10x Geno, Inc. borrowed money from Silcon Valey Bank. The bank recently collapsed. We are dealingwith lending decisions prior to the collapse, and the collapse does not seem relevant for us.

1. To get loan in 2017,Geno presented projected revenue for two years, 2018-2019. A financial covenantas part of the loan required minimum revenue [...], determined in accordance with GAAP, of at least seventy percent (70%) of Borrowers projected performance for such month. This was termed the "Minimum Revenue" covenant. So, the actual revenue for each month needed to be at least 70 percent of the projected revenue for the month.
2. To have the loan continueinto 2020, Geno would need to deliverto the Bank the 2020 projections for use in the minimum revenue covenant. Failure to deliver the projections would constitute animmediate Event of Default under this Agreement.
3. Immediately upon the occurrence and during the continuance of an Event of Default, the loan shall bear interest at a rate per annum which is five percent(5.0%) above the rate that is otherwise applicable to the loan.
4. At reasonable times,on one (1) Business Days notice(provided no noticeis required if an Eventof Default has occurred and is continuing), Bank, or its agents, shall have the right to audit and copy Geno' books. If an Event of Default has occurred and is continuing inspections and audits shall occur as often as Bank shall

determine is necessary. Inspections and audits shall be conducted at Geno expense and the charge therefor shall be One ThousandDollars ($1,000) per person per day (or such higheramount as shall represent Banks then-current standard charge for the same), plus reasonable out-of-pocket expenses.

Required:

1. What benefit does the minimumrevenue covenant have to the bank? Revenue comes in according to expectation or does not. How does having the covenant benefit the bank?
2. What is GAAP and why shouldthe revenue be determined according to GAAP?
3. What are Geno' incentives when forecasting revenue for 2020? For example, in Module 3, we saw that the Green Book was concernedwith the incentiveto be optimistic about forecasts. Are the same incentives at work here?
4. What is the benefit to the bank of having the right to audit Geno' books? I'll state that most of the time, this is satisfiedby Geno havingan auditing firm audit Geno' financial statements, and then submitting the financial statements to the bank.