, as a
condition of conversion or receipt of Conversion Shares, to execute and deliver
to the Company an instrument, in form satisfactory to the Company, representing
that the Holder or other person who is obtaining the shares to be obtained by
any conversion, is an accredited investor within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”), and that the shares issuable
upon conversion hereof are being acquired for investment and not with a view to
distribution within the meaning of the Securities Act.


     (c)  Fractional Shares. No fractional shares shall be issued upon
conversion of the Bridge Note. Any fractional shares shall be rounded up to
the nearest whole share.


6.     Rights as Shareholder. This Bridge Note does not entitle the Holder to any
right to vote or receive dividends or any other rights as a shareholder of the
Maker.


7.     Events of Default. The occurrence of any one or more of the following
events (whether such occurrence shall be voluntary or involuntary or occur or
be effected by operation of law or otherwise) shall constitute an “Event of
Default” hereunder:


     (a)  if the Company fails to pay when due any amount payable to the Holder
under the terms of this Bridge Note and such failure to pay is not cured by the
Company within thirty (30) days after written notice thereof is delivered by
the Holder to the Company; or


     (b)  if the Company makes an assignment for the benefit of creditors; or


     (c)  if any order, judgment, or decree is entered adjudicating the Company
bankrupt or insolvent; or


15






 


     (d)  if the Company petitions or applies to any tribunal for the
appointment of a trustee or receiver or commences any proceeding under any
bankruptcy, reorganization, insolvency, dissolution or liquidation law of any
jurisdiction; or


     (e)  if the Company materially breaches any of its agreements or covenants
contained in the Bridge Loan and Investment Agreement and such breach is not
cured by the Company
within thirty (30) days after written notice thereof is delivered by the Holder
to the Company, or any of the representations and warranties made by the
Company therein are untrue in any material respect.


The Company shall immediately notify the Holder in writing of the occurrence of
any Event of Default. Notwithstanding the provisions set forth above
respecting at what time a demand for repayment may be made by the Holder
hereof, upon or at any time following an Event of Default, the Holder (i) may
immediately declare the unpaid principal balance of and all interest accrued on
this Bridge Note to be immediately due and payable and such amounts shall then
be due and payable without further demand, presentment or notice of any kind,
all of which are hereby waived by the Company; and (ii) may exercise, in
addition to the rights and remedies granted in this Bridge Note, all of the
rights and remedies of a Holder under applicable law.


8.     Miscellaneous Provisions.


     (a)  No amendment hereunder shall be effective unless in writing signed by
the Maker and the holders of at least a majority of outstanding principal due
on all bridge notes issued by the Company on even date herewith pursuant to the
Bridge Loan and Investment Agreements. No waiver hereunder shall be effective
unless in writing, signed by the party to be charged. Neither the failure on
the part of the Holder in exercising any right or remedy, nor any single or
partial exercise of any other right or remedy, shall operate as a waiver. The

acceptance by the Holder of any payment hereunder which is less than payment in
full of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to exercise any of the options hereunder at
that time or at any subsequent time.


     (b)  The Maker hereby: (i) waives diligence, presentment, demand for
payment, notice of dishonor, notice of non-payment, protest, notice of protest,
and any and all other demands in connection with the delivery, acceptance,
performance, default or enforcement of this Bridge Note, and (ii) except as
provided in Section 1 of this Bridge Note, agrees that the Holder has, subject
to the prior written request or approval of the Maker, the right (but not the
obligation) to grant any extension of time for payment of any indebtedness
evidenced by this Bridge Note.


     (c)  The terms and provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the Maker and Holder.
This Bridge Note shall be governed by and construed and enforced in accordance
with the laws of the State of Minnesota without giving effect to such state’s
choice of law principles.


     (d)  No recourse for the payment of the principal of or any interest on
this Bridge Note, or for any claim based hereon or otherwise in respect hereof,
and no recourse under or


16






 


upon any obligation, covenant or agreement of the
Maker in any Bridge Note, or because of the creation of any indebtedness
represented thereby, shall be had against any incorporator, shareholder,
officer or director as such, past, present or future, of the Maker or of any
successor corporation either directly or through the Maker or any successor
corporation, whether by virtue of any constitution, statute or rule of law or
by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.


     (e)  Upon receipt by the Maker of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Bridge Note, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Maker of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Bridge Note, if mutilated,
the Maker will make and deliver a new Bridge Note of like tenor and dated as of
the initial Bridge Note, in lieu of this Bridge Note.


     (f)  This Bridge Note has been issued pursuant to and is subject to the
terms and provisions of that certain Bridge Loan and Investment Agreement of
even date herewith between the Maker and the Holder, the terms and provisions
of which are incorporated herein by reference with the same force and effect as
if fully set forth herein. To the extent the terms of the Bridge Note and the
Bridge Loan and Investment Agreement are inconsistent, the terms of this Bridge
Note shall control.


     (g)  All notices or other communications required or permitted hereunder
shall be in writing. A written notice or other communication shall be deemed
to have been sufficiently given: (i) if delivered by hand, when such notice is
received from the notifying party; (ii) if transmitted by facsimile or timely
delivered to a reputable express courier, on the next business day following
the day so transmitted or delivered; or (iii) if delivered by mail, on the
seventh day following the date such notice or other communication is deposited
in the U.S. Mail for delivery by certified or registered mail addressed to the
other party, or when actually received, whichever occurs earlier.


     IN WITNESS WHEREOF, the Maker has caused this Bridge Note to be executed
by its authorized representative, who certifies that he has all necessary
authority on behalf of the Maker to execute this Bridge Note and bind the Maker
to the terms hereof.



	 	 	 	 	 	 	 
	 	 	MAKEMUSIC! INC.
	 	 	 	 	 	 	 
	 	 	
By
	 	 	 	 
	 	 	 	 	

	 	 	 	 	Its

	 	 
	 	 	 	 	





17






 



FORM OF ASSIGNMENT



MAKEMUSIC! INC.



     FOR VALUE RECEIVED, the undersigned registered owner of this 10%
Subordinated Promissory Note (the “Bridge Note”) hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
under the within Bridge Note as set forth below:



	 	 	 	 	 
	Name of Assignee	 	Address	 	Principal Amount of Note
	
	 	
	 	





and does hereby irrevocably constitute and appoint            
Attorney to make such transfer on the books of
MAKEMUSIC! INC. maintained for the purpose, with full power of substitution in
the premises. The undersigned understands that compliance with the provisions
of the Bridge Note is necessary to effect any assignment or transfer.



	 	 	 
	Dated:
                    
     ,      	 	Dated:                     
     ,      
	 	 	 
	

Signature	 	


Second Signature (if necessary)
	 	 	 
	

Print Name	 	


Print Name



18






 




Exhibit B



THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE
MADE ONLY (i) IN A REGISTRATION OR QUALIFICATION OR (ii) IF AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE AND THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO THE COMPANY.


SALE OR OTHER TRANSFER OF THESE SECURITIES IS FURTHER RESTRICTED FOR UP TO 180
DAYS FOLLOWING THE ISSUANCE OF THIS WARRANT BY THE TERMS OF A BRIDGE LOAN AND
INVESTMENT AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
OFFICES OF THE COMPANY.


WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

MAKEMUSIC! INC.


VOID AFTER 5:00 P.M. MINNEAPOLIS, MINNESOTA TIME ON APRIL 1, 2008



	 	 	 	 	 
	Issuance Date:	 	
April 1, 2003
	 	Warrant
No. BW-      



     THIS
CERTIFIES that, subject to the terms and conditions herein set
forth,
 




or registered assigns, is entitled to purchase from MAKEMUSIC! INC., a
Minnesota corporation (the “Company”), at any time after the Issuance Date and
prior to the fifth anniversary of the issuance date,
                    
shares of Common
Stock (as defined below) (the “Warrant Shares”) at the Warrant Exercise Price
(as defined below). The Warrant Shares are equal to three (3) shares of Common
Stock for each $1.00 of principal amount outstanding on March 31, 2003 pursuant
to the Bridge Note (as defined below) issued to the original holder of this
Bridge Warrant pursuant to the terms of the Bridge Loan and Investment
Agreement between such original holder and the Company dated                      , 2002.
The $.01 par value common stock of the Company is herein referred to as the
“Common Stock”. The “Warrant Exercise Price” shall be $0.01 per share.

     This Bridge Warrant is being issued in connection with a placement of
promissory notes (“Bridge Notes”) being conducted by the Company to raise up to
$800,000 and pursuant to the terms of the Bridge Loan and Investment Agreement
between the Company and the original holder of this Bridge Warrant dated
                    
, 2002. This Bridge Warrant and the holder hereof are entitled to
all the benefits provided for in the Bridge Loan and Investment Agreement, or
which are referred to therein to which this indebtedness was incurred and is to
be repaid. The


19






 


provisions of the Bridge Loan and Investment Agreement are incorporated
herein by reference with the same force and effect as if fully set forth
herein.


     This Bridge Warrant and the rights granted hereby are subject to the
following terms and conditions:


1.     Adjustment of Warrant Exercise Price and Number of Warrant Shares. The
provisions in this Bridge Warrant relating to the Warrant Exercise Price and
the number of Warrant Shares to be issued upon exercise of this Bridge Warrant
shall be subject to adjustment from time to time as hereinafter provided in
this Section.


     (a)  Upon each adjustment of the Warrant Exercise Price, the holder of this
Bridge Warrant shall thereafter be entitled to purchase, at the Warrant
Exercise Price resulting from such adjustment, the number of shares of Common
Stock obtained by multiplying the Warrant Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock purchasable
hereto immediately prior to such adjustment and dividing the product thereof by
the Warrant Exercise Price resulting from such adjustment.


     (b)  In case the Company shall at any time subdivide its outstanding Common
Stock into a greater number of shares or declare a dividend payable in Common
Stock, the Warrant Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock purchasable pursuant to this Bridge Warrant shall be proportionately
increased, and conversely, in case the Company’s outstanding Common Stock shall
be combined into a smaller number of shares, the Warrant Exercise Price in
effect immediately prior to such combination shall be proportionately increased
and the number of shares of Common Stock purchasable upon the exercise of this
Bridge Warrant shall be proportionately reduced.


     (c) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets (“Substituted Property”)
with respect to or in exchange for such Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, the
holder shall have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Bridge Warrant, and in lieu of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such Substituted Property
as would have been issued or delivered to the holder if it had exercised this
Bridge Warrant and had received upon exercise of this Bridge Warrant the Common
Stock prior to such reorganization, reclassification, consolidation, merger, or
sale. The Company shall not effect any such consolidation, merger, or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume the obligation to deliver to
the holder such Substituted Property as, in accordance with the foregoing
provisions, the holder may be entitled to purchase.


20






 


     (d)  If the Company takes any other action, or if any other event occurs
which does not come within the scope of the provisions of Sections 2(b) or
2(c), but which should, in the Company’s reasonable judgment, result in an
adjustment in the Warrant Exercise Price and/or the number of shares subject to
the Bridge Warrant in order to fairly protect the purchase rights of the
holder, an appropriate adjustment in such purchase rights shall be made by the
Company.


     (e)  Upon any adjustment of the Warrant Exercise Price or the number of
shares issuable upon of this Bridge Warrant, the Company shall give written
notice thereof, by express delivery or first-class mail, postage prepaid,
addressed to the holder at the address of the holder as shown on the books of
the Company, which notice shall state the Warrant Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Bridge Warrant, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.


2.     No Fractional Shares. No fractional shares will be issued in connection
with any exercise of this Bridge Warrant. In lieu of any fractional share
which would otherwise be issuable, the Company shall round up to the nearest
whole number of shares.


3.     No Shareholder Rights. This Bridge Warrant shall not entitle its holder to
vote, receive dividends or exercise any of the rights of a shareholder of the
Company prior to exercise of this Bridge Warrant.


4.     Covenants of the Company. The Company covenants that during the period this
Bridge Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares of Common Stock
to provide for the issuance of Warrant Shares upon the exercise of this Bridge
Warrant. The Company further covenants that all Warrant Shares that may be
issued upon the exercise of this Bridge Warrant will, upon payment and
issuance, be duly authorized and issued, fully paid and nonassessable shares of
Common Stock.


5. Exercise of Bridge Warrant. This Bridge Warrant may be exercised by the
registered holder, in whole or in part, by providing the Company with at least
10 business days’ written notice of such holder’s intent to exercise and by
surrendering this Bridge Warrant at the principal office of the Company,
together with the Exercise Form attached hereto duly executed, accompanied by
payment in full of the amount of the aggregate Warrant Exercise Price in cash
or check payable to the Company. Notwithstanding anything to the contrary in
this Bridge Warrant, in no event shall a partial exercise be for Warrant Shares
with an aggregate exercise price of less than $1,000. Upon partial exercise
hereof, a new warrant or warrants containing the same date and provisions as
this Bridge Warrant shall be issued by the Company to the registered holder for
the number of Warrant Shares with respect to which this Bridge Warrant shall
not have been exercised. A Bridge Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date the Company is
in receipt of this Bridge Warrant, a completed Exercise Form, all documents the
Company may reasonably request from the holder for the purpose of complying
with applicable securities and other laws, and payment for the number of
Warrant Shares being acquired upon exercise of this Bridge Warrant. The holder
entitled to receive the Warrant Shares issuable upon such exercise shall be
treated for all purposes as the holder of record of such Warrant Shares as of
the close of business on such date.


21






 


After such date, the Company shall issue and deliver to the holder or holders
entitled to receive the same, a certificate or certificates for the number of
full Warrant Shares issuable upon such exercise.


     The holder has been advised that the Warrant Shares and the Bridge Warrant
are not being registered under the Act, or state securities laws pursuant to
exemptions from the Act and such laws, and that the Company’s ability and
obligation to issue Warrant Shares are dependent upon the availability of
exemptions from registration under the Act and state securities law. In the
event that the Company does not meet the requirements for an exemption to
registration under the Act and state securities laws for issuance of the
Warrant Shares upon exercise of the Bridge Warrant, the Company shall issue the
Warrant Shares at the first opportunity an exemption is available, but shall
not be under any obligation to register the Warrant Shares under the Act at any
time.


     Notwithstanding anything herein to the contrary, the Company shall have
the right to delay any exercise for the purpose of ensuring the availability of
an exemption under applicable securities laws for the issuance of the Warrant
Shares to the holder in light of the transactions by the Company in its
securities. If the Company elects to delay any such exercise, the Company
shall inform the holder, in writing, of such delay and the terms of such delay.
Any such delay shall not lead to any change in the Warrant Price or the terms
of the Bridge Warrant and shall not extend the term of any Bridge Warrant
unless such delay would extend past the expiration date of such Bridge Warrant.
In such case, the expiration date shall be extended to thirty (30) days after
the end of such delay.


6.     Acceleration of Warrant Termination. For purposes of this section, “Change
of Control” shall mean the sale or lease of all or substantially all of the
Company’s assets or a merger or other transaction in which the holders of the
Company’s voting capital stock before such transaction hold less than fifty
percent of the outstanding voting capital stock of the successor entity after
the transaction. Immediately prior to the Company completing a Change of
Control, the Company shall automatically have the right to call and terminate
the Warrant, without paying any additional consideration. The Company shall
deliver prior written notice to the holder (“Call Notice”) of a Change of
Control and the effectiveness of the call right. The holder shall have thirty
(30) days from the date of the Call Notice (“Call Period”) during which the
holder may exercise the Warrant. If the Warrant is not exercised during the
Call Period, the holder shall deliver the Warrant to the Company for
cancellation. Cancellation of the Warrant shall be effective on the Company’s
books and records notwithstanding the holder’s failure to deliver the Warrant
to the Company for cancellation.


7.     Compliance with Securities Laws and Other Transfer Restrictions.


     (a) The holder of this Bridge Warrant, by acceptance hereof, agrees,
represents and warrants that this Bridge Warrant and the Warrant Shares which
may be issued upon exercise hereof are being acquired for investment, that the
holder has no present intention to resell or otherwise dispose of all or any
part of this Bridge Warrant or any Warrant Shares, and that the holder will not
offer, sell or otherwise dispose of all or any part of this Bridge Warrant or
any Warrant Shares except under circumstances which will not result in a
violation of the Act or applicable state securities laws. The Company may
condition any transfer, sale, pledge,


22






 


assignment or other disposition on the receipt from the party to whom this
Bridge Warrant is to be so transferred or to whom Warrant Shares are to be
issued or so transferred, of any representations and agreements requested by
the Company in order to permit such issuance or transfer to be made pursuant to
exemptions from registration under federal and applicable state securities
laws. Upon exercise of this Bridge Warrant, the holder hereof shall, if
requested by the Company, confirm in writing holder’s investment purpose and
acceptance of the restrictions on transfer of the Warrant Shares, as well as
any representations and agreements requested by the Company in order to permit
the issuance of Warrant Shares to be made pursuant to exemptions from
registration under federal and applicable state securities laws.


     (b)  In the event the holder of this Bridge Warrant desires to transfer
this Bridge Warrant, the holder shall provide the Company with a Form of
Assignment, in the form attached hereto describing the manner of such transfer,
and an opinion of counsel (reasonably acceptable to the Company) that the
proposed transfer may be effected without registration or qualification under
applicable securities laws, whereupon such holder shall be entitled to transfer
this Bridge Warrant in accordance with the notice delivered by such holder to
the Company. If, in the opinion of the counsel referred to in this Section,
the proposed transfer or disposition described in the written notice given may
not be effected without registration or qualification of this Bridge Warrant,
the Company shall give written notice thereof to the holder hereof, and such
holder will limit its activities in respect to such proposed transfer or
disposition as, in the opinion of such counsel, are permitted by law. The
Company may place one or more restrictive legends on the Bridge Warrant or any
certificates representing the Warrant Shares which set forth the restrictions
contained herein, and may further place a “stop transfer” restriction in the
Company’s books and records with respect to the Bridge Warrant and any Warrant
Shares. The restrictions set forth in this Bridge Warrant shall be binding
upon any holder, donee, assignee or transferee of the Bridge Warrant or the
Warrant Shares.


     (c)  The holder will not, for a period of 180 days after the issuance date
of this Warrant, sell, transfer or otherwise dispose of, or agree to sell,
transfer or otherwise dispose of any of the Warrants or Warrant Shares or sell,
transfer or otherwise dispose of, or agree to sell, transfer or otherwise
dispose of any options, rights or warrants to purchase any of the Warrants or
Warrant Shares beneficially held by the holder. The foregoing restrictions do
not prohibit gifts to donees or transfers by will or the laws of descent to
heirs or beneficiaries provided that such donees, heirs and beneficiaries shall
be bound by these restrictions.


8.     Registration Rights.


     (a) If at any time after the issuance date of this Warrant and prior to
the end of the one-year period following complete exercise of this Warrant or
April 1, 2009, whichever occurs earlier, the Company proposes to register under
the 1933 Act (except by a Form S-4 or Form S-8 Registration Statement or any
successor forms thereto) or qualify for a public distribution under Section
3(b) of the 1933 Act, any of its securities, it will give written notice to the
holder of this Warrant, any Warrants issued in exchange hereof and any Warrant
Shares of its intention to do so and, on the written request of any such holder
given within twenty (20) days after receipt of any such notice (which request
shall specify the interest in this Warrant or the Warrant Shares intended to be
sold or disposed of by such holder and describe the nature of any proposed sale
or other disposition thereof), the Company will use its best efforts to cause
all such Warrant Shares, the


23






 


holder of which shall have requested the registration or qualification
thereof, to be included in such registration statement proposed to be filed by
the Company; provided, however, that if a greater number of Warrant Shares is
offered for participation in the proposed offering than in the reasonable
opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the amount
of Warrant Shares proposed to be offered by such holder for registration, as
well as the number of securities of any other selling shareholders
participating in the registration, shall be proportionately reduced to a number
deemed satisfactory by the managing underwriter, which number may be zero.


     (b)  With respect to each inclusion of securities in a registration
statement pursuant to this Section 8, the Company shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company,
fees and disbursements of counsel for the underwriter or underwriters of such
securities (if the Company is required to bear such fees and disbursements),
all internal expenses, the premiums and other costs of policies of insurance
against liability arising out of the public offering, and legal fees and
disbursements and other expenses of complying with state securities laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified. Fees and disbursements of special counsel and accountants for the
selling holders, underwriting discounts and commissions, and transfer taxes for
selling holders and any other expenses relating to the sale of securities by
the selling holders not expressly included above shall be borne by the selling
holders;


     (c)  The Company hereby indemnifies the holder of this Warrant and of any
Warrant Shares, and the officers and directors, if any, who control such
holder, within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus (and as amended or supplemented if the Company shall have furnished
any amendments thereof or supplements thereto), any preliminary prospectus or
any state securities law filings related to the registration of the Warrant
Shares pursuant to this Section 8; (2) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading except insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission
contained in information furnished in writing to the Company by such holder
expressly for use therein. Holder by its acceptance hereof severally agrees
that it will indemnify and hold harmless the Company, each of its officers who
signs any such registration statement related to the registration of the
Warrant Shares pursuant to this Section 8, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein.


9. Subdivision of Bridge Warrant. At the request of the holder of this Bridge
Warrant in connection with a transfer or exercise of a portion of the Bridge
Warrant, upon surrender of such Bridge Warrant for such purpose to the Company,
the Company will issue and exchange therefor warrants of like tenor and date
representing in the aggregate the right to purchase such number of shares of
Common Stock as shall be designated by such holder at the time of such
surrender; provided, however, that the Company’s obligations to subdivide
securities under this Section


24






 


shall be subject to and conditioned upon the compliance of any such subdivision
with applicable securities laws.


10.     Loss, Theft, Destruction or Mutilation of Bridge Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Bridge Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Bridge Warrant, if mutilated, the
Company will make and deliver a new Bridge Warrant of like tenor and dates as
of such cancellation, in lieu of this Bridge Warrant.


11.     Miscellaneous. This Bridge Warrant shall be governed by the laws of the
state of Minnesota without reference to such state’s choice of laws provisions.
The headings in this Bridge Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Bridge Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company
and the registered holder hereof. All notices and other communications from
the Company to the holder of this Bridge Warrant shall be by certified mail,
return receipt requested, or by overnight delivery service to the address
furnished to the Company in writing by the last holder of this Bridge Warrant
who shall have furnished an address to the Company in writing. Delivery shall
be deemed to have occurred on the date three (3) days after depositing the
notice in the U.S. mail or one (1) day after delivery of such notice to a
reputable overnight delivery service.


     ISSUED this      day of      , 2003.


MAKEMUSIC! INC.


By




Its




25






 


FORM OF ASSIGNMENT


MAKEMUSIC! INC.


     FOR VALUE RECEIVED, the undersigned registered owner of this Bridge
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under the within Bridge Warrant, with respect
to the number of shares of Common Stock set forth below:



	 	 	 	 	 	 	 	 	 	 	 
	Name of Assignee	 	Address	 	 	Number of Shares	 
	
	 	
	 	 	
	 
	 
	 
	 



and does hereby irrevocably constitute and appoint
__________________ Attorney to make such transfer on the books of
MAKEMUSIC! INC. maintained for the purpose, with full power of substitution in
the premises. The undersigned understands that compliance with the provisions
of the Bridge Warrant is necessary to effect any assignment or transfer.


Dated: ___________________________ , _____





Signature



Print Name

26






 


EXERCISE FORM


MAKEMUSIC! INC.


(To be executed only upon exercise of Bridge Warrant)


     The undersigned registered owner of this Bridge Warrant irrevocably
exercises this Bridge Warrant for and purchases ___________________
of the number of shares of Common Stock of MAKEMUSIC! INC. purchasable with
this Bridge Warrant, and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Bridge Warrant.


     The undersigned agrees to deliver a completed and executed subscription,
investment or similar document requested by the Company in connection with the
purchase of shares of Common Stock upon exercise of this Bridge Warrant.


Dated: _________________________ , _______





Signature of Registered Owner




Street Address




City, State, Zip Code




IRS Identification Number


27










 



Exhibit C


SECURITY AGREEMENT




	 	 	 	 	 
	DATE:	 	
April 1, 2003	 	 
	 	 	 	 	 
	DEBTOR:	 	
MakeMusic! Inc.
	 	Tax I.D. #41-1716250
	 	 	
6210 Bury Drive	 	 
	 	 	
Eden Prairie, MN 55346	 	 



SECURED PARTY: Those certain creditors identified on Attachment A (“Creditors”)


RECITALS:




	A.	 	The Creditors have made loans to Debtor in the respective amounts set
forth opposite each Creditor’s name on Attachment A and have received from
Debtor promissory notes in such amounts (the “Notes”) dated as indicated
in Attachment A.
	 
	B.	 	Debtor has agreed to secure the payment of the Notes by pledging, as
security therefore, the assets owned by the Debtor.
	 
	C.	 	Creditors have signed an Intercreditor Agreement dated April 1, 2003
pursuant to which they have appointed               as their agent,
with the authority to, among other things, execute this Security Agreement
on their behalf.



AGREEMENT:



          1. Security Interest and Collateral. To secure the payment of outstanding
principal and interest on the Notes by Debtor to Secured Party and the
performance of every liability and obligation of every type and description
that Debtor may now or at any time hereafter owe to Secured Party or pursuant
to this Agreement, whether such debt, liability or obligation now exists or is
hereafter created or incurred, and whether it is absolute or contingent,
liquidated or unliquidated, or sole, joint, several or joint and several (all
such debts, liabilities and obligations and any amendments, extensions,
renewals or replacements thereof collectively referred to herein as the
“Obligations”), Debtor hereby grants Secured Party a security interest (the
“Security Interest”) in all of Debtor’s property (the “Collateral”), including
without limitation the following:




	 	A.	 	Inventory. All inventory of Debtor, whether now owned or
hereafter acquired and wherever located and other tangible personal
property held for sale or lease or furnished or to be furnished
under contracts of service or consumed in Debtor’s business, and all
goods of Debtor, whether now owned or hereafter acquired and
wherever located, including without limitation all computer programs
embedded



28






 







	 	 	 	in goods, and all other Inventory and Goods of the Debtor, as such
terms may be defined in the Uniform Commercial Code as may be in
effect in the State of Minnesota from time to time (the “UCC”);
	 
	 	B.	 	Equipment. All equipment of Debtor, whether now owned or
hereafter acquired and wherever located, including but not limited
to all present and future equipment, machinery, tools, motor
vehicles, trade fixtures, furniture, furnishings, office and
recordkeeping equipment and all goods for use in Debtor’s business
and all other Equipment of the Debtor, as such term may be defined
in the UCC, together with all parts, equipment and attachments
relating to any of the foregoing;
	 
	 	C.	 	Accounts, Contract Rights and Other Rights to Payment: Each
and every right of Debtor to the payment of money, whether such
right to payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease, license, assignment or other
disposition of goods or other property by Debtor, out of a rendering
of services by Debtor, out of a loan by Debtor, out of the
overpayment of taxes or other liabilities of Debtor, or otherwise
arises under any contract or agreement, whether such right to
payment is or is not already earned by performance, and howsoever
such right to payment may be evidenced, together with all other
rights and interests (including all liens and security interests)
which Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment
or against any of the property of such account debtor or other
obligor; all including but not limited to all present and future
debt instruments, chattel paper, accounts, license fees, contract
rights, loans and obligations receivable and tax refunds and all
other Accounts of the Debtor, as such term may be defined in the
UCC;
	 
	 	D.	 	Instruments: All instruments, chattel paper, letters of
credit or other documents of Debtor, whether now owned or hereafter
acquired, including but not limited to promissory notes, drafts,
bills of exchange and trade acceptances; all rights and interests of
Debtor, whether now existing or hereafter created or arising, under
leases (where Debtor is the lessor), licenses or other contracts, in
each case where assignment for security purposes is not expressly
prohibited by the terms of such instruments and all other
Instruments of the Debtor, as such term may be defined in the UCC;
	 
	 	E.	 	Deposit Accounts and Investment Property: All right, title
and interest of Debtor in all deposit and investment accounts
maintained with any bank, savings and loan association, broker,
brokerage, or any other financial institution, together with all
monies and other property deposited or held therein, including,
without limitation, any checking account, savings account, escrow
account, savings certificate and margin account, and all securities,
whether certificated or uncertificated, security entitlements,
securities accounts, commodity contracts, and commodity accounts and
all other Deposit Accounts and Investment Property of the Debtor, as
such terms may be defined in the UCC;



29






 




	 	F.	 	General Intangibles: All general intangibles of Debtor,
whether now owned or hereafter acquired, including, but not limited
to, applications for patents, patents, copyrights, trademarks, trade
secrets, good will, tradenames, customer lists, permits and
franchises, software, all licenses of any of the foregoing and the
right to use Debtor’s name, and any and all membership interests,
governance rights, and financial rights in each and every limited
liability company, and all payment intangibles and all other General
Intangibles of the Debtor, as such term may be defined in the UCC;
	 
	 	G.	 	Chattel Paper: All Chattel Paper of the Debtor, whether
tangible or electronic, as such term may be defined in the UCC;
	 
	 	H.	 	Supporting Obligations, Embedded Software, etc.: All of
Debtor’s rights, whether now existing or hereafter acquired, in
promissory notes, documents, embedded software, letter of credit
rights and supporting obligations (and security interests and liens
securing them) as such terms may be defined in the UCC; and



together with all substitutions and replacements for and products of any of the
foregoing property to which Debtor has title and proceeds of any and all of the
foregoing property together with (i) all accessories, attachments, parts,
equipment, accessions and repairs and embedded software now or hereafter
attached or affixed to or used in connection with any such goods, (ii) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods, and (iii) all books and records of Debtor
related to the Collateral.


          2. Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:




		
	 	     2.1. Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the state of Minnesota, and the state of
Minnesota has been Debtor’s state of organization since the date of
Debtor’s organization. Debtor has full power and authority to execute
this Agreement, to perform Debtor’s obligations hereunder and to subject
the Collateral to the Security Interest. Debtor’s taxpayer
identification number is the number shown at the beginning of this
Agreement. Debtor’s organizational identification number is the number
shown at the beginning of this Agreement.




		
	 	     2.2. Debtor’s chief place of business is, and has been for the five
years preceding the date of this Agreement, located at the address shown
at the beginning of this Agreement. Debtor’s records concerning its
accounts and contract rights are kept at such address. The Collateral is
located at the address shown at the beginning of this Agreement and 24
Rue du President Wilson, 92300 Levallois-Perret, France. All Collateral
has been located at the address shown at the beginning of this Agreement
or at 24 Rue du President Wilson, 92300 Levallois-Perret, France, for the
five years prior to execution of this Agreement. Debtor will give at
least 30 days’ advance written notice to Secured Party of any change in
Debtor’s jurisdiction of organization or chief place of business and any
change in or addition of any Collateral location. Debtor will take all



30






 







		
	 	such actions as Secured Party may reasonably request to permit
Secured Party to establish and perfect the Security Interest in all
jurisdictions Secured Party deems necessary, including but not limited to
the execution, delivery or endorsement of any and all instruments,
documents, assignments, security agreements and other agreements and
writings that Secured Party may at any time reasonably request in order
to secure, protect, perfect or enforce the Security Interest and Secured
Party’s rights under this Agreement.




		
	 	     2.3. Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral
free and clear of all security interests, liens and encumbrances except
those related to Senior Indebtedness (defined below). Debtor will keep
all Collateral free and clear of all security interests, liens and
encumbrances except the Security Interest and those related to the Senior
Indebtedness, and will defend the Collateral against all claims or
demands of all persons other than Secured Party and the holders of Senior
Indebtedness. Debtor will promptly pay or properly and timely contest
all taxes and other governmental charges levied or assessed upon or
against any Collateral or upon or against the creation, perfection or
continuance of the Security Interest.




		
	 	     2.4. Until the Obligations are satisfied in full, Debtor will not,
without Secured Party’s prior written consent, sell any of the Collateral
or enter into any agreement that is inconsistent with Debtor’s
obligations or Secured Party’s rights under this Agreement, except that
Debtor may sell the Collateral in the ordinary course of business so long
as such agreements are not inconsistent with Secured Party’s rights or
Debtor’s obligations under the Bridge Loan and Investment Agreement of
even date or this Agreement. Debtor further agrees that it will not take
any action, or permit any action to be taken by others under its control,
or fail to take any action, that would affect the validity of the
Collateral or enforcement of Secured Party’s rights in the Collateral.
In addition, Debtor agrees not to enter into any instruments, chattel
paper, letters of credit or other documents, including but not limited to
promissory notes, drafts, bills of exchange and trade acceptances, which
expressly prohibit assignment for security purposes.




		
	 	     2.5. This Agreement has been duly and validly authorized by all
necessary action by Debtor.




		
	 	     2.6. Debtor will keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and will, from
time to time, replace any worn, broken or defective parts thereof.




		
	 	     2.7. Debtor will at all reasonable times permit Secured Party or its
representatives to examine or inspect any Collateral, wherever located,
and to examine, inspect and copy Debtor’s books and records pertaining to
the Collateral and its business and financial condition. In the case of
an Event of Default or if in connection with Secured Party’s evaluation
of the Collateral pursuant to Section 1 of this Agreement, Secured Party
reasonably deems itself to be inadequately secured, and provided that
Secured Party keeps such information confidential, Secured Party may send
and discuss with account debtors and other obligors requests for
verifications of amounts owed to Debtor after providing Debtor with 10-days’ advanced written notice
of Secured Party’s intention to make such inquiries.



31






 







		
	 	     2.8. If Secured Party at any time so requests after the occurrence
of an Event of Default, Debtor will promptly transfer to Secured Party
any instrument, document, chattel paper, or investment properties
constituting the Collateral, duly endorsed or assigned by Debtor.




		
	 	     2.9. Debtor will keep accurate and complete records pertaining to
the Collateral and pertaining to Debtor’s business and financial
condition and submit to Secured Party such periodic reports concerning
the Collateral and Debtor’s business and financial condition as Secured
Party may from time to time reasonably request.




		
	 	     2.10. Debtor will at all times keep all tangible Collateral insured
against risks of fire (including so-called extended coverage), theft, and
such other risks and in such amounts as Secured Party may reasonably
request, with any loss payable to Secured Party to the extent of its
interest.




		
	 	     2.11. Debtor will pay when due or reimburse Secured Party on demand
for all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including all reasonable attorneys’ fees)
incurred by Secured Party in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the Security Interest
or the creation, continuance, protection, defense or enforcement of this
Agreement or any or all of the Obligations, including expenses incurred
in any litigation or bankruptcy or insolvency proceedings.




		
	 	     2.12. The Obligations have been incurred and the Collateral will be
used primarily for business purposes.




		
	 	     2.13. All rights to payment and all instruments, documents, chattel
papers and other agreements constituting or evidencing Collateral are (or
will be when arising or issued) the valid, genuine and legally
enforceable obligation, subject to no defense, set-off or counterclaim
(other than those arising in the ordinary course of business) of each
account debtor or other obligor named therein or in Debtor’s records
pertaining thereto as being obligated to pay such obligation. Debtor
will not agree to any modification, amendment or cancellation of any such
obligation without Secured Party’s prior written consent except discounts
provided by Debtor in the ordinary course of business, and except as
provided in Section 8, will not subordinate any such right to payment to
claims of other creditors of such account debtor or other obligor.




		
	 	     2.14. Debtor will promptly notify Secured Party of any material loss
of or damage to any Collateral or of any adverse change in the prospect
of payment of any material sums due on or under any instrument, chattel
paper, account or contract right constituting Collateral.



32






 







		
	 	     2.15. Debtor will from time to time execute such financing
statements as Secured Party may reasonably deem necessary in order to
perfect the Security Interest and, if any Collateral is covered by a
certificate of title, execute such documents as may be required to have
the Security Interest properly noted on a certificate of title. In
addition, Debtor authorizes Secured Party to file any financing statement
the Secured Party deems necessary, describing any liens held by Secured
Party. Such financing statements may describe the Collateral in the
same manner as described herein or may contain an indication or
description of the Collateral that describes such property in any other
manner as the Secured Party may determine, in its reasonable discretion,
is necessary to ensure the perfection of the Security Interest,
including, without limitation, describing such property as “all assets”
or “all personal property.”




		
	 	     2.16 Debtor will not use or keep any Collateral, or permit it to be
used or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance.




		
	 	     2.17. If Debtor at any time fails to perform or observe any
agreement contained in this Section 2, and if such failure shall continue
for a period of 30 calendar days after Secured Party gives Debtor written
notice thereof, Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of Debtor (or, at
Secured Party’s option, in Secured Party’s own name) and may (but need
not) take any and all other actions that Secured Party may reasonably
deem necessary to cure or correct such failure. Debtor shall pay Secured
Party on demand the amount of all monies expended and all costs and
expenses (including reasonable attorneys’ fees) incurred by Secured Party
in connection with or as a result of Secured Party’s performing or
observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate
the performance or observance by Secured Party of such agreements of
Debtor (in the event Debtor does not cure any such failure during the
above-described 30-day period), Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) Secured Party, or its delegate,
as the attorney-in-fact of Debtor with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of Debtor, any and all instruments,
documents, financing statements, and other agreements and writings
required to be obtained, executed, delivered or endorsed by Debtor under
this Section 2.



            3. Account Verification and Collection Rights of Secured Party. Secured
Party shall have the right to verify any accounts in the name of Debtor or in
Secured Party’s own name; and Debtor, whenever requested pursuant to the terms
of this Section, shall furnish Secured Party with duplicate statements of the
accounts, which statements may be mailed or delivered by Secured Party for that
purpose. Secured Party may at any time (whether before or after the occurrence
of an Event of Default) notify any account debtor, or any other person
obligated to pay any amount due, that such chattel paper, account, or other
right to payment has been assigned or transferred to Secured Party for security
and shall be paid directly to Secured Party. If Secured Party so requests at
any time (whether before or after the occurrence of an Event of Default),
Debtor will so notify such account debtors and other obligors in writing and
will




33






 





indicate on all invoices to such account debtors or other obligors that the
amount due is payable directly to Secured Party. At any time after Secured
Party or Debtor gives such notice to an account debtor or other obligor,
Secured Party may (but need not), in Secured Party’s own name or in Debtor’s
name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such chattel paper,
account, or other right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor.


            4. Events of Default. The occurrence of any of the following shall, at
the option of the Secured Party, be an Event of Default:




		
	 	     A. Any “Event of Default” (as defined in such agreement) by Debtor
under any note or any other agreement evidencing the Obligations;




		
	 	     B. Debtor’s failure to comply with any representation, warranty or
covenant hereunder if not cured within thirty (30) days after written
notice;




		
	 	     C. Transfer or disposition of any of the Collateral, except as
permitted by this Agreement; or




		
	 	     D. Attachment, execution or levy on any of the Collateral.



            5. Remedies upon Event of Default. Upon the occurrence of an Event of
Default and at any time thereafter, Secured Party may exercise any one or more
of the following rights and remedies:




		
	 	     5.1. declare all Obligations to be immediately due and payable,
which shall then be immediately due and payable, without presentment or
other notice or demand;




		
	 	     5.2. exercise and enforce any or all rights and remedies available
upon default to a secured party under the Uniform Commercial Code,
including but not limited to the right to take possession of any
Collateral, proceeding without judicial process if permitted by law or by
judicial process, and the right to use, sell, lease or otherwise dispose
of any or all of the Collateral, and in connection therewith, Secured
Party may require Debtor to make the Collateral available to Secured
Party at a place to be designated by Secured Party that is reasonably
convenient to both parties, and if notice to Debtor of any intended
disposition of Collateral or any other intended action is required by law
in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.2) at least 10
business days prior to the date of intended disposition or other action;
or




		
	 	     5.3. exercise or enforce any or all other rights or remedies
available to Secured Party by law or agreement against the Collateral,
including specifically the right to use the Collateral, against Debtor or
against any other person or property.



34






 






All rights and remedies of Secured Party shall be cumulative and may be
exercised singularly or concurrently, at Secured Party’s option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other.


          6. Other Personal Property. Unless at the time Secured Party takes
possession of any tangible Collateral, or within seven days thereafter, Debtor
gives written notice to Secured Party of the existence of any goods, papers or
other property of Debtor, not affixed to or constituting a part of such
Collateral, but which are located or found upon or within such Collateral,
Secured Party shall not be responsible or liable to Debtor for any action taken
or omitted by or on behalf of Secured Party with respect to such property
without actual knowledge of the existence of any such property or without
actual knowledge that it was located or to be found upon or within such
Collateral.



          7. Assignment of Insurance. Debtor hereby assigns to Secured Party, as
additional security for the payment of the Obligations, any and all moneys
(including but not limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Debtor under or
with respect to, any and all policies of insurance covering the Collateral, and
Debtor hereby directs the issuer of any such policy to pay any such moneys
directly to Secured Party in the event of an Event of Default. Both before and
after the occurrence of an Event of Default, Secured Party may (but need not),
in Secured Party’s own name or in Debtor’s name, execute and deliver proofs of
claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or
release any claim against the issuer of any such policy.



          8. Subordination. The term “Senior Indebtedness” shall mean all principal
of (and premium of, if any) and unpaid interest on all indebtedness of the
Debtor, and with respect to which the Debtor is a guarantor (but excluding
indebtedness guaranteed solely for the benefit of officers, directors,
employees or consultants of the Debtor), and except as provided to the contrary
herein, regardless of whether incurred on, before or after the date of the
Note: (i) for money borrowed from any bank, insurance company, or other
lending institution regularly engaged in the business of lending money, whether
or not secured, including, without limitation, Itasca Business Credit, Inc.;
(ii) indebtedness incurred in connection with the acquisition or lease of
capital equipment; and (iii) in connection with any deferral, renewal or
extension of any indebtedness described in (i) or (ii) above or any debentures,
notes, or other evidence of the Debtor’s indebtedness issued in exchange for
indebtedness described in (i) or (ii) above. The Debtor covenants and agrees
and the Secured Party covenants, expressly for the benefit of the present and
future holders of Senior Indebtedness, that this security interest and the
payment of the principal and the interest on the Note is expressly subordinated
in right of payment to the payment in full of all principal and interest of
Senior Indebtedness of the Debtor.



          9. Miscellaneous.




		
	 	     9.1. This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly in
a writing signed by Secured Party. A waiver signed by Secured Party
shall be effective only in the specific



35






 







		
	 	instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of Secured
Party’s rights or remedies.




		
	 	     9.2. All notices to be given to Debtor shall be deemed sufficiently
given if delivered or mailed by registered or certified mail, postage
prepaid, to Debtor at its address set forth above or at such other
address as Debtor may subsequently provide to Secured Party.




		
	 	     9.3. Secured Party’s duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safekeeping such Collateral or,
in the case of Collateral in the custody or possession of a bailee or
other third person, exercises reasonable care in the selection of the
bailee or other third person, and Secured Party need not otherwise
preserve, protect, insure or care for any Collateral. Secured Party
shall not be obligated to preserve any rights Debtor may have against
prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any
particular order of application.




		
	 	     9.4. This Agreement shall be binding upon and inure to the benefit
of Debtor and Secured Party and their respective successors and assigns
and shall take effect when signed by Debtor and delivered to Secured
Party, and Debtor waives notice of Secured Party’s acceptance hereof.




		
	 	     9.5. A carbon, photographic or other reproduction of this Agreement
or of any financing statement signed by Debtor shall have the same force
and effects as the original for all purposes of a financing statement.




		
	 	     9.6. This Agreement shall be governed by the internal laws of the
State of Minnesota. If any provision or application of this Agreement is
held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which
can be given effect and this Agreement shall be construed as if the
unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby.




		
	 	     9.7. All representations and warranties contained in this Agreement
shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations.




36






 


     ACCORDINGLY, this Agreement has been duly executed by the parties as of
the date first set forth above.



	 	 	 	 	 	 	 
	 	 	MAKEMUSIC! INC.
	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 
	 	 	 	

	 	 	 	Its:
	 	 	 	 	
	 
	 	 	 	 	 	 	 
	 	 	SECURED PARTY:
	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 
	 	 	 	

	 	 	 	
	, as Agent for the Creditors



37






 



ATTACHMENT A




	 	 	 	 	 
	Name and Address of Creditor	 	Principal	 	Date of Note
	
	 	
	 	






38