Exhibit 10.6
LOAN AND SECURITY AGREEMENT
Agreement No._______________ Dated as of March 31, 1998
between
MMC/GATX PARTNERSHIP NO. 1
Four Embarcadero Center
Suite 2200
San Francisco, CA 94111
as Lender
and
PHARSIGHT CORPORATION
a California corporation
299 California Avenue, Suite 300
Palo Alto, CA 94306
as Borrower
CREDIT AMOUNT: $1,000,000
Treasury Note Maturity: 36 months
Loan Margin: 200 basis points
Commitment Termination Date: March 31, 1998
The defined terms and information set forth on this cover page are a part
of the Loan and Security Agreement, dated as of the date first written above
(this "Agreement"), entered into by and between MMC/GATX PARTNERSHIP NO. I
("Lender") and the borrower ("Borrower") set forth above. The terms and
conditions of this Agreement agreed to between Lender and Borrower are as
follows:
ARTICLE I
INTERPRETATION
1.01. Certain Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, the following terms, when used in this Agreement or
any other Operative Document, shall have the following respective meanings:
"Affiliate" means (i) any director, officer or employee of such Person,
(ii) any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person, and (iii) any Person
beneficially owning or holding 10% or more of any class of voting securities of
such Person or any corporation of which such Person beneficially owns or holds,
in the aggregate, 10% or more of any class of voting securities. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise. The term
"Affiliate," when used herein without reference to any Person, shall mean an
Affiliate of Borrower.
"Borrower's Home State" shall mean the state in which Borrower's principal
place of business is located.
"Business Day" shall mean any day other than a Saturday, Sunday or public
holiday under the laws of California, Illinois or Borrower's Home State or other
day on which banking institutions are authorized or obligated to close in
California, Illinois or Borrower's Home State.
"Claim" has the meaning given to that term in Section 10.03.
"Collateral" has the meaning given to that term in Section 5.01.
"Commitment Fee" has the meaning given to that term in Section 2.04.
"Commitment Termination Date" shall mean the date specified on the cover
page of this Agreement.
"Credit Amount" shall mean the maximum amount that Lender is committed to
lend (if the conditions specified in Schedule 3 are satisfied), which amount is
set forth following such term on the cover page of this Agreement.
"Current Assets" shall mean the aggregate amount of all of the
consolidated assets of Borrower and its Subsidiaries that would, in accordance
with GAAP, be classified on a balance sheet as current assets.
"Current Liabilities" shall mean the aggregate amount of all of the
consolidated liabilities of Borrower and its Subsidiaries that would, in
accordance with GAAP, be classified on a balance sheet as current liabilities.
"Default" shall mean any event which with the passing of time or the
giving of notice or both would become an Event of Default hereunder.
"Default Rate" shall mean the per annum rate of interest equal to the
higher of (i) 15% or (ii) the Prime Rate plus 4%, but such rate shall in no
event be more than the highest rate permitted by applicable law.
"Disclosure Schedule" has the meaning set forth in the definition of the
term "Permitted Liens."
"Environmental Law" shall mean the Resource Conservation and Recovery Act
of 1987, the Comprehensive Environmental Response, Compensation and Liability
Act, and any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree (in each case
having the force of law) regulating or imposing liability or standards of
conduct concerning any Hazardous Material, as now or at any time hereafter in
effect.
"Equity Securities" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
"Event of Default" has the meaning given to that term in Section 9.01.
"Funding Date" shall mean the date on which the Loan is made to or on
account of Borrower under this Agreement.
"GAAP" shall mean generally accepted accounting principles and practices
as in effect in the United States of America from time to time, consistently
applied.
"Hazardous Material" means any hazardous, dangerous or toxic constituent
material, pollutant, waste or other substance, whether solid, liquid or gaseous,
which is regulated by any federal, state or local governmental authority.
"Indebtedness" shall mean, with respect to Borrower or any Subsidiary, the
aggregate amount of, without duplication, (a) all obligations of such Person for
borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (excluding
trade payables aged less than 180 days), (d) all capital lease obligations of
such Person, (e) all obligations or liabilities of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed, (f) all obligations or liabilities of others guaranteed by such Person;
and (g) any other obligations or liabilities which are required by GAAP to be
shown as debt on the balance sheet of such Person. Unless otherwise indicated,
the term "Indebtedness" shall include all Indebtedness of Borrower and the
Subsidiaries.
"Intellectual Property" shall mean all of Borrower's right, title and
interest in and to patents, patent rights (and applications therefor),
trademarks and service marks (and applications and registrations therefor),
inventions, copyrights, mask works (and applications and registrations
therefor), trade names, trade styles, software and computer programs, trade
secrets, methods, processes, know how, drawings, specifications, descriptions,
and all memoranda, notes, and records with respect to any research and
development, all whether now owned or subsequently acquired or developed by
Borrower and whether in tangible or intangible form or contained on magnetic
media readable by machine together with all such magnetic media.
"Investments"of any Person shall mean any loan or advance of funds by such
Person to any other Person (other than advances to employees of such Person for
moving and travel expense, drawing accounts and similar expenditures in the
ordinary course of business), any purchase or other acquisition of any Equity
Securities or Indebtedness of any other Person, any capital contribution by such
Person to or any other investment by such Person in any other Person (including,
without limitation, any Indebtedness incurred by such Person of the type
described in clauses (a) and (b) of the definition of "Indebtedness" on behalf
of any other Person); provided, however, that Investments shall not include
accounts receivable or other indebtedness owed by customers of such Person which
are current assets and arose from sales or non-exclusive licensing in the
ordinary course of such Person's business or the endorsement of negotiable
instruments for deposit or collection in the ordinary course of such Person's
business.
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"Lien" shall mean any pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.
"Loan" shall mean the loan advanced by Lender to Borrower under this
Agreement.
"Loan Margin" shall mean the number of basis points set forth following
such term on the cover page of this Agreement.
"Loan Rate" shall mean, with respect to the Loan, the per annum rate of
interest equal to the sum of (a) the U.S. Treasury note rate of a term equal to
the Treasury Note Maturity as quoted in The Wall Street Journal on the date the
applicable Note is prepared, plus (b) the Loan Margin.
"Note"shall mean the secured promissory note of Borrower substantially in
the form of Exhibit A.
"Obligations" has the meaning given to that term in Section 5.01.
"Operative Documents" shall mean this Agreement, the Note, the Warrant,
the Landlord Waiver and Consent(s) and all other documents, instruments and
agreements executed and delivered in connection herewith or therewith or in
respect of the closing of the transactions contemplated hereby or thereby.
"Payment Date" means the first Business Day of each calendar month.
"Permitted Indebtedness" shall mean and include:
1. Indebtedness of Borrower to Lender;
2. Indebtedness of Borrower secured by Liens permitted under clause
(e) of the definition of Permitted Liens;
3. Indebtedness existing on the date hereof and set forth on the
Disclosure Schedule;
4. Subordinated Indebtedness;
5. Prepaid royalties and deferred revenue in connection with prepaid
support services;
6. Indebtedness to a seller incurred in connection with a
transaction permitted under Section 7.01(f) so long as such Indebtedness
is unsecured or secured only by the property acquired in such transaction;
7. Other Indebtedness of Borrower not exceeding Two Hundred Fifty
Thousand Dollars ($250,000) at any time; and
8. Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness
described in clauses (a) through (g) above, provided that the principal
amount thereof is not increased, any Lien is limited to the property
originally covered and the terms thereof are not modified to impose more
burdensome terms upon Borrower.
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"Permitted Investments" shall mean and include:
1. Deposits with commercial banks organized under the laws of the
United States or a state thereof to the extent such deposits are fully
insured by the Federal Deposit Insurance Corporation;
2. Investments in marketable obligations issued or fully guaranteed
by the United States and maturing not more than one (1) year from the date
of issuance; and
3. Investments in open market commercial paper rated at least "A-1"
or "P-1" or higher by a national credit rating agency and maturing not
more than one (1) year from the creation thereof.
4. Investments pursuant to or arising under currency agreements or
interest rate agreements entered into in the ordinary course of business;
5. Investments consisting of deposit accounts of Borrower in which
Lender has a perfected security interest;
6. Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with,
customers or suppliers arising in the ordinary course of business;
7. Investments consisting of (i) travel advances and other employee
loans and advances in the ordinary course of business, (ii) loans to
employees, officers or directors relating to the purchase of equity
securities of Borrower, and (iii) other loans to officers and employees
(including relocation loans) approved by the Board of directors and not
exceeding $250,000 at any time outstanding;
8. Investments permitted under Borrower's current investment policy
which is attached hereto as Schedule 5 or any amendment thereto, which in
each case has been approved by Lender;
9. Investments in connection with transactions permitted under
Section 7.01(f); and
10. Other Investments aggregating not in excess of Two Hundred Fifty
Thousand Dollars ($250,000) at any time.
"Permitted Liens" shall mean (a) the Lien created by this Agreement, (b)
Liens for fees, taxes, levies, imposts, duties or other governmental charges of
any kind which are not yet delinquent or which are being contested in good faith
by appropriate proceedings which suspend the collection thereof (provided,
however, that such proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any item of equipment and that Borrower has
adequately bonded such Lien or reserves sufficient to discharge such Lien have
been provided on the books of Borrower), (c) Liens existing as of the date of
this Agreement identified on the disclosure schedule attached hereto as Schedule
2 ("Disclosure Schedule"), (d) Liens to secure payment of worker's compensation,
employment insurance, old age pensions or other social security obligations of
Borrower in the ordinary course of business of Borrower, (e) Liens upon any
equipment or other personal property acquired by Borrower after the date hereof
to secure (i) the purchase price of such equipment or other personal property or
(ii) lease obligations or indebtedness incurred solely for the purpose of
financing the acquisition of such equipment or other personal property; provided
that (A) such Liens are confined solely to the equipment or other personal
property so acquired and the amount secured does not exceed the acquisition
price thereof, and (B) no such Lien shall be created, incurred, assumed or
suffered to exist in favor of Borrower's officers, directors or shareholders
holding five percent
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(5%) or more of Borrower's Equity Securities, (f) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business which are not delinquent or remain
payable without penalty or which are being contested in good faith and by
appropriate proceedings, (g) non-exclusive licenses of Intellectual Property
entered into in the ordinary course of business and licenses, Liens or similar
arrangements entered into in connection with joint ventures or corporate
collaborations, (h) non-exclusive licenses arising out of a merger or
acquisition transaction permitted hereunder; (i) other Liens securing
obligations which do not constitute Indebtedness, which obligations do not
exceed $50,000 in the aggregate; and (j) Liens to secure Indebtedness.
"Person" shall mean and include an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited liability
company, an unincorporated association or other entity and any domestic or
foreign national, state or local government, any political subdivision thereof,
and any department, agency, authority or bureau of any of the foregoing.
"Prime Rate" shall mean the interest rate per annum publicly announced
from time to time by Bank of America NT & SA (or its successor) as its reference
rate, but such rate shall in no event be more than the highest interest rate
permitted by applicable law.
"Subordinated Indebtedness" shall mean Indebtedness subordinated to the
Obligations on terms and conditions acceptable to Lender in its sole discretion.
"Subsidiary" shall mean any corporation of which a majority of the
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly or
indirectly through Subsidiaries.
"Term" shall mean the period from and after the date hereof until the
payment or satisfaction in full of all Obligations under this Agreement and the
other Operative Documents.
"Treasury Note Maturity" shall mean the period of months set forth
following such term on the cover page of this Agreement.
"Warrant" shall mean a warrant to purchase securities of Borrower
substantially in the form of Exhibit B.
1.02. Headings. Headings in this Agreement and each of the other Operative
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.03. Plural Terms. All terms defined in this Agreement or any other
Operative Document in the singular form shall have comparable meanings when used
in the plural form and vice versa.
1.04. Construction. This Agreement is the result of negotiations among,
and has been reviewed by, Borrower and Lender and their respective counsel.
Accordingly, this Agreement shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against Borrower or
Lender.
1.05. Entire Agreement. This Agreement, together with the terms set forth
in each of the other Operative Documents, taken together, constitute and,
contain the entire agreement of Borrower and Lender and, with regard to their
respective subject matters, supersede any and all prior agreements, term sheets,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, with respect to their respective subject
matters.
1.06. Other Interpretive Provisions. References in this Agreement to
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to recitals,
articles, sections, exhibits, schedules and annexes herein and hereto
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unless otherwise indicated. References in this Agreement and each of the other
Operative Documents to any document, instrument or agreement shall include (a)
all exhibits, schedules, annexes and other attachments thereto, (b) all
documents, instruments or agreements issued or executed in replacement thereof,
and (c) such document, instrument or agreement, or replacement or predecessor
thereto, as amended, modified and supplemented from time to time and in effect
at any given time. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement or any other Operative Document shall
refer to this Agreement or such other Operative Document, as the case may be, as
a whole and not to any particular provision of this Agreement or such other
Operative Document, as the case may be. The words "include" and "including" and
words of similar import when used in this Agreement or any other Operative
Document shall not be construed to be limiting or exclusive. Unless otherwise
indicated in this Agreement or any other Operative Document, all accounting
terms used in this Agreement or any other Operative Document shall be construed,
and all accounting and financial computations hereunder or thereunder shall be
computed, in accordance with generally accepted accounting principles as in
effect in the United States of America from time to time.
ARTICLE II
THE CREDIT
2.01. Credit Facility.
(a) Commitment. On the terms and subject to the conditions hereof and
relying upon the representations and warranties herein set forth as and when
made or deemed to be made, Lender agrees to make a Loan in the principal amount
of One Million Dollars ($1,000,000).
(b) Loan Interest Rate. Borrower shall pay interest on the principal
amount of the Loan from the date of the Loan until the Loan is paid in full, at
a per annum rate of interest equal to the Loan Rate determined in accordance
with the definition of Loan Rate. The Loan Rate applicable to the Loan shall not
be subject to change in the absence of manifest error. All computations of
interest on the Loan shall be based on a year of 360 days and twelve 30 day
months. If Borrower pays interest on any Loan which is determined to be in
excess of the then legal maximum rate, then that portion of each interest
payment representing an amount in excess of the then legal maximum rate shall be
deemed a payment of principal and applied against the principal of the Loan.
(c) Payments of Principal and Interest. On each Payment Date, commencing
on April 1, 1998, and continuing for thirty-five (35) Payment Dates thereafter,
Borrower shall make equal payments of principal and interest in an amount
sufficient to fully amortize the principal and interest of the Loan in
thirty-six (36) equal payments. The payment due on April 1, 1998, shall also
include an additional interest payment for any days during the month of March
1998 that the Loan is outstanding. Payments of principal and interest on the
Loan may not be prepaid prior to the first anniversary of the date hereof and
shall be prepaid only in a minimum amount of 50% of the then outstanding
principal balance of the Loan, but in no event less than $250,000; provided,
however, that if Borrower requests that Lender consent to an acquisition which
is otherwise prohibited under Section 7.01(f) and Lender does not give its
consent thereto, Borrower may prepay the Loan in full within thirty (30) days of
such refusal to give consent.
(d) Final Payment. Borrower shall pay, in addition to the principal and
accrued interest and all other amounts due with respect to the Loan, an
additional payment or payments in the aggregate amount of $75,000 which shall be
payable (i) in full, on the last Payment Date if no part of the Loan is prepaid
or on the date of prepayment if the Loan is prepaid in full, (ii) in part, on
the date of any partial prepayment in an amount equal to 7.5% of all principal
amounts repaid (including the amount of the prepayment) since the date of the
Loan or the last prepayment, as applicable, or (iii) in part, on the last
Payment Date if the Loan has been prepaid in part, in an amount equal to the
difference between $75,000 and the aggregate amount paid pursuant to the
preceding clause (ii).
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2.02. Use of Proceeds; the Loan and the Note; Disbursement.
(a) Use of Proceeds. The proceeds of the Loan shall be used solely for
acquisition costs of transaction permitted under Section 7.01(f).
(b) The Loan and the Note. The obligation of Borrower to repay the unpaid
principal amount of and interest on the Loan shall be evidenced by the Note.
Lender may, and is hereby authorized by Borrower to, endorse on a grid annexed
to the Note appropriate notations regarding the Loan; provided, however, that
the failure to make, or an error in making, any such notation shall not limit or
otherwise affect the obligations of Borrower hereunder or under the Note.
(c) Disbursement. Subject to the satisfaction of the conditions set forth
in this Agreement, Lender shall disburse such Loan by wire transfer to Borrower
unless otherwise directed in writing by Borrower.
(d) Termination of Commitment to Lend. Notwithstanding anything to the
contrary in the Operative Documents, Lender's obligation to lend the undisbursed
portion of the Credit Amount to Borrower hereunder shall terminate on the
earlier of (i) upon notice to Borrower after the occurrence of any Event of
Default hereunder, and (ii) the Commitment Termination Date.
2.03. Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to Lender in
lawful money of the United States, in immediately available funds, at the
address for payments and in the manner specified in Section 10.05(b).
(b) Date. Whenever any payment due hereunder shall fall due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall be included in the computation of interest
or fees, as the case may be.
(c) Default Rate. If either (i) any amounts required to be paid by
Borrower under this Agreement or the other Operative Documents (including
principal or interest payable on the Loan, any fees or other amounts required to
be paid hereunder) remain unpaid after such amounts are due, or (ii) an Event of
Default has occurred and is continuing, Borrower shall pay interest on the
outstanding principal balance hereunder from the date due or from the date of
the Event of Default, as applicable, until such past due amounts are paid in
full or until all Events of Defaults are cured, as applicable, at a per annum
rate equal to the Default Rate, such rate to change from time to time as the
Prime Rate shall change. All computations of such interest at the Default Rate
shall be based on a year of 360 days and twelve 30 day months.
2.04. Commitment Fee. Lender has received a commitment fee from Borrower
in the amount of $5,000 (the "Commitment Fee"). Any portion of the Commitment
Fee not utilized to pay Lender's expenses in connection with the negotiation,
documentation and funding of the Loan will be applied by Lender to amounts due
under the Note in the order in which such amounts are due. If the Loan is not
made, any remaining balance of the Commitment Fee shall be retained by Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01. Representations and Warranties. Except as set forth in the
Disclosure Schedule, Borrower makes the following representations and warranties
to Lender as of the date hereof and again on the Funding Date:
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(a) Organization and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and is duly qualified to do business in Borrower's Home State.
(b) Authority. Borrower has all necessary corporate power, authority and
legal right and has obtained all approvals and consents and has given all
notices necessary to execute and deliver this Agreement and the other Operative
Documents and to perform the terms hereof and thereof. Borrower has all
requisite corporate power and authority to own and operate its properties and to
carry on its businesses as now conducted.
(c) Conflict with Other Instruments, etc. Neither the execution and
delivery of any Operative Document to which Borrower is a party nor the
consummation of the transactions therein contemplated nor compliance with the
terms, conditions and provisions thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the charter or the
bylaws of Borrower or, to its knowledge, any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or
any of its properties is bound or to which it or any of its properties is
subject, or constitute a default thereunder or result in the creation or
imposition of any Lien, other than Permitted Liens.
(d) Title to Properties. Borrower has good and marketable title to the
Collateral, free and clear of all Liens, other than Permitted Liens. Borrower
has title and ownership of, or is licensed under, all Intellectual Property,
with no known infringement of the rights of others. Neither the Chief Executive
Officer nor Chief Financial Officer of Borrower is aware of receipt by Borrower
of any communications alleging that Borrower has violated, or by conducting its
business as proposed, would violate any proprietary rights of any other Person.
Neither the Chief Executive Officer nor Chief Financial Officer of Borrower is
aware of any infringement or violation by it of the intellectual property rights
of any third party and has no knowledge of any violation or infringement by a
third party of any of its Intellectual Property. The Collateral and the
Intellectual Property constitute substantially all of the assets and property of
Borrower. Borrower does not own any right, title or interest in or to any real
property or motor vehicles, other than motor vehicles leased for executives as
part of a benefit arrangement and leaseholds in real property.
(e) Authorization, Governmental Approvals, etc. The execution and delivery
by Borrower of each Operative Document, the granting of the security interest in
the Collateral, the issuance of the Warrant, the issuance of the securities into
which the Warrant is exercisable, the issuance of any securities into which the
securities issuable upon exercise of the Warrant are convertible, and the
performance of the obligations herein and therein contemplated have each been
duly authorized by all necessary action on the part of Borrower. No
authorization, consent, approval, license or exemption of, and no registration,
qualification, designation, declaration or filing with, or notice to, any Person
is, was or will be necessary to (i) the valid execution and delivery of any
Operative Document to which Borrower is a party, (ii) the performance of
Borrower's obligations under any Operative Document, or (iii) the granting of
the security interest in the Collateral, except for filings in connection with
the perfection of the security interest in any of the Collateral or the issuance
of the Warrant. The Operative Documents have been or will be duly executed and
delivered and constitute or will constitute legal, valid and binding obligations
of Borrower, enforceable in accordance with their respective terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the enforcement of
creditors' rights or by general principles of equity.
(f) Litigation. There are no actions, suits, proceedings or investigations
pending or, to the knowledge of Borrower, threatened against or affecting
Borrower, or the business or any property or asset owned by it, before any court
or governmental department, agency or instrumentality which, if adversely
determined, is reasonably likely to have a material adverse effect on the
financial condition, business or operations of Borrower.
(g) Security Interest. Assuming the proper filing of one or more financing
statement(s) identifying the Collateral with the proper state and/or local
authorities, the security interests in the Collateral granted to Lender pursuant
to this Agreement (i) constitute and will continue to constitute first priority
security interests (except to the extent any other Permitted Lien existing on
the date of this Agreement may create any priority to Lender's Lien under this
Agreement) to the extent a security interest in such Collateral can be perfected
by the filing of a UCC-1 financing statement and (ii) are and will continue to
be superior and prior to the rights in the Collateral of all other creditors of
Borrower (except to the extent of such Permitted Liens).
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(h) Executive Offices. The principal place of business and chief executive
office of Borrower, and the office where Borrower will keep all records and
files regarding the Collateral, is set forth on the cover page of this
Agreement.
(i) Solvency, Etc. Borrower is Solvent (as defined below) and, after the
execution and delivery of the Operative Documents and the consummation of the
transactions contemplated thereby, Borrower will be Solvent. "Solvent" shall
mean, with respect to any Person on any date, that on such date (a) the fair
value of the property of such Person is greater than the fair value of the
liabilities (including, without limitation, contingent liabilities) of such
Person, (b) the present fair saleable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about to
engage in a business or a transaction, for which such Person's property would
constitute an unreasonably small capital.
(j) Catastrophic Events; Labor Disputes. None of Borrower or its
properties is or has been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty that could reasonably be expected to have a material
adverse effect on the financial condition, business or operations of Borrower.
There are no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements, employment
contracts or employee welfare or incentive plans to which Borrower is a party,
and there are no strikes, lockouts, work stoppages or slowdowns, or, to the best
knowledge of Borrower, jurisdictional disputes or organizing activity occurring
or threatened which could reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower.
(k) No Material Adverse Effect. No event has occurred and no condition
exists which is reasonably likely to have a material adverse effect on the
financial condition, business or operations of Borrower since December 31, 1997.
(l) Accuracy of Information Furnished. None of the Operative Documents and
none of the other certificates, statements or information furnished to Lender in
writing by an officer of Borrower in connection with the Operative Documents or
the transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading in any material respect. The Lender
recognizes that all financial projections furnished to the Lender by or on
behalf of Borrower in connection with the Operative Documents or the
transactions contemplated thereby are not to be viewed as facts and that actual
results during the period or periods covered by such projections may differ from
the projected or forecasted results.
(m) Certain Agreements of Officers, Employees and Consultants.
(i) Neither the Chief Executive Officer nor Chief Financial Officer
of Borrower is aware that any officer, employee or consultant of Borrower is in
violation of any material term of any material employment contract, proprietary
information agreement, nondisclosure agreement, noncompetition agreement, or any
other material contract or agreement or any material restrictive covenant
relating to the right of any such officer, employee or consultant to be employed
by Borrower because of the nature of the business conducted or to be conducted
by Borrower or relating to the use of trade secrets or proprietary information
of others which the Chief Executive Officer and the Chief Financial Officer
believe is likely to have a material adverse effect, and neither
9
the Chief Executive Officer nor Chief Financial Officer of Borrower is aware
that continued employment of Borrower's officers, employees and consultants
would subject Borrower to any material liability for any claim or claims arising
out of or in connection with any such material contract, agreement, or covenant.
(ii) To the knowledge of the chief executive officer of Borrower and
the chief financial officer of Borrower, no officers of Borrower, and no
employee or consultant of Borrower whose termination, either individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect, has any
present intention of terminating his or her employment or consulting
relationship with Borrower.
ARTICLE IV
REPORTING REQUIREMENTS
4.01. Furnishing Reports. Borrower shall furnish to Lender:
(a) Financial Statements. So long as Borrower is not subject to the
reporting requirements of Section 12 or Section 15 of the Securities and
Exchange Act of 1934, as amended, promptly as they are available, unaudited
monthly and audited annual financial statements of Borrower and such other
financial information as Lender may reasonably request from time to time. From
and after such time as Borrower becomes a publicly reporting company, promptly
as they are available and in any event: (i) at the time of filing of Borrower's
Form 10-K with the Securities and Exchange Commission after the end of each
fiscal year of Borrower, the financial statements of Borrower filed with such
Form 10-K; and (ii) at the time of filing of Borrower's Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three
fiscal quarters of Borrower, the financial statements of Borrower filed with
such Form 10-Q.
(b) Notice of Defaults. As soon as possible, and in any event within five
(5) Business Days after the discovery of a Default or Event of Default provide
Lender with an Officer's Certificate of Borrower setting forth the facts
relating to or giving rise to such Default or Event of Default and the action
which Borrower proposes to take with respect thereto.
(c) Miscellaneous. Such other information as Lender may reasonably request
from time to time.
ARTICLE V
GRANT OF SECURITY INTEREST
GENERAL PROVISIONS CONCERNING SECURITY
5.01. Grant of Security Interest. Borrower, in order to secure the payment
of the principal and interest with respect to the Loan made pursuant to this
Agreement, all other sums due under and in respect hereof and of the other
Operative Documents, including fees, charges, expenses and attorneys' fees and
costs and the performance and observance by Borrower of all other terms,
conditions, covenants and agreements herein and in the other Operative Documents
(all such amounts and obligations being herein sometimes called the
"Obligations"), does hereby grant to Lender and its successors and assigns, a
security interest in and to the following property (collectively, the
"Collateral"): All right, title, interest, claims and demands of Borrower in and
to:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer equipment,
office equipment, machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
10
(b) All inventory now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles, (except to the
extent included within the definition of Intellectual Property), now owned or
hereafter acquired, including, without limitation, goodwill, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer disks, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods, the licensing of technology or the rendering
of services by Borrower (subject, in each case, to the contractual rights of
third parties to require funds received by Borrower to be expended in a
particular manner), whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's books relating to any of the
foregoing;
(e) All documents, cash, deposit accounts, letters of credit,
certificates of deposit, instruments, chattel paper and investment property,
including, without limitation, all securities, whether certificated or
uncertificated, security entitlements, securities accounts, commodity contracts
and commodity accounts, and all financial assets held in any securities account
or otherwise, wherever located, now owned or hereafter acquired and Borrower's
books relating to the foregoing;
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof,
including, without limitation, insurance, condemnation, requisition or similar
payments and proceeds of the sale or licensing of Intellectual Property to the
extent such proceeds no longer constitute Intellectual Property
Notwithstanding the foregoing, in no event shall Collateral include any
Intellectual Property.
5.02. Duration of Security Interest. Lender's security interest in the
Collateral shall continue until the payment in full and the satisfaction of all
Obligations, whereupon such security interest shall terminate. Lender, upon
payment in full and the satisfaction of the Obligations, shall execute such
further documents and take such further actions as may be necessary to effect
the release and/or termination contemplated by this Section 5.02, including duly
executing and delivering termination statements for filing in all relevant
jurisdictions.
5.03. Possession of Collateral. Except as set forth in Section 5.04, so
long as no Event of Default has occurred and is continuing, Borrower shall
remain in full possession, enjoyment and control of the Collateral (except only
as may be otherwise required by Lender for perfection of its security interest
therein) and to manage, operate and use the same and each part thereof with the
rights and franchises appertaining thereto; provided, however, that the
possession, enjoyment, control and use of the Collateral shall at all times be
subject to the observance and performance of the terms of this Agreement.
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5.04 Location of Collateral. The Collateral is and shall remain in the
possession of Borrower at Borrower's addresses stated on the cover page of this
Agreement, 425 Sherman Ave., Suite 210, Palo Alto, CA 94306 and 5625 Dillard
Road, Suite 215, Cary, North Carolina 27511.
5.05 Lien Subordination. Lender agrees that the Liens granted to it
hereunder shall be subordinate to the Liens of existing and future lenders
providing equipment financing and equipment lessors; provided that such Liens
are confined solely to the equipment so financed and the proceeds thereof; and
provided, further, that the Obligations hereunder shall not be subordinate in
right of payment to any obligations to other lenders or equipment lessors and
Lender's rights and remedies hereunder shall not in any way (except to the
extent resulting from Lien subordination) be subordinate to the rights and
remedies of any such lenders or equipment lessors. Lender agrees to execute and
deliver such agreements and documents as may be reasonably requested by Borrower
from time to time which set forth the lien subordination described in this
Section 5.05 and are reasonably acceptable to Lender. Lender shall have no
obligation to execute any agreement or document which would impose obligations,
restrictions or lien priority on Lender which are less favorable to Lender than
those described in this Section 5.05.
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01. Affirmative Covenants.
(a) Payment of Taxes, etc. Borrower shall pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon any of its properties; provided that there shall be no
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize any
Collateral or (ii) for which payment in full is bonded or reserved in Borrower's
financial statements.
(b) Inspection Rights. Subject to the confidentiality provisions of
Section 10.14, Borrower shall, at any reasonable time and from time to time, but
no more than twice per year except during the occurrence and continuation of an
Event of Default, permit Lender or any of its agents or representatives to
inspect the Collateral, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, Borrower and to
discuss the affairs, finances and accounts of Borrower with any of its officers
or directors relating in each case to Lender's capacity as lender and secured
party hereunder and with respect to the Collateral.
(c) Maintenance of Equipment and Similar Assets. Borrower shall keep and
maintain all items of equipment and other similar types of personal property
that form any significant portion or portions of the Collateral in good
operating condition and repair and shall make all necessary replacements thereof
and renewals thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any such
material item of Collateral to become a fixture to real estate or an accession
to other personal property, without the prior written consent of Lender.
Borrower shall not permit any such material item of Collateral to be operated or
maintained in violation of any applicable law, statute, rule or regulation. With
respect to items of leased equipment (to the extent Lender has any security
interest in any residual Borrower's interest in such equipment under the lease),
Borrower shall keep, maintain, repair, replace and operate such leased equipment
in accordance with the terms of the applicable lease.
(d) Insurance.
(i) Borrower shall, obtain and maintain for the Term, at its own
expense, (x) "all risk" insurance against loss or damage to the Collateral, (y)
commercial general liability insurance (including contractual liability,
products liability and completed operations coverages) reasonably satisfactory
to Lender, and (z) such other insurance against such other risks of loss and
with such terms, as shall in each case be reasonably satisfactory to
12
or reasonably required by Lender (as to carriers, amounts and otherwise). The
amount of the "all risk" insurance shall be determined to Lender's reasonable
satisfaction as of each anniversary date of this Agreement and the appropriate
amount of coverage shall be put in effect on the next succeeding renewal or
inception date of such insurance.
(ii) The deductible with respect to "all-risk" insurance required by
clause (x) above and product liability insurance required by clause (y) above
shall not exceed $25,000; otherwise there shall be no deductible with respect to
any insurance required to be maintained hereunder. The amount of commercial
general liability insurance (other than products liability coverage and
completed operations insurance) required by clause (y) above shall be at least
$2,000,000 per occurrence. The amount of the products liability and completed
operations insurance required by clause (y) above shall be at least $1,000,000
per occurrence. Each "all risk" policy shall: (x) name Lender as loss payee as
its interests appear, (y) provide for each insurer's waiver of its right of
subrogation against Lender, and (z) provide that such insurance (A) shall not be
invalidated by any action of, or breach of warranty by, Borrower of a provision
of any of its insurance policies, and (B) shall waive set-off, counterclaim or
offset against Lender. Each liability policy shall (w) name Lender as an
additional insured in the full amount of Borrower's liability coverage limits
(or the coverage limits of any successor to Borrower or such successor's parent
which is providing coverage) and (x) provide that such insurance shall have
cross-liability and severability of interest endorsements (which shall not
increase the aggregate policy limits of Borrower's insurance). All insurance
policies shall (y) provide that Borrower's insurance shall be primary without a
right of contribution of Lender's insurance, if any, or any obligation on the
part of Lender to pay premiums of Borrower, and (z) shall contain a clause
requiring the insurer to give Lender at least 30 days' prior written notice of
its cancellation (other than cancellation for non-payment for which 10 days'
notice shall be sufficient). Borrower shall on or prior to the first Funding
Date and prior to each policy renewal, furnish to Lender certificates of
insurance or other evidence satisfactory to Lender that such insurance coverage
is in effect.
ARTICLE VII
NEGATIVE AND FINANCIAL COVENANTS
7.01. Negative Covenants. So long as the Obligations remain outstanding,
Borrower shall not without the prior written consent of Lender:
(a) Name; Location of Chief Executive Office and Collateral. Without
thirty (30) days prior written notice to Lender, change its chief executive
office or principal place of business or remove or cause to be removed from the
location set forth on the cover page hereof or those set forth in Section 5.04
or move any material, tangible Collateral to a location other than that set
forth on the cover page hereof or those set forth in Section 5.04.
(b) Liens on Collateral. Create, incur, assume or suffer to exist any Lien
of any kind upon any Collateral, whether now owned or hereafter acquired, except
Permitted Liens.
(c) Negative Pledge Regarding Intellectual Property. Create, incur, assume
or suffer to exist any Lien of any kind upon any Intellectual Property, whether
now owned or hereafter acquired, except Permitted Liens.
(d) Dispositions of Collateral or Intellectual Property. Convey, sell,
offer to sell, lease, transfer, exchange or otherwise dispose of (collectively,
a "Transfer") all or any part of the Collateral or Intellectual Property to any
Person, other than: (i) Transfers of inventory in the ordinary course of
business; (ii) Transfers of non-exclusive licenses and similar arrangements (or
exclusive licenses or similar arrangements for geographic regions) for the use
of the property of Borrower in the ordinary course of business; (iii) Transfers
of worn-out or obsolete equipment; (iv) expenditures of cash in the ordinary
course of business; and (v) other Transfers in the ordinary course of business
not exceeding $50,000 in the aggregate. It is expressly agreed and understood
that the ordinary course of Borrower's business includes entering into
agreements and arrangements with third parties for research, development,
manufacturing, sale or marketing of products and the licensing of Intellectual
Property in connection with such agreements and arrangements.
(e) Distributions. (i) Pay any dividends or make any distributions of
assets, Equity Securities or other obligations or securities on its Equity
Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for
value
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any of its Equity Securities (other than repurchases by cancellation of
indebtedness pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount not
to exceed $250,000); (iii) return any capital to any holder of its Equity
Securities as such; (iv) set apart any sum for any such purpose; provided,
however, that the foregoing shall not prevent Borrower from (x) paying dividends
payable solely in Common Stock; or (y) redeeming or making any payment with
respect to the Company's Series C Preferred Stock which is provided for in the
Company's Articles of Incorporation on the date hereof.
(f) Mergers or Acquisitions. Merge or consolidate with or into any other
Person or acquire all or substantially all of the capital stock or assets of
another Person or permit any Person to acquire all or substantially all of the
capital stock or assets of Borrower; provided that Borrower may enter into
transactions in connection with the acquisition of Scientific Consulting,
Incorporated ("SCI") and subsequently merge SCI into Borrower.
(g) Transactions With Affiliates. Enter into any contractual obligation
with any Affiliate or engage in any other transaction with any Affiliate,
except, in each case, upon terms at least as favorable to Borrower as an
arms-length transaction with unaffiliated Persons; provided, however, that the
Company may enter into transactions having a fair market value not to exceed
$50,000 in the aggregate without complying with the terms of this Section
7.01(g).
(h) Maintenance of Accounts. Maintain any deposit accounts or accounts
holding securities owned by Borrower except (i) accounts located at Silicon
Valley Bank and (ii) other accounts with respect to which Borrower has given
Lender thirty (30) days prior written notice and taken such actions as Lender
may reasonably request to perfect Lender's security interest in such accounts,
including without limitation executing notices to the depositary institution of
Lender's security interest and obtaining control agreements with respect to
securities accounts; provided that Borrower may maintain a securities account
with Morgan Stanley & Company for up to forty-five (45) days after the date the
Loan is made so long as Borrower is diligently attempting to obtain an agreement
from Morgan Stanley & Company which would perfect Lender's security interest in
such account.
(i) Indebtedness Payments. Prepay, redeem, purchase, defease or otherwise
satisfy in any manner prior to the scheduled repayment thereof any Indebtedness
for borrowed money (other than amounts due under this Loan Agreement or the
Note) or lease obligations, (ii) amend, modify or otherwise change the terms of
any Indebtedness for borrowed money (other than the Obligations) or lease
obligations so as to accelerate the scheduled repayment thereof or (iii) repay
any notes to officers, directors or shareholders (except those described on
Schedule 4 or if Lender has consented in advance to the terms of the repayment
of such notes).
(j) Indebtedness. Create, incur, assume or permit to exist any
Indebtedness except Permitted Indebtedness.
(k) Investments. Make any Investment except for Permitted Investments.
(l) Stock Pledges. Fail to execute and deliver to Lender a Stock Pledge
Agreement in the form of Exhibit D hereto (and comply with the perfection
requirements contained therein) with respect to the Equity Securities of any
Person acquired by Lender if such Person is not merged with and into Borrower
within thirty (30) days of the date of closing of the acquisition (or in the
case of Scientific Consulting, Incorporated by April 30, 1998).
ARTICLE VIII
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CONDITIONS PRECEDENT
8.01. Closing. At the time of execution and delivery of this Agreement,
Borrower shall have duly executed and/or delivered to Lender the items set forth
in Part I of Schedule 3.
8.02. Other Conditions. The obligation of Lender to make the Loan shall be
subject to the execution and/or delivery to Lender of each of the items set
forth in Part I of Schedule 3 and the satisfaction of by Borrower of each
condition set forth in Part II of Schedule 3.
8.03. Covenant to Deliver. Borrower agrees (not as a condition but as a
covenant) to deliver to Lender each item required to be delivered to Lender as a
condition to the Loan, if the Loan is advanced. Borrower expressly agrees that
the extension of the Loan prior to the receipt by Lender of any such item shall
not constitute a waiver by Lender of Borrower's obligation to deliver such item
(other than under clause (j) of Part I of Schedule 3 unless the Lender has
specifically requested an item under this clause).
ARTICLE IX
DEFAULT AND REMEDIES
9.01. Events of Default. An "Event of Default" shall mean the occurrence
of one or more of the following described events:
(a) Borrower shall (i) default in the payment of principal of or interest
on the Loan for five (5) days after the same is due, or (ii) default in the
payment of any expense or other amount payable hereunder or thereunder for five
(5) days after receipt of written notice from Lender that the same is due; or
(b) Borrower shall breach any provision of Section 7.01 or Section
6.01(d); or
(c) Borrower shall default in the performance of any covenant, agreement
or obligation (other than a covenant, agreement or obligation referred to in,
Section 9.01(a) or Section 9.01(b)) contained in any Operative Document (other
than the Warrant) and Borrower shall fail to cure within thirty (30) days after
receipt of written notice from Lender any default in the performance of any such
covenant, agreement or obligation contained therein; or
(d) Borrower shall have breached the terms of the Warrant; or
(e) Any representation or warranty made herein or on the Funding Date by
Borrower in any Operative Document, or any certificate or financial statement
furnished pursuant to the provisions of any Operative Document, shall prove to
have been false or misleading in any material respect as of the time made or
furnished; or
(f) Any Operative Document shall in any material respect cease to be, or
Borrower shall assert that any Operative Document is not, a legal, valid and
binding obligation of Borrower enforceable in accordance with its terms; or
(g) A default shall exist under any agreement with any third party or
parties which consists of the failure to pay any Indebtedness at maturity or
which results in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness of Borrower in an
amount in excess of Two Hundred Fifty Thousand Dollars ($250,000); or
15
(h) A proceeding shall have been instituted in a court of competent
jurisdiction seeking a decree or order for relief in respect of Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee (or similar official) of Borrower or
for any substantial part of its property, or for the winding-up or liquidation
of its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of forty-five (45) consecutive days or such court shall
enter a decree or order granting the relief sought in such proceeding; or
(i) Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian (or other similar official)
of Borrower or for any substantial part of its property, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of
any of the foregoing; or
(j) A final judgment or order for the payment of money in excess of Two
Hundred Fifty Thousand Dollars ($250,000) (exclusive of amounts covered by
insurance issued by an insurer not an Affiliate of Borrower) shall be rendered
against Borrower and the same shall remain undischarged for a period of thirty
(30) days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the property of
Borrower and such judgment, writ, or similar process shall not be released,
stayed, vacated or otherwise dismissed within thirty (30) days after issue or
levy.
9.02. Consequences of Event of Default. (a) If an Event of Default
specified under any of clauses (a) through (g) or (j) of Section 9.01 shall
occur and be continuing, Lender may (i) declare the Loan, together with interest
thereon, and all other liabilities of Borrower hereunder and under the other
Operative Documents to be immediately due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived, and (ii) terminate its commitment to make the Loan and terminate any
commitment to advance money or extend credit to or for the benefit of Borrower
pursuant to any other agreement or commitment extended by Lender to Borrower.
(b) If an Event of Default specified under clause (h) or (i) of Section
9.01 shall occur, then immediately and without notice (i) the Loan, together
with interest thereon, and all other liabilities of Borrower hereunder and under
the other Operative Documents shall automatically become due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, and (ii) Lender's commitment hereunder to make the Loan
and any other commitment of Lender to Borrower to advance money or extend credit
pursuant to any other agreement or commitment shall be terminated.
9.03. Rights Regarding Collateral. Borrower agrees that when any Event of
Default has occurred and is continuing, Lender shall have the rights, options,
duties and remedies of a secured party as permitted by law and, in addition to
and without limiting the foregoing, Lender may exercise any one or more or all,
and in any order, of the remedies herein set forth, including the following:
(a) Lender, personally or by agents or attorneys, shall have the right
(subject to compliance with any applicable mandatory legal requirements) to
require Borrower to assemble the Collateral and make it available to Lender at a
place to be designated by Lender or to take immediate possession of the
Collateral, or any portion thereof, and for that purpose may pursue the same
wherever it may be found, and may enter any of premises of Borrower, with or
without notice, demand, process of law or legal procedure, to the extent
permitted by applicable law, and search for, take possession of, remove, keep
and store the same, or use and operate or lease the same until sold. In
furtherance of Lender's rights hereunder, Borrower hereby grants to Lender an
irrevocable, non-exclusive license (exercisable without royalty or other payment
by Lender) to use, license or sublicense any patent,
16
trademark, trade name, copyright or other intellectual property in which
Borrower now or hereafter has any right, title or interest together with the
right of access to all media in which any of the foregoing may be recorded or
stored; provided, however, that such license shall only be exercisable in
connection with the disposition of Collateral upon Lender's exercise of its
remedies hereunder.
(b) Lender may, if at the time such action may be lawful and always
subject to compliance with any mandatory legal requirements, either with or
without taking possession and either before or after taking possession, without
instituting any legal proceedings whatsoever, having first given notice of such
sale by registered or certified mail to Borrower once at least ten (10) days
prior to the date of such sale, and having first given any other notice which
may be required by law, sell and dispose of the Collateral, or any part thereof,
at a private sale or at public auction, to the highest bidder, in one lot as an
entirety or in separate lots, and either for cash or on credit and on such terms
as Lender may determine, and at any place (whether or not it be the location of
the Collateral or any part thereof) designated in the notice referred to above.
To the extent permitted by applicable law, any such sale or sales may be
adjourned from time to time by announcement at the time and place appointed for
such sale or sales, or for any such adjourned sale or sales, without further
published notice, and Borrower, Lender or the holder or holders of the Note, or
of any interest therein, may bid and become the purchaser at any such sale.
(c) Lender may proceed to protect and enforce this Agreement and the other
Operative Documents by suit or suits or proceedings in equity, at law or in
bankruptcy, and whether for the specific performance of any covenant or
agreement herein contained or in execution or aid of any power herein granted;
or for foreclosure hereunder, or for the appointment of a receiver or receivers
for any real property security or any part thereof, or for the recovery of
judgment for the Obligations or for the enforcement of any other proper, legal
or equitable remedy available under applicable law.
9.04. Effect of Sale. Any sale, whether under any power of sale available
to Lender or by virtue of judicial proceedings, shall operate to divest all
right, title, interest, claim and demand whatsoever, either at law or in equity,
of Borrower in and to the property sold, and shall be a perpetual bar, both at
law and in equity, against Borrower, its successors and assigns, and against any
and all persons claiming the property sold or any part thereof under, by or
through Borrower, its successors or assigns.
9.05. Application of Collateral Proceeds. The proceeds and/or avails of
the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lender at the
time of, or received by Lender after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows:
(a) First, to the payment of reasonable costs and expenses, including all
amounts expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights or remedies,
and of all proper fees, expenses, liability and advances, including reasonable
legal expenses and attorneys' fees, incurred or made hereunder by Lender;
(b) Second, to the payment to Lender of the amount then owing or unpaid on
the Note, and in case such proceeds shall be insufficient to pay in full the
whole amount so due, owing or unpaid upon the Note, then first, to the unpaid
interest thereon, second, to unpaid principal thereof and third to the remaining
balance of the Obligations under the Note; such application to be made upon
presentation of the Note, and the notation thereon of the payment, if partially
paid, or the surrender and cancellation thereof, if fully paid;
(c) Third, to the payment of other amounts then payable to Lender under
any of the Operative Documents; and
17
(d) Fourth, to the payment of the surplus, if any, to Borrower, its
successors and assigns, or to whomsoever may be lawfully entitled to receive the
same.
9.06. Reinstatement of Rights. If Lender shall have proceeded to enforce
any right under this Agreement or any other Operative Document by foreclosure,
sale, entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely, then and in
every such case (unless otherwise ordered by a court of competent jurisdiction),
Lender shall be restored to its former position and rights hereunder with
respect to the property subject to the security interest created under this
Agreement.
ARTICLE X
MISCELLANEOUS
10.01. Modifications, Amendments or Waivers. The provisions of any
Operative Document may be modified, amended or waived only by a written
instrument signed by the parties thereto.
10.02. No Implied Waivers; Cumulative Remedies; Writing Required. No delay
or failure of Lender in exercising any right, power or remedy hereunder shall
affect or operate as a waiver thereof; nor shall any single or partial exercise
thereof or any abandonment or discontinuance of steps to enforce such a right,
power or remedy preclude any further exercise thereof or of any other right,
power or remedy. The rights and remedies hereunder of Lender are cumulative and
not exclusive of any rights or remedies which it would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of
Lender of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only in the specified instance and to the extent specifically set
forth in such writing.
10.03. Expenses; Indemnification. Borrower agrees upon demand to pay or
reimburse Lender for all liabilities, obligations and out-of-pocket expenses,
including reasonable fees and expenses of counsel for Lender, from time to time
arising in connection with the enforcement or collection of sums due under the
Operative Documents. Borrower shall indemnify, reimburse and hold Lender, each
of Lender's general partners, and each of their respective successors, assigns,
agents, officers, directors, shareholders, servants, agents and employees
harmless from and against all liabilities, losses, damages, actions, suits,
demands, claims of any kind and nature (including claims relating to
environmental discharge, cleanup or compliance), all costs and expenses
whatsoever to the extent they may be incurred or suffered by such indemnified
party in connection therewith (including reasonable attorneys' fees and
expenses), fines, penalties (and other charges of applicable governmental
authorities), licensing fees relating to any item of Collateral, damage to or
loss of use of property (including consequential or special damages to third
parties or damages to Borrower's property), or bodily injury to or death of any
person (including any agent or employee of Borrower) (each, a "Claim"), directly
or indirectly relating to or arising out of the use of the proceeds of the Loan
or otherwise, the falsity of any representation or warranty of Borrower or
Borrower's failure to comply with the terms of this Agreement or any other
Operative Document during the Term. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent or
patent) in any item of equipment included in the Collateral, (ii) any Claim for
infringement of any patent, copyright, trademark or other intellectual property
right, (iii) any Claim resulting from the presence on or under or the escape,
seepage, leakage, spillage, discharge, emission or release of any Hazardous
Materials on the premises of Borrower, including any Claims asserted or arising
under any Environmental Law, or (iv) any Claim for negligence or strict or
absolute liability in tort; provided, however, that Borrower shall not indemnify
Lender for any liability to the extent incurred by Lender as a result of
Lender's gross negligence or willful misconduct. Such indemnities shall continue
in full force and effect, notwithstanding the expiration or termination of this
Agreement. Upon Lender's written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lender, each of its
partners, and each of their respective, agents, employees, directors, officers,
shareholders, successors and assigns against any indemnified Claim described in
this Section 10.03. Borrower shall not settle or compromise any Claim against or
involving Lender without first obtaining Lender's written consent thereto, which
consent shall not be unreasonably withheld.
10.04. Certain Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
IN THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM
LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.05. Notices; Payments. (a) All notices and other communications given
to or made upon any party hereto in connection with this Agreement shall be in
writing (including telexed, telecopied or telegraphic communication) and mailed
(by certified or registered mail), telexed, telegraphed, telecopied or delivered
to the respective parties, as follows:
18
Borrower: At the address set forth on the cover page of
this Agreement.
Lender: MMC/GATX PARTNERSHIP NO. I
c/o GATX Capital Corporation
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
Telephone No.: 415-955-3200
Telecopier No.: 415-955-3493
Attention: Contract Administration
with a copy of all financial information to:
MEIER MITCHELL & COMPANY
4 Orinda Way, Suite 200B
Orinda, California 94563
or in accordance with any subsequent written direction from either party to the
other. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective when received; or in the case of
delivery by messenger or overnight delivery service, when left at the
appropriate address.
(b) Unless Lender specifies otherwise in writing, all payments shall be
made to:
GATX Capital Corporation
NationsBank
Box 198592
Atlanta, Georgia 30384-8592
Ref: Pharsight Invoice #___________
10.06. Termination. This Agreement shall terminate at the end of the Term;
provided, however, that the termination of this Agreement shall not affect any
of the rights and remedies of Lender hereunder, it being understood and agreed
that all such rights and remedies shall continue in full force and effect until
payment of all amounts owed to Lender under or in connection with the Operative
Documents, whether on account of principal, interest, fees or otherwise.
10.07. Severability. If any provision of any Operative Document is held
invalid or unenforceable to any extent or in any application, the remainder of
such Operative Document and all other Operative Documents, or the application of
such provision to different Persons or circumstances or in different
jurisdictions, shall not be affected thereby.
10.08. Survival. All representations, warranties, covenants and agreements
of Borrower contained herein or made in writing in connection herewith shall
survive the execution and delivery of the Operative Documents, the making of the
Loan hereunder, the granting of security and the issuance of the Note.
10.09. Governing Law. THIS AGREEMENT, THE OTHER OPERATIVE DOCUMENTS AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. ANY ACTION TO ENFORCE THIS AGREEMENT AGAINST BORROWER MAY BE BROUGHT
IN CALIFORNIA OR, WITH REGARD TO COLLATERAL, MAY ALSO BE BROUGHT WHEREVER SUCH
COLLATERAL IS LOCATED.
10.10. Successors and Assigns. This Agreement and the other Operative
Documents shall be binding upon and inure to the benefit of Lender, all future
holders of the Note, Borrower and their respective successors and permitted
assigns, except that Borrower may not assign or transfer its rights hereunder or
any interest herein without the prior written consent of Lender. Lender may sell
to any other financial entity (a "Participant") participation interests in
Lender's rights under this Agreement and the other Operative Documents; provided
that notwithstanding the sale of participations, Lender shall remain solely
responsible for the performance of its obligations under this Agreement, Lender
shall remain the holder of the Note for all purposes under this Agreement and
Borrower shall continue to deal solely and directly with Lender in connection
with this Agreement and the other Loan Documents. Lender may disclose the
Operative Documents and any other financial or other
19
information relating to Borrower or any Subsidiary to any potential Participant,
provided that such Participant agrees to protect the confidentiality of such
documents and information using the same measures that it uses to protect its
own confidential information.
10.11. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.12. Further Assurances. Borrower will, at its own expense, from time to
time do, execute, acknowledge and deliver all further acts, deeds, conveyances,
transfers and assurances, and all financing and continuation statements and
similar notices, reasonably necessary or proper for the perfection of the
security interest being herein provided for in the Collateral, whether now owned
or hereafter acquired.
10.13. Power of Attorney in Respect of the Collateral. Borrower does
hereby irrevocably appoint Lender (which appointment is coupled with an
interest), the true and lawful attorney-in-fact of Borrower with full power of
substitution, for it and in its name (a) to perform (but Lender shall not be
obligated to and shall incur no liability to Borrower or any third party for
failure to perform) any act which Borrower is obligated by this Agreement to
perform, (b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all rents, issues, profits, avails,
distributions, income, payment draws and other sums in which a security interest
is granted under Section 5.01 with full power to settle, adjust or compromise
any claim thereunder as fully as if Lender were Borrower itself, (c) to receive
payment of and to endorse the name of Borrower to any items of Collateral
(including checks, drafts and other orders for the payment of money) that come
into Lender's possession or under Lender's control, (d) to make all demands,
consents and waivers, or take any other action with respect to, the Collateral,
(e) in Lender's discretion, to file any claim or take any other action or
institute proceedings, either in its own name or in the name of Borrower or
otherwise, which Lender may reasonably deem necessary or appropriate to protect
and preserve the right, title and interest of Lender in and to the Collateral,
and (f) to otherwise act with respect thereto as though Lender were the outright
owner of the Collateral; provided, however, that the power of attorney herein
granted shall be exercisable only upon the occurrence and during the
continuation of an Event of Default unless in Lender's reasonable opinion and
commercially prudent judgment immediate action is necessary to preserve or
protect the Collateral. Borrower agrees to reimburse Lender upon demand for all
reasonable costs and expenses, including attorneys' fees and expenses, which
Lender may incur while acting as Borrower's attorney in fact hereunder, all of
which costs and expenses are included within the Obligations.
10.14 Confidentiality. All information (other than periodic reports filed
by Borrower with the Securities and Exchange Commission) disclosed by Borrower
to Lender in writing or through inspection pursuant to this Agreement shall be
considered confidential. Lender agrees to use the same degree of care to
safeguard and prevent disclosure of such confidential information as Lender uses
with its own confidential information, but in any event no less than a
reasonable degree of care. Lender shall not disclose such information to any
third party (other than Lender's or Lender's partner's attorneys and auditors
subject to the same confidentiality obligation set forth herein) and shall use
such information only for purposes of evaluation of its investment in Borrower
and the exercise of Lender's rights and the enforcement of its remedies under
this Agreement and the other Operative Agreements. The obligations of
confidentiality shall not apply to any information that (a) was known to the
public prior to disclosure by Borrower under this Agreement, (b) becomes known
to the public through no fault of Lender, (c) is disclosed to Lender by a third
party' having a legal right to make such disclosure, or (d) is independently
developed by Lender.
20
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
PHARSIGHT CORPORATION
By: /s/ Robin A. Kehoe
--------------------------------------------
Name: Robin A. Kehoe
------------------------------------------
Title: Chief Financial Officer
------------------------------------------
MMC/GATX PARTNERSHIP NO. I
By: Meier Mitchell & Company, as general partner
By: /s/ Patricia W. Leicher
--------------------------------------------
Name: Patricia W. Leicher
------------------------------------------
Title: Vice President
------------------------------------------
SCHEDULES
1 Funding Certificate
2 Disclosure Schedule
3 Conditions Precedent
4 Schedule of Indebtedness Payments
5 Investment Policy
EXHIBITS
A Form of Secured Promissory Note
B Form of Warrant
C Form of Opinion of Counsel
D Form of Stock Pledge Agreement
SCHEDULE 1
FUNDING CERTIFICATE
The undersigned, _________________________, being the duly elected and
acting __________________ of PHARSIGHT CORPORATION, a California corporation
("Borrower"), does hereby certify to MMC/GATX Partnership No. I, in connection
with that certain Loan and Security Agreement dated as of March 31, 1998, (the
"Loan Agreement"; with other capitalized terms used below having the meanings
ascribed thereto in the Loan Agreement) that:
1. The representations and warranties made by Borrower in Article III
of the Loan Agreement and in the other Operative Documents are true
and correct in all material respects as of the date hereof.
2. No event or condition has occurred and is continuing that would
constitute a Default or an Event of Default under the Loan Agreement
or any other Operative Document.
3. Borrower is in compliance with the covenants and requirements
contained in Articles IV, VI and VII of the Loan Agreement.
4. All conditions referred to in Article VIII of the Loan Agreement to
the making of the Loan to be made on or about the date hereof been
satisfied or waived in writing by Lender.
5. No material adverse change in the general affairs, management,
results of operations, condition (financial or otherwise) or
prospects of Borrower, whether or not arising from transactions in
the ordinary course of business, has occurred.
Dated: March 31, 1998
PHARSIGHT CORPORATION
By: ________________________________
Name: ______________________________
Title: _____________________________
SCHEDULE 2
DISCLOSURE SCHEDULE
SCHEDULE 3
CONDITIONS PRECEDENT
PART I:
At the time of execution and delivery of this Agreement, there shall also
have been duly executed and delivered to Lender:
(a) The Warrant;
(b) An opinion of counsel for Borrower, dated as of the closing date,
substantially in the form attached hereto as Exhibit C;
(c) Copies, certified by the Secretary, Assistant Secretary or Chief
Financial Officer of Borrower as of the closing date, of Borrower's
charter documents and bylaws and of all documents evidencing
corporate action taken by Borrower authorizing the execution,
delivery and performance of the Operative Documents to which
Borrower is a party, in form and substance satisfactory to Lender
and its counsel;
(d) Good standing certificate from Borrower's state of incorporation and
the state in which Borrower's principal place of business is
located, together with certificates of the applicable governmental
authorities that Borrower is in compliance with the franchise tax
laws of each such state, each dated as of a recent date;
(e) Evidence of the insurance coverage required by Section 6.01(d) of
this Agreement;
(f) Copies certified by the secretary or an assistant secretary of
Borrower, all necessary consents of shareholders and other third
parties with respect to the execution, delivery and performance of
this Agreement, the Warrant, the Note and the other Operative
Documents;
(g) Form UCC-1 Financing Statements, duly executed by Borrower, or other
documents, and Borrower shall have taken such actions, if any, as
Lender shall reasonably determine are necessary or desirable to
perfect and protect its security interest in the Collateral;
(h) Notices of Security Interest to Depository Banks in the forms
provided by Lender; and
(i) All other documents as Lender shall have reasonably requested.
PART II
On or prior to the Funding Date of the Loan, each of the items set forth
in Part I of this Schedule 3 shall have been delivered to Lender and the
following conditions shall have been satisfied or waived by Lender:
(a) Borrower shall have provided to Lender such documents, instruments
and agreements as Lender shall reasonably request to evidence the
perfection and priority of the security interests granted to Lender
pursuant to Article V;
(b) No Event of Default or Default shall have occurred and be
continuing;
(c) Borrower shall have duly executed and delivered to Lender the Note;
(d) In Lender's sole discretion, there shall not have occurred any
material adverse change in the general affairs, management, results
of operations, condition (financial or otherwise) or prospects of
Borrower, whether or not arising from transactions in the ordinary
course of business, and there shall not have occurred since the date
first written on the cover page of this Agreement any material
adverse deviation by Borrower from the business plan of Borrower
presented to and not disapproved by Lender;
(e) The representations and warranties contained in this Agreement and
the other Operative Documents to which Borrower is a party shall be
true and correct in all material respects as if made on such Funding
Date;
(f) Lender shall have received an officer's certificate attesting that
the closing of the acquisition of Scientific Consulting,
Incorporated has occurred.
(g) Each of the Operative Documents remains in full force and effect;
and
(h) The Funding Date of the Loan shall not be later than the Commitment
Termination Date.
SCHEDULE 4
INDEBTEDNESS PAYMENTS
Under a Promissory Note Dated December 17, 199_ executed in favor of Dan Weiner
an amount equal to $246,250 the first year, and $265,940 the following year
EXHIBIT A
SECURED PROMISSORY NOTE
$1,000,000 Dated: March 31, 1998
FOR VALUE RECEIVED, the undersigned, PHARSIGHT CORPORATION ("Borrower"), a
California corporation, HEREBY PROMISES TO PAY to the order of MMC/GATX
PARTNERSHIP NO. 1, a California general partnership ("Lender") the principal
amount of One Million ($1,000,000) or such lesser amount as shall equal the
outstanding principal balance of the Loan made by Lender to Borrower pursuant to
the Loan and Security Agreement referred to below (the "Loan Agreement"), and to
pay all other amounts due with respect to the Loan on the dates and in the
amounts set forth in the Loan Agreement.
Interest on the principal amount of this Note from the date of this Note
shall accrue at the Loan Rate or, if applicable, the Default Rate. The Loan Rate
for this Note is 7.68% per annum based on a year of twelve 30 day months. On
each Payment Date, commencing on April 1, 1998, and continuing for thirty-five
(35) Payment Dates thereafter, Borrower shall make a payment in an amount in the
amount of $30,990.61 which is sufficient to fully amortize the principal and
interest of the Loan in thirty-six (36) equal payments. The payment due on April
1, 1998, shall also include an additional interest payment for any days during
the month of March 1998 that the Loan is outstanding. Borrower shall pay, in
addition to the principal and accrued interest and all other amounts due with
respect to the Loan, an additional payment or payments in the aggregate amount
of $75,000 which shall be payable (i) in full, on the last Payment Date if no
part of the Loan is prepaid or on the date of prepayment if the Loan is prepaid
in full, (ii) in part, on the date of any partial prepayment in an amount equal
to 7.5% of all principal amounts repaid (including the amount of the prepayment)
since the date of the Loan or the last prepayment, as applicable, or (iii) in
part, on the last Payment Date if the Loan has been prepaid in part, in an
amount equal to the difference between $75,000 and the aggregate amount paid
pursuant to the preceding clause (ii). Payments of principal and interest on the
Loan may not be prepaid prior to the first anniversary of the date hereof and
shall be prepaid only in a minimum amount of 50% of the then outstanding
principal balance of the Loan, but in no event less than $250,000; provided,
however, that if Borrower requests that Lender consent to an acquisition which
is otherwise prohibited under Section 7.01(f) of the Loan Agreement and Lender
does not give its consent thereto, Borrower may prepay the Loan in full within
thirty (30) days of such refusal to give consent.
Principal, interest and all other amounts due with respect to the Loan,
are payable in lawful money of the United States of America to Lender as
follows: GATX Capital Corporation, P.O. Box 71316, Chicago, Illinois 60694, in
immediately available funds. The Loan made by Lender to Borrower and the
interest rate applicable thereto, and all payments made with respect thereto,
shall be recorded by Lender and, prior to any transfer hereof, endorsed on the
grid attached hereto which is part of this Note.
This Note is the Note referred to in, and is entitled to the benefits of,
the Loan and Security Agreement, dated as of March 31, 1998, between Borrower
and Lender. The Loan Agreement, among other things, (a) provides for the making
of a secured Loan by Lender to Borrower in the principal amount first above
mentioned, and (b) contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events.
This Note and the obligation of Borrower to repay the unpaid principal
amount of the Loan, interest on the Loan and all other amounts due Lender under
the Loan Agreement is secured under the Loan Agreement.
Presentment for payment, demand, notice of protest and all other demands
and notices of any kind in connection with the execution, delivery, performance
and enforcement of this Note are hereby waived.
Borrower shall pay all reasonable fees and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred by Lender in the
enforcement or attempt to enforce any of Borrower's obligations hereunder not
performed when due. This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California.
A-1
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by
one of its officers thereunto duly authorized on the date hereof.
PHARSIGHT CORPORATION
By: /s/ Robin A. Kehoe
--------------------------------------------
Name: Robin A. Kehoe
------------------------------------------
Title: CFO
-----------------------------------------
A-2
LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL
Principal Scheduled
Date Amount Interest Rate Payment Amount Notation By
---- --------- ------------- -------------- -----------
A-3
EXHIBIT B
WARRANT
EXHIBIT C
FORM OF OPINION OF COUNSEL
March 31, 1998
MMC/GATX Partnership No. I
c/o GATX Capital Corporation, Agent
Four Embarcadero Center
Suite 2200
San Francisco, California 94111
Gentlemen:
We have acted as counsel for PHARSIGHT CORPORATION (the
"Borrower") in connection with (i) the execution of the Loan and Security
Agreement of even date herewith (the "Loan") between Borrower and MMC/GATX
Partnership No. I ("Lender"), (ii) the issuance of a warrant to purchase shares
of Borrower's Series C Preferred Stock (the "Warrant") and (iii) the
transactions contemplated thereby. This opinion is being rendered to you
pursuant to Section 8.01 of the Loan Agreement. Capitalized terms not otherwise
defined in this opinion have the meaning given them in the Loan Agreement.
In connection with this opinion and our representation, we
have examined originals, or copies certified or otherwise identified to our
satisfaction, of the following:
(i) The Loan Agreement;
(ii) The Warrant and exhibits thereto dated as of March 31, 1998, issued
by Borrower to Lender;
(iii) The Note dated as of March 31, 1998;
(iv) The Restated [Certificate] [Articles] of Incorporation and the
Bylaws of Borrower, each as in effect on the date hereof;
(v) The certificate of an officer of Borrower as to certain factual
matters ("Officer Certificate");
(vi) Certificates issued by the Secretary of State of the State of
_________________________ dated _______________________, 199_____,
[and the Secretary of State of the State of ______________________,
dated _________________________, 199_____,] certifying the good
standing of Borrower;
(vi) Such other documents, records, and certificates as we have deemed
necessary or appropriate as a basis for the opinions hereafter
expressed.
The Loan Agreement, the Note and the Warrant are hereinafter referred to
as the "Transaction Documents."
In such examinations we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to originals of all documents submitted to us as certified,
facsimile, telecopied or photostatic copies thereof. As to certain matters of
fact material to our opinion, we have relied upon the Officer Certificate and
upon your representations in the Transaction Documents.
As used in this opinion, the expression "to the best of our knowledge,"
means the actual present knowledge or belief of those attorneys in our firm who
have or who are currently representing Borrower. We have not undertaken any
independent investigation to determine the existence or nonexistence of other
facts, and no inference as to our knowledge of the existence or nonexistence of
other facts should be drawn from the fact of this firm's representation of
Borrower in connection with the Transaction Documents.
Based upon and subject to the foregoing and subject to the qualifications
contained herein, we are of the opinion that:
(a) Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of California [and is duly
qualified to do business and in good standing in the State of ____________].
(b) Borrower has the requisite corporate power and authority to
execute, deliver and perform the Transaction Documents and to issue the Warrant.
All action on the part of Borrower, its directors and its shareholders necessary
for the authorization, execution, delivery and performance of the Transaction
Documents, has been taken. The Transaction Documents have been duly executed and
delivered by an authorized officer of Borrower.
(c) The execution, delivery and performance of the Transaction
Documents do not conflict with or violate any provision of Borrower's Restated
[Certificate] [Articles] of Incorporation or Bylaws or of applicable law and, to
the best of our knowledge, do not conflict with or constitute a default under
any provision of any judgment, writ, decree, order or material agreement,
indenture, or instrument to which Borrower is a party or by which it is bound.
(d) The Transaction Documents constitute legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms.
To our knowledge, no filing need be made with any governmental authority with
respect to the Transaction Documents in connection with an exemption from state
usury laws or in connection with any other matter.
(e) The Series C Preferred Stock issuable upon exercise of the
Warrant have been duly authorized and reserved for issuance upon such exercise,
and when issued in accordance with the terms of the Warrant, will be duly
authorized, validly issued, fully paid and non-assessable.
(f) The shares of Common Stock issuable upon conversion of the
Series C Preferred Stock into which the Warrant is convertible, have been duly
authorized and reserved and for issuance, when so issued in accordance with the
terms of Borrower's Restated [Certificate] [Articles] of Incorporation, will be
validly issued, fully paid and non-assessable.
The opinions set forth above are subject to the following additional
qualifications, assumptions, limitations and exceptions:
(A) The effect of bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other similar laws relating to or affecting the
rights and remedies of creditors generally.
(B) Limitations imposed by general equitable principles upon the
specific enforceability of any of the provisions of the Transaction Documents
and upon the availability of injunctive relief or other equitable remedies.
(C) We express no opinion as to the enforceability of any choice of
law provision in the documents.
(D) We express no opinion as to the compliance or noncompliance with
applicable antifraud statutes under the rules and regulations of state and
federal securities laws concerning the issuance of the Warrant.
(E) We express no opinion herein concerning any law other than the
law of the State of California, [the general corporate law of the State of
Delaware] and the federal laws of the United States of America.
This opinion is furnished to you solely for your benefit and may not be
relied upon by any other person (other than assignees of any of your rights)
without our prior written consent, which consent shall not be unreasonably
withheld or delayed.
Very truly yours,
_______________________________
EXHIBIT D
FORM OF STOCK PLEDGE AGREEMENT