Document:

Exhibit

10.26

 

LOAN AND

SECURITY AGREEMENT

 

 

SILICON

VALLEY BANK 

 

and

 

PHARSIGHT,

INC.

 

 

June 13,

2001

 

 

 

This LOAN AND SECURITY AGREEMENT

(this “Agreement”) dated June 13, 2001, between SILICON VALLEY BANK

(“Bank”) and PHARSIGHT, INC., a Delaware corporation (“Borrower”), provides the

terms on which Bank will lend to Borrower and Borrower will repay Bank. The

parties agree as follows:

 

1.             ACCOUNTING

AND OTHER TERMS

 

Accounting terms not defined in this Agreement will be construed

following GAAP. Calculations and determinations must be made following GAAP.

The term “financial statements” includes the notes and schedules. The terms

“including” and “includes” always mean “including (or includes) without

limitation” in this or any Loan Document. Capitalized terms in this Agreement

shall have the meanings set forth in Section 13. This Agreement shall be

construed to impart upon Bank a duty to act reasonably at all times.

 

2.             LOAN

AND TERMS OF PAYMENT

 

2.1          Advances.  

Borrower will pay Bank the unpaid principal amount of all Advances and

interest on the unpaid principal amount of the Advances.

 

2.1.1       Revolving

Advances.

 

(a)           Bank will make

Revolving Advances not exceeding (i) the Committed Revolving Line or the

Borrowing Base, whichever is less.   

Revolving Advances may be repaid and reborrowed during the term of this

Agreement.   Revolving Advances shall

bear interest as provided in Section 2.3(a).

 

(b)           To obtain an

Revolving Advance, Borrower must notify Bank by facsimile or telephone by 3:00

p.m. Pacific time on the Business Day the Advance is to be made. Borrower must

promptly confirm the notification by delivering to Bank the Payment/Advance

Form attached as Exhibit B.   Bank will

credit Revolving Advances to Borrower’s deposit account. Bank may make Revolving

Advances under this Agreement based on instructions from a Responsible Officer

or his or her designee or without instructions if the Revolving Advances are

necessary to meet Obligations which have become due. Bank may rely on any

telephone notice given by a person whom Bank believes is a Responsible Officer

or designee. Borrower will indemnify Bank for any loss Bank suffers due to that

reliance.

 

(c)           The Committed

Revolving Line terminates on the Revolving Maturity Date, when all Revolving

Advances are immediately payable.

 

2.1.2       Term

Loan Advances.

 

(a)           Through

June 13, 2002 (the “Term Loan Availability End Date”), Bank will make

advances (a “Term Loan Advance” and, collectively, “Term Loan Advances”) not

exceeding the Committed Term Loan.

 

(b)           Interest accrues

from the date of each Term Loan Advance at the rate set forth in Section 2.3(a)

and is payable monthly until the Term Loan Availability End Date.  Term Loan Advances outstanding on the Term

Loan Availability End Date are payable in 48 equal monthly installments of

principal, plus accrued interest, beginning on the first day of each month

following the Term Loan Availability End Date and ending on June 1, 2006 (the

“Term Loan Maturity Date”). Term Loan Advances when repaid may not be

reborrowed.

 

 

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(c)           To obtain a Term

Loan Advance, Borrower must notify Bank (the notice is irrevocable) by

facsimile no later than 3:00 p.m. Pacific time 1 Business Day before the day on

which the Term Loan Advance is to be made. The notice in the form of Exhibit B

(Payment/Advance Form) must be signed by a Responsible Officer or designee and

include a copy of the invoice for the Equipment being financed.

 

2.2          Overadvances.  

If Borrower’s Obligations under Section 2.1.1 exceed the lesser of

either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower

must immediately pay in cash to Bank the excess.

 

2.3          Interest

Rate; Payments.

 

(a)           Interest Rate.

Revolving Advances accrue interest on the outstanding principal balance at a

per annum rate of one (1.0) percentage point above the Prime Rate.   Prior to the Term Loan Availability End

Date, Term Loan Advances accrue interest on the outstanding principal balance

at a per annum rate of one and one-quarter (1.25) percentage points above the

Prime Rate.   Upon and after the Term

Loan Availability End Date, the Term Loan Advances shall accrue interest at

such floating rate or, if elected by Borrower by written notification to Bank

received by Bank at least 30 days prior to the Term Loan Availability End Date,

at a fixed per annum rate four and one-half (4.5) percentage points above the

Treasury Rate as in effect on the Term Loan Availability End Date. After an

Event of Default, Obligations accrue interest at five (5.0) percentage points

above the rate effective immediately before the Event of Default. The interest

rate increases or decreases when the Prime Rate changes. Interest is computed

on a 360 day year for the actual number of days elapsed.

 

(b)           Payments. Interest

is payable on the first day of each month. Bank may debit any of Borrower’s

deposit accounts including Account Number 3300027682 for principal and interest

payments or any amounts Borrower owes Bank. Bank will notify Borrower when it

debits Borrower’s accounts. These debits are not a set-off. Payments received

after 12:00 noon Pacific time are considered received at the opening of

business on the next Business Day. When a payment is due on a day that is not a

Business Day, the payment is due the next Business Day and additional fees or

interest accrue. The Term Loan Advances may be prepaid in whole or in part,

provided that any partial prepayments shall be applied in inverse order of

maturity, and provided further that any prepayment made as to the Term Loan

Advances after Borrower has elected that the Term Loan Advances shall bear

interest at fixed rate shall made together with the applicable Prepayment Fee.

 

2.4          Fees.  

Borrower will pay to Bank:

 

(a)           Facility Fee. A

fully earned, non-refundable facility fee consisting of: (i) 0.5% of the

$2,500,000 portion of Committed Revolving Line available at any time with

respect to Eligible Accounts which are not Eligible Foreign Accounts (i.e.,

$12,500); (ii) 0.5% of the Committed Term Loan amount of $3,500,000 (i.e.,

$17,500), for a total facility fee of $30,000 due on the Closing Date; and 

 

 

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(b)           Bank Expenses. All

Bank Expenses (including reasonable attorneys’ fees and expenses not exceeding

$7,500 plus one-half (0.50) of such fees and expenses in excess of $7,500, for

documentation and negotiation of this Agreement) incurred through and after the

Closing Date when due.

 

2.5          Additional

Costs.   If any law or regulation increases Bank’s

costs or reduces its income for any loan, Borrower will pay the increase in

cost or reduction in income or additional expense.

 

3.             CONDITIONS

OF LOANS

 

3.1          Conditions

Precedent to Initial Advance.   Bank’s

obligation to make the initial

Advance is subject to the condition precedent that it receive the

agreements, documents and fees

it requires, including, without limitation:

 

(a)           a Negative Pledge

Agreement with respect to the Intellectual Property;

 

(b)           a Tri-Party

Agreement with respect to Borrower’s securities account; and

 

(c)           an accounts

receivable audit the results of which shall have been satisfactory to Bank.

 

3.2          Conditions

Precedent to all Advances.   Bank’s

obligations to make each Advance, including the initial Advance, is subject to

the following:

 

(a)           timely receipt of

any Payment/Advance Form; and

 

(b)           the representations

and warranties in Section 5 must be materially true on the date of the

Payment/Advance Form and on the effective date of each Advance and no Event of

Default may have occurred and be continuing, or result from the Advance.   Each Advance is Borrower’s representation

and warranty on that date that the representations and warranties in Section 5

remain true.

 

4.             CREATION

OF SECURITY INTEREST

 

4.1          Grant

of Security Interest.   Borrower grants Bank a continuing

security interest in all presently existing and later acquired Collateral to

secure all Obligations and performance of each of Borrower’s duties under the

Loan Documents. Except for Permitted Liens, any security interest will be a

first priority security interest in the Collateral. Bank may place a “hold” on

any deposit account pledged as Collateral. Notwithstanding the foregoing, the

security interest granted herein does not extend to and the term “Collateral”

does not include any Intellectual Property; provided that the Collateral shall

include Intellectual Property to the extent, and only to the extent, a security

interest in any portion of the Intellectual Property is required in order to

permit Bank to hold a perfected security interest in the other Collateral,

including, without limitation, Accounts arising from the license, publication

or other exploitation of Copyrights or other Intellectual Property; provided,

further, that Borrower shall execute and deliver a Negative Pledge Agreement,

in form and substance satisfactory to Bank, with respect to the Intellectual

Property, and upon any breach thereof, the Collateral shall be deemed to

include, retroactively from the Closing Date, the Intellectual Property. If the

Agreement is terminated, Bank’s lien and security interest in the Collateral

will continue until Borrower fully satisfies its Obligations.

 

 

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4.2          Required

Cash Collateral.   In the event any financial covenant set

forth in Section 6.7 is breached, and in addition to all of Bank’s other rights

and remedies hereunder upon the occurrence of an Event of Default, Borrower

shall immediately deliver to Bank, for deposit with Bank, additional cash

collateral, in an amount of at least 105% of the then aggregate outstanding

balance of the Term Loan Advances (and increased by 105% of any subsequent Term

Loan Advances if such deposit shall occur prior to the Term Loan Availability

End Date), to be held by Bank in an interest bearing time deposit account

subject to a perfected, first priority security interest securing all

Obligations. Such cash collateral shall be released by Bank if: (a) Bank shall

have waived its other rights and remedies as to such existing financial

covenant breach or breaches and no other Event of Default has occurred and is

continuing; and (b) Bank shall have determined that Borrower is no longer in

violation of any of the financial covenants in Section 6.7 previously breached.

 

5.             REPRESENTATIONS

AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1          Due

Organization and Authorization.   Borrower and

each Subsidiary is duly existing and in good standing in its state of formation

and qualified and licensed to do business in, and in good standing in, any

state in which the conduct of its business or its ownership of property

requires that it be qualified.

 

The execution, delivery and performance of the Loan Documents have been

duly authorized, and do not conflict with Borrower’s formations documents, nor

constitute an event of default under any material agreement by which Borrower

is bound. Borrower is not in default under any agreement to which or by which

it is bound in which the default could cause a Material Adverse Change.

 

5.2          Collateral.  

Borrower has good title to the Collateral, free of Liens except

Permitted Liens. The Eligible Accounts are bona fide, existing obligations, and

the service or property has been performed or delivered to the account debtor

or its agent for immediate shipment to and unconditional acceptance by the

account debtor.    Borrower has no

notice of any actual or imminent Insolvency Proceeding of any account debtor

whose accounts are an Eligible Account in any Borrowing Base Certificate.    All Inventory is in all material respects

of good and marketable quality, free from material defects.   Borrower is the sole owner of the

Intellectual Property, except for exclusive or non-exclusive licenses granted

to its customers in the ordinary course of business, provided that any such

exclusive license limits the use and application of the licensed Intellectual

Property to specific indications and geographic regions and does not impair

Borrower’s ability to commercialize it Intellectual Property in its United

States of America business markets. 

Each Patent is valid and enforceable and no part of the Intellectual

Property has been judged invalid or unenforceable, in whole or in part, and no

claim has been made that any part of the Intellectual Property violates the

rights of any third party.

 

 

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5.3          Litigation.  

Except as shown in the Schedule, there are no actions or proceedings

pending or, to Borrower’s knowledge, threatened by or against Borrower or any

Subsidiary in which an adverse decision could cause a Material Adverse Change.

 

5.4          No

Material Adverse Change in Financial Statements.  

All consolidated financial statements for Borrower and any Subsidiary

delivered to Bank fairly present in all material respects Borrower’s

consolidated financial condition and Borrower’s consolidated results of

operations.  There has not been any

material deterioration in Borrower’s consolidated financial condition since the

date of the most recent financial statements submitted to Bank.

 

5.5          Solvency.  

The fair salable value of Borrower’s assets (including goodwill minus

disposition costs) exceeds the fair value of its liabilities; the Borrower is

not left with unreasonably small capital after the transactions in this

Agreement; and Borrower is able to pay its debts (including trade debts) as

they mature.  

 

5.6          Regulatory

Compliance.   Borrower is not an “investment company” or

a company “controlled” by an “investment company” under the Investment Company

Act. Borrower is not engaged as one of its important activities in extending

credit for margin stock (under Regulations T and U of the Federal Reserve Board

of Governors). Borrower has complied with the Federal Fair Labor Standards Act.

Borrower has not violated any laws, ordinances or rules, the violation of which

could cause a Material Adverse Change.  

None of Borrower’s or any Subsidiary’s properties or assets has been

used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by

previous Persons, in disposing, producing, storing, treating, or transporting

any hazardous substance other than legally.  

Borrower and each Subsidiary has timely filed all required tax returns

and paid, or made adequate provision to pay, all material taxes.  Borrower and each Subsidiary has obtained

all consents, approvals and authorizations of, made all declarations or filings

with, and given all notices to, all government authorities that are necessary

to continue its business as currently conducted.

 

5.7          Subsidiaries.  

Borrower does not own any stock, partnership interest or other equity

securities except for Permitted Investments.

 

5.8          Full

Disclosure.   No representation, warranty or other

statement of Borrower in any certificate or written statement given to Bank

contains any untrue statement of a material fact or omits to state a material

fact necessary to make the statements contained in the certificates or

statements not misleading.

 

6.             AFFIRMATIVE

COVENANTS

 

Borrower will do all of the following:

 

6.1          Government

Compliance.   Borrower will maintain its and all Subsidiaries’

corporate existence and good standing in its jurisdiction of incorporation and

maintain qualification in each jurisdiction in which the failure to so qualify

could have a material adverse effect on Borrower’s business or operations.

Borrower will comply, and have each Subsidiary comply, with all laws,

ordinances and regulations to which it is subject, noncompliance with which

could have a material adverse effect on Borrower’s business or operations or

cause a Material Adverse Change.

 

 

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6.2          Financial

Statements, Reports, Certificates.

 

(a)           Borrower will

deliver to Bank:   (i) at any time (X)

Liquidity is less than the product of two and one-half (2.5) multiplied by the

then aggregate outstanding balance of the Term Loan Advances, or (Y) Remaining

Month’s Liquidity is less than nine (9), then as soon as available, but no

later than 30 days after the last day of each month, a company prepared

consolidated balance sheet and income statement covering Borrower’s

consolidated operations during the period, in a form acceptable to Bank and

certified by a Responsible Officer; (ii) as soon as available, but no later

than 90 days after the end of Borrower’s fiscal year, audited consolidated

financial statements prepared under GAAP, consistently applied, together with

an unqualified opinion on the financial statements from an independent

certified public accounting firm acceptable to Bank; (iii) within 5 days of

filing, copies of all statements, reports and notices made available to

Borrower’s security holders or to any holders of Subordinated Debt and all

reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange

Commission; (iv) a prompt report of any legal actions pending or threatened

against Borrower or any Subsidiary that could result in damages or costs to

Borrower or any Subsidiary of $100,000 or more; and (v) board of directors’

approved budgets, sales projections, and/or operating plans, or such other

financial information Bank requests, and, in any event, within 30 days after

the end of Borrower’s fiscal year.

 

(b)           Within 20 days after

the last day of each month, Borrower will deliver to Bank a Borrowing Base

Certificate signed by a Responsible Officer in the form of Exhibit C, with aged

listings of accounts receivable and accounts payable.

 

(c)           Together with the

items delivered under clauses (i), (ii) and (iii) of subsection (a) above,

Borrower will deliver to Bank a Compliance Certificate signed by a Responsible

Officer in the form of Exhibit D.

 

(d)           Bank has the right

to audit Borrower’s Accounts at Borrower’s expense, but the audits will be

conducted no more often than once every six (6) months unless an Event of

Default has occurred and is continuing.

 

6.3          Inventory;  Returns.   Borrower will

keep all Inventory in good and marketable condition, free from material

defects. Returns and allowances between Borrower and its account debtors will

follow Borrower’s customary practices as they exist at the Closing Date.

Borrower must promptly notify Bank of all returns, recoveries, disputes and

claims that involve more than $50,000.

 

6.4          Taxes.  

Borrower will make, and cause each Subsidiary to make, timely payment of

all material federal, state, and local taxes or assessments and will deliver to

Bank, on demand, appropriate certificates attesting to the payment.

 

 

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6.5          Insurance.  

Borrower will keep its business and the Collateral insured for risks and

in amounts, as Bank requests. Insurance policies will be in a form, with

companies, and in amounts that are satisfactory to Bank. All property policies

will have a lender’s loss payable endorsement showing Bank as a loss payee and

all liability policies will show the Bank as an additional insured and provide

that the insurer must give Bank at least 20 days notice before canceling its

policy. At Bank’s request, Borrower will deliver certified copies of policies

and evidence of all premium payments. Proceeds payable under any policy will,

at Bank’s option, be payable to Bank on account of the Obligations.

 

6.6          Primary

Accounts; Minimum and Target Balances.   Borrower

will maintain its primary depository and operating accounts with Bank. In

addition, Borrower agrees that it shall deposit or invest through Bank (in the

sweep account or one of IPS Mutual Funds) at least one-third (1/3) of its cash

and cash equivalents (as determined pursuant to GAAP and as reflected in

Borrower’s quarterly financial statements).  

Borrower further agrees that the target balance with respect to its

sweep account shall be at least $200,000.

 

6.7          Financial

Covenants.

 

Borrower will maintain as of the last day of each quarter (or each

month if monthly reporting of Company prepared financial statements is required

under Section 6.2(a)), unless otherwise noted:

 

(a)           Quick Ratio [Adjusted].   A ratio of Quick Assets to Current

Liabilities minus Deferred Revenue of at least 1.0 to 1.0.

 

(b)           Debt/Tangible Net Worth Ratio [Adjusted].   A ratio of Total Liabilities less

Subordinated Debt less Deferred Revenue to Tangible Net Worth plus Subordinated

Debt of not more than 1.0 to 1.0.

 

(c)           Remaining Months Liquidity.   Borrower will maintain, as of the last day

of each month, at least six (6) months Remaining Months Liquidity.

 

(d)           Liquidity.   Borrower will maintain, as of the last day of each month,

Liquidity of at least twice the amount of the then outstanding aggregate

balance of the Term Loan Advances.

 

(e)           Maximum Losses.   Commencing June 30, 2001, Borrower will have net losses no more than

20% greater than the projected amounts in the “street” projections approved by

Borrower’s board of directors.

 

6.8          Registration

and Protection of Intellectual Property Rights.  

Borrower will register with the United States Copyright Office (i) any

software material to the business of Borrower it has, develops or acquires,

within 30 days of the Closing Date, and additional software rights developed or

acquired, including significant revisions, additions or improvements to the

software or revisions, additions or improvements which significantly improve

the functionality of the software, after the Closing Date before the sale or

licensing to any third party of the software or any product based on or

containing any software.   Borrower

will:    (i) protect, defend and

maintain the validity and enforceability of the Intellectual Property; (ii)

promptly advise Bank in writing of material infringements of the Intellectual

Property; and (iii) not allow any Intellectual Property to be abandoned,

forfeited or dedicated to the public without Bank’s written consent.

 

 

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6.9          Further

Assurances.   Borrower will execute any further

instruments and take further action as Bank requests to perfect or continue

Bank’s security interest in the Collateral or to effect the purposes of this

Agreement.

 

7.             NEGATIVE

COVENANTS

 

Borrower will not do any of the following without the Bank’s written

consent, which will not be unreasonably withheld:

 

7.1          Dispositions.  

Convey, sell, lease, transfer or otherwise dispose of (collectively a

“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of

its business or property, other than a Transfer (i) of Inventory in the

ordinary course of business; (ii) of exclusive or non-exclusive licenses and

similar arrangements for the use of the property of Borrower or its

Subsidiaries in the ordinary course of business so long as any exclusive

licenses limits the use and application to specific indications and geographic

regions and does not impair Borrower’s ability to utilize its assets in its

United States business market; or (iii) of worn-out or obsolete Equipment.

 

7.2          Changes

in Business, Ownership, Management or Business Locations.  

Engage in or permit any of its Subsidiaries to engage in any business

other than the businesses currently engaged in by Borrower or have a change in

its ownership or management. Borrower will not, without at least 30 days prior

written notice to Bank, relocate its principal executive office or add any new

offices or business locations.

 

7.3          Mergers

or Acquisitions.   Merge or consolidate, or permit any of its

Subsidiaries to merge or consolidate, with any other Person, or acquire, or

permit any of its Subsidiaries to acquire, all or substantially all of the

capital stock or property of another Person.  

A Subsidiary may merge or consolidate into another Subsidiary or into

Borrower.

 

7.4          Indebtedness.  

Create, incur, assume, or be liable for any Indebtedness, or permit any

Subsidiary to do so, other than Permitted Indebtedness.

 

7.5          Encumbrance.  

Create, incur, or allow any Lien on any of its property, or assign or

convey any right to receive income, including the sale of any Accounts, or

permit any of its Subsidiaries to do so, except for Permitted Liens, or permit

any change in the priority of Bank’s first priority security interest in the

Collateral.

 

7.6          Investments;

Distributions.   (i) Directly or indirectly acquire or own

any Person, or make any Investment in any Person, other than Permitted Investments,

or permit any of its Subsidiaries to do so; or (ii) pay any dividends or make

any distribution or payment or redeem, retire or purchase any capital stock.

 

7.7          Transactions

with Affiliates.   Directly or indirectly enter or permit any

material transaction with any Affiliate, except transactions that are in the

ordinary course of Borrower’s business, on terms less favorable to Borrower

than would be obtained in an arm’s length transaction with a non-affiliated

Person.

 

 

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7.8          Subordinated

Debt.   Make or permit any payment on any

Subordinated Debt, except under the terms of the Subordinated Debt, or amend

any provision in any document relating to the Subordinated Debt without Bank’s

prior written consent.

 

7.9          Compliance.  

Undertake as one of its important activities extending credit to

purchase or carry margin stock, or use the proceeds of any Advance for that

purpose; fail to meet the minimum funding requirements of ERISA, permit a

Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail

to comply with the Federal Fair Labor Standards Act or violate any other law or

regulation, if the violation could have a material adverse effect on Borrower’s

business or operations or cause a Material Adverse Change, or permit any of its

Subsidiaries to do so.

 

8.             EVENTS

OF DEFAULT

 

Any one of the following is an Event of Default:

 

8.1          Payment

Default.   Borrower fails to pay any of the

Obligations within 3 days after their due date. During the additional period

the failure to cure the default is not an Event of Default (but no Advances

will be made during the cure period);

 

8.2          Covenant

Default.   Borrower does not perform any obligation in

Section 6 or violates any covenant in Article 7 or does not perform or observe

any other material term, condition or covenant in this Agreement, any Loan

Documents, or in any agreement between Borrower and Bank and as to any default

under a term, condition or covenant that can be cured, has not cured the default

within 10 days after it occurs, or if the default cannot be cured within 10

days or cannot be cured after Borrower’s attempts in the 10 day period, and the

default may be cured within a reasonable time, then Borrower has an additional

time, (of not more than 30 days) to attempt to cure the default. During the

additional period the failure to cure the default is not an Event of Default

(but no Advances will be made during the cure period);

 

8.3          Material

Adverse Change.

 

If there (i) occurs a material adverse change in the

business, operations, or condition (financial or otherwise) of the Borrower, or

(ii) is a material impairment of the prospect of repayment of any portion of

the Obligations;

 

8.4          Attachment.  

(i) Any material portion of Borrower’s assets is attached, seized,

levied on, or comes into possession of a trustee or receiver and the

attachment, seizure or levy is not removed in 10 days; (ii) Borrower is

enjoined, restrained, or prevented by court order from conducting a material

part of its business; (iii) a judgment or other claim becomes a Lien on a

material portion of Borrower’s assets; or (iv) a notice of lien, levy, or

assessment is filed against any of Borrower’s assets by any government agency

and not paid within 10 days after Borrower receives notice. These are not

Events of Default if stayed or if a bond is posted pending contest by Borrower

(but no Advances will be made during the cure period);

 

8.5          Insolvency.  

(i) Borrower becomes insolvent; (ii) Borrower begins an Insolvency Proceeding;

or (iii) an Insolvency Proceeding is begun against Borrower and not dismissed

or stayed within 30 days (but no Advances will be made before any Insolvency

Proceeding is dismissed);

 

 

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8.6          Other

Agreements.   If there is a default in any agreement

between Borrower and a third party that gives the third party the right to

accelerate any Indebtedness exceeding $100,000 or that could cause a Material

Adverse Change;

 

8.7          Judgments.  

If a money judgment(s) in the aggregate of at least $100,000 is rendered

against Borrower and is unsatisfied and unstayed for 10 days (but no Advances

will be made before the judgment is stayed or satisfied);

 

8.8          Misrepresentations.  

If Borrower or any Person acting for Borrower makes any material

misrepresentation or material misstatement now or later in any warranty or

representation in this Agreement or in any communication delivered to Bank or

to induce Bank to enter this Agreement or any Loan Document.

 

8.9          Default

Under Exim Loan.   A default occurs under the Exim Loan

Agreement.

 

9.             BANK’S

RIGHTS AND REMEDIES

 

9.1          Rights

and Remedies.   When an Event of Default occurs and

continues Bank may, without notice or demand, do any or all of the following:

 

(a)           Declare all Obligations

immediately due and payable (but if an Event of Default described in Section

8.5 occurs all Obligations are immediately due and payable without any action

by Bank);

 

(b)           Stop advancing money

or extending credit for Borrower’s benefit under this Agreement or under any

other agreement between Borrower and Bank;

 

(c)           Settle or adjust

disputes and claims directly with account debtors for amounts, on terms and in

any order that Bank considers advisable;

 

(d)           Make any payments

and do any acts it considers necessary or reasonable to protect its security

interest in the Collateral.   Borrower

will assemble the Collateral if Bank requests and make it available as Bank

designates.    Bank may enter premises

where the Collateral is located, take and maintain possession of any part of

the Collateral, and pay, purchase, contest, or compromise any Lien which

appears to be prior or superior to its security interest and pay all expenses

incurred. Borrower grants Bank a license to enter and occupy any of its premises,

without charge, to exercise any of Bank’s rights or remedies;

 

(e)           Apply to the

Obligations any (i) balances and deposits of Borrower it holds, or (ii) any

amount held by Bank owing to or for the credit or the account of Borrower;

 

(f)            Ship, reclaim, recover,

store, finish, maintain, repair, prepare for sale, advertise for sale, and sell

the Collateral.  Bank is granted a

non-exclusive, royalty-free license or other right to use, without charge,

Borrower’s labels, Patents, Copyrights, Mask Works, rights of use of any name,

trade secrets, trade names, Trademarks, service marks, and advertising matter,

or any similar property as it pertains to the Collateral, in completing

production of, advertising for sale, and selling any Collateral and, in

connection with Bank’s exercise of its rights under this Section, Borrower’s

rights under all licenses and all franchise agreements inure to Bank’s benefit;

and

 

 

10

 

(g)           dispose of the

Collateral according to the Code.

 

9.2          Power

of Attorney.   When an Event of Default occurs and

continues, Borrower irrevocably appoints Bank as its lawful attorney to:  (i) endorse Borrower’s name on any checks or

other forms of payment or security; (ii) sign Borrower’s name on any invoice or

bill of lading for any Account or drafts against account debtors, (iii) make,

settle, and adjust all claims under Borrower’s insurance policies; (iv) settle

and adjust disputes and claims about the Accounts directly with account

debtors, for amounts and on terms Bank determines reasonable; and (v) transfer

the Collateral into the name of Bank or a third party as the Code permits.   Bank may exercise the power of attorney to

sign Borrower’s name on any documents necessary to perfect or continue the perfection

of any security interest regardless of whether an Event of Default has

occurred.   Bank’s appointment as

Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with

an interest, are irrevocable until all Obligations have been fully repaid and

performed and Bank’s obligation to provide Advances terminates.

 

9.3          Accounts

Collection.   When an Event of Default occurs and

continues, Bank may notify any Person owing Borrower money of Bank’s security

interest in the funds and verify the amount of the Account. Borrower must

collect all payments in trust for Bank and, if requested by Bank, immediately

deliver the payments to Bank in the form received from the account debtor, with

proper endorsements for deposit.

 

9.4          Bank

Expenses.   If Borrower fails to pay any amount or

furnish any required proof of payment to third persons Bank may make all or

part of the payment or obtain insurance policies required in Section 6.5, and

take any action under the policies Bank deems prudent.   Any amounts paid by Bank are Bank Expenses

and immediately due and payable, bearing interest at the then applicable rate

and secured by the Collateral.   No

payments by Bank are deemed an agreement to make similar payments in the future

or Bank’s waiver of any Event of Default.

 

9.5          Bank’s

Liability for Collateral.   If Bank

complies with reasonable banking practices, it is not liable or responsible

for: (a) the safekeeping of the Collateral; (b) any loss or damage to the

Collateral; (c) any diminution in the value of the Collateral; or (d) any act

or default of any carrier, warehouseman, bailee, or other person.   Borrower bears all risk of loss, damage or

destruction of the Collateral.

 

9.6          Remedies

Cumulative.   Bank’s rights and remedies under this

Agreement, the Loan Documents, and all other agreements are cumulative. Bank

has all rights and remedies provided under the Code, by law, or in equity.

Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of

any Event of Default is not a continuing waiver. Bank’s delay is not a waiver,

election, or acquiescence. No waiver is effective unless signed by Bank and

then is only effective for the specific instance and purpose for which it was

given.

 

9.7          Demand

Waiver.   Borrower waives demand, notice of default

or dishonor, notice of payment and nonpayment, notice of any default,

nonpayment at maturity, release, compromise, settlement, extension, or renewal

of accounts, documents, instruments, chattel paper, and guaranties held by Bank

on which Borrower is liable.

 

 

11

 

10.          NOTICES

 

All notices or demands by any party to this Agreement or any other

related agreement must be in writing and be personally delivered or sent by an

overnight delivery service, by certified mail, postage prepaid, return receipt

requested, or by telefacsimile at the addresses listed at the beginning of this

Agreement. A Party may change its notice address by giving the other Party

written notice.

 

11.          CHOICE

OF LAW, VENUE AND JURY TRIAL WAIVER

 

California law governs the Loan Documents without regard to principles

of conflicts of law. Borrower and Bank each submit to the exclusive

jurisdiction of the State and Federal courts in Santa Clara County, California.

 

BORROWER AND BANK EACH WAIVE THEIR

RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED

UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,

INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A

MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY

HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12.          GENERAL

PROVISIONS

 

12.1        Successors

and Assigns.   This Agreement binds and is for the benefit

of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or

any rights or Obligations under it without Bank’s prior written consent which

may be granted or withheld in Bank’s discretion.   Bank has the right, without the consent of or notice to

Borrower, to sell, transfer, negotiate, or grant participation in all or any

part of, or any interest in, Bank’s obligations, rights and benefits under this

Agreement, the Loan Documents or any related agreement.

 

12.2        Indemnification.  

Borrower will indemnify, defend and hold harmless Bank and its officers,

employees and agents against:   (a) all

obligations, demands, claims, and liabilities asserted by any other party in

connection with the transactions contemplated by the Loan Documents; and (b)

all losses or Bank Expenses incurred, or paid by Bank from, following, or

consequential to transactions between Bank and Borrower (including reasonable

attorneys’ fees and expenses), except for losses caused by Bank’s gross

negligence or willful misconduct.

 

12.3        Time

of Essence.   Time is of the essence for the performance

of all Obligations in this Agreement.

 

12.4        Severability

of Provision.   Each provision of this Agreement is

severable from every other provision in determining the enforceability of any

provision.

 

 

12

 

12.5        Amendments

in Writing, Integration.   All

amendments to this Agreement must be in writing signed by both Bank and

Borrower. This Agreement and the Loan Documents represent the entire agreement

about this subject matter, and supersedes prior or contemporaneous

negotiations  or  agreements.     All prior or contemporaneous 

agreements,  understandings,

representations, warranties, and negotiations between the parties about the

subject matter of this Agreement and the Loan Documents merge into this

Agreement and the Loan Documents.

 

12.6        Counterparts. This Agreement may be executed in any

number of counterparts and by different parties on separate counterparts, each

of which, when executed and delivered, are an original, and all taken together,

are one Agreement.

 

12.7        Survival.  

All covenants, representations and warranties made in this Agreement

continue in full force while any Obligations remain outstanding. The

obligations of Borrower in Section 12.2 to indemnify Bank will survive until

all statutes of limitations for actions that may be brought against Bank have

run.

 

12.8        Confidentiality.  

In handling any confidential information, Bank will exercise the same

degree of care that it exercises for its own proprietary information, but

disclosure of information may be made: (i) to Bank’s subsidiaries or affiliates

in connection with their present or prospective business relations with

Borrower; (ii) to prospective transferees or purchasers of any interest in the

Loans; (iii) as required by law, regulation, subpoena, or other order, (iv) as

required in connection with Bank’s examination or audit; and (v) as Bank

considers appropriate in exercising remedies under this Agreement.    Confidential information does not include information

that either: (a) is in the public domain or in Bank’s possession when disclosed

to Bank, or becomes part of the public domain after disclosure to Bank; or (b)

is disclosed to Bank by a third party, if Bank does not know that the third

party is prohibited from disclosing the information.

 

12.9        Attorneys’

Fees, Costs and Expenses.   In any

action or proceeding between Borrower and Bank arising out of the Loan

Documents, the prevailing party will be entitled to recover its reasonable

attorneys’ fees and other costs and expenses incurred, in addition to any other

relief to which it may be entitled, whether or not a lawsuit is filed.

 

13.          DEFINITIONS

 

13.1        Definitions.

 

“Accounts” are all

existing and later arising accounts, contract rights, and other obligations

owed Borrower in connection with its sale or lease of goods (including

licensing software and other technology) or provision of services, all credit

insurance, guaranties, other security and all merchandise returned or reclaimed

by Borrower and Borrower’s Books relating to any of the foregoing.

 

“Advance” or “Advances” is a Revolving Advance or a

Term Loan Advance.

 

“Affiliate” of a

Person is a Person that owns or controls directly or indirectly the Person, any

Person that controls or is controlled by or is under common control with the

Person, and each of that Person’s senior executive officers, directors,

partners and, for any Person that is a limited liability company, that Person’s

managers and members.

 

 

13

 

“Bank Expenses” are

all audit fees and expenses and reasonable costs or expenses (including

reasonable attorneys’ fees and expenses) for preparing, negotiating,

administering, defending and enforcing the Loan Documents (including appeals or

Insolvency Proceedings).

 

“Borrower’s Books”

are all Borrower’s books and records including ledgers, records regarding

Borrower’s assets or liabilities, the Collateral, business operations or

financial condition and all computer programs or discs or any equipment

containing the information.

 

“Borrowing Base” is

80% of Eligible Accounts determined by Bank from Borrower’s most recent

Borrowing Base Certificate.

 

“Business Day” is

any day that is not a Saturday, Sunday or a day on which the Bank is closed.

 

“Cash Burn” is (a)

if Borrower is required to deliver monthly Company prepared financial

statements under Section 6.2(a), the change in cash from operations (determined

in accordance with GAAP for the month just ended); or (b) if Borrower is not

required to deliver such monthly statements, the trailing three month average

change in cash from operations (determined in accordance with GAAP).

 

“Closing Date” is

the date of this Agreement.

 

“Code” is the

California Uniform Commercial Code.

 

“Collateral” is the

property described on Exhibit A.

 

“Committed Term Loan”

is a credit extension of up to $3,500,000.

 

“Committed Revolving Line”

is a credit extension of up to $2,500,000.

 

“Contingent Obligation”

is, for any Person, any direct or indirect liability, contingent or not, of

that Person for (i) any indebtedness, lease, dividend, letter of credit or

other obligation of another such as an obligation directly or indirectly

guaranteed, endorsed, co-made, discounted or sold with recourse by that Person,

or for which that Person is directly or indirectly liable; (ii) any obligations

for undrawn letters of credit for the account of that Person; and (iii) all

obligations from any interest rate, currency or commodity swap agreement,

interest rate cap or collar agreement, or other agreement or arrangement

designated to protect a Person against fluctuation in interest rates, currency

exchange rates or commodity prices; but “Contingent Obligation” does not

include endorsements in the ordinary course of business. The amount of a

Contingent Obligation is the stated or determined amount of the primary

obligation for which the Contingent Obligation is made or, if not determinable,

the maximum reasonably anticipated liability for it determined by the Person in

good faith; but the amount may not exceed the maximum of the obligations under

the guarantee or other support arrangement.

 

 

14

 

“Copyrights” are

all copyright rights, applications or registrations and like protections in

each work or authorship or derivative work, whether published or not (whether

or not it is a trade secret) now or later existing, created, acquired or held.

 

“Current Assets”

are amounts that under GAAP should be included on that date as current assets

on Borrower’s consolidated balance sheet.

 

“Current Liabilities”

are the aggregate amount of Borrower’s Total Liabilities which mature within

one (1) year.

 

“Deferred Revenue”

is all amounts received in advance of performance and not yet recognized as

revenue.

 

“Eligible Accounts”

are Accounts in the ordinary course of Borrower’s business that meet all

Borrower’s representations and warranties in Section 5.2; but Bank may

change eligibility standards by giving Borrower 30 days prior written notice.

Unless Bank agrees otherwise in writing, Eligible Accounts will not include:

 

(a)           Accounts that the

account debtor has not paid within 90 days of invoice date;

 

(b)           Accounts for an

account debtor, 50% or more of whose Accounts have not been paid within 90 days

of invoice date;

 

(c)           Credit balances over

90 days from invoice date;

 

(d)           Accounts for an

account debtor, including Affiliates, whose total obligations to Borrower

exceed 25% of all Accounts, for the amounts that exceed that percentage, unless

Bank approves in writing;

 

(e)           Accounts for which

the account debtor does not have its principal place of business in the United

States;

 

(f)            Accounts for which

the account debtor is a federal, state or local government entity or any

department, agency, or instrumentality;

 

(g)           Accounts for which

Borrower owes the account debtor, but only up to the amount owed (sometimes

called “contra” accounts, accounts payable, customer deposits or credit

accounts);

 

(h)           Accounts for

demonstration or promotional equipment, or in which goods are consigned, sales

guaranteed, sale or return, sale on approval, bill and hold, or other terms if

account debtor’s payment may be conditional;

 

 

15

 

(i)            Accounts for which

the account debtor is Borrower’s Affiliate, officer, employee, or agent;

 

(j)            Accounts in which

the account debtor disputes liability or makes any claim and Bank believes

there may be a basis for dispute (but only up to the disputed or claimed

amount), or if the Account Debtor is subject to an Insolvency Proceeding, or

becomes insolvent, or goes out of business;

 

(k)           Accounts for which

Bank reasonably determines collection to be doubtful.

 

“Eligible Foreign Accounts”

are Accounts as to which the account debtor does not have its principal place

of business in the United States but otherwise qualify as Eligible Accounts

and: (1) as to which at least 90% of the face amount of each such Account is

guaranteed by an Export-Import Bank guaranty (the “EXIM Guaranty”) in form and

substance satisfactory to Bank (and as to which the account debtor is located

in a country listed as covered by the EXIM Guaranty per the most recent

Export-Import Bank Country Limitation Schedule); or (2) are supported by

commercial letter(s) of credit acceptable to Bank; or (3) that Bank approves in

writing.

 

“Equipment” is all

present and future machinery, equipment, tenant improvements, furniture,

fixtures, vehicles, tools, parts and attachments in which Borrower has any

interest.

 

“ERISA” is the

Employment Retirement Income Security Act of 1974, and its regulations.

 

“EXIM Loan Agreement”

is that certain Export-Import Bank Loan and Security Agreement, dated of even

date herewith, by and between Borrower and Bank.

 

“GAAP” is generally

accepted accounting principles.

 

“Indebtedness” is

(a) indebtedness for borrowed money or the deferred price of property or

services, such as reimbursement and other obligations for surety bonds and

letters of credit, (b) obligations evidenced by notes, bonds, debentures or

similar instruments, (c) capital lease obligations and (d) Contingent

Obligations.

 

“Insolvency Proceeding”

is any proceeding by or against any Person under the United States Bankruptcy

Code, or any other bankruptcy or insolvency law, including assignments for the

benefit of creditors, compositions, extensions generally with its creditors, or

proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property”

is:

 

(a)           Copyrights,  Trademarks, 

Patents,  and Mask Works  including amendments, renewals, extensions,

and all licenses or other rights to use and all license fees and royalties from

the use;

 

(b)           Any trade secrets

and any Intellectual Property Rights in computer software and computer software

products now or later existing, created, acquired or held;

 

 

16

 

(c)           All design rights

which may be available to Borrower now or later created, acquired or held;

 

(d)           Any claims for

damages (past, present or future) for infringement of any of the rights above,

with the right, but not the obligation, to sue and collect damages for use or

infringement of the intellectual property rights above;

 

All proceeds and products of the foregoing, including all insurance,

indemnity or warranty payments.

 

“Inventory” is

present and future inventory in which Borrower has any interest, including

merchandise, raw materials, parts, supplies, packing and shipping materials,

work in process and finished products intended for sale or lease or to be

furnished under a contract of service, of every kind and description now or

later owned by or in the custody or possession, actual or constructive, of

Borrower, including inventory temporarily out of its custody or possession or

in transit and including returns on any accounts or other proceeds (including

insurance proceeds) from the sale or disposition of any of the foregoing and

any documents of title.

 

“Investment” is any

beneficial ownership of (including stock, partnership interest or other

securities) any Person, or any loan, advance or capital contribution to any

Person.

 

“IPS Mutual Funds”

are the mutual funds available through Bank’s investments, products and

services desk.

 

“Lien” is a

mortgage, lien, deed of trust, charge, pledge, security interest or other

encumbrance.

 

“Liquidity” is cash

on hand (and cash equivalents) plus Borrower’s net borrowing availability with

respect to Revolving Advances.

 

“Loan Documents”

are, collectively, this Agreement, the EXIM Loan Agreement, the Negative Pledge

Agreement, the Tri-Party Agreement, and any note, or notes or guaranties

executed by Borrower or any guarantor, and any other present or future

agreement between Borrower and/or for the benefit of Bank in connection with

this Agreement, all as amended, extended or restated.

 

Material Adverse Change

is defined in Section 8.3.

 

“Mask Works” are

all mask works or similar rights available for the protection of semiconductor

chips, now owned or later acquired.

 

“Obligations” are

debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank

now or later, including letters of credit and foreign exchange contracts, if

any, and including interest accruing after Insolvency Proceedings begin and

debts, liabilities, or obligations of Borrower assigned to Bank.

 

 

17

 

“Patents” are

patents, patent applications and like protections, including improvements,

divisions, continuations, renewals, reissues, extensions and

continuations-in-part of the same.

 

“Permitted Indebtedness”

is:

 

(a)           Borrower’s indebtedness

to Bank under this Agreement or the Loan Documents;

 

(b)           Indebtedness

existing on the Closing Date and shown on the Schedule;

 

(c)           Subordinated Debt;

 

(d)           Indebtedness to

trade creditors incurred in the ordinary course of business; and

 

(e)           Indebtedness secured

by Permitted Liens; and

 

(f)            Extensions,

refinancings, modifications, amendments and restatements of any items of

Permitted Indebtedness (a) through (e) above, provided that the principal

amount thereof is not increased or the terms thereof are not modified to impose

more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

“Permitted Investments”

are:

 

(a)           Investments shown on

the Schedule and existing on the Closing Date; and

 

(b)           (i)   marketable direct obligations issued or

unconditionally guaranteed by the United States or its agency or any State

maturing within 1 year from its acquisition, (ii) commercial paper maturing no

more than 1 year after its creation and having the highest rating from either

Standard & Poor’s Corporation or Moody’s Investors Service, Inc., and (iii)

Bank’s certificates of deposit issued maturing no more than 1 year after issue;

 

(c)           Investments

consisting of the endorsement of negotiable instruments for deposit or

collection or similar transactions in the ordinary course of Borrower;

 

(d)           Investments accepted

in connection with Transfers permitted by Section 7.1;

 

(e)           Investments of

Subsidiaries in or to other Subsidiaries or Borrower and Investments by

Borrower in Subsidiaries not to exceed $50,000 in the aggregate in any fiscal

year.

 

“Permitted Liens”

are:

 

(a)           Liens existing on

the Closing Date and shown on the Schedule or arising under this Agreement or

other Loan Documents;

 

(b)           Liens for taxes,

fees, assessments or other government charges or levies, either not delinquent

or being contested in good faith and for which Borrower maintains adequate

reserves on its Books, if they have no priority over any of Bank’s security

interests;

 

 

18

 

(c)           Purchase money Liens

(i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for

financing the acquisition of the Equipment, or (ii) existing on equipment when

acquired, if the Lien is confined to the property and improvements and the proceeds

of the equipment;

 

(d)           Leases or subleases

and licenses or sublicenses granted in the ordinary course of Borrower’s

business, if the leases, subleases, licenses and sublicenses permit granting

Bank a security interest;

 

(e)           Liens incurred in

the extension, renewal or refinancing of the indebtedness secured by Liens

described in (a) through (c), but any extension, renewal or replacement Lien

must be limited to the property encumbered by the existing Lien and the

principal amount of the indebtedness may not increase;

 

(f)            Liens securing

Indebtedness of up to $1,200,000 on Equipment consisting only of computer

hardware and software, but only on such Equipment, acquired by Borrower or its

Subsidiaries between January 1, 2001, and March 31, 2001.

 

“Person” is any

individual, sole proprietorship, partnership, limited liability company, joint

venture, company, trust, unincorporated organization, association, corporation,

institution, public benefit corporation, firm, joint stock company, estate,

entity or government agency.

 

“Prepayment Fee” is

a fee on any portion of the Obligations with a fixed interest rate (the “Fixed

Obligations”) paid before the payment due date. “Base Interest Rate” means

Bank’s initial cost of funding the Fixed Obligations. The Prepayment Fee is

calculated as follows: First, Bank determines a “Current Market Rate” based on

what the Bank would receive if it loaned the remaining amount on the prepayment

date in a wholesale funding market matching maturity, remaining principal and

interest amounts and principal and interest payment dates (the aggregate

payments received are the “Current Market Rate Amount”). Bank may select any

wholesale funding market rate as the Current Market Rate. Second, Bank will

take the prepayment amount and calculate the present value of each remaining

principal and interest payment which, without prepayment, the Bank would have

received during the term of the Fixed Obligations using the Base Interest Rate.

The sum of the present value calculations is the “Mark to Market Amount.”

Third, the Bank will subtract the Mark to Market Amount from the Current Market

Rate Amount. Any amount greater than zero is the Prepayment Fee.

 

“Prime Rate” is

Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.

 

“Quick Assets” is,

on any date, the Borrower’s consolidated, unrestricted cash, cash equivalents,

and net billed trade accounts receivable, determined according to GAAP.

 

“Remaining Months Liquidity”

is Liquidity minus the aggregate balance of the Term Loan Advances outstanding

at the time of determination, divided by Cash Burn.

 

“Responsible Officer”

is each of the Chief Executive Officer, the President, the Chief Financial

Officer and the Controller of Borrower.

 

 

19

 

“Revolving Advances”

are the advances made pursuant to Section 2.1.1.

 

“Revolving Maturity Date”

is June 13, 2002.

 

“Schedule” is any

attached schedule of exceptions.

 

“Subordinated Debt”

is debt incurred by Borrower subordinated to Borrower’s debt to Bank (and

identified as subordinated by Borrower and Bank) pursuant to a subordination

agreement in form and substance satisfactory to Bank and approved by Bank in

writing.

 

“Subsidiary” is for

any Person, joint venture, or any other business entity of which more than 50%

of the voting stock or other equity interests is owned or controlled, directly

or indirectly, by the Person or one or more Affiliates of the Person.

 

“Tangible Net Worth”

is, on any date, the consolidated total assets of Borrower and its Subsidiaries

minus (i) any amounts attributable to (a) goodwill, (b) intangible items such

as unamortized debt discount and expense, Patents, trade and service marks and

names, Copyrights and research and development expenses except prepaid expenses,

and (c) reserves not already deducted from assets, and (ii) Total Liabilities,

plus Subordinated Debt.

 

“Term Loan” means

the loan consisting of the Term Loan Advances.

 

“Term Loan Advances”

means the Advances made pursuant to Section 2.1.2(a).

 

“Term Loan Maturity Date”

is defined in Section 2.1.2(b).

 

“Total Liabilities”

is on any day, obligations that should, under GAAP, be classified as

liabilities on Borrower’s consolidated balance sheet, including all

Indebtedness, and current portion Subordinated Debt allowed to be paid, but

excluding all other Subordinated Debt.

 

“Trademarks” are

trademark and service mark rights, registered or not, applications to register

and registrations and like protections, and the entire goodwill of the business

of Assignor connected with the trademarks.

 

“Treasury Rate” is,

on the date of determination, the average weekly yield (of the week ending

figures) in the most recent Federal Reserve Statistical Release on actively

traded U.S. Treasury obligations of similar maturity to the principal being

repaid or if a Statistical Release is not published, the arithmetic average (to

the nearest .01%) of the per annum yields to maturity for each Business Day

during the week (ending at least two Business Days before the determination is

made) of all actively traded marketable United States Treasury fixed interest

rate securities with a constant maturity of, or not more than 30 days longer or

shorter than the average life of the principal and interest payments that are

being repaid or prepaid (excluding securities that can be surrendered at face

value to pay Federal estate tax, or which provide for tax benefits to the

holder).

 

 

20

 

PHARSIGHT, INC.

 

	

  By:

  	

  /s/ Robin A. Kehoe

  
	

  Title:

  	

  CFO

  

 

 

SILICON VALLEY BANK

 

	

  By:

  	

  /s/ Sam Thompson

  
	

  Title:

  	

  Vice President

  

 

 

21

 

EXHIBIT

A

 

The Collateral consists of all of Borrower’s right, title and interest

in and to the following:

 

All goods, equipment, inventory, contract rights, general intangibles,

accounts, documents, instruments, chattel paper, cash, deposit accounts,

fixtures, letters of credit, investment property, and financial assets, whether

now owned or hereafter acquired, wherever located; and

 

All Borrower’s Books relating to the foregoing and any and all claims,

rights and interests in any of the above and all substitutions for, additions,

attachments, accessories, accessions and improvements to and replacements,

products, proceeds and insurance proceeds of any or all of the foregoing.

 

The Collateral does not include:

 

Any copyright rights, copyright applications, copyright registrations

and like protections in each work of authorship and derivative work, whether

published or unpublished, now owned or later acquired; any patents, trademarks,

service marks and applications therefor; any trade secret rights, including any

rights to unpatented inventions, know-how, operating manuals, license rights

and agreements and confidential information, now owned or hereafter acquired;

or any claims for damages by way of any past, present and future infringement

of any of the foregoing; provided that the Collateral shall include any of such

intellectual property to the extent, and only to the extent, a security

interest therein is required in order to permit Bank to hold a perfected

security interest in the other Collateral, including, without limitation,

Accounts arising from the license, publication or other exploitation of

copyrights or other intellectual property; provided, further, that upon any

breach by Borrower of its obligations to Bank not grant or permit to exist a

lien or encumbrance upon such intellectual property, the Collateral shall be

deemed to include, retroactively from the date of grant of the security

interest in the other Collateral in favor of Bank, such intellectual property.

 

 

22

 

EXHIBIT B

 

LOAN PAYMENT/ADVANCE

TELEPHONE REQUEST FORM

 

DEADLINE FOR SAME DAY

PROCESSING IS 3:00 P.M., P.S.T.

 

	

  TO: CENTRAL CLIENT SERVICE DIVISION

  	

  DATE:

  	

   

  
	

   

  	

   

  	

   

  
	

  FAX#: (408) 496-2426

  	

  TIME:

  	

   

  

 

	

  FROM:

  	

   

  
	

   

  	

  CLIENT NAME (BORROWER)

  
	

   

  	

   

  
	

  REQUESTED BY:

  	

   

  
	

   

  	

  AUTHORIZED SIGNER’S

  NAME

  
	

   

  	

   

  
	

  AUTHORIZED SIGNATURE:

  	

   

  
	

   

  	

   

  	

   

  
	

  PHONE NUMBER:

  	

   

  
	

   

  	

   

  	

   

  
	

  FROM ACCOUNT #

  	

   

  	

  TO ACCOUNT #

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  REQUESTED TRANSACTION TYPE

  	

   

  	

   

  	

  REQUESTED DOLLAR AMOUNT

  	

   

  
	

   

  	

   

  	

   

  
	

  PRINCIPAL INCREASE (ADVANCE)

  	

  $

  	

   

  
	

  PRINCIPAL PAYMENT (ONLY)

  	

  $

  	

   

  
	

  INTEREST PAYMENT (ONLY)

  	

  $

  	

   

  
	

  PRINCIPAL AND INTEREST (PAYMENT)

  	

  $

  	

   

  
	

   

  	

   

  	

   

  
	

  OTHER INSTRUCTIONS:

  	

   

  
												

 

 

All Borrower’s representations and warranties in the Export-Import Bank

Loan and Security Agreement are true, correct and complete in all material

respects on the date of the telephone request for and Advance confirmed by this

Borrowing Certificate; but those representations and warranties expressly

referring to another date shall be true, correct and complete in all material

respects as of that date.

 

TELEPHONE REQUEST:

 

The following person is authorized to request the loan payment

transfer/loan advance on the advance designated account and is known to me.

 

	

   

  	

   

  	

   

  
	

  Authorized Requester

  	

   

  	

  Phone #

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Received By (Bank)

  	

   

  	

  Phone #

  
	

   

  	

   

  	

   

  
	

   

  	

  Authorized Signature

  (Bank)

  	

   

  
						

 

 

23

 

EXHIBIT

C

DOMESTIC

BORROWING BASE CERTIFICATE

 

	

  Borrower: 

  	

  Pharsight, Inc.

  	

  Lender:     

  	

   Silicon

  Valley Bank

  
	

  Commitment Amount:

  	

  $2,500,000

  	

   

  	

   

  

 

 

	

  ACCOUNTS RECEIVABLE

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  1.

  	

  Accounts Receivable Book

  Value as of

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  2.

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  3.

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

  
	

  4.

  	

  Amounts over 90 days due

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  5.

  	

  Balance of 50% over 90 day

  accounts

  	

   

  	

  $

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  6.

  	

  Credit balances over 90

  days

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  7.

  	

  Concentration Limits

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  8.

  	

  Foreign Accounts

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  9.

  	

  Governmental Accounts

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  10.

  	

  Contra Accounts

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  11.

  	

  Promotion or Demo Accounts

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  12.

  	

  Intercompany/Employee

  Accounts

  	

   

  	

  $

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  13.

  	

  Other (please explain on

  reverse)

  	

   

  	

  $

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  14.

  	

  TOTAL ACCOUNTS RECEIVABLE

  DEDUCTIONS

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  15.

  	

  Eligible Accounts (#3

  minus #13)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  16.

  	

  LOAN VALUE OF DOMESTIC

  ACCOUNTS (80% of  #15)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  17.

  	

  Maximum Loan Amount

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

  2,500,000

  	

   

  
	

  18.

  	

  Total Funds Available

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  19.

  	

  Present balance owing on

  Line of Credit

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  BALANCES

  	

  RESERVE POSITION

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  20.

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  21.

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  22.

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  
	

  23.

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  $

  	

   

  	

   

  

 

The undersigned represents and

warrants that this is true, complete and correct, and that the information in

this Borrowing Base Certificate complies with the representations and

warranties in the Loan and Security Agreement between the undersigned and

Silicon Valley Bank.

 

COMMENTS:

 

 

	

  By:

  	

   

  
	

   

  	

  Authorized Signer

  

 

 

24

EXHIBIT

D 

COMPLIANCE

CERTIFICATE

 

 

	

  TO:

  	

  SILICON VALLEY BANK

  
	

   

  	

   

  
	

  FROM:

  	

  PHARSIGHT, INC.

  

 

The undersigned authorized officer of Pharsight, Inc., certifies that

under the terms and conditions of the Loan and Security Agreement between

Borrower and Bank (the "Agreement"), (i) Borrower is in complete

compliance for the period ending             with all required covenants except as noted

below and (ii) all representations and warranties in the Agreement are true and

correct in all material respects on this date. Attached are the required

documents supporting the certification. The Officer certifies that these are

prepared in accordance with Generally Accepted Accounting Principles (GAAP)

consistently applied from one period to the next except as explained in an

accompanying letter or footnotes. The Officer acknowledges that no borrowings

may be requested at any time or date of determination that Borrower is not in

compliance with any of the terms of the Agreement, and that compliance is

determined not just at the date this certificate is delivered.

 

Please

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

 

	

  Reporting

  Covenant

  	

   

  	

   

  	

  Required

  	

   

  	

   

  	

   

  	

  Complies

  	

   

  
	

  Monthly (if

  applicable)

  	

   

  	

  Monthly (if applicable )

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

  financial

  statements

  	

   

  	

  within 30 days

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Annual (CPA

  Audited)

  	

   

  	

  FYE within 90 days

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

  10-Q, 10-K and

  8-K

  	

   

  	

  Within 5 days after filing with SEC

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

  A/R & A/P

  Agings

  	

   

  	

  Monthly within 20 days

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Financial Covenant

  	

   

  	

   

  	

  Required

  	

   

  	

  Actual

  	

   

  	

  Complies

  	

   

  
	

  Maintain on a

  Quarterly Basis 

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Minimum Quick

  Ratio

  	

   

  	

  1.0:1.0

  	

   

  	

  :1.0

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

  Minimum

  Liquidity (Monthly)

  	

   

  	

  2X Term Loan

  	

   

  	

  $

  	

   

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

  Minimum

  Remaining

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Months Liquidity

  (Monthly)

  	

   

  	

  Six (6)

  	

   

  	

   

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

  Maximum

  Debt/Tangible Net Worth

  	

   

  	

       :1.0

  	

   

  	

  :1.0

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Maximum Losses:

  	

  Quarterly

  	

   

  	

  no more than 20%

  	

   

  	

  $

  	

   

  	

   

  	

  Yes

  	

   

  	

  No

  	

   

  
	

   

  	

  (commencing 

  	

   

  	

  more than the

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  6/30/01)

  	

   

  	

  projected amount

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  in the “street”

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  projections

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  approved by

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  Borrower’s board

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  of directors

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
														

 

 

25

Comments Regarding Exceptions; See Attached

 

 

	

  PHARSIGHT, INC.

  	

   

  	

   

  
	

   

  	

  Received by:

  	

   

  
	

  Sincerely,

  	

  Authorized Signer

  
	

   

  	

   

  	

   

  
	

   

  	

  Date:

  	

   

  
	

  Signature

  	

   

  	

   

  
	

   

  	

  Verified:

  	

   

  
	

  Title

  	

  Authorized Signer

  
	

   

  	

   

  	

   

  
	

  Date

  	

  Date:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Compliance Status:

  	

  Yes

  	

  No

  
								

 

26NEGATIVE PLEDGE AGREEMENT

Exhibit

10.26.1

 

NEGATIVE PLEDGE AGREEMENT

 

 

                This Negative Pledge Agreement

is made as of June 13, 2001, by and between Pharsight, Inc. (“Borrower”), and

Silicon Valley Bank (“Bank”).

 

                In connection with, among other

documents, the Loan and Security Agreement (the “Loan Documents’) being

concurrently executed herewith between Borrower and Bank, Borrower agrees as

follows:

 

1.                                       Except for

licensing as permitted under the Loan Documents, Borrow shall not sell,

transfer, assign, mortgage, pledge, lease, grant a security interest in, or

encumber any of Borrower’s intellectual property, including, without

limitation, the following:

 

a.                                       Any and all

copyright rights, copyright applications, copyright registrations and like

protections in each work or authorship and derivative work thereof, whether

published or unpublished and whether or not the same also constitutes a trade

secret, now or hereafter existing, created, acquired or held;

 

b.                                      All mask works

or similar rights available for the protection of semiconductor chips, now

owned ore hereafter acquired;

 

c.                                       Any and all

trade secrets, and any and all intellectual property rights in computer

software and computer software products now or hereafter existing, created,

acquired or held;

 

d.                                      Any and all

design rights which may be available to Borrower now or hereafter existing,

created, acquired or held;

 

e.                                       All patents,

patent applications and like protections including, without limitation,

improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part

or the same, including without limitation the patents and patent applications;

 

f.                                         Any trademark

and service mark rights, whether registered or not, applications to register

and registrations of the same and like protections, and the entire goodwill of

the business of Borrower connected with and symbolized by such trademarks,

including without limitation;

 

g.                                      Any and all

claims for damages by way of past, present and future infringements of any of

the rights included above, with the right, bun not the obligation, to sue for

the collect such damages for said use or infringement of the intellectual

property right identified above;

 

1

 

h.                                      All licenses or

other rights to use any of the Copyrights, Patents, Trademarks or Mask Works,

and all license fees and royalties arising from such use to the extent

permitted by such license or rights; and

 

i.                                          All amendments,

extensions, renewals and extensions of any of the Copyright, Trademarks,

Patents, or Mask Works; and

 

j.                                          All proceeds

and products or the foregoing, including without limitation all payments under

insurance or any indemnity or warranty payable in respect of any of the

foregoing;

 

2.                                       It shall be an

event of default under the Loan Documents between Borrower and Bank if there is

a breach of any term of this Negative Pledge Agreement.

 

3.                                       Capitalized

terms used but not otherwise defined herein shall have the same meaning as in

the Loan Documents.

 

BORROWER:

 

PHARSIGHT. INC.

 

	

  By:

  	

  /s/

  Robin A. Kehoe

  	

   

  
	

  Name:

  	

  Robin

  A. Kehoe

  	

   

  
	

  Title:

  	

  CFO

  	

   

  

 

 

BANK:

 

SILICON BALLEY BANK

 

	

  By:

  	

  /s/

  Sam Thompson

  	

   

  
	

  Name:

  	

  Sam

  Thompson

  	

   

  
	

  Title:

  	

  Vice

  President

  	

   

  

 

2

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