THE NUTS, BOLTS AND WIDGETS

Transcription

1 THE NUTS, BOLTS AND WIDGETS OF ASSET-BASED LENDING Presented by the American Bar Association Business Law Section, Young Lawyers Division, Standing Committee on Paralegals and Center for Professional Development

2 American Bar Association Center for Professional Development 321 North Clark Street, Suite 1900 Chicago, IL CDs, DVDs, ONLINE COURSES, DOWNLOADS, and COURSE MATERIALS ABA self-study products are offered in a variety of formats. Find our full range of options at Discuss This Course Online Visit to access the discussion board for this program. Discussion boards are organized by the date of the original program, which you can locate on the preceding page of these materials. The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association Business Law Section, Young Lawyers Division, Standing Committee on Paralegals or Center for Professional Development unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only American Bar Association. All rights reserved. This publication accompanies the audio program entitled The Nuts, Bolts and Widgets of Asset-Based Lending broadcast on December 9, 2014 (event code: CE1412NBW).

3 TABLE OF CONTENTS 1. Presentation Slides 2. The Nuts, Bolts and Widgets of Asset-Based Lending

4 1

5 The Nuts, Bolts and Widgets of Asset-Based Lending Tuesday, December 9, :00 PM Eastern Sponsored by the ABA Business Law Section, Young Lawyers Division, Standing Committee on Paralegals and the ABA Center for Professional Development Scott A. Lessne Program Chair and Moderator Senior Counsel Crowell & Moring LLP Washington, D.C June L. Basden Director Carruthers & Roth, P.A. Greensboro, NC Panelists C.J. Blagg General Counsel for Commercial Lending CapitalSource, a division of Pacific Western Bank Chevy Chase, MD Thomas J. Welsh Principal Brown & Welsh Meriden, CT

6 I. Overview of Asset- Based Finance Historical Antecedents Characteristics of ABL Facilities Secured v. Unsecured Lending Revolving Facility Calculating Amount of Loan Interest Rates and Fees Evergreen Nature of ABL Facilities ABL Facilities Match Borrower s Cash Needs Repayment I. Overview of Asset- Based Finance Underwriting Diligence Strength of Borrower s Collateral Examination of Books, Records and Hard Assets Asset-Based Lending Terminology Eligibility Requirements Borrowing Base Types of Asset-Based Facilities Floor Planning Factoring Securitization Other Types of Asset-Based Transactions

7 Collateral Liquidity Spectrum Most Liquid Least Liquid Cash Receivables (all types) Inventory Machinery & Equipment Real Estate II. Collateral Considerations and Related Documentation Requirements Accounts and Inventory Accounts Receivable Inventory Equipment How Defined Lending Structures Purchase Money Financing Term Loan Facility

8 II. Collateral Considerations and Related Documentation Requirements Article 9 Considerations Grant of Security Interest and Perfection/pre-filing Requirements Description of Collateral Granting of Security Interest Attachment Perfection of a Security Interest Possession/Collateral II. Collateral Considerations and Related Documentation Requirements Borrowing Base/Eligibility Requirements Borrowing Base Eligibility Eligible Accounts Eligible Inventory

9 The definitions of eligibility and borrowing base formula limitations reduce the amount of cash advances available to a borrower based on its total pool of accounts and inventory 1. Lender s will not lend dollar-for-dollar 2. Establishing a balance between collateral quality and lending level is critical and will vary from loan to loan Total Pool of Assets Perfected Security Interest Eligibility Criteria Borrowing Base Limitations Cash Advance Availability II. Collateral Considerations and Related Documentation Requirements Representations/Covenants Peculiar to ABL Facilities Collateral Accounts Inventory Equipment Clean-up Provisions Overadvance Concepts

10 II. Collateral Considerations and Related Documentation Requirements Reserves and Dilution Issues Availability Reserve Dilution Reserve Inventory Reserve Minimum Availability Reserve Rent Reserve III. Ancillary Documentation and Closing Considerations Conditions Precedent to Closing Payoff and Termination Letters Timing and Notice to Existing Lender Release of Debt Release and Discharge of Security Bank Accounts and Checks Mechanics of Payout

11 III. Ancillary Documentation and Closing Considerations Cash Management, Deposit Control Account Agreements and Lockboxes Collateral Access Agreements Landlord Agreements Bailee, Storage, Processing and Other Third Party Waivers Subordination/Intercreditor Agreements Insurance Requirements IV. Monitoring/Administration and Enforcement Collateral Audits Bankable Loans Decline of Business Operations Decline of Collateral Value Asset-Based Loans Decline of Business Operations Decline of Collateral Value Fraud and Detection

12 IV. Monitoring/Administration and Enforcement Article 9 Repossession and Liquidation Default Commercial Reasonableness Requirement on Disposition Collection and Enforcement Against Rights to Payment Removal of Accessions and Enforcement Against Fixtures Collateral Other Enforcement Options Notices and Accountings Required Acceptance of Collateral in Full or Partial Satisfaction Deficiencies Waivers IV. Monitoring/Administration and Enforcement Bankruptcy Considerations in Enforcement by Secured Parties Automatic Stay and Relief from Stay Issues No Lien on Post-Petition Collateral Without Authorization (Bankruptcy Code 552) Use of Cash Collateral (Bankruptcy Code 363) and Adequate Protection (Bankruptcy Code 361) Preferences (Bankruptcy Code 547) Fraudulent Conveyances (Bankruptcy Code 548) Post-Petition Transfers (Bankruptcy Code 549) Setoff Restrictions (Bankruptcy Code 553) General Avoidance Powers (Bankruptcy Code 544)

13 Questions? All attendees can submit questions via the chat feature on the webinar interface

14 2

15 ABA WEBINAR The Nuts, Bolts and Widgets of Asset-Based Lending December 9, :00-2:30 PM Eastern Time PANELISTS Scott A. Lessne Program Chair and Moderator Senior Counsel Crowell & Moring LLP Washington, D.C. C.J. Blagg General Counsel for Commercial Lending CapitalSource, a division of Pacific Western Bank Chevy Chase, MD June L. Basden Director Carruthers & Roth, P.A. Greensboro, NC Thomas J. Welsh Principal Brown & Welsh Meriden, CT

16 Scott A. Lessne, Program Chair and Moderator, is a Senior Counsel in the Financial Services Group of Crowell & Moring LLP s Washington, D.C. office. Scott s practice involves the representation of financial institutions in connection with the negotiation and documentation of secured and unsecured commercial, asset-based and real estate loan restructures as well as advising clients on legal issues arising in complex single and multi-lender loan workouts and restructures. In addition, Scott advises financial institution clients on creditors rights remedies including judicial and non-judicial enforcement actions and bankruptcy strategies. Scott s practice also includes structuring, negotiating and documenting new complex commercial loan origination transactions across multiple industries. His prior experience includes tenure as the senior in-house lawyer at a major global bank responsible for providing and managing all legal services for the commercial and real estate loan workout division of the corporation. Scott has also served as the General Counsel for the healthcare finance division of a commercial finance company and more recently as the General Counsel of the finance company s regulated bank subsidiary. Prior to his in-house experience, Scott was in private practice where he developed his expertise in asset-based lending, commercial loan restructuring and creditors rights. Scott began his legal career as a law clerk to the Superior Court Judges of the State of Connecticut. Scott is a past President of the Association of Commercial Finance Attorneys, Inc. and is a Fellow and former Regent of the American College of Commercial Finance Lawyers. He recently co-chaired the ABA Commercial Finance Committee s subcommittee on Loan Documentation and is currently a member of the Commercial Finance Committee s Programs subcommittee. He has taught Secured Transactions as a member of the adjunct faculty of Suffolk University Law School. Scott is a regular speaker on topics relating to commercial finance, loan workouts, creditors' rights and bankruptcy.

17 June Basden, is a Director at the Greensboro, North Carolina law firm of Carruthers & Roth, P.A., is both an attorney and a Certified Public Accountant with more than 27 years of experience in commercial finance and banking law. She represents national, regional and community banks, financial institutions and commercial lenders in a variety of finance transactions, with a special focus on commercial lending and creditors' rights. June has extensive experience in asset-based lending, factoring and single-lender credit facilities, loan workouts and modifications, foreclosures, bankruptcies and commercial real estate transactions. She is a fellow of the American College of Commercial Finance Lawyers (ACCFL) and one of only six ACCFL fellows practicing law in North Carolina. Her clients have found her strategic counsel especially critical in the current financial landscape as she advocates for ways to achieve the best possible outcome. In 2014, June was named Best Lawyers 2014 Greensboro Banking & Finance Law Lawyer of the Year and was included in Business North Carolina magazine's 2014 "Legal Elite" in both business and bankruptcy law. June is a frequent lecturer on various aspects of secured lending transactions and bankruptcy law.

18 C.J. Blagg is the General Counsel for Commercial Lending at CapitalSource, a division of Pacific Western Bank. In this capacity, C.J. oversees all legal aspects of CapitalSource s commercial lending operations. C.J. has worked at CapitalSource since Prior to joining CapitalSource C.J. worked as a corporate finance attorney at a number of major law firms, most recently at DLA Piper. Over his career, C.J. has extensive experience representing both lenders and borrowers in a wide variety of commercial lending contexts, including, among others, assetbased lending, cash-flow lending, mezzanine and subordinated financing. C.J. received his J.D. from the University of Virginia School of Law and his B.S.F.S. from Georgetown University.

19 Thomas J. Welsh is a principal of the law firm of Brown & Welsh, P.C. located in Meriden, Connecticut. He is a Fellow and a former Regent of the American College of Commercial Finance Attorneys, a member of the American Law Institute, a member of the Executive Board of the Association of Commercial Finance Attorneys and is a member of the Connecticut Bar Association, being a member of the Executive Committee of the Commercial Law and Bankruptcy Section and Chairman of the Commercial Finance Section. He has lectured on commercial law and bankruptcy matters and written on commercial law topics. Attorney Welsh is a co-author of E. Weiss, T. Welsh & E. Yen, Connecticut Secured Transactions Under Revised Article 9 of the Uniform Commercial Code Forms and Practice Manual (2002), rev. to 2010, published by DataTrace Publishing Company and is a co-author of the 2008 revision to Chapter 5C on Letters of Credit and Negotiable Instruments of Rabkin & Johnson s Current Legal Forms With Tax Analysis published by Matthew Bender. Mr. Welsh was a member of the Connecticut Law Revision Commission advisory committee on the 1999 revision to Article 9 - Secured Transactions of the Uniform Commercial Code and was a primary proponent and spokesperson for the Connecticut Bar Association in the adoption of revised Article 9 in Connecticut. He also authored, and was the spokesperson of the Commercial Law and Bankruptcy Section of the Connecticut Bar Association in the adoption by the Connecticut General Assembly, of the 2003 technical amendments to Article 9 of the Uniform Commercial Code and related statutes. Attorney Welsh received a Citation from the Connecticut General Assembly for his work in the adoption of revised Article 9. He is also a member of the Connecticut Law Revision Commission and was the co-chair of the Advisory Committee on 2010 revisions to UCC Article 9 that were passed by the Connecticut General Assembly in He was also the co-chair of the Connecticut Law Revision Commission panel drafting a bill to adopt the Uniform Certificate of Title for Vessels Act in Connecticut, which will be pending before the Connecticut General Assembly in the 2014 session.

20 Table of Contents I. Overview of Asset-Based Finance... 1 A. Historical Antecedents...1 B. Characteristics of ABL Facilities...2 C. Underwriting Diligence...4 D. Asset-Based Lending Terminology...6 II. Collateral Considerations and Related Documentation Requirements for an Asset-Based Loan... 9 A. Accounts and Inventory...9 B. Equipment...11 C. Article 9 Considerations Grant of Security Interest and Perfection/pre-filing requirements...13 D. Borrowing Base/Eligibility Requirements...16 E. Representations and Covenants Peculiar to ABL Facilities F. Representations and covenants are made on a continuing basis and are explicitly deemed to be remade with each advance G. "Clean-up" Provisions...24 H. Overadvance Concepts...25 I. Reserves and Dilution Issues...25 III. Ancillary Documentation and Closing Considerations A. Conditions Precedent to Closing...28 B. Payoff and Termination Letters...29 C. Cash Management, Deposit Account Control Agreements and Lockboxes...30 D. Collateral Access Agreements...30 E. Subordination/Intercreditor Agreements...30 F. Insurance Requirements...31 IV. Monitoring/Administration and Enforcement A. Collateral Audits...32 B. Fraud and Detection...35 C. Article 9 Repossession and Liquidation...36 D. Bankruptcy Considerations in Enforcement By Secured Parties...41 i

21 I. Overview of Asset-Based Finance A. Historical Antecedents 1. There are several age old business problems that date back to the earliest days of organized commerce: a. businesses can be asset rich and cash poor; b. the need to expand can outstrip the ability to pay for expansion with available cash; c. sales of assets can be seasonal and/or cyclical; and d. customers want to pay on credit. 2. The earliest form of asset-based finance was probably a rudimentary form of factoring; the purchase of receivables (current claims for payments due in the future) from a seller of assets or a provider of services. 3. Over time as both legal systems and economies have become more sophisticated, the use of assets as the basis for obtaining immediate cash has grown into a multi-billion dollar global finance industry. 4. The introduction of Article 9 of the Uniform Commercial Code ( UCC9 ) in the early 1960 s created a unitary security device by which a lien on personal property could be created and perfected. 5. Since the enactment of UCC9, the asset-based finance industry has flourished, albeit with ups and downs as the financing and legal structures tend to lag behind rapid economic developments. 6. Factoring, floor planning and traditional asset-based lending were the norm throughout most of the 1960 s, 70 s and 80 s. a. The typical candidate for an asset-based finance arrangement was a small to middle-market business with cash-flow issues. b. In the eyes of a traditional bank underwriter, many of these candidates were not bankable because of their cash flow issues. c. Companies like CIT, Foothill and Barclay s, along with a myriad of other smaller specialty commercial finance shops stepped in to fill the 1

22 void, developing financial products based on the strength of a candidates assets, not its cash flow; ultimate repayment would be from the orderly or forced liquidation of assets. 7. Over time, asset-based finance products evolved as economic conditions changed. a. Securitizations became a form of high end, sophisticated asset-based product. b. Companies taking advantage of asset-based financing structures were no longer small or middle market enterprises in dire or near dire financial straits. c. Asset-based products found their way into large cap leveraged, structured and acquisition finance. d. At the height of the financial crises, Ford Motor Company obtained a multi-billion dollar asset based loan to help ease cash concerns at this asset rich company; it was the largest asset-based loan to date. B. Characteristics of ABL Facilities 1. Secured vs. Unsecured Lending a. Financing facilities not secured by any assets are deemed to be unsecured facilities. b. Financing facilities secured by a UCC9 security interest may or may not be an asset-based financing facility. i. Many commercial loan facilities are secured by personal property, but for underwriting purposes, repayment is based on the overall financial strength and cash flow of the business enterprise. ii. Asset-based financing facilities, on the other hand, while secured by personal property, look to the value of the assets for repayment. c. A typical definition of an asset-based loan may read as follows: an asset-based loan is a commercial loan that is structured so that the credit extended to the borrower is monitored in relation to the collateral that has been pledged to support the credit... [these loans] are underwritten primarily as revolving credit facilities with 2

23 borrowings limited by specific advance rates against the underlying collateral that generally consists of ever changing pools of assets such as receivables and inventory. d. Failure of the business enterprise is less relevant for the asset-based lender because of reliance on asset value rather than the financial strength of the business. e. That is not to say that the financial health of the business does not factor into asset-based underwriting; the value of certain types of collateral is directly related to the health of the industry on which it is used. For example, the value of oil rigs, the basis for many assetbased loans in the 1980s, plummeted when the US oil exploration industry collapsed. While underwriting took into account the liquidation value of the collateral, having collateral that could not be sold at any price was not an anticipated outcome. 2. Revolving Facility a. Asset-based loans typically take the form of a revolving loan facility secured by all of the borrower s personal property assets, i.e., borrower s accounts receivables, inventory, equipment or other assets. b. Revolving loans will allow a borrower to take advances on the loan when it has assets available to support an advance and will allow the loan to then be repaid as money is collected, and then re-advanced again at a later date. This allows the borrower to draw against the loan as many times as needed up to the lesser of the available borrowing base, the note amount or another established sub-limit. 3. Calculating Amount of Loan. The amount of money that a lender will advance against certain types of assets will be directly tied to the liquidity profile of the asset. MOST LIQUID LEAST LIQUID 3

24 Loan advances will be a percentage of the amount of eligible collateral available (or outstanding in the case of accounts receivable) at any particular time, with the lender establishing eligibility criteria for each asset class. 4. Interest Rates and Fees a. Interest rates and fees for asset-based facilities are typically higher than those charged by a lender for a more traditional term loan. This is primarily because the lender is taking on a greater administrative burden (e.g., in the form conducting periodic inventory or accounts receivable audits and the borrower s compliance with various ratios and covenants). 5. Evergreen Nature of ABL Facilities a. Asset-based facilities typically renew automatically from year to year unless one of the parties exercises its termination rights. As the facility revolves, it automatically adjusts to the borrower s needs (and lender s corresponding willingness to lend) because it is tied to the borrower s sales or inventory volume (assuming there is no aggregate dollar cap in the loan agreement). This is in contrast to a standard term loan, which must be repaid (or refinanced) at maturity, whether or not the borrower requires additional capital. 6. ABL Facilities Match Borrower s Cash Needs a. Loans are structured to allow borrowers to minimize interest payment by borrowing only what can be supported by the asset base. 7. Repayment C. Underwriting Diligence a. Unlike cash flow lending, the asset-based lender is counting on (i) a long-term relationship, (ii) another lender willing to refinance the loan, or (iii) liquidation value of the collateral. 1. Strength of Borrower s Collateral a. Receivables and Inventory Ratios. Unlike traditional financial statement lending, the lender s diligence in an asset-based arrangement will not focus on the borrower s liquidity, leverage, solvency and profitability ratios. Rather, diligence and willingness to lend will focus on the strength of the borrower s receivable or 4

25 inventory turnover ratios because these assets will form the collateral base from which the borrower s borrowing base can be derived. b. Implementation of Collateral Monitoring. The ability to obtain the requisite number of audits and field exams is critical to maintaining accurate and current information about the collateral. c. Collateral Accessibility. Access to the collateral post-default is key to a successful exit strategy. Impediments to access known at the underwriting stage will potentially change the lending formula. d. Local Legal Impediments. Peculiarities in the local law, both state and federal, of the jurisdiction where rights and remedies are to be exercised may have an impact on the structure of the loan and loan availability. 2. Examination of Books, Records and Hard Assets a. The lender also must conduct a thorough examination of the accounts receivable/inventory/equipment to determine if there is sufficient eligible collateral to support the borrower s stated credit needs. Such diligence typically involves an examination of the borrower s books and records as well as a field exam to count the inventory. b. The most problematic issues for an asset-based lender arise in fraud at the time the financing is entered into, or during the ongoing administration of the credit. i. Fraud can come in the nature of inventory miscounts, or can be as extreme as empty boxes of finished goods in the warehouse. ii. Receivables fraud can arise in a variety of ways: (a) falsified sales data and collection documentation (b) use of the same receivables to obtain financing from more than one lender (c) diversion of cash or collateral proceeds (d) misrepresentation of purchase orders (e) intentionally mis-aging receivables 5

26 (f) delay in collections reporting to artificially boost receivables (g) creation of fictitious receivables (h) pre-billing D. Asset-Based Lending Terminology 1. Eligibility Requirements. By nature, asset-based lending will in all cases depend on the collateral made available by the borrower. The borrower s ability to borrow against its assets will be subject to a formula which is based on the quantity and quality of its assets (i.e., receivables or inventory). Eligibility requirements will be carefully established in the loan agreement. Some requirements are generic to all loans while others are industry specific. 2. Borrowing Base. The borrowing base is the total amount available to be borrowed at a given time and is dependent upon what constitutes eligible collateral. Typically, the borrowing base serves as a mandatory prepayment trigger if the amount outstanding at any time exceeds the borrowing base, the borrower is required to pay the excess or provide additional collateral. Total Pool of Assets Perfected Security Interest Eligibility Criteria Borrowing Base Limitations 3. Types of Asset- Based Facilities 4. Floor Plan Financing a. Under a floor planning arrangement, the loans are made against the security of specific identifiable assets, usually constituting the inventory of a seller of goods. Typically such arrangements are used 6

27 5. Factoring to finance dealer inventories for items such as automobiles and home appliances. b. Although there is typically an outside date, the loan is paid off upon the sale of the subject asset. a. What is Factoring? i. Factoring is the sale or transfer of title in specific accounts receivable at a discount and is most common in the manufacturing and retail sectors. b. Factoring Arrangements i. Factors assume the credit risks relating to receivables by purchasing them without recourse, thus extending credit to their clients customers. ii. iii. Because factors bear the credit risk of the transaction, factors will require that their clients obtain approval of the amount, terms, delivery date and other conditions of each sale to a purchaser. The end-purchaser of the product is notified (typically by a legend printed on invoices) that the factor has purchased the receivables and that payments should be made directly to the factor. The borrower must immediately notify the factor of any remittances made directly to the borrower and factoring agreements typically provide that borrower holds any such funds as trustee for the benefit of the factor. 6. Securitization a. Securitizations take the form of a sale of receivables to the lender, typically on a batch basis (i.e., a certain number of receivables at specified intervals), rather than a loan secured by the borrower s receivables. b. The borrower retains the obligation to collect on the receivables and settles up with the lender at specified intervals. 7

28 c. Securitizations are known as off balance sheet financing, in that the arrangement, from an accounting perspective, is structured as a sale rather than a loan. 7. Other Types of Asset-Based Transactions a. equipment leasing b. purchase of chattel paper, payment intangibles, promissory notes 8

29 II. Collateral Considerations and Related Documentation Requirements for an Asset-Based Loan A. Accounts and Inventory 1. Accounts Receivable. While there are other types of properties that can be the "assets" in asset based loans, accounts receivable and inventory are most often considered appropriate collateral. The frequent borrowings and repayments of asset based loans depend on the liquidity of accounts receivables and inventory. a. What is an account receivable or account? The Uniform Commercial Code ("UCC") defines Account as follows: "Account"... means a right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State. The term includes health-careinsurance receivables. The term does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card (a)(2) b. Borrowers generally use accounts receivable financing when there is a mismatch between collection of receivables (sources of cash) and expenditures necessary to conduct the business, such as payroll and replenishment of inventory. Today more companies delay payment of receivables to stretch their own cash flow, which can hamper a growing business. But cash shortages don't always indicate a thriving 9

30 2. Inventory business. Cash flow shortages can also be early warning signs of a failing business. The lender must have done its due diligence and know where on the spectrum the borrower lies. See Section IV below for further discussion. a. What is inventory? The UCC defines Inventory as follows: "Inventory" means goods, other than farm products, which: (A) (B) (C) (D) are leased by a person as lessor; are held by a person for sale or lease or to be furnished under a contract of service; are furnished by a person under a contract of service; or consist of raw materials, work in process, or materials used or consumed in a business (a)(48) b. Because inventory is a subset of goods, then we must determine what "goods" are. i. "Goods" means all things that are movable when a security interest attaches. The term includes (i) fixtures, (ii) standing timber that is to be cut and removed under a conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes, and (v) manufactured homes. The term also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if (I) the program is associated with the goods in such a manner that it customarily is considered part of the goods, or (ii) by becoming the owner of the goods, a person acquires a right to use the program in connection with the goods. The term does not include a computer program embedded in goods that consist solely of the medium in which the program is embedded. The term also does not include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of credit, money, or oil, gas, or other minerals before extraction. 10