<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHARSIGHT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0401273
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
800 WEST EL CAMINO REAL
SUITE 200
MOUNTAIN VIEW, CALIFORNIA 94040
(650) 314-3800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
ARTHUR H. REIDEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHARSIGHT CORPORATION
800 WEST EL CAMINO REAL
SUITE 200
MOUNTAIN VIEW, CALIFORNIA 94040
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
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<S> <C>
COPIES TO: COPIES TO:
BRETT D. WHITE, ESQ. STEVEN B. STOKDYK, ESQ.
THOMAS L. MACMITCHELL, ESQ. SULLIVAN & CROMWELL
COOLEY GODWARD LLP 1888 CENTURY PARK EAST
FIVE PALO ALTO SQUARE LOS ANGELES, CALIFORNIA 90067
3000 EL CAMINO REAL (310) 712-6600
PALO ALTO, CALIFORNIA 94306-2155
(650) 843-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value.............................. $75,000,000 $19,800
</TABLE>
(1) Estimated solely for the purposes of computing the registration fee in
accordance with Rule 457(o).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY UNITED STATES FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES
USING THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM
UNTIL THE DOCUMENTATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
RELATING TO THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SECURITIES AND
EXCHANGE COMMISSION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>
SUBJECT TO COMPLETION--DATED APRIL 17, 2000
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PROSPECTUS
, 2000
[LOGO]
SHARES OF COMMON STOCK
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<S> <C>
PHARSIGHT CORPORATION: THE OFFERING:
- We are offering shares.
- - We develop and market integrated - The underwriters have an option to
products and services that help purchase an additional shares
pharmaceutical and biotechnology from us to cover over-allotments.
companies improve the drug - This is our initial public offering
development process. Our solution and no public market currently exists
combines proprietary computer-based for our shares.
simulation, statistical and data - Closing: , 2000
analysis tools with the sciences of
pharmacology, drug and disease
modeling, human genetics and
biostatistics.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL: PHST
</TABLE>
<TABLE>
<CAPTION>
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<S> <C> <C>
Per Share Total
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Public offering price $ $
Underwriting fees
Proceeds to us
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
CHASE H&Q
WIT SOUNDVIEW
DLJDIRECT INC.
<PAGE>
Inside Front Cover
[The words "Accelerating Drug Development for Today's Competitive Environment"
centered against a faded background collage including pictures of pharmaceutical
drugs, computer equipment and people.]
Gatefold
[A box running vertically down the left side of the page with the heading
"Pharsight Solution" divided into three labeled pieces. The first labeled piece
contains the text "Model and Trial Workbench" and to its right an arrow pointing
to a computer screen-shot depicting the components of a clinical trial plan.
This screen-shot is labeled "Scenario" and to its right another arrow pointing
at a second screen-shot of four dose vs. response graphs, labeled "Prediction."
The second labeled piece of the vertical box contains the text "Decision and
Scientific Services" and to its right an arrow pointing to a screen-shot upon
which is depicted a decision tree. This screen-shot is labeled "Information" and
is followed by another arrow pointing to the right at a second screen-shot
depicting a graph with two circles showing when to go forward or skip a phase,
labeled "Decision." The third labeled piece of the vertical box contains the
text "Clinical Workbench and Information Products (Under Development)" and to
its right an arrow pointing to a screen-shot depicting a query for information.
This screen-shot is labeled "Query" and is followed by another arrow pointing to
the right at a second screen shot with a graph depicting the outcome of the
query, labeled "Answers."]
<PAGE>
TABLE OF CONTENTS
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<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Management............................ 37
Certain Relationships and Related
Transactions........................ 50
Principal Stockholders................ 53
Description of Capital Stock.......... 55
Shares Eligible for Future Sale....... 58
Underwriting.......................... 61
Legal Matters......................... 64
Experts............................... 64
Additional Information................ 64
Index to Financial Statements......... F-1
</TABLE>
------------------------
PHARSIGHT AND WINNONLIN ARE REGISTERED TRADEMARKS, AND WINNONMIX IS A
TRADEMARK, OF OUR COMPANY. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS AND SERVICE
MARKS OF OTHER COMPANIES.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. WE
URGE YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY.
PHARSIGHT CORPORATION
We develop and market integrated products and services that help
pharmaceutical and biotechnology companies improve the drug development process.
Our solution combines proprietary computer-based simulation, statistical and
data analysis tools with the sciences of pharmacology, drug and disease
modeling, human genetics and biostatistics and consists of:
- SCIENTIFIC AND DECISION SERVICES. Our multidisciplinary research teams
collaborate with customers to design more efficient drug development
programs by applying a more rigorous and integrated scientific approach
than is currently used.
- COMPUTER-BASED DEVELOPMENT APPLICATIONS AND SERVICES. Customers use our
software applications, including drug and disease modeling and clinical
trial simulation and related services, to improve their drug development
process.
- INFORMATION PRODUCTS. We are developing medical databases and software
products for the analysis of these databases, to enable our customers to
obtain objective and quantitative answers to important questions in trial
and program decision-making.
We have an integrated solution to address the critical steps in designing
clinical trials and drug development programs. Our solution is designed to help
our customers use a more rigorous scientific and statistical process to identify
earlier those drug candidates that will not be successful and to enhance the
likelihood that the remaining candidates will successfully complete clinical
trials. We believe our solution helps reduce the time, cost and risk of drug
development and may improve the marketing and use of pharmaceutical products.
Pharmaceutical and biotechnology companies have invested substantial
resources in new technologies, such as high throughput screening and
combinatorial chemistry, to accelerate the drug discovery process. According to
the Pharmaceutical Research and Manufacturers Association, as a result of
advances in genetic research, the number of distinct targets for drug
intervention is expected to increase from approximately 500 currently to more
than 3,000 by 2005. While new technologies have been developed to expand the
number of new drug candidates and accelerate the speed with which they can be
evaluated, and to better and more rapidly capture and organize data for
submission to regulatory agencies, the clinical development process continues to
be lengthy and unpredictable. In fact, the FDA reports that clinical development
prior to regulatory submission takes five years on average, and that 80% of
drugs that enter human clinical trials ultimately fail to receive regulatory
approval.
1
<PAGE>
Twelve of the world's 20 largest pharmaceutical companies have begun to
apply our computer-assisted drug development solution, and our computer-based
development applications are currently used on more than 1,800 researcher
desktops. Fourteen of our top sixteen customers by revenue to us in the fiscal
year ended March 31, 2000 were, listed in alphabetical order:
Anesta Corporation
AstraZeneca PLC
Chiron Corporation
Durect Corporation
F. Hoffmann-La Roche Ltd.
Glaxo Wellcome Inc.
Guilford Pharmaceuticals Inc.
Johnson & Johnson
Novartis Pharmaceuticals Corporation
Pfizer Limited
Proctor & Gamble Pharmaceuticals, Inc.
Sankyo Company Ltd.
SmithKline Beecham Pharmaceuticals
Warner-Lambert Company
Our strategy is to help pharmaceutical and biotechnology companies
accelerate clinical development and to assist large healthcare organizations in
the adoption and use of pharmaceutical products. Elements of our strategy
include:
- Expand our presence within the clinical development market;
- Expand our activities in pharmaceutical marketing and phase IV study
design;
- Broaden our content and data-related product offerings;
- Maintain and enhance our scientific and technology leadership; and
- Pursue strategic alliances and acquisitions.
We were incorporated in California in April 1995, and reincorporated in
Delaware in 2000. Our executive offices are located at 800 West El
Camino Real, Suite 200, Mountain View, CA 94040, and our telephone number is
(650) 314-3800. Our website address is www.pharsight.com. We do not incorporate
the information on our website into this prospectus, and you should not consider
it part of this prospectus.
2
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered............. shares
Common stock to be outstanding
after the offering............. shares
Use of proceeds.................. Approximately $6.1 million to the holders of our series C preferred
stock, research and development of new and existing products and
services, and working capital and other general corporate purposes,
including potential acquisition of products, technologies or
businesses. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol......................... PHST
Risk Factors..................... See "Risk Factors," beginning on page 5, for a discussion of factors
you should consider carefully before deciding to buy our common stock.
</TABLE>
The number of shares outstanding after this offering is based on shares
outstanding as of March 31, 2000, assuming the conversion of our preferred stock
into 10,686,717 shares of common stock, and excludes an aggregate of:
- 1,835,369 shares issuable upon exercise of outstanding stock options at a
weighted average exercise price of $1.06 per share; and
- 296,881 shares of common stock reserved for issuance under outstanding
warrants at a weighted average exercise price of $1.45 per share.
ASSUMPTIONS WHICH APPLY TO THIS PROSPECTUS
Unless otherwise indicated, all share amounts and financial information
presented in this prospectus assume the underwriters' over-allotment option is
not exercised and give effect to:
- conversion of our convertible preferred stock into our common stock, which
will occur automatically upon completion of this offering;
- our reincorporation from a California corporation to a Delaware
corporation, which will occur at or prior to the completion of this
offering; and
- the filing of our restated certificate of incorporation, which will occur
immediately following the completion of this offering.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The tables below summarize our financial data set forth in more detail in
the financial statements at the end of this prospectus. The financial data below
are based on the following assumptions:
- The pro forma basic and diluted net loss per share includes shares of
common stock issued on the conversion of our outstanding preferred stock
on a one-for-one basis into common stock.
- The as adjusted balance sheet data reflect the conversion of all
outstanding shares of preferred stock into common stock, the sale by us of
shares of common stock offered by this prospectus at an assumed
initial public offering price of $ per share after deducting the
estimated underwriting discounts and commissions and offering expenses
payable by us, and the payment of approximately $6.1 million to the
holders of our series C preferred stock.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ -------------------
1997 1998 1999 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues..................................... $ -- $ 1,106 $ 4,085 $ 2,657 $ 6,252
Operating expenses........................... 1,974 5,402 13,858 10,250 13,061
Operating loss............................... (1,974) (4,296) (9,773) (7,593) (6,809)
Net loss applicable to common shareholders... (1,934) (5,216) (10,696) (8,308) (7,755)
Basic and diluted net loss per common
share...................................... $ (2.57) $ (3.96) $ (4.41) $ (3.64) $ (2.50)
Shares used in computing basic and diluted
net loss per common share.................. 752 1,318 2,424 2,281 3,107
Pro forma basic and diluted net loss per
common share............................... $ (1.23) $ (0.64)
Shares used in computing pro forma basic and
diluted net loss per common share.......... 8,670 12,194
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $18,339 $
Working capital........................................... 16,992
Total assets.............................................. 23,514
Long-term obligations, net of current portion............. 2,129
Redeemable convertible preferred stock.................... 18,272
Total stockholders' equity (deficit)...................... (1,426)
</TABLE>
4
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER
THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS, BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES THAT WE EXPECT WILL CONTINUE, AND WE MAY NOT BE ABLE
TO GENERATE SUFFICIENT REVENUES TO ACHIEVE PROFITABILITY.
We commenced our operations in April 1995 and have incurred net losses since
that time. As of December 31, 1999, we had an accumulated deficit of $25.8
million. We expect our net losses to continue as we increase our research and
development costs and other costs to develop our business. We cannot assure you
that we will generate sufficient revenues to achieve profitability. If our
losses exceed the expectations of investors, the price of our common stock may
decline.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY FAIL TO MEET
THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.
We expect our quarterly operating results may fluctuate in the future, and
may vary from securities analysts' and investors' expectations, depending on a
number of factors described below and elsewhere in this "Risk Factors" section
of the prospectus, including:
- variances in demand for our products and services;
- timing of the introduction of new products or services and enhancements of
existing products or services;
- changes in research and development expenses;
- our ability to complete fixed-price service contracts without committing
additional resources; and
- changes in industry conditions affecting our customers.
As a result, quarterly comparisons may not indicate reliable trends of future
performance.
We also expect to increase activities and spending in substantially all of
our operational areas. We base our expense levels in part upon our expectations
concerning future revenue, and these expense levels are relatively fixed in the
short term. If we have lower revenue, we may not be able to reduce our spending
in the short term in response. Any shortfall in revenue would have a direct
impact on our results of operations. For these and other reasons, we may not
meet the earnings estimates of securities analysts or investors, and the price
of our common stock may decline.
BECAUSE OUR SALES AND IMPLEMENTATION CYCLES ARE LONG AND UNPREDICTABLE, OUR
REVENUES ARE DIFFICULT TO PREDICT AND MAY NOT MEET OUR EXPECTATIONS OR THOSE OF
OUR INVESTORS.
The lengths of our sales and implementation cycles are difficult to predict
and depend on a number of factors, including the type of product or services
being provided, the nature and size of the potential customer and the extent of
the commitment being made by the potential customer. Our sales cycle is
unpredictable and may take six months or more. Our implementation cycle is also
difficult to predict and can be longer than one year. Each of these can result
in delayed revenues, increased selling expenses and difficulty in matching
revenues with expenses, which may contribute to fluctuations in our results of
operations and cause our stock price to be volatile. A key element of our
strategy is to market our product and service offerings to large organizations.
These organizations can have elaborate decision-making processes and may require
evaluation periods which could extend the sales and implementation cycle.
Moreover, we often must provide a significant level of education to our
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<PAGE>
prospective customers regarding the use and benefit of our product and service
offerings, which may cause additional delays during the evaluation and
acceptance process. We therefore have difficulty forecasting the timing and
recognition of revenues from sales of our product and service offerings.
OUR REVENUE IS CONCENTRATED IN A FEW CUSTOMERS, AND IF WE LOSE ANY OF THESE
CUSTOMERS OUR REVENUE MAY DECREASE SUBSTANTIALLY.
We receive a substantial majority of our revenue from a limited number of
customers. In fiscal year 2000, sales to our top customer, Johnson & Johnson,
accounted for a substantial portion of our revenue and sales to our top five
customers accounted for 40.8% of our revenue. We expect that a significant
portion of our revenue will continue to depend on sales to a small number of
customers. If we do not generate as much revenue from these major customers as
we expect to, or if we lose any of them as customers, our total revenue may be
significantly reduced.
IF WE ARE UNABLE TO GENERATE ADDITIONAL SALES FROM EXISTING CUSTOMERS AND
GENERATE SALES TO NEW CUSTOMERS, WE MAY NOT BE ABLE TO GENERATE SUFFICIENT
REVENUES TO BECOME PROFITABLE.
Our success depends on our ability to develop our existing customer
relationships and establish relationships with additional pharmaceutical and
biotechnology companies. If we lose any significant relationships with existing
customers or fail to establish additional relationships, we may not be able to
execute our business plan and our business will suffer. As of March 31, 2000, we
have only performed a limited number of projects with twelve of the twenty
largest pharmaceutical companies and a number of smaller companies. Developing
customer relationships with pharmaceutical companies can be difficult for a
number of reasons. These companies are often very large organizations with
complex decision-making processes that are difficult to change. In addition,
because our products and services relate to the core technologies of these
companies, these organizations are generally cautious about working with outside
companies. Some potential customers may also resist working with us until our
products and services have achieved more widespread market acceptance. Our
existing customers could also reassess their commitment to us, not renew
existing agreements or choose not to expand the scope of their relationship with
us.
WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW PRODUCTS AND SERVICES OR IF OUR OFFERINGS DO NOT KEEP PACE WITH
TECHNOLOGICAL CHANGES.
The successful growth of our business depends on our ability to develop new
products and services and incorporate new capabilities into our existing
offerings on a timely basis. If we cannot adapt to changing technologies,
emerging industry standards, new scientific developments and increasingly
sophisticated customer needs, our products and services may become obsolete and
our business could suffer. We have suffered product delays in the past,
resulting in lost product revenues. In addition, early releases of software
often contain errors or defects. We cannot assure you that, despite our
extensive testing, errors will not be found in our products before or after
commercial release, which could result in product redevelopment costs and loss
of, or delay in, market acceptance. Furthermore, a failure by us to introduce
new products or services on schedule could harm our business prospects. Any
delay or problems in the installation or implementation of new products or
services may cause customers to forego purchases from us.
IF THE SECURITY OF OUR CUSTOMERS' DATA IS COMPROMISED, WE COULD BE LIABLE FOR
DAMAGES AND OUR REPUTATION COULD BE HARMED.
As part of implementing our products and services, we inherently gain access
to certain highly confidential proprietary customer information. It is critical
that our facilities and infrastructure remain secure and are perceived by the
marketplace to be secure. Despite our implementation of a number of security
measures, our infrastructure may be vulnerable to physical break-ins, computer
viruses,
6
<PAGE>
programming errors, attacks by third parties or similar disruptive problems. If
we fail to meet our customers' security expectations, we could be liable for
damages and our reputation could suffer.
IF WE ARE REQUIRED TO COMMIT UNANTICIPATED RESOURCES TO COMPLETE FIXED-PRICE
SERVICE CONTRACTS, WE MAY INCUR LOSSES ON THESE CONTRACTS WHICH COULD CAUSE OUR
OPERATING RESULTS TO DECLINE.
A significant portion of our revenue has been derived from service contracts
that are billed on a fixed-price basis. These contracts specify certain
obligations and deliverables to be met by us regardless of our actual costs
incurred. Our failure to accurately estimate the resources required for a
fixed-price service contract could cause us to commit additional resources to a
project, which could cause our operating results to decline. We cannot assure
you that we can successfully complete these contracts on budget, and our
inability to do so could harm our business.
IF WE ARE UNABLE TO COMPLETE A PROJECT DUE TO SCIENTIFIC LIMITATIONS OR
OTHERWISE MEET OUR CUSTOMERS' EXPECTATIONS, OUR REPUTATION MAY BE ADVERSELY
AFFECTED AND WE MAY NOT BE ABLE TO GENERATE NEW BUSINESS.
Because our projects may contain scientific risks which are difficult to
foresee, we cannot guarantee that we will always be able to complete them. Any
failure to meet our customers' expectations could harm our reputation and
ability to generate new business. On a few occasions, we have encountered
scientific limitations and been unable to complete a project. In each of these
cases, we have been able to successfully renegotiate the terms of the project
with the particular customer. We cannot assure you that we will be able to
renegotiate our customer agreements if such circumstances occur in the future.
Moreover, even if we complete a project, we may not meet our customers'
expectations regarding the quality of our products and services or the
timeliness of our services.
IF WE ARE UNABLE TO HIRE ADDITIONAL SPECIALIZED PERSONNEL, WE WILL NOT BE ABLE
TO GROW OUR BUSINESS.
Growth in the demand for our products and services will require additional
personnel, particularly qualified scientific and technical personnel. We
currently have limited personnel and other resources to staff and complete
projects. In addition, as we grow our business, we expect an increase in the
number of complex projects and large deployments of our products and services,
which require a significant amount of personnel for extended periods of time.
However, there is currently a shortage of these personnel worldwide, and
competition for these personnel from numerous companies and academic
institutions may limit our ability to hire these persons on commercially
reasonable terms. Staffing projects and deploying our products and services will
also become more difficult as our operations and customers become more
geographically diverse. If we are not able to adequately staff and complete our
projects, we may lose customers and our reputation may be harmed. Any
difficulties we may have in completing customer projects may impair our ability
to grow our business.
IF WE LOSE KEY MEMBERS OF OUR MANAGEMENT, SCIENTIFIC OR DEVELOPMENT STAFF, OR
OUR SCIENTIFIC ADVISORS, OUR REPUTATION MAY BE HARMED AND WE MAY LOSE BUSINESS.
We are highly dependent on the principal members of our management,
scientific and development staff. Our reputation is also in part based on our
association with key scientific advisors. The loss of any of these personnel
might adversely impact our reputation in the market and harm our business.
Failure to attract and retain key management, scientific and technical personnel
could prevent us from achieving our strategy and developing our products and
services.
WE HAVE ONLY RECENTLY UNDERTAKEN DEVELOPMENT OF OUR INFORMATION PRODUCTS, AND
OUR FUTURE REVENUE AND OPERATING RESULTS COULD BE HARMED IF THESE PRODUCTS DO
NOT ACHIEVE COMMERCIAL SUCCESS.
An important component of our business strategy relates to our information
products. We have only recently undertaken to develop these products and, as of
March 31, 2000, we had generated no
7
<PAGE>
revenues from them. We expect to release the initial versions of these products
later this year, although we cannot guarantee you that we will be able to
release these products on time. In addition, because the market for these
products is new and emerging, it is difficult to predict the level of market
acceptance. Our future business could be harmed if we do not release these
products on time or if they do not achieve commercial success.
IF WE ARE UNABLE TO OBTAIN SUFFICIENT DATA FROM THIRD-PARTY PROVIDERS, OUR
INFORMATION PRODUCTS WILL NOT BE ATTRACTIVE TO CUSTOMERS.
As of March 31, 2000, we have only established relationships with three
organizations to provide data for inclusion in our information products. We may
not be able to enter into additional agreements with content providers on
commercially favorable terms, if at all. If we are unable to obtain adequate
data, our information products will not be attractive to customers and,
therefore, may not achieve commercial success. In addition, we cannot assure you
that our existing or prospective data providers will not reassess their
commitment to us in the future or develop competitive products internally.
IF THERE IS A SYSTEM FAILURE OR NATURAL DISASTER AT OUR HOSTING FACILITY, WE MAY
NOT BE ABLE TO PROVIDE ACCESS TO OUR INFORMATION PRODUCTS AND OUR BUSINESS COULD
SUFFER.
Our information products data are stored at a third party's computer data
facility located in Santa Clara, California, an area prone to earthquakes. We
currently have no backup systems at other sites. Accordingly, there is a
significant risk to our ability to provide access to our information products
from a natural disaster or system failure at such facility.
OUR BUSINESS DEPENDS ON OUR INTELLECTUAL PROPERTY RIGHTS, AND IF WE ARE UNABLE
TO ADEQUATELY PROTECT THEM, OUR COMPETITIVE POSITION WILL SUFFER.
Our intellectual property is important to our competitive position. We
protect our proprietary information and technology through a combination of
trademark, trade secret and copyright law, confidentiality agreements and
technical measures. We may also seek to protect our intellectual property
through patents, but do not currently have any patents issued or filed. We
cannot assure you that the steps we have taken will prevent misappropriation of
our proprietary information and technology, nor can we guarantee that we will be
successful in obtaining any patents or that the rights granted under such
patents will provide a competitive advantage. Misappropriation of our
intellectual property could harm our competitive position. In addition, we may
need to engage in litigation in the future to enforce or protect our
intellectual property rights or to defend against claims of invalidity, and we
may incur substantial costs as a result.
IF WE BECOME SUBJECT TO INFRINGEMENT CLAIMS BY THIRD PARTIES, WE COULD INCUR
UNANTICIPATED EXPENSE AND BE PREVENTED FROM PROVIDING OUR PRODUCTS AND SERVICES.
We cannot assure you that infringement claims by third parties will not be
asserted against us or, if asserted, will be unsuccessful. These claims, whether
or not meritorious, could be expensive and divert management resources from
operating our company. Furthermore, a party making a claim against us could
secure a judgment awarding substantial damages, as well as injunctive or other
equitable relief that could block our ability to provide products or services,
unless we obtain a license to such technology. In addition, we cannot assure you
that licenses for any intellectual property of third parties that might be
required for our products or services will be available on commercially
reasonable terms, or at all.
8
<PAGE>
FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND
DILUTE STOCKHOLDER VALUE.
In order to expand our product and service offerings and reach new
customers, we may continue to acquire products, technologies or businesses that
we believe are complementary. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, services, products and
personnel of the acquired company, the diversion of management's attention from
other business concerns, the potential loss of key employees of the acquired
company and our inability to maintain the goodwill of the acquired businesses.
We also cannot predict whether or when any prospective acquisition candidate
will become available or the likelihood that any acquisition will be completed.
Future acquisitions may result in:
- potentially dilutive issuances of equity securities;
- the incurrence of additional debt;
- the assumption of known and unknown liabilities; and
- the write-off of software development costs, and the amortization of
expenses related to goodwill and other intangible assets and charges
against earnings.
Any of the above factors, if they occur, could harm our business.
RISKS RELATED TO OUR INDUSTRY
OUR MARKET MAY NOT DEVELOP AS QUICKLY AS EXPECTED, AND COMPANIES MAY ENTER OUR
MARKET, THEREBY INCREASING THE AMOUNT OF COMPETITION AND IMPAIRING OUR BUSINESS
PROSPECTS.
Because our products and services are new and still evolving, there is
significant uncertainty and risk as to the demand for, and market acceptance of,
these products and services. As a result, we are not able to predict the size
and growth rate of our market with any certainty. In addition, other companies,
including potential strategic partners, may enter our market. Our existing
customers may also elect to terminate our services and internally develop
products and services similar to ours. If our market fails to develop, grow more
slowly than expected or become saturated with competitors, our business
prospects will be impaired.
LAWS PROTECTING THE PRIVACY OF CONFIDENTIAL PATIENT INFORMATION MAY LIMIT THE
RANGE OF SERVICES WE CAN PROVIDE AND, IF WE VIOLATE ANY OF THESE LAWS, COULD
SUBJECT US TO CIVIL AND CRIMINAL PENALTIES.
The healthcare industry is regulated by a number of federal, state, local
and international governmental entities. These entities may enact laws that
limit our operations or the operations of our customers. In particular, state
laws aimed at protecting the privacy of confidential patient health information,
including information regarding conditions like AIDS, substance abuse and mental
illness, vary widely. The application of these laws in the context of research
and internet health services is evolving. While these laws primarily are
directed at healthcare providers, facilities and payors, and generally do not
apply to the "anonymized" data we use, from which patient identifiable
information has been removed, some of these laws could be applied to aspects of
our business or to limit providers' ability to provide us with access to such
data. We cannot predict which laws might be found applicable to our business, or
assure you that our operations would be found to be in full compliance.
Compliance with regulatory laws may be expensive and may limit our ability to
provide a full range of services. In addition, a challenge under any of these
laws could result in adverse publicity and, if successful, imposition of civil
and criminal penalties, any of which could harm our business.
9
<PAGE>
GOVERNMENT REGULATIONS MAY BE ENACTED THAT RESTRICT OUR OPERATIONS OR THE
OPERATIONS OF OUR CUSTOMERS AND, THEREFORE, ADVERSELY AFFECT OUR BUSINESS.
The pharmaceutical industry is regulated by a number of federal, state,
local and international governmental entities. Although our products and
services are not directly regulated by the United States Food and Drug
Administration or comparable international agencies, the use of some of our
analytical software products by our customers may be regulated. We currently
provide assistance to our customers in achieving compliance with these
regulations. The regulatory agencies could enact new regulations or amend
existing regulations with regard to these or other products that could restrict
the use of our products or the business of our customers, which could harm our
business.
CONSOLIDATION IN THE PHARMACEUTICAL INDUSTRY COULD CAUSE DISRUPTIONS OF OUR
CUSTOMER RELATIONSHIPS AND INTERFERE WITH OUR ABILITY TO ENTER INTO NEW CUSTOMER
RELATIONSHIPS.
In recent years, the worldwide pharmaceutical industry has undergone
substantial consolidation. If any of our customers consolidate with another
business, they may delay or cancel projects, lay off personnel or reduce
spending, any of which could cause our revenues to decrease. In addition, our
ability to complete sales or implementation cycles may be impaired as these
organizations undergo internal restructuring.
REDUCTION IN THE RESEARCH AND DEVELOPMENT BUDGETS OF OUR CUSTOMERS MAY IMPACT
OUR SALES.
Our customers include researchers at pharmaceutical and biotechnology
companies, academic institutions and government and private laboratories.
Fluctuations in the research and development budgets of these researchers and
their organizations could have a significant effect on the demand for our
products. Research and development budgets fluctuate due to changes in available
resources, spending priorities, internal budgetary policies and the availability
of grants from government agencies. Our business could be harmed by any
significant decrease in research and development expenditures by pharmaceutical
and biotechnology companies, academic institutions or government and private
laboratories.
RISKS RELATED TO THIS OFFERING AND OUR STOCK
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE.
We expect the market price of our common stock to be highly volatile and to
fluctuate significantly in response to various factors, including:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations or new services or products by
us or our competitors;
- timeliness of our introductions of new products;
- changes in financial estimates by securities analysts; and
- changes in the conditions and trends in the pharmaceutical market.
In addition, the stock markets, including the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many technology companies. These fluctuations
have often been unrelated or disproportionate to operating performance. These
broad market factors may materially affect the trading price of our common
stock. General economic, political and market conditions, such as recessions and
interest rate fluctuations, may also have an adverse effect on the market price
of our common stock.
10
<PAGE>
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
this offering. The initial public offering price may not be indicative of the
prices that will prevail in the public market after this offering, and the
market price of the common stock could fall below the initial public offering
price.
WE MAY HAVE SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THIS OFFERING THAT COULD
CAUSE OUR STOCK PRICE TO FALL.
Sales of substantial amounts of our common stock in the public market after
this offering, including shares issued upon the exercise of outstanding options,
or the perception that such sales could occur, could reduce the market price of
our common stock. These sales also might make it more difficult for us to raise
funds through future offerings of common stock.
Upon completion of this offering, there will be shares of our common
stock outstanding. All of the shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act of 1933, except for shares purchased by our "affiliates," as defined in
Rule 144 under the Securities Act. The remaining shares of common stock
that will be outstanding upon completion of this offering are "restricted
securities" as defined in Rule 144. These restricted securities may be sold in
the future without registration under the Securities Act to the extent permitted
under Rule 144, Rule 701 or another exemption under the Securities Act.
We and our officers, directors and stockholders holding approximately
shares of common stock have agreed not to, without the prior written consent of
Donaldson, Lufkin & Jenrette, directly or indirectly sell, offer, contract to
sell, transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of common stock or any securities convertible
into, or exchangeable, or exercisable for, or any other rights to purchase or
acquire shares of common stock owned by them during the 180-day period
commencing on the date of this prospectus. Some of the shares subject to the
lockup agreements may be released from this restriction earlier depending on the
trading price of our common stock. See "Shares Eligible for Future Sale" for a
more detailed discussion.
BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE SUBSTANTIAL CONTROL OF OUR
VOTING STOCK, TAKEOVERS NOT SUPPORTED BY THEM WILL BE MORE DIFFICULT, POSSIBLY
PREVENTING YOU FROM OBTAINING OPTIMAL SHARE PRICE.
The control of a significant amount of our stock by insiders could adversely
affect the market price of our common stock. After this offering, our executive
officers and directors will beneficially own or control 7,447,144 shares or %
of the outstanding common stock. If our executive officers and directors choose
to act or vote together, they will have the power to significantly influence all
matters requiring the approval of our stockholders, including the election of
directors and the approval of significant corporate transactions. Without the
consent of these stockholders, we could be prevented from entering into
transactions that could result in our stockholders receiving a premium for their
stock.
OUR CHARTER DOCUMENTS CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY DISCOURAGE
TAKE-OVER ATTEMPTS AND MAY REDUCE OUR STOCK PRICE.
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the preferences, rights and privileges of those
shares without any further vote or action by the stockholders. The rights of the
holders of common stock may be harmed by the rights of the holders of any
preferred stock that may be issued in the future. Other provisions of our
certificate of incorporation and bylaws may make it more difficult for a third
party to acquire control of us without the consent of our board of directors,
even if the changes were favored by a majority of the
11
<PAGE>
stockholders. These include provisions that provide for a staggered board of
directors, prohibit stockholders from taking action by written consent and
restrict the ability of stockholders to call special meetings.
INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial price to the public in this offering will be substantially
higher than the net tangible book value per share of common stock. If we sell
shares in the offering at an assumed initial price to public of $
per share, our pro forma net tangible book value per share will be $
, which is $ below the per share initial price to public. If
we issue additional common stock in the future or outstanding options or
warrants to purchase our common stock are exercised, there will be further
dilution.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND OUR INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
Our management will have considerable discretion in the application of the
net proceeds of this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds of this offering, after payment of $6.1 million
to the holders of series C preferred stock, may be used for corporate purposes
that do not increase our results of operations or fail to yield a favorable
return. Pending any uses, we plan to invest the net proceeds of the offering in
investment-grade, interest-bearing securities.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our business and our
industry that involve risks and uncertainties. These forward-looking statements
are usually accompanied by words like "believe," "anticipate," "plan," "seek,"
"expect," "intend" and similar expressions. Our actual results may differ
materially from the results expressed or implied by these forward-looking
statements because of the risk factors and other factors disclosed in this
prospectus. We undertake no obligation to update any forward-looking statements
for any reason, even if new information becomes available or other events occur
in the future.
12
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the shares of our common stock in
this offering are estimated to be approximately $ , or $
if the underwriters exercise their over-allotment option in full, assuming
an initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
We expect to use approximately $6.1 million of the net proceeds for payment
to the holders of our series C preferred stock at the closing of the offering as
required by the terms of the series C preferred stock. We intend to use the
remainder of the net proceeds of this offering for research and development of
new and existing products and services, working capital and other general
corporate purposes, including potential acquisition of products, technologies or
businesses. However, we are not party to any agreements, understandings or
commitments regarding acquisitions at the present time. Pending these uses, the
net proceeds will be invested in short-term, investment-grade, interest-bearing
securities.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with our available cash and expected interest income
thereon and funds from operations, should be sufficient to finance our capital
requirements through at least two years. This estimate is based on assumptions
that could be negatively impacted by the matters discussed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and do
not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings, if any, for
use in the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our results of
operation, financial condition and other factors as our board of directors, in
its discretion, deems relevant. In addition, under the terms of some of our debt
agreements, we are prohibited from paying dividends without the consent of the
lender.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999 on
an actual basis, and as adjusted to give effect to the receipt of net proceeds
from the sale of the shares of our common stock at an assumed initial
public offering price of $ per share, the payment of $6.1 million
to the holders of our series C preferred stock and the conversion of all
outstanding preferred stock into common stock. The table should be read in
conjunction with "Use of Proceeds" and our financial statements and our related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Capital leases and notes payable............................ $ 3,792 $ 3,792
Redeemable convertible preferred stock: 5,511,640 shares
authorized, 5,455,094 shares issued and outstanding actual;
no shares authorized, no shares issued and outstanding as
adjusted................................................... 18,272 --
Stockholders' equity:
Convertible preferred stock: 5,253,052 shares authorized,
5,231,623 shares issued and outstanding actual;
5,000,000 shares authorized, no shares issued and
outstanding as adjusted................................. 22,552 --
Common stock: 19,235,308 shares authorized, 3,915,172
shares issued and outstanding actual; 120,000,000 shares
authorized, shares issued and outstanding as
adjusted................................................ 4,754
Warrants.................................................. --
Notes receivable from stockholders........................ (133) (133)
Deferred stock compensation............................... (2,743) (2,743)
Accumulated other comprehensive income.................... (23) (23)
Accumulated deficit....................................... (25,833) (25,833)
-------- --------
Total stockholders' equity (deficit)........................ (1,426)
-------- --------
Total capitalization........................................ $ 20,638 $
======== ========
</TABLE>
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<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $16.1 million, or $1.10 per share. Pro forma net tangible book
value per share represents the amount of pro forma stockholders' equity, less
intangible assets, divided by the pro forma number of shares of common stock
outstanding as of December 31, 1999. Our as adjusted pro forma net tangible book
value as of December 31, 1999 would have been $ million, or $
per share after giving effect to the sale of shares of common stock
offered by us at the assumed initial public offering price of $ per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share to investors purchasing our common stock in this offering, as
illustrated in the following table:
<TABLE>
<CAPTION>
Assumed initial public offering price per share. $
<S> <C> <C>
------
Pro forma net tangible book value per share before this
offering................................................ $ 1.10
Increase per share attributable to new investors..........
------
As adjusted pro forma net tangible book value per share
after this offering.......................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The table below summarizes, on a pro forma basis, the differences between
our existing stockholders and the new investors purchasing our common stock in
this offering with respect to the total number of shares purchased from us, the
total consideration paid and the average price per share paid. For this table,
we have assumed an initial public offering price of $ per share.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
--------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 14,601,889 % $ % $
New investors...............................
---------- ---- ----- ----
Total..................................... 100% $ 100%
========== ==== ===== ====
</TABLE>
These tables do not assume the exercise of stock options and warrants
outstanding as of December 31, 1999. To the extent that outstanding options and
warrants are exercised, there will be additional dilution to investors. As of
December 31, 1999, there were 1,819,318 shares of common stock issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$0.61 per share and 296,881 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $1.45 per share.
The pro forma net tangible book value per share would be $ , the dilution per
share to new investors would be $ after giving effect to the exercise of the
options and warrants outstanding and exercisable as of December 31, 1999.
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<PAGE>
SELECTED FINANCIAL DATA
You should read the following historical selected financial data in
conjunction with the financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus. We have derived our balance sheet data
as of March 31, 1998 and 1999 and statements of operations data for each of the
years ended March 31, 1997, 1998 and 1999 from our audited financial statements
included in this prospectus. We have derived our balance sheet data as of
March 31, 1996 and 1997 and statements of operations data for the period from
April 4, 1995 to March 31, 1996 from our audited financial statements not
included in this prospectus. We have derived our balance sheet data as of
December 31, 1999 and statements of operations data for the nine months ended
December 31, 1998 and 1999 from our unaudited condensed financial statements. We
believe that the unaudited financial data fairly reflect our results of
operations and financial condition for the respective periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 4, 1995 YEARS ENDED MARCH 31, DECEMBER 31,
(INCEPTION) TO ------------------------------ -------------------
STATEMENTS OF OPERATIONS DATA MARCH 31, 1996 1997 1998 1999 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ -- $ -- $ 1,106 $ 4,085 $ 2,657 $ 6,252
Costs and expenses:
Cost of revenues.................... -- -- 714 2,520 1,647 3,042
Research and development............ 126 720 2,134 4,327 3,004 3,759
Sales and marketing................. 67 816 1,366 2,292 1,592 2,773
General and administrative.......... 47 438 744 1,105 707 1,332
Amortization of deferred stock
compensation...................... -- -- -- 57 -- 1,391
Amortization of intangible assets... -- -- 82 965 708 764
Acquired in-process research and
development....................... -- -- 362 2,592 2,592 --
------ ------- ------- -------- ------- -------
Total operating expenses.............. 240 1,974 5,402 13,858 10,250 13,061
------ ------- ------- -------- ------- -------
Loss from operations.................. (240) (1,974) (4,296) (9,773) (7,593) (6,809)
Other income (expense), net........... 8 40 172 (120) (223) (15)
------ ------- ------- -------- ------- -------
Net loss.............................. $ (232) $(1,934) $(4,124) $ (9,893) $(7,816) $(6,824)
Accretion on convertible preferred
stock............................... -- -- (448) (803) (492) (931)
Series C redeemable convertible
preferred stock dividend............ -- -- (644) -- -- --
------ ------- ------- -------- ------- -------
Net loss applicable to common
stockholders........................ $ (232) $(1,934) $(5,216) $(10,696) $(8,308) $(7,755)
====== ======= ======= ======== ======= =======
Basic and diluted net loss per
share............................... $(1.30) $ (2.57) $ (3.96) $ (4.41) $ (3.64) $ (2.50)
====== ======= ======= ======== ======= =======
Shares used to compute basic and
diluted net loss per share.......... 178 752 1,318 2,424 2,281 3,107
Pro forma basic and diluted net loss
per share........................... $ (1.23) $ (0.64)
======== =======
Shares used to compute pro forma basic
and diluted net loss
per share........................... 8,670 12,194
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, DECEMBER 31,
----------------------------------------- ------------
BALANCE SHEET DATA 1996 1997 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments.................................... $1,549 $ 662 $ 3,701 $ 6,147 $ 18,339
Working capital.................................. 1,552 459 2,922 2,604 16,992
Total assets..................................... 1,605 899 5,399 9,655 23,514
Long-term obligations, net of current portion.... 0 180 1,221 2,812 2,129
Redeemable convertible preferred stock........... -- -- 7,176 17,341 18,272
Deferred stock compensation...................... 0 0 0 (239) (2,743)
Accumulated deficit.............................. (232) (2,166) (7,382) (18,078) (25,833)
Total stockholders' equity (deficit)............. 1,582 472 (4,556) (15,086) (1,426)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE DISCUSSION IN THIS
SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
BY THESE FORWARD-LOOKING STATEMENTS DUE TO FACTORS INCLUDING, BUT NOT LIMITED
TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We develop and market integrated products and services that help
pharmaceutical and biotechnology companies improve the drug development process.
Our solution combines proprietary computer-based simulation, statistical and
data analysis tools with the sciences of pharmacology, drug and disease
modeling, human genetics and biostatistics. We have an integrated solution to
address the critical steps in designing clinical trials and drug development
programs. Our solution is designed to help our customers use a more rigorous
scientific and statistical process to identify earlier those drug candidates
that will not be successful and to enhance the likelihood that the remaining
candidates will successfully complete clinical trials.
During the period from our inception in April 1995 through March 1997, we
were a development stage enterprise. Our operating activities during this period
related primarily to developing products, building our corporate infrastructure
and raising capital. In the second quarter of fiscal 1998 we released our first
version of software for trial simulation and started offering our scientific and
decision services. In December 1997 we acquired Scientific Consulting, Inc. and
the model workbench family of products.
The majority of our sales activities are conducted through a dedicated
direct sales organization located in the United States and Europe. In addition,
our technical support personnel and scientific consultants conduct sales and
marketing activities.
In fiscal 2000, we entered into licensing agreements with three
organizations to gain access to their proprietary medical data on a royalty
basis for use in our information products. In the future, we expect to enter
into alliances and license arrangements to gain access to other medical data on
a royalty basis. We expect this data to provide the foundation for our
information products. We intend to provide these products to our customers on a
subscription basis.
REVENUE RECOGNITION
We recognize revenue from our products and services when we determine that
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collection is probable. If any of these criteria are not met,
we defer revenue recognition until all of the criteria are met. We consider all
arrangements with payment terms extending beyond twelve months and other
arrangements with payment terms longer than normal not to be fixed or
determinable. If we do not consider collectibility probable, we recognize
revenue when the fee is collected. No customer has the right of return.
For contracts from which we receive solely license and maintenance fees, we
recognize license revenue based upon the residual method after all elements
other than maintenance have been delivered. We recognize maintenance revenues
over the term of the maintenance contract as vendor-specific objective evidence
of fair value for maintenance exists. We determine whether vendor-specific
objective evidence of fair value of maintenance exists by reference to the price
the customer will be required to pay when it is sold separately, i.e. the
renewal rate. Each license agreement offers
17
<PAGE>
additional maintenance renewal periods at a stated price. Maintenance contracts
are typically one year in duration. We recognize revenue on software that is
licensed on a per copy basis when each copy of the license requested by the
customer is delivered. We recognize revenue through our Japanese distributor on
shipment if the distributor has identified a valid end-user for the product, if
other software revenue recognition criteria are met and since there is no right
of return or price protection.
We recognize revenues from scientific and training services as services are
performed. For those contracts that include contract milestones or acceptance
criteria, we recognize revenues as these milestones are achieved or as
acceptance occurs. For contracts that are on a fixed price basis, we determine
if losses should be recognized at the end of each accounting period.
During the nine months ended December 31, 1999, we entered into arrangements
that consist of licenses, maintenance and scientific and training services. For
these arrangements, we assess whether the service element of the arrangement is
essential to the functionality of the other elements of the arrangement. In
those instances where we determine that the service elements are essential to
the other elements of the arrangement, we will account for the entire
arrangement using contract accounting. For those arrangements accounted for
using contract accounting that do not include contractual milestones or other
acceptance criteria, we will utilize the percentage of completion method based
upon input measures of hours. For those contracts that include contract
milestones or acceptance criteria, we will recognize revenue as such milestones
are achieved or as such acceptance occurs. Our revenue recognition policy is in
accordance with Statement of Position No. 97-2, "Software Revenue Recognition,"
as amended by Statement of Position No. 98-4, "Referral of the Effective Date of
SOP 97-2, Software Revenue Recognition", and Statement of Position No. 98-9,
"Modification of SOP No. 97-2 with Respect to Certain Transactions."
ACQUISITIONS
In December 1997 we purchased all of the outstanding shares of Scientific
Consulting, Inc., a developer of scientific software products for the
pharmaceutical industry, for an aggregate purchase price of $1.3 million,
consisting of cash, a note payable and shares of our common stock. The
acquisition was accounted for using the purchase method, and the results of
operations of Scientific Consulting, Inc. have been included in our operations
since acquisition. We charged to expense $362,000 for in-process technology
acquired from this acquisition. The valuation methodology used by an independent
appraiser to establish this charge included an analysis and estimation of the
fair market value and remaining economic life of both the core and the acquired
in-process technologies on a going concern basis.
In May 1998 we purchased biomedical modeling and simulation technology from
Mitchell and Gauthier Associates, Inc., a provider of software and services
principally to the aerospace and defense industries. We acquired the exclusive
right to use the technology in the biopharmaceutical market. We purchased these
assets for an aggregate purchase price of $4.7 million, consisting of cash,
notes payable and shares of our common stock. The acquisition of the assets was
accounted for using the purchase method. We charged to expense $2.6 million for
the in-process technology acquired. The valuation methodology used by an
independent appraiser to establish this charge included an analysis and
estimation of the fair market value and remaining economic life of both the core
and the acquired in-process technologies on a going concern basis.
DEFERRED STOCK COMPENSATION
For the year ended March 31, 1999 and the nine month period ended
December 31, 1999, in connection with the grant of stock options to employees,
we recorded deferred stock compensation totaling $296,000 and $3.9 million,
respectively, representing the difference between the deemed fair value of our
common stock for financial reporting purposes on the date these options were
granted and
18
<PAGE>
the exercise price. This amount is included as a reduction of stockholders'
equity and is being amortized over the vesting period of the individual options,
generally four years, using the graded vesting method. The graded vesting method
provides for vesting of portions of the overall award at interim dates and
results in higher vesting in earlier years than straight-line vesting. We
recorded amortization of deferred stock compensation of $57,000 and
$1.4 million for the year ended March 31, 1999 and the nine month period ended
December 31, 1999, respectively. As of December 31, 1999, we had a total of
$2.7 million remaining to be amortized over the vesting periods of the stock
options. You should read Note 12 of notes to the financial statements.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Revenues increased $3.6 million, or 135%, from $2.7 million for
the nine months ended December 31, 1998 to $6.3 million for the nine months
ended December 31, 1999. The majority of this increase was revenue recognized
during fiscal 2000 under five new strategic agreements with major pharmaceutical
companies. In addition, revenue also increased as the number of our customers
increased significantly, and we enhanced our software and services and increased
the prices we charged for them.
COST OF REVENUES. Cost of revenues increased $1.4 million, or 85%, from
$1.6 million for the nine months ended December 31, 1998 to $3.0 million for the
nine months ended December 31, 1999. The increase was due primarily to increased
service personnel in scientific and decision services. Cost of revenue as a
percentage of total revenues decreased from 62% to 49%. Because of the direct
relationship of personnel to projects undertaken, we anticipate that as we take
on new projects, cost of revenues will reflect changes in total revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$755,000, or 25%, from $3.0 million for the nine months ended December 31, 1998
to $3.8 million for the nine months ended December 31, 1999. The increase
resulted primarily from an increase in the number of software developers and the
use of outside contractors. In particular, we dedicated considerable resources
to the development of the clinical workbench and information products. As a
percentage of revenues, research and development expenses decreased from 113% to
60%. The decrease in research and development expenses as a percentage of total
revenue primarily reflects the greater increase in revenue relative to the
increase in research and development staff. We believe that our research and
development expenses in absolute dollars will increase as we continue to expand
our product offerings.
SALES AND MARKETING. Sales and marketing expenses increased $1.2 million,
or 74%, from $1.6 million for the nine months ended December 31, 1998 to
$2.8 million for the nine months ended December 31, 1999. The increase in sales
and marketing expenses is related primarily to an expansion in our sales force
personnel. As a percentage of total revenues, sales and marketing expenses
decreased from 60% to 44%. The decrease in marketing and sales expenses as a
percentage of total revenue reflects the more rapid growth in our revenues
compared to the growth of marketing and sales expenses. We expect our sales and
marketing expenses to increase as we continue expansion of our field sales force
in both the United States and Europe.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$625,000, or 88%, from $707,000 for the nine months ended December 31, 1998 to
$1.3 million for the nine months ended December 31, 1999. The increase in
general and administrative expenses is related to growth in management and
administrative support staff. We expect to continue expansion of our management
and administrative support staff as our management and corporate infrastructure
grows. We also expect our general and administrative expenses to grow as we
incur the costs of being a public company. As a percentage of total revenues,
general and administrative expenses decreased from 27% to 21%.
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OTHER INCOME (EXPENSE). Other expense decreased $208,000 from $223,000 for
the nine months ended December 31, 1998 to $15,000 for the nine months ended
December 31, 1999. This decrease occurred as a result of higher interest income
on a larger average balance of cash and short-term investments during the
period.
PROVISION FOR INCOME TAXES. As a result of our net operating losses, no
provision was recorded for income taxes during the nine months ended
December 31, 1998 and 1999.
YEARS ENDED MARCH 31, 1999 AND 1998
REVENUES. Revenues increased $3.0 million, or 269%, from $1.1 million in
fiscal 1998 to $4.1 million in fiscal 1999. The overall increase in revenue was
primarily attributable to the growth of our scientific and decision services and
model and trial workbench applications.
COST OF REVENUES. Cost of revenues increased $1.8 million, or 253%, from
$714,000 in fiscal 1998 to $2.5 million in fiscal 1999. The increase was due to
growth in scientific and decision services personnel. Cost of revenue as a
percentage of total revenues decreased from 65% to 62%.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$2.2 million, or 103%, from $2.1 million in fiscal 1998 to $4.3 million in 1999.
The increase resulted primarily from growth in the number of software developers
as we continued development of new products, including updates and upgrades to
our existing model and trial workbench families of products. As a percentage of
revenues, research and development expenses decreased from 193% to 106%.
SALES AND MARKETING. Sales and marketing expenses increased $926,000, or
68%, from $1.4 million in fiscal 1998 to $2.3 million in fiscal 1999. The
increase in sales and marketing expenses was related primarily to the expansion
of sales force personnel and marketing activities, including trade shows and
public relations. As a percentage of total revenues, sales and marketing
expenses decreased from 124% to 56%.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$361,000, or 49%, from $744,000 in fiscal 1998 to $1.1 million in fiscal 1999.
The increase in general and administrative expenses was related primarily to
growth in management and administrative support staff. As a percentage of total
revenues, general and administrative expenses decreased from 67% to 27%.
OTHER INCOME (EXPENSE). Other income decreased $292,000 from $172,000 in
fiscal 1998 to an expense of $120,000 in fiscal 1999. This decrease occurred as
a result of higher debt balance, which was due to interest expense paid on notes
issued in connection with the acquisition of assets from Mitchell and Gauthier
Associates, Inc. and increased capital leases.
PROVISION FOR INCOME TAXES. As a result of our net operating losses, no
provision was recorded for income taxes during the years ended March 31, 1998
and 1999.
YEARS ENDED MARCH 31, 1998 AND 1997
REVENUES. We recognized no revenues for fiscal 1997. Revenues for fiscal
1998 were $1.1 million. The revenues in fiscal 1998 were primarily attributable
to the introduction of our trial and model workbench applications and scientific
services.
COST OF REVENUES. We had no cost of revenues for fiscal 1997. Cost of
revenues for fiscal 1998 was $714,000. Cost of revenues for fiscal 1998 was due
to product royalties and hiring of service personnel.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$1.4 million, or 196%, from $720,000 in fiscal 1997 to $2.1 million in fiscal
1998. The increase resulted primarily from growth in the number of software
developers as we continued development of new products.
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SALES AND MARKETING. Sales and marketing expenses increased $550,000, or
67%, from $816,000 in fiscal 1997 to $1.4 million in fiscal 1998. The increase
in sales and marketing expenses was related primarily to the expansion of sales
force personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$306,000, or 70%, from $438,000 in fiscal 1997 to $744,000 in fiscal 1998. The
increase in general and administrative expenses was related primarily to growth
in management and administrative support staff.
OTHER INCOME (EXPENSE). Other income increased $132,000 from $40,000 in
fiscal 1997 to $172,000 in fiscal 1998. This increase occurred as a result of
higher interest income on a larger average balance of cash and short-term
investments during the period.
PROVISION FOR INCOME TAXES. As a result of our net operating losses, no
provision was recorded for income taxes during the years ended March 31, 1997
and 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception we have funded operations through the private sale of
preferred stock, with net proceeds of approximately $38 million, limited
borrowings and equipment leases. All shares of our preferred stock will be
converted automatically into common stock immediately prior to the closing of
this offering. As of December 31, 1999, we had $18.3 million in cash and
short-term investments, an increase of $12.2 million from cash and short-term
investments held as of March 31, 1999, and a $1.5 million secured revolving line
of credit against 80% of eligible accounts receivable, which bears a variable
interest rate of prime plus 1% and expires in January 2001, if not extended. As
of December 31, 1999, there were no borrowings under the line of credit. Our
working capital, defined as current assets less current liabilities, at
December 31, 1999 was $17.0 million, an increase of $14.4 million in working
capital from March 31, 1999. The increase in the working capital is attributable
to the increase in cash from the sales of our preferred stock and the increase
in accounts receivable.
Net cash used in operating activities was $1.8 million in fiscal 1997,
$3.3 million in fiscal 1998, $5.6 million in fiscal 1999, and $5.4 million in
the nine months ended December 31, 1999. The cash used in these periods was
primarily attributable to net losses of $1.9 million in fiscal 1997,
$4.1 million in fiscal 1998, $9.9 million in fiscal 1999, and $6.8 million in
the nine months ended December 31, 1999. Of the loss in fiscal 1998 and 1999,
$362,000 and $2.6 million, respectively, was attributable to a noncash
in-process research and development charge incurred in connection with our
acquisition of Scientific Consulting, Inc.'s business and certain assets from
Mitchell and Gauthier Associates, Inc.
Net cash used in investing activities was $178,000 in fiscal 1997,
$1.9 million in fiscal 1998, $4.0 million in fiscal 1999, and $11.2 million in
the nine months ended December 31, 1999. Net cash used in investing activities
included purchase of short-term investments, capital expenditures and, in fiscal
1999, $2.4 million paid to acquire Scientific Consulting, Inc. and some of the
assets of Mitchell and Gauthier Associates, Inc.
Financing activities provided net cash of $1.1 million in fiscal 1997,
$7.2 million in fiscal 1998, $11.0 million in fiscal 1999, and $18.1 million in
the nine months ended December 31, 1999. These amounts were primarily proceeds
from the sale of preferred stock and issuances of notes payable in connection
with acquisitions.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents and available credit facilities, will be
sufficient to meet our anticipated cash needs for operations, working capital
and capital expenditures for at least the next two years. However, we may need
to raise additional funds sooner through public or private financing or other
sources to fund our operations and for potential acquisitions. We may not be
able to obtain adequate or favorable financing
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at that time. Failure to raise capital when needed could harm our business. If
we raise additional funds through the issuance of equity securities, the
percentage of ownership of our stockholders would be reduced. Furthermore, these
equity securities might have rights, preferences or privileges senior to our
common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 the FASB issued Statement of Financial Accounting
Standards 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS 133 as deferred by SFAS 137, will be effective for our
fiscal year ending March 31, 2001. We do not expect that the adoption of
SFAS 133 will have a material impact on our results of operations, financial
position or cash flows in the foreseeable future.
In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." Although we are currently evaluating the
potential impact of this bulletin, we do not believe its adoption will
materially change our financial position, results of operation or cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
We have operated primarily in the United States and all funding activities
and sales have been denominated in U.S. dollars. Accordingly, we have not had
any exposure to foreign currency rate fluctuations.
Our interest income is sensitive to changes in the general level of United
States interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we
believe that there is no material market risk exposure. As of March 31, 1999 and
December 31, 1999, our cash, cash equivalents and short-term investments
consisted primarily of demand deposits, money market funds, treasury instruments
and commercial paper.
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BUSINESS
OVERVIEW
We develop and market integrated products and services that help
pharmaceutical and biotechnology companies improve the drug development process.
Our solution combines proprietary computer-based simulation, statistical and
data analysis tools with the sciences of pharmacology, drug and disease
modeling, human genetics and biostatistics. Our solution consists of scientific
and decision services, computer-based development applications and related
services, and information products.
We believe our solution helps pharmaceutical and biotechnology companies
reduce the time, cost and risk of drug development activities, and may improve
the marketing and use of pharmaceutical products. This is significant because
the process of taking a drug through clinical development has remained lengthy
and unpredictable while the productivity of discovery research has accelerated
dramatically in recent years.
Twelve of the world's largest 20 pharmaceutical companies have begun to
apply our computer-assisted drug development solution, and our computer-based
development applications are currently used on more than 1,800 researcher
desktops. To date, we have been engaged in over 60 projects in more than nine
therapeutic areas.
BACKGROUND
DRUG RESEARCH AND DEVELOPMENT PROCESS OVERVIEW
The process of developing a new drug and bringing it to market is complex
and lengthy. The process consists of four basic stages:
- DISCOVERY STAGE. Researchers use various methods and techniques to
discover new compounds as well as to identify targets they may affect. The
recent emergence of technologies such as high throughput screening,
combinatorial chemistry and genomics has substantially increased the
number of drug candidates and potential targets.
- PRECLINICAL STAGE. Once lead drug candidates have been identified,
scientists test the chemical activity of the newly synthesized compounds
in a variety of assays and animal models.
- CLINICAL STAGE. Next, a drug candidate enters human testing to demonstrate
safety and efficacy. Depending on the drug and the potential disease
target, this process can consist of 50 to 100 separate studies. The
process typically includes three pre-approval phases. In phase I, drug
candidates are evaluated for safety at varying dose levels in healthy
volunteers. In phase II, efficacy of the drug is tested in a small to
moderate number of patients with the targeted disease indication. In phase
III, trials are conducted to evaluate safety and efficacy in large groups
of patients with the disease to be treated.
- APPROVAL AND POST-APPROVAL STAGE. Next, data and analysis from prior
stages of development are consolidated into a new drug application, which
is submitted to the United States Food and Drug Administration or
comparable international regulatory authorities. The regulatory authority
reviews the application to manufacture, distribute and market the drug for
specific indications and patient groups. After approval, pharmaceutical
companies often conduct phase IV studies, which are sometimes a condition
of approval, to study long-term safety or efficacy, or to expand the label
of a drug.
PHARMACEUTICAL AND BIOTECHNOLOGY RESEARCH AND DEVELOPMENT MARKET OVERVIEW
According to industry sources, worldwide pharmaceutical market revenues
totaled $302 billion in 1998 and are expected to grow to $406 billion in 2002.
These growth expectations coincide with a
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continuing number of patent expirations for high profile drugs. In addition,
with increasing numbers of pharmaceutical companies developing competing
compounds directed at the same disease targets, the amount of time during which
a pharmaceutical company can expect to have exclusivity in a major market has
declined substantially. As a result of these factors, to achieve targeted
revenue growth, pharmaceutical companies have substantially increased the number
of new drugs in their research and development pipelines. Many of these drugs
target increasingly complex diseases that have clinical outcomes which are more
difficult to measure.
In their attempts to increase the number of new drugs ultimately introduced
to the market, and in response to the increasingly complex nature of research
and development activities, pharmaceutical companies have dramatically increased
their research and development spending. According to the Pharmaceutical
Research and Manufacturers Association, or PhRMA, as a percentage of sales,
pharmaceutical research and development spending has increased from 12% in 1980
to 21% in 1999. Pharmaceutical and biotechnology companies have invested
substantial resources in new technologies, such as high throughput screening and
combinatorial chemistry, to accelerate the drug discovery process. According to
PhRMA, as a result of advances in genetic research, the number of distinct
targets for drug interventions is expected to increase from approximately 500
currently to more than 3,000 by 2005.
Overall drug development success rates remain limited while the number of
new drug candidates and targets have increased substantially. In fact, the FDA
reports that 80% of compounds that enter human clinical trials ultimately fail
to receive regulatory approval. The clinical development process continues to be
time consuming and costly despite the development of new technologies to better
and more rapidly capture and organize data for submission to regulatory
agencies. According to the FDA, clinical development prior to regulatory
submission takes an average of 5 years.
The current decision process for drug development programs is imprecise and
does not incorporate many of the new research information technologies utilized
in drug discovery. We believe that communication across all key disciplines
within an organization is crucial to rapid and efficient assessment of all the
factors and data needed to design a successful trial or program. These
organizations need solutions that systematically track and organize information
from previous trials and that integrate external data to help design and
statistically predict the outcome of future projects.
PHARSIGHT CAPABILITIES
We have an integrated offering of products and services to address the
critical steps in designing clinical trials and drug development programs. Our
offerings combine proprietary simulation, statistical and data analysis tools
with the sciences of pharmacology, drug and disease modeling, human genetics and
biostatistics. Our solution is designed to help drug development experts use a
more rigorous scientific and statistical process to design trials and make
program decisions. We believe our offerings help pharmaceutical and
biotechnology companies reduce the time, cost and risk of drug development and
may help improve the marketing and use of pharmaceutical products.
We believe typical customer benefits of our capabilities include the
following:
- more rapid and objective decision-making with quantified assessment of
value versus risk;
- more effective trial designs with higher probability of success and
greater information yield;
- more efficient development programs requiring fewer clinical trials and
patients, less time and lower cost to reach market; and
- strengthened competitive position due to improved product labels.
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The following examples illustrate typical customer applications of our
solution:
- In designing phase II clinical trials, companies often face significant
uncertainty in selecting the appropriate doses to test. Our solution
integrates information from phase I and pre-clinical activities,
information concerning related drugs which have been developed by the
customer, information in the scientific literature about other drugs in
the same therapeutic area, and knowledge of the relevant physiological
and disease processes. This information, along with carefully
identified assumptions, is used to develop a mathematical model
enabling a computer simulation of the proposed trial. Using this
approach, customers are often able to identify proposed doses which
have little chance of success and should be excluded or to identify
additional doses which are more likely to yield important information.
- In designing phase III clinical trials, companies often face
significant uncertainty concerning the most appropriate treatment
strategy, patient inclusion/exclusion criteria and/or clinical
measurements. Our solution uses an information gathering and modeling
approach similar to that described above, but incorporates phase II
data and detailed mathematical models of the relevant patient
populations. We are often able to identify patient groups with low
chance of demonstrating efficacy, or an unacceptable chance of
demonstrating side effects, prior to conducting the actual trial. In
addition, we may be able to predict which clinical measurements will be
most likely to provide conclusive results in the proposed trial.
- In making drug portfolio decisions, companies need to integrate
scientific and clinical results, such as those described above, with
market and financial information for all of the drug candidates in the
development pipeline. We believe that our solution helps companies make
better decisions concerning "go/no-go" criteria, prioritization of
potential label objectives to be pursued and optimal sequencing of
clinical trials within a development program. Our solution can also
help customers adopt a more quantitative and scientific approach to
resource allocation among programs within their drug portfolios.
We have developed significant expertise in key disciplines, including
clinical pharmacology, drug and disease modeling, human genetics, biostatistics,
decision science, clinical development and information technology. We believe
our focus on communications and information sharing, together with the combined
expertise of our personnel in these areas, increases our effectiveness and is
only partially duplicated within any pharmaceutical or biotechnology company.
STRATEGY
Our strategy is to help pharmaceutical and biotechnology companies
accelerate clinical development and to assist large healthcare organizations in
the adoption and use of pharmaceutical products. Elements of our strategy
include:
- EXPAND OUR PRESENCE WITHIN THE CLINICAL DEVELOPMENT MARKET. Our customers
include 12 of the world's largest 20 pharmaceutical companies as measured
by total revenues. We intend to expand our relationships with these
customers by extending our services to new therapeutic areas. In addition,
we intend to expand our base of more than 1,800 software users through the
launch of our information products and the expansion of our software
offerings and to expand our customer base to include more of the world's
largest 50 pharmaceutical and biotechnology companies. In order to achieve
a broader customer presence, we plan to expand our service, marketing and
sales activities and focus on establishing new relationships around
therapeutic areas where we already have substantial experience and could
provide the most near-term value to new customers.
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- EXPAND OUR ACTIVITIES IN PHARMACEUTICAL MARKETING AND PHASE IV STUDY
DESIGN. We believe our experience in the clinical development process, and
the substantial data and analyses we help create during that process,
position us to provide marketing program design services for our
customers, including the design of post-approval studies. We believe this
is a natural extension of the services we provide during other phases of
the process. We plan to add personnel and develop new information products
to focus on these business opportunities, with an initial focus on our
existing customers and therapeutic areas where we have the most
experience.
- BROADEN OUR CONTENT AND DATA RELATED PRODUCT OFFERINGS. In addition to
helping customers better evaluate and organize internally generated data,
we review and incorporate external data sources when conducting our trial
and program design services. We are organizing data libraries and
information products that access multiple data sources and are updated on
a consistent basis. We are applying our medical and statistical
capabilities to develop these information products in our major
therapeutic areas of expertise. We expect to introduce our first
information products later this year, including products in the diabetes
and cardiovascular areas, initially focusing on current customers.
- MAINTAIN AND ENHANCE OUR SCIENTIFIC AND TECHNOLOGY LEADERSHIP. We believe
the expertise of our staff and scientific advisors, and our relationships
with major academic institutions, help us to identify and develop
scientific, medical and technical advances important to our business. For
example, advances in genomics may allow early identification of drug
metabolism problems, reduce the number of patients required to
statistically prove safety and efficacy, and stratify patient populations
for improved competitive labeling and market success. We expect to
continue investing a significant portion of our revenues in research and
development in order to incorporate advances such as these into our
products.
- PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. We intend to evaluate and,
where advantageous, pursue acquisitions, alliances and technology
licensing opportunities that may extend the range of products and services
we offer to our customers. We also intend to pursue strategic alliances to
market our information products to managed care, hospital, physician and
clinical laboratory organizations that are attempting to more effectively
utilize drug therapies and target the appropriate patient populations for
certain drugs. We may also license certain of our technologies to
organizations in other fields of use.
OUR PRODUCTS AND SERVICES
We provide scientific and decision services and computer-based development
applications and services. We first offered our workbench applications and
scientific services in 1997, and have been providing our decision services since
1998. We are also developing our information products and we expect to launch
our first group of information products, to be accessed over the internet, later
this year.
In a typical project, our products and services are used together to design
clinical trials or development programs. In many cases our computer-based
development applications and services continue to be utilized upon completion of
a project as our customers seek to further redesign their
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drug development processes. The following chart depicts typical issues that we
are asked to address in projects.
<TABLE>
PHASE I PHASE II PHASE III PHASE IV
<S> <C> <C> <C>
- Balance efficacy with side
effects.
- - Bridge preclinical results to - Explore trial sensitivity to - Explore new indications and label
clinical process. patient compliance and dropout. changes.
- - Explore dose ranging and population - Investigate impact of - Plan life-cycle strategy, e.g.
variability. population genetic variability. generic defense and "over-the-
- - Determine surrogate endpoint - Evaluate alternate protocols. counter" switch.
relevance, i.e. alternate - Assess time/cost versus - Evaluate special patient
indicators of efficacy. populations.
- - Support early "go/no-go" decisions. information trade-off. - Assess capital productivity and
- - Assess strategic fit in franchise. - Develop licensing/acquisition franchise strategy.
strategy.
</TABLE>
Our solution provides an iterative method for enhancing the design of a
clinical trial or development program, based on a series of steps. Each step
utilizes available data to produce and validate a mathematical model that is in
turn used to select a better strategy for moving to the next stage of clinical
development.
The following diagram and discussion describe this process.
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<TABLE>
<S> <C>
- Step one focuses on collecting all available information
on the new drug being tested, including data from the
discovery and preclinical stages. Additionally, we often
use proprietary resources and gather data from external
sources, including public literature. In cases where
adequate information is not initially available,
assumptions based on prior experience with a similar type
of compound or therapeutic area may be developed. These
assumptions are often validated and refined via later
analysis and activities as data from the actual clinical
trials or other experiments become available.
- Steps two and three involve the building and validation
of a model that predicts how a new drug compound may
behave in or be absorbed by the body. Our models are
designed to take into account sources of variability due
to demographics and experimental error. We also check and
validate the model against other data for related or
similar drugs, as well as for different treatment
regimens and different drug dose levels. If necessary,
the first three steps are iterated to incorporate new
data and analysis results into the drug model.
- In step four, a proposed protocol or design for the
clinical trial is developed using the model and other
information, such as the commercialization objectives for
the new drug. The proposed trial design includes
assumptions and recommendations around suitable patient
population and number of patients necessary, a set of
[Graphic with nine boxes arranged in a vertical treatment or dosing regimens, as well as a plan for
column with the accompanying text contained in analysis of the data generated by the trial.
a box next to each labeled step and a final - In steps five, six and seven, the trial is simulated
unlabeled box containing the text "Conduct using our workbench applications. The results are then
trial." Step 1-Gather, analyze available data analyzed to determine the range of possible outcomes for
and assumptions; Step 2-Build drug model; the trial. The assumptions and models are then altered
Step 3-Validate drug model; Step 4-Design and simulations are repeated to determine the relative
proposed trial; Step 5-Simulate trial as impact of individual aspects of a trial design on the
designed; Step 6-Analyze simulated trial range of possible outcomes. This process is iterated
results; Step 7-Vary assumptions, modify trial until the relative merits of a set of trial design
protocol; Step 8-Select optimal trial design; choices are quantified and an optimal trial design can be
Conduct trial. Arrows point from one box to selected.
another, showing the progression from Step 1 - In the eighth step, an optimal trial design is selected
through Step 8. Arrows labeled "iterate" point and the trial is conducted. New experimental data
from Step 3 to Step 1, from Step 7 to Step 5 generated by the trial are used as input in the design of
and from the final box to Step 1.] subsequent trials.
</TABLE>
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The table below categorizes each of our products and services and describes
the primary function and benefits of each offering.
<TABLE>
SCIENTIFIC AND DECISION SERVICES
<S> <C> <C>
PRODUCT OR SERVICE PRIMARY FUNCTION PRIMARY BENEFITS
Scientific Consulting We use our proprietary technology - Reduce repeated trials.
and methodology to analyze and - Improve label quality and drug
quantify scenarios related to competitive positioning.
specific clinical development - Understand unexpected trial
issues and to determine the range results.
of plausible outcomes a trial could - Help to determine optimal patient
produce prior to actually population and treatment
conducting the trial. strategy.
- Evaluate time/cost vs.
information yield.
Decision Services We focus on major decision points - Improve communication.
in the drug development process, - Speed decision-making.
including selection of disease - Quantify value and risk
indications to be targeted by a tradeoffs.
clinical trial or program, whether - Enhance overall economic
to continue or terminate a clinical productivity of development
trial or program and evaluation of investments.
a licensing decision or structure. - Allow proactive risk management.
- Identify information gaps.
COMPUTER-BASED DEVELOPMENT APPLICATIONS AND SERVICES
Model Workbench Our software allows researchers to - Optimize dose and treatment
analyze data from clinical studies regimens based on early phase
to build drug models and generate clinical data.
standard reports. It provides the - Identify potential drug effects
inputs required for our trial and interactions.
workbench application. - Speed preparation of internal and
regulatory reports.
- Determine impact of population
characteristics on drug response.
- Build and validate drug models
for use in trial simulation.
</TABLE>
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<TABLE>
<S> <C> <C>
Trial Workbench Our software allows clinical - Identify more efficient designs.
researchers to perform "virtual - Shorten time to market by
clinical trials" on the computer reducing chances of failed or
through an easy-to-use graphical inconclusive trials.
interface. - Increase information yield of
trials.
- Quantify uncertainty to guide
decision-making.
Clinical Workbench Our software is designed to provide - Improve planning of enrollment,
(UNDER DEVELOPMENT) a powerful and easy-to-use trial duration, and costs.
interface to patient medical record - Help to identify the most
databases. Its Web-based technology promising outcomes and surrogate
allows clinical researchers to markers.
access data and analysis anywhere, - Improve confidence in decisions
anytime without special training. by providing objective support for
"expert opinion."
- Save time in clinical trial and
program design.
Applications and We conduct on-site training in the - Improve staff productivity and
Methodology Training use of our workbench applications, efficiency.
and Support data analysis techniques and - Accelerate adoption /
overall methodology. implementation of new process.
Process Design and We develop and standardize - Improve efficiency and reduce
Automation reporting and analysis formats, and cost and errors.
design and standardize work flow
processes.
INFORMATION PRODUCTS
Information Products Our products are designed to - Address questions requiring
(UNDER DEVELOPMENT) provide data, including medical, broad, population-level data and
laboratory and genetic data in questions requiring highly
specific therapeutic areas. They detailed patient data.
are being designed to work in - Improve trial designs by allowing
conjunction with our clinical access to highest-quality data on
workbench applications, and will be outcomes, disease patterns and
sold on a subscription basis. demographics.
- Discover genetic predictors of
disease course and response to
therapy.
</TABLE>
SCIENTIFIC AND DECISION SERVICES
Our scientific and decision services consist of on-site consulting, training
and process redesign projects conducted by our clinical and decision scientists.
These projects span all phases of clinical
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development, and range from single trial design to portfolio strategy
optimization. These services consist of four specific categories:
- SCIENTIFIC CONSULTING. In a typical project, our consultants, representing
several technical disciplines, devote two to three months working with the
customer team. The following steps comprise this effort:
- creating alternative development strategies or trial designs to be
evaluated;
- constructing a drug-disease model, commercial model and/or a model
of the trial or program being evaluated;
- quantifying the clinical and/or economic risk involved in each
strategy or trial design and conducting sensitivity analysis;
- documenting the information and logic used in the evaluation; and
- presenting results and recommendations to the client development
team and senior management.
- DECISION SERVICES. In a typical project, we devote one to three months
working with a customer team. We often perform these services in
conjunction with our scientific consulting services. We begin by defining
the scope of the project, identifying the decisions and appropriate
methods to be employed, and formulating appropriate alternatives to be
considered. Next, we build comprehensive mathematical models, gather
relevant data and information, and assess all team inputs to the decision.
Finally, we perform detailed analysis, modify and re-analyze strategies
and prepare and present recommendations.
Our scientific and decision services group currently includes 21 full-time
personnel. Our personnel are located throughout the United States and Europe.
Most have M.D. or Ph.D. degrees with post-doctoral training in clinical
pharmacology, biostatistics, human genetics, decision analysis or other relevant
disciplines. We bring these skill sets to bear in an integrated fashion to
address our customers' challenges. Senior consultants have more than a decade of
experience in drug-disease modeling, trial design or strategic consulting. We
also utilize an extensive network of part-time consultants with expertise in
various specialized disciplines and therapeutic areas.
We are continually refining our methodologies and introducing new
technologies. We are also expanding our activities at the portfolio level and in
newer therapeutic areas. In addition, we are beginning to address customer needs
to improve their marketing and sales processes by applying the same quantitative
methods that we apply to their development processes.
COMPUTER-BASED DEVELOPMENT APPLICATIONS AND SERVICES
Our software and services provide the analytical tools and conceptual
framework to help clinical researchers optimize the decision-making required to
perform clinical testing needed to bring drugs to market. By applying
mathematical modeling and simulation to all available information on the
compound being tested, researchers can clarify and quantify which trial and
treatment design factors will influence the success of clinical trials. We
currently provide our applications software for installation either on customer
desktops or on customer intranets for shared access by their personnel. Our new
clinical workbench application, currently under development, will be hosted by
us and accessed by web browser over the internet. Our workbench applications are
commonly deployed together with our scientific and decision services and
include:
- MODEL WORKBENCH. These products are used to build a drug model within a
flexible framework, and validate the assumptions and information on which
it is based. The models constructed and validated with these tools are
used by our trial workbench in later steps of the computer-assisted trial
design process. The output of these tools is also used in regulatory
reporting as part of the
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drug approval process. Our WinNonlin product is the most widely used
product in the pharmaceutical industry for analysis of data from
pharmacokinetic and pharmacodynamic studies. Our WinNonMix product is used
to analyze the data from a wide range of studies when the user wishes to
determine the influence of demographic and environmental factors as well
as other sources of variability. Available enterprise editions provide
additional data connectivity to data sources such as clinical data
management systems and laboratory information management systems. Custom
query builders for specific data management systems are included along
with a software development kit to allow information technology staff to
easily construct new interfaces for nonstandard data sources. We also
provide validation kits that automate execution of standardized test
scripts to reduce the manual time and effort required to operate and
install these products in accordance with regulatory requirements.
- TRIAL WORKBENCH. The trial workbench provides a structured framework for
clinical trial simulation based on mathematical models that integrate
existing knowledge and assumptions about a drug and the targeted patient
population. The trial workbench supports the use of simulation scenarios,
allowing a number of trial design parameters to be tested in a single
step, thereby reducing the number of iterations needed to select an
optimal trial design. It is designed for use by clinical and scientific
personnel without extensive computer skills and supports a full range of
trial designs, powerful drug and disease modeling and flexible definition
of patient populations. The trial simulator includes integrated and
extensive analysis tools, automatically generates protocol documents and
supports data archiving. We are currently developing new trial workbench
products, called therapeutic area editions, that bundle the trial
simulator software with pre-built models, templates and usage guides
relevant to a specific therapeutic area.
- CLINICAL WORKBENCH. The clinical workbench, currently under development,
is intended to enable testing of critical assumptions throughout clinical
development by collecting data on target population, disease progression,
current therapeutic approaches and characteristics of the potential market
for relevant drugs. It is designed to access our information products
currently under development and, in later versions, internal customer
databases. Integrating internal sources of information helps leverage
prior experience with specific disease mechanisms or a class of
therapeutic compounds. Query results may be used in conjunction with
future therapeutic area editions of the trial workbench and directly
incorporated into the proposed trial design. This product is designed to
enable clinicians to receive immediate answers to sophisticated questions
that previously required at least several weeks to answer. The clinical
workbench is designed to provide advanced statistical, temporal-logic
(queries with a complex time dimension) and genetic analysis capabilities.
Our workbench application related services are as follows:
- APPLICATIONS AND METHODOLOGY TRAINING AND SUPPORT. Our services team works
with customers to deploy our clinical drug development technology and
methodologies. We work to improve our customers' overall clinical
development productivity by using our cumulative experience and knowledge
of our scientific and decision services' best practices. We tailor our
training to specific functional and client needs. Our deployment programs
typically focus on a specific therapeutic area within the customer's
organization. In a typical training program, each individual is offered
extensive class work, with support provided by us over the course of
twenty-four months, before achieving full fluency in the relevant topics.
During these programs we typically use the customer's own project data in
the training activities.
- PROCESS DESIGN AND AUTOMATION. Pharmaceutical scientists spend
considerable time on non-scientific activities, such as formatting tables
and graphs and cutting and pasting information from numerous software
packages into reports. We provide scripts to automate the production of
standard tables, figures and listings. This reduces the potential for
mistakes, and enables scientific staff to work on other, higher return
areas. We also assist in designing optimum
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work-flow processes to accompany the process changes being implemented,
and with integration of our tools into the customer's existing information
technology infrastructure. With some customers, following the completion
of pilot projects, we perform work at the portfolio level. We then develop
a plan with our customer for ongoing analysis support, process design,
capability development efforts and software infrastructure creation.
Implementation may last up to one year once planning is completed.
Our applications and methodology training group is currently staffed by four
scientists with pharmaceutical industry experience. This group provides training
in the efficient use of our products both at client sites and at our training
center in Cary, North Carolina. Trainers also provide technical support for our
products, so they are in an excellent position to understand client training
needs. We also provide training in mathematical drug modeling and
computer-assisted trial design methodology. Our training sessions involve
lectures and hands-on problem solving using real case studies.
INFORMATION PRODUCTS
Our information products, which we expect to launch later this year, are
intended to combine anonymized patient level medical, laboratory and genetic
data with software to access, analyze and present informative results to
sophisticated queries. These information products permit clinical and scientific
personnel to obtain objective and quantitative answers to important questions in
trial and program decision-making concerning, for example, the correlation of
various disease markers with clinical outcomes, the frequency of adverse events
under specific conditions, detailed patient demographics and response to placebo
and standard therapies. We intend to obtain our data from world-class medical
research centers, and expect that it will be regularly updated and extensively
analyzed and processed by our statisticians and medical specialists.
Our information products will be organized by therapeutic area beginning in
the diabetes and cardiovascular areas. Over the course of the next several years
we plan to extend our coverage to most major therapeutic areas, and to extend
the application of these products from clinical development to the
pharmaceutical selling and marketing processes. We currently have alliances,
which include licenses to medical data, with Duke University, Lovelace
Respiratory Research Institute and Protocare Sciences, Inc., and expect to enter
into similar alliances with other third parties. We currently intend to sell our
information products on an annual subscription basis for each therapeutic area.
CUSTOMERS
Our customers currently consist of large pharmaceutical companies and
biotechnology companies. During our fiscal year ended March 31, 2000, we
provided products and services for which we recognized revenue to more than 200
customers. Johnson & Johnson, our top customer, accounted for in excess of 10%
of our revenue, in fiscal 2000. Fourteen of our top 16 customers by revenue to
us in fiscal 2000 were, listed in alphabetical order:
Anesta Corporation
AstraZeneca PLC
Chiron Corporation
Durect Corporation
F. Hoffmann-La Roche Ltd.
Glaxo Wellcome Inc.
Guilford Pharmaceuticals Inc.
Johnson & Johnson
Novartis Pharmaceuticals Corporation
Pfizer Limited
Proctor & Gamble Pharmaceuticals, Inc.
Sankyo Company Ltd.
SmithKline Beecham Pharmaceuticals
Warner-Lambert Company
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SALES AND MARKETING
We currently employ nine professionals who sell our products and services to
customers in the United States and throughout Europe and Japan. Some of our
software products are also sold by a Japanese scientific software distribution
company. Our direct sales and business development team is composed of
individuals with a range of skills including scientific, medical and business
disciplines. This blend of skills is necessary because of the complex nature of
the clinical development process and the need to interact with a broad range of
disciplines and levels of management, during the sales process. Our telesales
group complements and supplements our direct sales staff selling primarily the
model and trial workbench applications. The telesales group also supports our
telemarketing activities for new product launches and workshop activities. We
plan to significantly expand the direct and telesales staff in the future.
Our sales and business development personnel work closely with our
scientific and decision consultants to understand customer requirements and to
educate customers about our solution. While our solution comprises an integrated
suite of products and services, we typically employ a "services-led" sales
strategy to quickly and efficiently prove the value of our offerings to new
customers. After several initial projects with each customer, we seek to
negotiate multi-year agreements for the broad deployment of our solution in one
therapeutic area within their organization. In the future, we will seek to
penetrate additional therapeutic areas at each customer.
Our marketing department employs various media and methods to educate
potential customers about our products and services and to inform customers of
new developments and enhancements to existing offerings. We advertise in various
journals and magazines, participate in scientific, medical and pharmaceutical
business conferences, conduct educational seminars, provide comprehensive
information about our offerings on our website, and conduct an ongoing public
relations program.
RESEARCH AND DEVELOPMENT
We employ engineers with expertise in software development, web-based
applications, database systems, and mathematical modeling, and scientists and
medical doctors with expertise in clinical development, statistical modeling,
human genetics, and clinical pharmacology and development. Our research and
development personnel work closely with our service personnel in designing and
testing products to meet customer requirements. We have a scientific advisory
board and three scientific advisory groups which also help guide our product
development efforts.
- The modeling advisory group is chaired by Lewis B. Sheiner, M.D.,
Professor of Laboratory Medicine, Biopharmaceutical Sciences and Medicine
at the University of California, San Francisco. Dr. Sheiner has also
chaired our scientific advisory board since our inception.
- The simulation advisory group is chaired by Nicholas H.G. Holford, M.B.,
Ch.B., M.R.C.P., Associate Professor, Department of Pharmacology and
Clinical Pharmacology at the University of Auckland.
- The information products advisory group is chaired by Donald B. Rubin,
Ph.D., Professor and Chairman of Statistics at Harvard University.
As of March 31, 2000, we had 30 employees engaged in research and
development. Our research and development efforts are focused on improving and
enhancing our existing products and services as well as developing new products
and services. Our research and development efforts take place at our executive
offices in Mountain View, California, and our development facilities in
Lexington, Massachusetts and Cary, North Carolina. Our research and development
expenses were $720,000, $2.1 million, $4.3 million and $3.8 million, in fiscal
1997, 1998, 1999 and the first nine months of fiscal 2000, respectively. We
intend to increase our research and development budget and staffing levels
during fiscal 2001.
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INTELLECTUAL PROPERTY
Our intellectual property consists primarily of our software, including
software we license from third parties for inclusion in our products, our
proprietary algorithms and methodologies, our documentation and training
materials, and our trademarks. We rely on a combination of trademark, copyright
and trade secret laws and restrictions on disclosure to protect our intellectual
property rights. We also enter into confidentiality and proprietary rights
agreements with our customers, employees and consultants and control access to
software, documentation and other proprietary information. However, we cannot be
certain that the steps we have taken to protect our intellectual property rights
will be adequate or that third parties will not infringe or misappropriate our
proprietary rights.
TECHNOLOGY LICENSING
Although our products are based on our research and development, we license
software from third parties when it is more efficient to incorporate
pre-existing programs or routines, when there are novel technologies available
by license that would improve our products, or when brand-recognition of
established products provides a marketing advantage. For some of the third-party
software we use, we have paid a one-time fee that allows unlimited use. We also
incorporate third-party software that we have rights to use under the terms of
license agreements that require us to pay royalties to the licensor based upon
either a percentage of the sales of products containing the licensed software or
a fixed fee for each product shipped. Although all of the software we license
for use in our products is replaceable with software from other vendors or our
own development efforts, the loss of a license could delay the sales of certain
of our products.
DATA LICENSING
Our information products are designed to offer customers access, through the
clinical workbench product or through our scientific and decision services, to
databases of anonymized patient level information in various therapeutic areas
that we have licensed from medical providers and other sources. Our ability to
identify and license sources of high quality patient-level data is critical to
our information products.
We currently have database licenses from Duke University, Lovelace
Respiratory Research Institute and Protocare Sciences, Inc. in the diabetes and
cardiovascular areas. Including our renewal options, the Lovelace Respiratory
Research Institute license and the Duke University license have terms of three
and four years, respectively, running from database delivery, which is due at
the end of May 2000, and the Protocare Sciences license has a term ending in
October, 2002. Each of these licenses has a fixed or minimum royalty fee per
customer as well as a minimum royalty payment each year. We plan to license
additional data from multiple sources in diabetes, cardiovascular and additional
therapeutic areas over the next several years. While we have been successful in
negotiating license agreements so far, we may not be able to obtain all of the
databases we seek to offer on favorable terms.
GOVERNMENT REGULATION
The pharmaceutical industry is regulated by a number of federal, state,
local and international governmental entities. Although our products and
services are not directly regulated by the United States Food and Drug
Administration or comparable international agencies, the use of certain of our
analytical software products by our customers may be regulated. We currently
provide assistance to our customers in achieving compliance with these
regulations.
State laws aimed at protecting the privacy of confidential patient health
information are many and varied, and states frequently adopt new laws in this
area. Most state health information privacy laws apply only to specified
providers of health care and/or healthcare payors, but some of these laws could
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be found to apply to businesses such as ours that handle health information
obtained from such providers for research purposes. Although our agreements with
medical data providers require them to "anonymize" or remove
patient-identifiable information before providing their data to us, and most
health information privacy laws do not apply to anonymized data, definitions of
whether data has been anonymized vary and we cannot provide assurance that the
data we receive would be considered to be anonymous under all state laws.
Violations of these laws may result in civil and/or criminal penalties. While we
intend to comply with all applicable laws, and our medical data providers have
asserted to us that they comply with such laws, we cannot predict how
interpretations of existing law or changes in the law may affect our business,
and compliance may be time consuming and expensive. The ways in which these laws
could affect our operations include the following:
- some state health privacy laws may directly regulate entities such as ours
that obtain and use health information from third party providers;
- some state laws directly regulating healthcare providers may extend their
confidentiality protections to information transmitted by those entities
to another entity, such as us; and
- some state laws specifically restrict the disclosure of certain types of
particularly sensitive health information, and if healthcare providers
fail to obtain any necessary consents or otherwise comply with these
restrictions, we could be liable for the improper use or disclosure of
such information.
While we cannot assure you that our position would prevail if challenged, we
believe that in general our ways of doing business should not be the subject of
enforcement proceedings or lead to liability under these laws. The
confidentiality of health information is a high priority for us, and we have
policies and procedures in place to protect against unauthorized access to the
information and to ensure that such information is handled appropriately.
Although the Secretary of the U.S. Department of Health and Human Services has
promulgated proposed regulations dealing with privacy of electronically
transmitted health information, as required by the Health Insurance Portability
and Accountability Act of 1996, these regulations are not currently in effect,
and may be changed substantially before they are finalized. Accordingly, at
present, there is no federal law securing or regulating the privacy of
confidential health information of a patient. We intend to monitor the
development of federal laws and regulations and to adapt our business to comply
with requirements that may become applicable in the future.
COMPETITION
We compete based on a number of factors, including cost, the quality and
effectiveness of our services, and the functionality, reliability and ease of
implementation and use of our products. Our model workbench product line
competes with products produced by InnaPhase Corporation. Although we believe we
currently do not have direct competitors for our trial workbench and clinical
workbench product lines or our scientific and decision services, other companies
may compete with us in the future. Potential competitors may have substantially
greater financial, technical and marketing resources, larger customer bases,
longer operating histories, greater name recognition and more established
relationships in the pharmaceutical industry than we have. In addition,
competitors may merge or form strategic alliances and be able to offer, or bring
to market earlier, services that are superior to our own. In addition, our
customers are primarily large pharmaceutical companies that have substantial
research and development budgets, and these customers may internally develop the
expertise that we provide.
EMPLOYEES
As of March 31, 2000, we had 93 employees, consisting of 25 in services and
support, 30 in research and development, 21 in sales and marketing and 17 in
finance and operations. Thirty-five of our employees have either an M.D. or
Ph.D. in relevant disciplines. None of our employees is a member of a union and
we consider our relationship with our employees to be good.
FACILITIES
We lease approximately 32,000 square feet of space in Mountain View,
California under a lease that expires in 2003. We also lease offices in Cary,
North Carolina where we conduct development and training activities, and offices
in Lexington, Massachusetts and San Diego, California where we conduct
development activities. We believe our current facilities will be adequate for
our needs for at least the next two years.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table provides information concerning our directors, executive
officers and key employees as of April 10, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Arthur H. Reidel(3)................. 49 Chairman of the Board, President and Chief Executive
Officer
Robin A. Kehoe...................... 42 Senior Vice President, Finance and Chief Financial Officer
Michael A. Emley.................... 53 Senior Vice President, Sales and Professional Services
Steven L. Shafer, M.D............... 45 Vice President, Product Development
Daniel L. Weiner, Ph.D.............. 49 Senior Vice President, Technology Deployment
Saeid Akhtari....................... 38 Vice President, Corporate Marketing and Strategic
Development
Ronald D. Beaver, Ph.D.............. 35 Managing Director, Decision Services
Terrence F. Blaschke, M.D........... 57 Vice President, Collaborative Programs
James D. Buzzard.................... 41 Vice President, Product Marketing
Stuart M. Koretz, M.D., Ph.D........ 53 Vice President, Medical Affairs and Content
Janice Kurth, M.D., Ph.D............ 37 Vice President, Genomics
E. Gregory Lee, Ph.D................ 51 Vice President, Engineering
Jacob W. Mandema, Ph.D.............. 36 Vice President and Chief Scientist
Nancy Risch......................... 51 Vice President, Strategic Business Development
Donald R. Stanski, M.D.............. 50 Vice President, Scientific and Medical Programs
Steven D. Brooks(2)................. 48 Director
Philippe O. Chambon, M.D.,
Ph.D.(1).......................... 41 Director
Robert B. Chess(2).................. 44 Director
Douglas E. Kelly, M.D.(2)........... 39 Director
Dean O. Morton(3)................... 67 Director
Gary L. Neil, Ph.D.(1)(3)........... 59 Director
W. Ferrell Sanders(1)............... 63 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
ARTHUR H. REIDEL served as our President from April 1995 to August 1995 and
has served as our President and Chief Executive Officer since February 1996. He
has also served as our Chairman of the Board since May 1995. He was a private
investor/consultant from April 1995 to March 1996, during which he was involved
in the formation of three start-up companies and performed consulting services
for two other companies. From October 1994 to March 1995, he served as Vice
President, Business Development of Viewlogic Systems, Inc., a publicly held
software firm. From 1992 to 1994, Mr. Reidel served as President and Chief
Executive Officer of Sunrise Test Systems, Inc., a privately held software firm
acquired by Viewlogic Systems, Inc. in September 1994. Mr. Reidel received a
B.S. in Mathematics from Massachusetts Institute of Technology.
ROBIN A. KEHOE joined us as Vice President, Finance and Chief Financial
Officer in August 1996 and is currently our Senior Vice President, Finance and
Chief Financial Officer. From January 1995 to July 1996, Ms. Kehoe was Vice
President of Finance for Digidesign, a subsidiary of Avid Technology, a provider
of digital tools for film, video, audio, and broadcast. Prior to that,
Ms. Kehoe was Controller of Digidesign and facilitated its initial public
offering and subsequent merger into Avid Technology.
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From 1988 to 1993, Ms. Kehoe held various positions with Coopers & Lybrand in
both the financial consulting and emerging business groups. Ms. Kehoe received a
B.A. from Wesleyan University and an M.B.A. from San Francisco State University.
MICHAEL A. EMLEY joined us as Vice President of Sales and Marketing in
February 1997 and became our Vice President of Sales and Services in
January 1999 and is currently Senior Vice President, Sales and Professional
Services. From 1985 through January 1997, he was at Viewlogic Systems, Inc., a
publicly-held software company, where he began as an Area Sales Manager and
finished as Vice President of Corporate Marketing and of Strategic Account
Services. In 1995 and 1996, he led the Viewlogic corporate marketing and
worldwide consulting services groups. Before joining Viewlogic, Mr. Emley held
positions at Analog Design Tools, Inc., an electronic design automation software
company, Cimlinc, Inc., a provider of software and hardware to aerospace and
defense companies worldwide, Calcomp Inc., a division of Lockheed Martin, and
Perkin Elmer Data Systems, Inc. Mr. Emley received a B.S. from California State
University at Los Angeles and an M.B.A. from Pepperdine University.
STEVEN L. SHAFER, M.D. joined us as Vice President of Information Products
in September 1999 and became Vice President, Product Development in March 2000.
Prior to joining us, he was Associate Professor, Department of Anesthesia, at
Stanford University School of Medicine, which he joined in 1988. Prior to
joining the Stanford faculty, Dr. Shafer was founder, President and Chief
Executive Officer of two software development companies. Dr. Shafer received an
A.B. from Princeton University and his M.D. from Stanford University.
DANIEL L. WEINER, PH.D. joined us as Vice President and General Manager,
Scientific Products in January of 1998 and became Senior Vice President,
Technology Deployment in March 2000. From 1994 to 1997, he held the positions of
Vice President, Senior Vice President and Worldwide Director, Data Management
and Biostatistics, and Principal Scientist at Quintiles, Inc., a contract
research organization providing clinical development services to the
pharmaceutical industry. Prior to that, Dr. Weiner held management positions in
biostatistics and data management with Syntex Development Research, a research
company that discovers and develops new and cost-effective prescription
medicines, Statistical Consulting, Inc, a contract research organization, and
Merrell Dow Pharmaceuticals. Dr. Weiner received a B.S. and his Ph.D. in
Statistics from the University of Kentucky.
SAEID AKHTARI joined us as Vice President for Business Development in
February 1999 and became Vice President, Corporate Marketing and Strategic
Development in October 1999. Prior to joining us, Mr. Akhtari was an independent
consultant working with various genomics companies from June 1998 to January
1999. Mr. Akhtari was the Vice President of Sales, Marketing and Strategic
Planning at Pangea Systems, now called DoubleTwist, Inc., a bioinformatics
company from August 1996 to June 1998. From May 1988 to July 1996, he held
senior management positions at IntelliGenetics, which was acquired in 1994 by
Oxford Molecular Group, a provider of information technology and drug discovery
research services to the pharmaceutical industry. His last position at Oxford
Molecular Group was Executive Vice President of Sales and Services. Mr. Akhtari
received a B.S. and an M.B.A. from the University of Utah.
RONALD D. BEAVER, PH.D. has been responsible for developing our Decision
Services group since joining us in January 1998; he is now our Managing
Director, Decision Services. Prior to joining us, Dr. Beaver was a director of
the Pope Street Group, a strategic management consulting company focusing on the
pharmaceutical and oil and gas industries, which he founded in July 1995.
Previously, he was at Strategic Decisions Group, an international strategic
management consulting firm, which he joined in 1992. Dr. Beaver received a B.A.
from Simpson College and an M.S. and Ph.D. in Finance and Decision Analysis from
Stanford University's Department of Engineering-Economic Systems.
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TERRENCE F. BLASCHKE, M.D. joined us in January 2000 as Vice President,
Collaborative Programs. He has been a member of the Scientific Advisory Board
since our formation in April 1995. Prior to joining us, he was Professor of
Medicine and Molecular Pharmacology and Chief of the Division of Clinical
Pharmacology at Stanford University School of Medicine, where he joined the
faculty in 1974. Dr. Blaschke's research focuses on applying pharmacokinetics to
the study of drug-disease interactions and the study of mechanisms underlying
drug-drug interactions, to find the sources of variation in response to drugs
and to develop computer-based systems to help monitor therapeutic decisions.
Dr. Blaschke is a past president of the American Society for Clinical
Pharmacology and Therapeutics and a former Chairman of the Generic Drugs
Advisory Committee and is a consultant to the FDA. Dr. Blaschke received a B.S.
from University of Denver and an M.D. from Columbia University College of
Physicians and Surgeons.
JAMES D. BUZZARD joined us in September 1997 and is currently our Vice
President, Product Marketing, responsible for product direction and strategic
technology alliances. Immediately prior to joining us, he was the General
Manager and Vice President for the Pharma Division within Domain Solutions
Corporation, a scientific software company and formerly a wholly-owned
subsidiary of BBN Corporation, which he joined in October 1995. Mr. Buzzard also
served as Chief Technology Officer for Domain Solutions Corporation and was
responsible for overall technical direction and company product strategy in the
health research and manufacturing industries. Prior to joining Domain Solutions
Corporation, he was Senior Director of Business Development at Oracle
Corporation. Mr. Buzzard received a B.S. in Biology from the University of
California at Santa Cruz.
STUART M. KORETZ, M.D., PH.D. joined us as Vice President, Medical Affairs
and Business Development in September 1997 and became Vice President for Medical
Affairs and Content in September 1999. From 1994 until September 1997, he was
Vice President, New Products Discovery at ALZA Corporation, a pharmaceutical
company. Prior to joining ALZA Corporation, Dr. Koretz held a variety of
positions at Syntex Corporation, including Vice President of the
Licensing/Business Development Division. Dr. Koretz received a B.S. from
Clarkson College of Technology and received an M.D. and Ph.D. in Biochemistry
from the University of Rochester.
JANICE KURTH, M.D., PH.D. joined us as Vice President, Genomics in
January 2000. Prior to joining us, Dr. Kurth was Director of Clinical Genetics
at Phenogenex LLC, a human genomics company, from January 1999 to January 2000.
From January 1998 to January 1999, Dr. Kurth worked at Genset Corporation, a
human genome research company, to establish their molecular genetics research
facility in the United States. Dr. Kurth was Director of Pharmacogenetics at
Sequana Therapeutics, a gene and drug discovery company, from January 1997 to
January 1998, where she directed scientific aspects and served as the medical
advisor for their pharmacogenetics program. Prior to that time, Dr. Kurth spent
six years doing independent human molecular genetic research in academic
settings. Dr. Kurth received a B.A. from Austin College, and a Ph.D. in Human
Molecular and Population Genetics from Stanford University, and an M.D. from the
University of Arizona.
E. GREGORY LEE, PH.D. one of our founders, has been Vice President,
Engineering since September 1995. Prior to joining us, Dr. Lee was Director of
Engineering at Sunrise Test Systems, a developer of electronic design automation
software, from May 1993 to November 1995. From 1984 until 1993, he held
technical and management positions at Weitek Corporation, a maker of high
performance integrated circuits, with his last position being Director of
Advanced Development. Dr. Lee received a B.A. from Reed College and a Ph.D. in
Mathematics from Massachusetts Institute of Technology.
JACOB ("JAAP") W. MANDEMA, PH.D. joined us as Vice President, Scientific
Affairs, in December 1996 and is currently our Vice President and Chief
Scientist. From January 1996 to December 1996, Dr. Mandema was Director of New
Products Discovery at ALZA Corporation, a pharmaceutical company. Prior to that,
he was Assistant Professor of Pharmaceutical Sciences,
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Department of Anesthesia, at Stanford University School of Medicine, which he
joined in 1992. Prior to joining Stanford, he completed a post-doctoral
fellowship at the University of California, San Francisco. Dr. Mandema's
research interests are mathematical modeling of population pharmacokinetics and
pharmacodynamics. He received an undergraduate degree from the University of
Utrecht, the Netherlands and a Ph.D. in Pharmacology from the University of
Leiden.
NANCY RISCH joined us as Vice President, Sales in July 1996 and became Vice
President, Strategic Business Development in March 2000. Prior to joining us,
Ms. Risch was Eastern Region Director for BBN Corporation, a provider of
software applications for manufacturing engineering which she joined in
June 1995. From January 1982 to June 1995, she was Director of Worldwide
Industry Sales at Interleaf, a manufacturer of document preparation systems.
DONALD R. STANSKI, M.D. joined us as Vice President, Scientific and Medical
Programs, in July 1998. He has been a member of our Scientific Advisory Board
since our formation. Prior to joining us, he was Professor in the Department of
Anesthesia, and chair of that department, from 1992 to 1997, at Stanford
University School of Medicine, where he joined the faculty in 1979. Dr. Stanski
pursues research in developing innovative pharmacokinetic and pharmacodynamic
data, especially in using surrogate measures of drug effect. He served as a
member of the Anesthesia and Life Support Advisory Panel at the FDA.
Dr. Stanski studied Pharmacy at the University of Alberta and received an M.D.
from the University of Calgary.
STEVEN D. BROOKS has been a member of our board of directors since
June 1997. Since February 1999, Mr. Brooks has been Managing Director of
Broadview Capital Partners, a private equity firm. From September 1997 to
February 1999, Mr. Brooks was a managing director of Donaldson, Lufkin &
Jenrette Securities Corporation, an investment banking firm. From 1996 to 1997,
Mr. Brooks was a private investor and a consultant to technology companies. From
1994 to 1996, Mr. Brooks served as Managing Director and Head of Global
Technology Investment Banking at the Union Bank of Switzerland Securities, LLC.
Mr. Brooks is a director of Paychex, Inc., QRS Corporation and Veritas Software
Corporation. Mr. Brooks currently serves as chair of our Audit Committee.
Mr. Brooks received a B.A. from Yale College and a J.D. from University of
Virginia Law School.
PHILIPPE O. CHAMBON, M.D., PH.D. has been a member of our board of directors
since May 1997. Since January 1997, Dr. Chambon has been a General Partner of
the Sprout Group, a private equity firm. He joined the Sprout Group in
May 1995. From May 1993 to April 1995, Dr. Chambon served as Manager in the
Healthcare Practice of The Boston Consulting Group, a leading management
consulting firm. From September 1987 to April 1993, Dr. Chambon was an executive
with Sandoz Pharmaceuticals Corporation (Novartis), a leading pharmaceutical
company, where he had late stage product development and pre-marketing
responsibilities. He is currently a director of Deltagen, Inc. and
Variagenetics, Inc., as well as several other private companies. Dr. Chambon
received an M.D. and Ph.D. from the University of Paris and an M.B.A. from
Columbia University.
ROBERT B. CHESS became a member of our board of directors in April 2000.
Mr. Chess is Chairman and co-Chief Executive Officer of Inhale Therapeutic
Systems, Inc., a provider of pulmonary delivery systems for biotechnology drugs.
He has been at Inhale since 1991 and served as President and Chief Executive
Officer until August 1998. From September 1990 until October 1991, he was an
Associate Deputy Director in the White House Office of Policy Development. In
March 1987, Mr. Chess co-founded Penederm Incorporated, a topical dermatological
drug delivery company, and served as its President from February 1989 until
October 1989. Prior to co-founding Penederm, Mr. Chess held management positions
at Intel Corp., a semiconductor manufacturer, and Metaphor, a computer software
company that was acquired by International Business Machines. Mr. Chess received
a B.S. in Engineering from the California Institute of Technology and an M.B.A.
from the Harvard Business School.
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DOUGLAS E. KELLY, M.D. has been a member of our board of directors since
February 1996. Dr. Kelly has been a partner at Alloy Ventures, formerly Asset
Management Associates, a venture capital and investment management firm, since
1993. Dr. Kelly is a director of Fusion Medical Technologies, Inc. and several
privately-held companies. Dr. Kelly received a B.A. in Biochemistry and
Molecular Biology from the University of California, San Diego, an M.D. from the
Albert Einstein College of Medicine and an M.B.A. from the Stanford University
Graduate School of Business.
DEAN O. MORTON became a member of our board of directors in April 2000.
Mr. Morton was the Executive Vice President, Chief Operating Officer and a
Director of Hewlett-Packard Company, a manufacturer of computer systems and test
and measurement instruments, from 1984 until his retirement in 1992. Mr. Morton
is a director of KLA-Tencor Inc., Centigram Communications Corporation, BEA
Systems Inc., The Clorox Company and ALZA Corporation. He is a trustee of the
State Street Research Group of Funds, the State Street Research
Portfolios, Inc. and the Metropolitan Series Fund Inc. Mr. Morton received a
B.S. from Kansas State University and an M.B.A. from Harvard Business School.
GARY L. NEIL, PH.D. has been a member of our board of directors since
April 1996. Dr. Neil is President, Chief Executive Officer and a director of
Crescendo Pharmaceuticals Corporation, a pharmaceutical development and
commercialization company, which he joined in 1997. Dr. Neil was a director and
the President and Chief Executive Officer of Therapeutic Discovery Corporation,
a pharmaceutical development and commercialization company, from 1993 until
September 1997. From 1989 to 1993, Dr. Neil served as Executive Vice President
for Wyeth-Ayerst Research division of Wyeth Laboratories, Inc., a subsidiary of
American Home Products Corporation, a large pharmaceutical company. Dr. Neil is
a director of Allergan Specialty Therapeutics, Inc. and Geron Corporation. He
received a B.S. from Queens University, Canada and a Ph.D. in Organic Chemistry
at the California Institute of Technology.
W. FERRELL SANDERS has been a member of our board of directors since
February 1996. Mr. Sanders has served as a partner of Alloy Ventures, Inc.,
formerly Asset Management Associates, a venture capital and investment
management firm, since March 1987. Mr. Sanders is a director of Adaptec, Inc.
Mr. Sanders holds a B.S. in Electrical Engineering from North Carolina State and
an M.B.A. from the University of Santa Clara.
BOARD COMPOSITION
We currently have eight directors. Upon the closing of this offering, the
terms of office of the board of directors will be divided into three classes. As
a result, a portion of our board of directors will be elected each year. The
division of the three classes, the initial directors and their respective
election dates will be as follows:
- the class I directors will be Arthur H. Reidel, Philippe O. Chambon, Ph.D.
and Douglas E. Kelly, M.D., and their term will expire at the annual
meeting of stockholders to be held in 2001;
- the class II directors will be Robert B. Chess, Dean O. Morton and W.
Ferrell Sanders, and their term will expire at the annual meeting of
stockholders to be held in 2002; and
- the class III directors will be Steven D. Brooks and Gary L. Neil, Ph.D.,
and their term will expire at the annual meeting of stockholders to be
held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire, will be elected to serve
from the time of election and qualification until the third annual meeting
following their election. In addition, our certificate of incorporation will
provide that the authorized number of directors may be changed only by
resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be
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distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in our control
or management.
BOARD COMMITTEES
AUDIT COMMITTEE. Our audit committee reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent auditors. Current members of our audit committee are Messrs. Brooks
and Chess and Dr. Kelly.
COMPENSATION COMMITTEE. Our compensation committee reviews and recommends
general policy relating to compensation and benefits of our officers and
employees. The compensation committee also administers the issuance of stock
options and other awards under our stock plans. Current members of the
compensation committee are Mr. Sanders, Dr. Neil and Dr. Chambon.
NOMINATING COMMITTEE. Our nominating committee identifies possible
candidates to our board of directors. The nominating committee identifies
candidates to replace members who may resign their position or candidates for
election at our annual meeting of stockholders. Current members of the
nominating committee are Dr. Neil and Messrs. Reidel and Morton.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as members of the board of directors
or compensation committee of any entity that has one or more executive officers
who serve on our board or compensation committee.
COMPENSATION OF DIRECTORS
Directors currently do not receive cash compensation from us for their
services as members of the board or committees or for attendance at any such
meetings. Our directors may be reimbursed for certain reasonable expenses in
connection with attendance at board of director and committee meetings.
In May 1999, Dr. Gary L. Neil received options to purchase 10,000 shares of
our common stock at an exercise price of $0.35 per share, in connection with his
attendance at our board of director and committee meetings.
In April 2000, we adopted the 2000 Equity Incentive Plan which provides for
the automatic grant of options to purchase shares of common stock to our
directors who are not our employees or an employee of any our affiliates. Each
non-employee director who has not previously received an option to purchase our
common stock and who is serving as a director after the closing of this offering
will receive an initial option to purchase 5,000 shares of common stock. After
this offering, each person who is not our employee who is first elected or
appointed to the board of directors less than six months from the prior annual
meeting will be granted an initial grant on the date of this election or
appointment to purchase 5,000 shares of our common stock, or if first elected
after six months from the prior annual meeting of stockholders 2,500 shares.
Starting at the annual meeting of stockholders in 2001, all non-employee
directors will receive an annual option to purchase 5,000 shares of common
stock. See "--Employee Benefit Plans--2000 Equity Incentive Plan" for a more
detailed explanation of the terms of these stock options.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by Delaware law. We are also empowered under our bylaws
to enter into indemnification contracts with our directors and
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officers and to purchase insurance on behalf of any person we are required or
permitted to indemnify. Pursuant to this provision, we expect to enter into
indemnification agreements with each of our directors and executive officers.
We have obtained officer and director liability insurance to cover
liabilities our officers and directors may incur in connection with their
services to us, including matters arising under the Securities Act. In addition,
our certificate of incorporation provides that, to the fullest extent permitted
by Delaware law, our directors will not be liable for monetary damages for
breach of the directors' fiduciary duty of care to us and our stockholders. This
provision in the certificate of incorporation does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies including an
injunction or other forms of non-monetary relief would remain available under
Delaware law. Under current Delaware law, a director's liability to us or our
stockholders may not be limited:
- with respect to any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or involving intentional
misconduct;
- for knowing violations of law;
- for any transaction from which the director derived an improper personal
benefit;
- for improper transactions between the director and us; and
- for improper distributions to stockholders and loans to directors and
officers.
This provision also does not affect a director's responsibilities under any
other laws including the federal securities laws or state or federal
environmental laws.
There is no pending litigation or proceeding involving our directors or
officers in which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
EXECUTIVE COMPENSATION
The following table presents summary information for the fiscal year ended
March 31, 2000, regarding the compensation of our Chief Executive Officer and
each of our other executive officers whose salary and bonus for fiscal 2000 were
in excess of $100,000. We refer to these officers as the "named executive
officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
SHARES OF
COMMON
STOCK
ISSUABLE UPON
FISCAL EXERCISE OF
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS
<S> <C> <C> <C> <C>
Arthur H. Reidel ..................................... 2000 $200,000 $ -- 107,250
President and Chief Executive Officer
Robin A. Kehoe ....................................... 2000 $143,750 $ -- 72,500
Senior Vice President, Finance and Chief Financial
Officer
Michael A. Emley ..................................... 2000 $141,250 $56,148 60,000
Senior Vice President, Sales and Professional
Services
Daniel L. Weiner ..................................... 2000 $175,000 $ -- --
Senior Vice President, Technology Deployment
</TABLE>
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<PAGE>
OPTION GRANTS
The following table contains information about the stock option grants to
the named executive officers in fiscal 2000:
OPTION GRANTS IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF PERCENTAGE OF APPRECIATION FOR
SECURITIES TOTAL OPTIONS EXERCISE OPTION TERM(4)
UNDERLYING OPTIONS GRANTED DURING PRICE PER EXPIRATION -------------------
GRANTED(1) FISCAL YEAR(2) SHARE($/SH)(3) DATE 5% 10%
------------------ -------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arthur H. Reidel(5)....... 107,250 8.16% 0.35 5/13/09
Robin A. Kehoe(5)......... 72,500 5.52% 0.35 5/13/09
Michael A. Emley(6)....... 60,000 4.56% 0.35 5/13/09
Daniel L. Weiner.......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Options are granted under our 1997 Stock Option Plan. These options expire
10 years from the date of grant, or earlier upon termination of employment.
See "Management--Employee Benefit Plans."
(2) Based on an aggregate of 1,314,575 options granted during fiscal 2000 to our
employees and consultants, including the named executive officers.
(3) The exercise price per share of each option was equal to the fair market
value of our common stock on the date of grant as determined by our board of
directors.
(4) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming that the stock price based upon an assumed initial
public offering price of $ per share appreciates at the specified
annual rates of appreciation, compounded annually over the term of the
options. These numbers are calculated based on rules promulgated by the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and common stock holdings are dependent on the time of such
exercise and the future performance of our common stock.
(5) Options to purchase 7,250 shares granted to Mr. Reidel and options to
purchase 7,500 shares granted to Ms. Kehoe were fully vested on May 14,
1999. The remaining options held by Mr. Reidel and Ms. Kehoe vest in equal
monthly installments over four years.
(6) This option vests in equal monthly installments over 48 months.
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YEAR-END VALUES
The table below provides information about the number and value of options
held by the named executive officers at March 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT MARCH 31, 2000 AT MARCH 31, 2000(1)
ON EXERCISE VALUE REALIZED(1) --------------------------- -------------------------
----------- ------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE
NAME ----------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
Arthur H. Reidel.............. 121,830 $ -- -- --
Robin A. Kehoe................ 82,220 -- -- --
Michael A. Emley.............. -- -- 13,750 46,250 $
Daniel L. Weiner.............. -- -- -- -- --
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT MARCH 31, 2000(1)
-------------------------
UNEXERCISABLE
NAME -------------------------
<S> <C>
Arthur H. Reidel.............. --
Robin A. Kehoe................ --
Michael A. Emley.............. $
Daniel L. Weiner.............. --
</TABLE>
- ------------------------
(1) There was no public trading market for our common Stock as of March 31,
2000. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $ per share, less the applicable
exercise price.
EMPLOYEE BENEFIT PLANS
2000 EQUITY INCENTIVE PLAN
Our board of directors adopted our 2000 Equity Incentive Plan on April 7,
2000, and our stockholders approved it on , 2000. We have reserved a
total of 4,000,000 shares of our common stock for issuance under the incentive
plan.
On each January 1, starting with January 2001 and continuing through and
including the calendar year 2010, the share reserve automatically will be
increased by a number of shares equal to the LEAST of:
- 5% of our then outstanding shares of common stock;
- 2,000,000 shares; or
- a lesser number determined by our board.
If the recipient of a stock award does not purchase the shares subject to
such stock award before the stock award expires or otherwise terminates, the
shares that are not purchased will again become available for issuance under the
incentive plan.
ADMINISTRATION AND ELIGIBILITY. The board administers the incentive plan
unless it delegates administration to a committee. The board may grant incentive
stock options to our employees and to the employees of our affiliates. The board
also may grant nonstatutory stock options, stock bonuses and restricted stock
purchase awards to our employees, directors and consultants as well as to the
employees, directors and consultants of our affiliates.
OPTION TERMS. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock on
the grant date. It may grant nonstatutory stock options with an exercise price
as low as 85% of the fair market value of a share on the grant date.
In addition, the incentive plan provides for automatic stock option grants
to non-employee directors on our board. After this offering, each person who is
not our employee who is first elected or appointed to the board of directors
less than six months from the prior annual meeting will be granted an initial
grant on the date of this election or appointment to purchase 5,000 shares of
our common stock, or if first elected after six months from the prior annual
meeting of stockholders 2,500 shares, at fair market value of the common stock
on the date of grant. On the date of this offering,
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non-employee directors of our board of directors who have not previously been
granted options to purchase common stock will receive an initial stock option to
purchase 5,000 shares of our common stock. The non-employee directors become
fully vested in the stock option grant at the next annual meeting of
stockholders following the date of the grant, provided that the non-employee
directors are providing services to us at that time.
After this offering, each person who is a non-employee director on the day
after each annual stockholder's meeting, shall, on that date, be granted an
annual stock option grant to purchase 5,000 shares of our common stock at the
fair market value of our common stock on that date of grant. The non-employee
directors become fully vested in each stock option grant at the next annual
meeting of stockholders following the date of the grant, provided that the
non-employee directors are providing service to us at that time.
STOCK BONUS AND RESTRICTED STOCK PURCHASE AWARDS. The board may also grant
stock bonus awards and restricted stock purchase awards. Stock bonus awards are
granted for services past rendered. Restricted stock purchase awards can be
granted, but the purchase price cannot be less than 85% of the fair market value
on the date of grant or at the time of purchase.
EFFECT OF TRANSACTIONS ON OPTIONS. Transactions not involving our receipt
of consideration, such as a merger, consolidation, reorganization, stock
dividend, or stock split, may change the class and number of shares subject to
the incentive plan and to outstanding awards. In that event, the board will
appropriately adjust the incentive plan as to the class and the maximum number
of shares subject to the incentive plan and to the limits on the number of
shares that the board may grant under an option as provided in Section 162(m) of
the Internal Revenue Code. It also will adjust outstanding awards as to the
class, number of shares and price per share applicable to such awards.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to such event. However, we treat outstanding stock awards
differently in the following situations:
- a sale, lease or other disposition of all or substantially all of our
assets or stock;
- a merger or other consolidation in which we are not the surviving
corporation;
- a reverse merger following which we are the surviving corporation but
where our common stock outstanding immediately prior to the merger is
converted into other property.
In these situations, the surviving or acquiring corporation may either
assume all outstanding awards under the incentive plan or substitute other
awards for the outstanding awards.
If the surviving or acquiring corporation does not assume or substitute
outstanding options, then, for option holders who are then providing services to
us or our affiliates, the vesting and exercisability, if applicable, of the
options will accelerate and the options will terminate immediately prior to the
occurrence of the event described above if not otherwise exercised. The vesting
and exercisability of options held by option holders who are no longer providing
services to us or one of our affiliates will not accelerate. However, those
options will also terminate immediately prior to the occurrence of the event
described above.
In certain change in control circumstances, the vesting provisions of the
outstanding stock options will be accelerated if a holder of a stock option is
terminated due to a constructive termination or involuntarily terminated without
cause within 13 months after a change in control.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board adopted the 2000 Employee Stock Purchase Plan on April 7, 2000,
and our stockholders approved it on , 2000.
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<PAGE>
SHARE RESERVE. We have authorized the issuance of 600,000 shares of our
common stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On each January 1, starting with January 2001, the share reserve
will automatically be increased by a number of shares equal to the LESSER of:
- 1.5% of our then outstanding shares of common stock;
- 600,000 shares; or
- such fewer number of shares determined by the board.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and the full-time employees of our affiliates incorporated
in the United States may participate in offerings under the purchase plan.
However, no employee may participate in the purchase plan if, immediately after
we grant the employee a purchase right, the employee would have voting power
over 5% or more of our outstanding capital stock. As of the date hereof, no
shares of common stock have been purchased under the purchase plan.
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. Unless the board otherwise determines, common stock will be
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share on the first day of the offering;
or
- 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, and all additional offerings, we intend to register the
shares being offered on a Form S-8 registration statement. The fair market value
of the shares on the first date of the first offering will be the price per
share at which our shares are first sold to the public as specified in the final
prospectus with respect to our initial public offering. Otherwise, fair market
value generally means the closing sales price (rounded up where necessary to the
nearest whole cent) for such shares (or the closing bid, if no sales were
reported) as quoted on the Nasdaq National Market on the trading day prior to
the relevant determination date, as reported in THE WALL STREET JOURNAL.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 20% of their base compensation for the purchase of stock
under the purchase plan. Generally employees may end their participation in the
offering at any time up to 10 days before a purchase period ends. Their
participation ends automatically on termination of their employment or loss of
full-time status.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights, together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
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<PAGE>
Upon the happening of certain corporate transactions, a surviving
corporation may assume outstanding purchase rights or substitute other purchase
rights therefor. If the surviving corporation does not assume or substitute the
purchase rights, the offering period may be shortened and our stock may be
purchased for the participants immediately before the corporate transactions.
1997 STOCK OPTION PLAN
Our board of directors initially adopted our 1997 stock option plan on
February 17, 1997, and our stockholders initially approved it on March 17, 1997.
It was last amended by the board of directors on April 7, 2000 and our
stockholders approved the amendment on April , 2000. We have reserved a total
of 3,800,000 shares of our common stock for issuance under the option plan. As
of March 31, 2000, under the 1997 stock option plan (a) options to purchase
1,742,119 shares of common stock were outstanding and (b) options to purchase
470,179 shares had been exercised. On April 10, 2000, our Compensation Committee
granted options to purchase an additional 812,625 shares of our common stock. If
the recipient of a stock option does not purchase the shares subject to such
stock option before the stock option expires or otherwise terminates, the shares
that are not purchased will again become available for issuance under the option
plan. The 1997 stock option plan provides that it will be administered by the
board, or a committee appointed by the board, which determines recipients and
types of options to be granted, including number of shares under the option and
the exercisability of the shares.
Transactions not involving our receipt of consideration, such as a merger,
consolidation, reorganization, stock dividend, or stock split, may change the
class and number of shares subject to the option plan and to outstanding
options. In that event, the board will appropriately adjust the option plan as
to the class and the maximum number of shares subject to the option plan and to
the limits on the number of shares that the board may grant under an option as
provided in Section 162(m) of the Internal Revenue Code. It also will adjust
outstanding options as to the class, number of shares and price per share
applicable to such options.
In the event of a corporate transaction including a dissolution or
liquidation, the sale, lease or disposition of all or substantially all of our
assets or a merger or consolidation, then all outstanding options may be either
assumed or substituted for by any surviving entity. If the surviving entity
refuses to assume or substitute for such options, then the vesting and
exercisability of the options held by person who are then providing services to
us or our affiliates will be accelerated prior to such transaction and the
options will terminate immediately prior to the occurrence of the corporate
transaction. The vesting and exercisability of all other options will terminate
immediately prior to the occurrence of the corporate transaction.
1995 STOCK OPTION PLAN
Our board of directors initially adopted our 1995 stock option plan on
May 12, 1995, and our stockholders initially approved it on May 2, 1996. It was
last amended by the board of directors on April 19, 1996. The board authorized
and reserved a total of 507,000 shares of our common stock for issuance under
the 1995 stock option plan. The 1995 stock option plan provides for the grant of
incentive stock options to our employees and to the employees of our affiliates.
Under the 1995 stock option plan, the board also may grant nonstatutory stock
options to our employees, directors and consultants as well as to the employees,
directors and consultants of our affiliates. The 1995 stock option plan provides
that it will be administered by the board, or a committee appointed by the
board, which determines recipients and types of options to be granted, including
number of shares under the option and the exercisability of the shares.
As of March 31, 2000, under the 1995 stock option plan (a) options to
purchase 94,750 shares of common stock were outstanding and (b) options to
purchase 179,850 shares had been exercised. In
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<PAGE>
February 1997, the board voted that no additional grants would be made under the
1995 stock option plan and all shares that had been authorized and reserved but
not granted under the plan were returned to our authorized common stock.
Transactions not involving our receipt of consideration, such as a merger,
consolidation, reorganization, stock dividend, or stock split, may change the
class and number of shares subject to the option plan and to outstanding
options. In that event, the board will appropriately adjust the option plan as
to the class and the maximum number of shares subject to the option plan. It
also will adjust outstanding options as to the class, number of shares and price
per share applicable to such options.
In the event of a corporate transaction including a dissolution or
liquidation, the sale, lease or disposition of all or substantially all of our
assets or a merger or consolidation, then all outstanding options may be either
assumed or substituted for by any surviving entity. If the surviving entity
refuses to assume or substitute for such options, the plan provides that the
options will expire upon consummation of the transaction but the board has
adopted a policy that in such a transaction, the vesting and exerciseability
will be accelerated prior to the consummation of the transaction.
SECTION 401(K) PLAN
We maintain a retirement and deferred savings plan for our U.S. employees.
The retirement and deferred savings plan is intended to qualify as a
tax-qualified plan under Section 401 of the Internal Revenue Code. The
retirement and deferred savings plan provides that each participant may
contribute up to 20% of his or her pre-tax compensation, up to a statutory
limit, which is $10,500 in calendar year 2000. Under the plan, each employee is
fully vested in his or her deferred salary contributions. Employee contributions
are held and invested by the plan's trustee. The retirement and deferred savings
plan also permits us to make discretionary contributions, subject to established
limits and a vesting schedule.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH EXECUTIVE OFFICERS
In December 1997, we completed the acquisition of Scientific
Consulting, Inc., of which Dr. Weiner was the majority shareholder. We purchased
all of Dr. Weiner's interest in Scientific Consulting, Inc. in exchange for
$760,000 and 400,000 shares of our common stock. In connection with the
acquisition, Dr. Weiner entered into a two year non-competition agreement with
us in consideration for which we issued him 300,000 shares of our common stock.
Dr. Weiner became an executive officer in January 1998. In connection with
becoming an officer and employee of the Company, Dr. Weiner purchased 300,000
shares of our common stock for $75,000 in the form of a promissory note. This
stock is subject to a right of repurchase in favor of us in the event
Dr. Weiner ceases to provide services to us or we terminate his employment for
cause. This right of repurchase lapses over a four year period at the end of
which all shares will become fully vested. If we should terminate Dr. Weiner's
employment other than for cause prior to December 17, 2001, the vesting of these
shares will accelerate and all of the shares will become fully vested as of the
date of termination.
Ms. Kehoe purchased 120,000 shares in July 1996, 40,000 shares in June 1998
and 65,000 shares in June 1999. These shares are subject to a right of
repurchase in favor of us. This right of repurchase lapses over a four year
period at the end of which all shares will become fully vested. If we should
engage in a transaction resulting in change in control, and Ms. Kehoe is
subsequently terminated within four years of such transaction, the vesting of
these shares will accelerate and all of the shares will become fully vested at
that time.
INVESTOR RIGHTS AGREEMENT
We have entered into an agreement with the holders of our preferred stock,
including entities with which our directors are affiliated, that provides these
stockholders certain rights relating to the registration of their stock. These
rights have been waived as to this offering by the holders of preferred stock,
but will survive this offering and will terminate no later than five years after
the closing date of this offering. This agreement also entitles the holders of
our preferred stock to rights to receive financial information regarding us and
a right of first refusal to purchase shares of our stock we issue, both of which
rights terminate at the close of this offering.
SHAREHOLDER AGREEMENT
We have entered into an agreement with institutional holders of our
preferred stock and our three largest common stockholders, including entities
with which our directors are affiliated, that provides for the voting of their
shares in favor of the election of designated persons to our board of directors,
including the current members of our board other than Messrs. Chess and Morton.
In addition, some of our preferred stockholders have the right to designate,
individually or mutually, up to four candidates to be elected by these
stockholders as members of our board of directors. This agreement will terminate
upon the closing of this offering.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our directors and
officers for the indemnification of these persons to the full extent permitted
by law. We also intend to execute these agreements with our future directors and
officers.
LOANS TO EXECUTIVE OFFICERS
We loaned Ms. Kehoe $12,000 in July 1996 and $10,000 in June 1998 in
connection with the purchase of our common stock. Each of these loans is a full
recourse note and accrues interest at a
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rate of 6.74% and 5.77% per year, respectively, compounded annually. The
principal and accrued interest on each loan is due July 25, 2001 and may be
prepaid without penalty. The promissory notes will accelerate and become due and
payable 30 days after Ms. Kehoe's employment with us is terminated for any
reason. In addition, we loaned Ms. Kehoe $22,750 in 1999 to purchase additional
shares of our common stock. The interest on this loan is 6% per year, with the
principal and accrued interest due May 1, 2003. This promissory note may be
prepaid without penalty and will accelerate and become immediately due and
payable should Ms. Kehoe's employment with us be terminated for any reason.
In January 1998 we loaned Dr. Weiner $75,000 in connection with the purchase
of our common stock. This loan is a full recourse note and accrues interest at a
rate of 5.93% per year, compounded annually. The principal and accrued interest
is due December 17, 2002 and may be prepaid without penalty. This promissory
note will accelerate and become due and payable 90 days after Dr. Weiner's
employment with us is terminated.
STOCK SALES
The following executive officers, directors or holders of more than 5%
percent of our securities purchased shares of our stock in the amounts set forth
below during the last three fiscal years.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
COMMON ---------------------------------
STOCK WARRANTS(1) SERIES C SERIES D SERIES E
-------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Arthur H. Reidel........................ 121,830 -- -- -- --
Robin A. Kehoe.......................... 122,220 2,215 -- 11,108 --
Steven L. Shafer........................ 7,500 -- -- -- --
Daniel L. Weiner(2)..................... 907,000 -- -- -- --
Steven D. Brooks........................ 40,000 4,747 73,840 23,762 --
Gary L. Neil............................ -- 633 -- 3,174 --
5% STOCKHOLDERS
Asset Management Assoc. 1996, L.P.(3)... -- 91,646 970,465 611,121 --
The Sprout Entities(4).................. -- -- 1,265,823 538,527 --
McKesson HBOC, Inc...................... -- -- -- -- 2,777,778
Weiss, Peck & Greer Entities(5)......... -- -- -- 1,223,242 --
Per Share Price......................... $0.25 to $ 0.25 $ 2.37 $ 3.27 $ 7.20
$1.40
Date of Purchase........................ 9/97 to 5/98 5/97 10/98 9/99
3/00
</TABLE>
- ------------------------
(1) These warrants represent warrants to purchase shares of our common stock.
(2) Includes 3,000 shares held of record by Dr. Weiner's spouse. Also includes
604,000 shares issued to Dr. Weiner in conjunction with our acquisition of
his interest in Scientific Consulting, Inc. in December 1997.
(3) AMC Partners 96, L.P. is the general partner of Asset Management Associates
1996, L.P. Mr. Sanders and Dr. Kelly, two of our directors, are general
partners of AMC Partners 96, L.P.
(4) Consists of 1,569,595 shares held by Sprout Capital VII, L.P., 18,233 shares
held by Sprout CEO Fund, L.P., 180,435 shares held by DLJ First ESC, L.P.
and 36,087 shares held by DLJ Capital Corp. Dr. Chambon, one of our
directors, is an employee of DLJ Capital Corp., which is the managing
general partner of Sprout Capital VII, L.P. and a general partner of the
Sprout CEO
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<PAGE>
Fund, and he is a Vice President of the Sprout Group, which is a division of
DLJ Capital Corp. Dr. Chambon is a general partner of DLJ Associates VII,
L.P. which is a general partner of Sprout VII, L.P. DLJ First ESC, L.P. is a
fund that invests for the benefit of an employee deferred compensation plan
for employees of DLJ Capital Corp. Dr. Chambon disclaims beneficial
ownership of these shares except to the extent of his pecuniary or
partnership interests.
(5) Consists of 534,679 shares held by WPG Enterprise Fund III, L.L.C., 611,376
shares held by Weiss, Pech & Greer Venture Associates IV, L.L.C. and 77,187
shares held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P.
All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested directors in these transactions.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the shares of our common stock as of March 31, 2000, and as
adjusted to give effect to the sale of shares of our common stock in this
offering assuming conversion of all of the outstanding shares of preferred stock
into common stock and no exercise of the underwriters' over-allotment option,
by:
- each person known by us to be the beneficial owner of 5% or more of the
outstanding shares of common stock together with the affiliates of such
person;
- each named executive officer;
- each of our directors; and
- all executive officers and current directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock under options held by that person that are currently
exercisable or exercisable within 60 days of March 31, 2000 are considered
outstanding.
Except pursuant to applicable community property laws or as indicated in the
footnotes to this table, we believe that each stockholder identified in the
table possesses sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by such stockholder. Unless otherwise
indicated in the footnotes, the address of the individuals listed below is: c/o
Pharsight Corporation, 800 West El Camino Real, Mountain View, CA 94040.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO OFFERING
--------------------------------------------
SHARES BENFICALLY OWNED PERCENTAGE
THAT ARE ISSUABLE BENEFICIALLY
NUMBER OF SHARES PURSUANT TO OPTIONS AND OWNED(1)
BENEFICIALLY OWNED WARRANTS EXERCISABLE -------------------
NAME PRIOR TO THE WITHIN 60 DAYS OF BEFORE AFTER
DIRECTORS AND EXECUTIVE OFFERING MARCH 31, 2000 OFFERING OFFERING
OFFICERS ------------------ ----------------------- -------- --------
<S> <C> <C> <C> <C>
Arthur H. Reidel....................... 926,350 -- 6.3%
Robin A. Kehoe......................... 253,328 2,215 1.7
Michael A. Emley....................... 100,000 16,250 * *
Steven L. Shafer(2).................... 152,744 2,500 1.1
Daniel L. Weiner(3).................... 907,000 -- 6.2
Steven D. Brooks....................... 137,602 4,747 * *
Gary L. Neil(4)........................ 41,174 32,708 * *
Douglas E. Kelly(5).................... 3,124,596 91,646 21.7
Philippe O. Chambon(6)................. 1,804,350 -- 12.2
Robert B. Chess........................ -- -- * *
W. Ferrell Sanders(5).................. 3,124,596 91,646 21.7
Dean O. Morton......................... -- -- * *
All directors and officers as a group
(12 persons)(7)...................... 7,447,144 147,631 51.0
5% STOCKHOLDERS
Asset Management Associates 1996,
L.P.(5).............................. 3,124,596 91,646 21.7
McKesson HBOC, Inc.(8)................. 2,777,778 -- 18.8
The Sprout Entities(6)................. 1,804,350 -- 12.2
The Weiss, Peck & Greer Entities(9).... 1,223,242 -- 8.3
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Percentage of ownership is based on 14,741,939 shares of common stock
outstanding before this offering and shares of common stock
outstanding after this offering.
(2) Includes 8,000 shares held by Mr. Shafer as custodian for his children under
the California Uniform Gifts to Minors Act.
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<PAGE>
(3) Includes 3,000 shares held of record by Dr. Weiner's spouse.
(4) Includes 21,174 shares and warrants to purchase 633 shares held by The Neil
Family Trust dated 12/16/93, of which Dr. Neil is a trustee.
(5) Consists solely of shares and warrants held by Asset Management Associates
1996, L.P. AMC Partners 96, L.P. is the general partner of Asset Management
Associates 1996, L.P. W. Ferrell Sanders and Douglas E. Kelly, two of our
directors, are general partners of AMC Partners 96, L.P. and disclaim
beneficial ownership of these shares except to the extent of each of their
proportionate partnership interest in these shares. The address for Asset
Management Associates 1996, L.P. is c/o Alloy Ventures, 480 Cowper Street,
Palo Alto, CA 94301.
(6) Consists of 1,569,595 shares held by Sprout Capital VII, L.P., 18,233 shares
held by Sprout CEO Fund, L.P., 180,435 shares held by DLJ First ESC, L.P.
and 36,087 shares held by DLJ Capital Corp. Dr. Chambon is an employee of
DLJ Capital Corp., which is the managing general partner of Sprout Capital
VII, L.P. and a general partner of the Sprout CEO Fund, and he is a Vice
President of the Sprout Group, which is a division of DLJ Capital Corp.
Dr. Chambon is a general partner of DLJ Associates VII, L.P. which is a
general partner of Sprout VII, L.P. DLJ First ESC, L.P. is a fund that
invests for the benefit of an employee deferred compensation plan for
employees of DLJ Capital Corp. Dr. Chambon disclaims beneficial ownership of
these shares except to the extent of his pecuniary or partnership interests.
The address for the Sprout Entities is 277 Park Avenue, New York, NY 10172.
(7) Consists of 4,961,120 shares of common stock and warrants to purchase 92,279
shares of common stock held by entities affiliated with directors and
executive officers. See footnotes 2 through 6 above.
(8) McKesson HBOC, Inc. is located at One Post Street, Floor 33, San Francisco,
CA 94104.
(9) Consists of 534,679 shares held by WPG Enterprise Fund III, L.L.C., 611,376
shares held by Weiss, Peck & Greer Venture Associates IV, L.L.C. and 77,187
shares held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P. Weiss,
Peck & Greer, L.L.C., is a Class A limited partner of WPG Venture Partners
III, L.P., the Fund Investment Advisory Member for WPG Enterprise Fund III,
L.L.C., Weiss, Peck & Greer Venture Associates IV, L.L.C. and Weiss, Peck &
Greer Venture Associates IV Cayman, L.P. The Weiss, Peck & Greer Entities
are located at 555 California Street, Suite 3130, San Francisco, CA 94104.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 120,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of our
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, our certificate of incorporation and bylaws, which we have
included as exhibits to the registration statement of which this prospectus
forms a part.
COMMON STOCK
As of March 31, 2000, there were 14,741,939 shares of common stock
outstanding, held of record by 94 stockholders. This amount assumes the
conversion of all outstanding shares of preferred stock into common stock, which
is to occur upon the closing of this offering. In addition, as of March 31,
2000, there were 1,835,369 shares of common stock subject to outstanding
options. Upon completion of this offering, there will be shares of
common stock outstanding, assuming no exercise of outstanding stock options or
warrants or the underwriters' over-allotment option.
Each share of common stock entitles its holder to one vote on all matters to
be voted upon by stockholders. Subject to preferences that may apply to
preferred stock that may be issued after this offering, holders of common stock
may receive ratably any dividends that the board of directors may declare out of
funds legally available for that purpose. In the event of our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and any liquidation
preference of preferred stock that may be issued after this offering. The common
stock has no preemptive rights, conversion rights, subscription rights or
redemption or sinking fund provisions. All outstanding shares of common stock
are fully paid and nonassessable, and the shares of common stock to be issued
upon completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series. Our board may designate the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preference, sinking fund
terms and number of shares constituting any series or the designation of any
series. The issuance of preferred stock could have the effect of restricting
dividends on the common stock, diluting the voting power of the common stock,
impairing the liquidation rights of the common stock or delaying or preventing a
change in control. We have no present plans to issue any shares of preferred
stock after the completion of this offering.
WARRANTS
As of March 31, 2000, after giving effect to the conversion of all
outstanding preferred stock into common stock, warrants to purchase 296,881
shares of common stock were outstanding at a weighted average exercise price of
$1.45 per share. These warrants expire on various dates from the closing of this
offering through the date that is five years after the closing of this offering.
The warrants contain provisions for the adjustment of the exercise price and the
aggregate number of shares that may be issued upon the exercise of the warrant
if a stock dividend, stock split, reorganization, reclassification or
consolidation occurs.
REGISTRATION RIGHTS
On the date 180 days after the completion of this offering, the holders of
10,686,717 shares of common stock or their permitted transferees, will be
entitled to rights to register these shares under the Securities Act of 1933. If
we propose to register any of our securities under the Securities Act,
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<PAGE>
either for our own account or for the account of other securities holders, the
holders of these shares will be entitled to notice of the proposed registration
and will be entitled to include, at our expense, their shares of common stock in
the registration. In addition, the holders may require us, at our expense and on
not more than two occasions, to file a registration statement under the
Securities Act covering their shares of common stock, and we will be required to
use our best efforts to have the registration statement declared effective.
Further, the holders may require us at our expense, but not more than twice in
any twelve month period, to register their shares on Form S-3 when use of this
form becomes available to us. These rights shall terminate on the earlier of
seven years after the effective date of this offering, or when a holder owns
less than 1% of our outstanding common stock and is able to sell all its shares
pursuant to Rule 144 under the Securities Act in any 90-day period. In addition,
holders of warrants to purchase 296,881 shares of common stock will have similar
registration rights upon exercise of these warrants. These registration rights
are subject to conditions and limitations, including the right of the
underwriters that may be engaged by us or the holders to limit the number of
shares included in the registration statement.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW. We are subject to Section 203 of the Delaware General
Corporation Law, which regulates acquisitions of some Delaware corporations. In
general, Section 203 prohibits, with some exceptions, a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years following the date the person becomes an
interested stockholder, unless:
- our board of directors approved the business combination or the
transaction in which the person became an interested stockholder prior to
the date the person attained this status;
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the person owned at least 85% of our voting
stock outstanding at the time the transaction commenced, excluding shares
owned by persons who are directors and also officers and by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in
a tender or exchange offer; or
- on or subsequent to the date the person became an interested stockholder,
our board of directors approved the business combination and the
stockholders other than the interested stockholder authorized the
transaction at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding stock not owned by
the interested stockholder.
Section 203 defines a "business combination" to include:
- any merger or consolidation involving us and the interested stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of our assets;
- in general, any transaction that results in the issuance or transfer by us
of any of our stock to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of our stock owned by the interested
stock holders; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through us.
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<PAGE>
In general, Section 203 defines an "interested stockholder" as any person
who, together with the person's affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status did own, 15%
or more of a corporation's voting stock.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our certificate of
incorporation and bylaws include a number of provisions that may have the effect
of deterring hostile takeovers or delaying or preventing changes in control or
management of us. First, our certificate of incorporation provides that all
stockholder actions upon completion of this offering must be effected at a duly
called meeting of holders and not by a consent in writing. Second, our bylaws
provide that special meetings of the stock holders may be called only by our
chairman of the board of directors, our chief executive officer, our board of
directors pursuant to a resolution adopted by a majority of the total number of
authorized directors or holders of 50% or more of our common stock. Third, our
certificate of incorporation provides that our board of directors can issue up
to 5,000,000 shares of preferred stock, as described under "--Preferred Stock"
above. Fourth, our certificate of incorporation and the bylaws provide for a
classified board of directors, in which approximately one-third of the directors
would be elected each year. Consequently, any potential acquiror would need to
successfully complete two proxy contests in order to take control of the board
of directors. Finally, our bylaws establish procedures, including advance notice
procedures with regard to the nomination of candidates for election as directors
and stockholder proposals. These provisions of our certificate of incorporation
and bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control or management of us.
TRANSFER AGENT AND REGISTRAR
We are currently in the process of selecting a transfer agent and registrar.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
reduce market prices prevailing from time to time. Furthermore, since only a
limited number of shares will be available for sale shortly after this offering
because of contractual and legal restrictions on resale described below, sales
of substantial amounts of common stock in the public market after the
restrictions lapse could reduce the market price of our stock and our ability to
raise equity capital in the future.
Upon completion of the offering, we will have shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options and warrants and based upon the number of
shares outstanding as of March 31, 2000. Of these shares, the shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. The
remaining 14,741,939 shares held by existing stockholders, and any shares
purchased by affiliates in this offering, will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act. Our affiliates will
hold 11,418,990 of the restricted shares. Restricted shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 under the Securities Act, which are
summarized below.
Subject to the operation of lock-up agreements described below, upon
completion of this offering, the holders of 10,686,717 shares of common stock,
or their transferees, will be entitled to rights to require the registration of
such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by our
affiliates, immediately upon the effectiveness of such registration. See
"Description of Capital Stock--Registration Rights."
LOCK-UP AGREEMENTS
We, our officers, directors and stockholders holding approximately
12,733,622 shares of common stock have agreed that, for a period of 180 days
from the date of the final prospectus, we and they will not, subject to some
exceptions, transfer or otherwise dispose of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock.
These restrictions shall cease to apply to:
(a) 25% of our shares of common stock beneficially owned by each of these
persons on the date of the final prospectus upon the later to occur of
(i) the end of the 90-day period after the date of the final prospectus
or (ii) the second trading day following the first public release of our
quarterly results after the date of the final prospectus; and
(b) an additional 25% of our shares of common stock beneficially owned by
each of these persons on the date of the final prospectus, upon the end
of the 135-day period after the date of the final prospectus;
if, in the case of both clauses (a) and (b):
(x) the reported last sale price of the common stock on the Nasdaq National
Market is at least twice the price per share in the offering for 20 of
the 30 trading days ending on (A) in the case of (a) above, the later of
(1) the last trading day of the 90-day period after the date of the
final prospectus or (2) the second trading day following the first
public release of our quarterly results after the date of the final
prospectus and (B) in the case of clause (b) above, the last trading day
of the 135-day after the date of the final prospectus; and
(y) such person is not, and has not been since the date of the final
prospectus, our employee;
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provided further, that such person agrees to give to us and Donaldson, Lufkin &
Jenrette Securities Corporation written notice three business days prior to
taking any of the actions described above and to execute any such action only
through Donaldson, Lufkin & Jenrette Securities Corporation or any of its
affiliates acting as broker, unless otherwise agreed in writing by Donaldson,
Lufkin & Jenrette Securities Corporation.
The underwriting agreement contains limited exceptions to these lock-up
agreements.
In addition, during this 180-day period, we have also agreed not to file any
registration statement for, and each of our officers, directors and several
stockholders has agreed not to make any demand for, or exercise any right for,
the registration of any of our securities without Donaldson, Lufkin & Jenrette
Securities Corporation's prior written consent.
As a result of these contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 701 of the
Securities Act discussed below, shares subject to these lock-up agreements will
not be salable until the shares are released from the agreements or the
agreements expire or unless prior written consent is received from Donaldson,
Lufkin & Jenrette Securities Corporation. Any early waiver of the lock-up
agreements by the underwriters, which, if granted, could permit sales of a
substantial number of shares and could adversely affect the trading price of our
shares, may not be accompanied by an advance public announcement by us.
Taking into account these lock-up agreements, 1,124,956 shares may be
eligible for sale on the later of 90 days from the date of the final prospectus
or the second trading day following the first public release of our quarterly
results, and 1,124,956 shares may be eligible for sale 135 days from the date of
the final prospectus. The remaining shares subject to the lockup requirements
will become eligible for sale 180 days from the date of the final prospectus
unless a portion of these shares have previously become eligible for sale as
described above.
RULE 144
In general, under Rule 144, beginning 90 days after the date of the final
prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned restricted shares for at least one year, including a person
who may be deemed our Rule 144 affiliate, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of our common stock then outstanding;
or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the proposed sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. We are unable to estimate accurately the number of restricted shares that
will be sold under Rule 144 because this will depend in part on the market price
of our common stock, the personal circumstances of the seller and other factors.
Under Rule 144(k), a person who is not deemed to have been our Rule 144
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, would
be entitled to sell those shares under Rule 144(k) without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, subject to the lock-up agreements, these shares may be sold
upon completion of this offering.
RULE 701
Beginning 90 days after the date of this prospectus, the shares of common
stock issuable upon exercise of the options granted by us prior to the effective
date of the registration statement will be eligible for sale in the public
market pursuant to Rule 701 under the Securities Act, subject to the lock-up
agreements. In general, Rule 701 permits resales of shares issued under
specified compensatory
59
<PAGE>
benefit plans and contracts commencing 90 days after the issuer becomes subject
to the reporting requirements of the Securities Exchange Act in reliance upon
Rule 144, but without compliance with restrictions, including the holding period
requirements, contained in Rule 144.
REGISTRATION STATEMENTS ON FORM S-8
Following this offering, we intend to file under the Securities Act one or
more registration statements on Form S-8 to register all of the shares of our
common stock eligible for this form of registration statement:
- issuable upon exercise of outstanding options granted pursuant to our 1995
and 1997 stock option plans and 2000 equity incentive plan;
- reserved for future option grants pursuant to individual option agreements
or these plans; and
- that we intend to offer for sale to our employees pursuant to our employee
stock purchase plan.
These registration statements are expected to become effective upon filing.
Shares covered by these registration statements will be subject to vesting
provisions and subject to expiration of the lock-up agreements. In the case of
Rule 144 affiliates only, these shares will also remain subject to the
restrictions of Rule 144 other than the holding period requirement.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated as
of , 2000, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Chase Securities Inc., Wit SoundView
Corporation and DLJDIRECT Inc. have severally agreed to purchase from us the
respective number of shares of common stock shown opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Chase Securities Inc........................................
Wit SoundView Corporation...................................
DLJDIRECT Inc...............................................
---------
Total.......................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus require the approval by their counsel of legal
matters and other conditions. The underwriters must purchase and accept delivery
of all of the shares of common stock offered through this prospectus, other than
those shares covered by the over-allotment option described below, if any are
purchased.
The underwriters propose to initially offer some of the shares of common
stock directly to the public at the public offering price on the cover page of
this prospectus and some of the shares of common stock to dealers, including the
underwriters, at the public offering price less a concession not in excess of
$ per share. The underwriters may allow, and these dealers may re-allow, to
other dealers a concession not in excess of $ per share. After the initial
offering of the common stock, the representatives of the underwriters may change
the public offering price and other selling terms at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share............................................
Total................................................
</TABLE>
We will pay the offering expenses, estimated to be $ .
A prospectus in electronic format will be made available on websites
maintained by DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation and Wit SoundView Corporation's affiliate, Wit Capital
Corporation. Other than the prospectus in electronic format, the information on
these websites relating to the offering is not part of this prospectus and has
not been approved and/or endorsed by us or the underwriters, and should not be
relied on by prospective investors.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at the
public offering price less underwriting discounts and commissions. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, under conditions
specified in the underwriting agreement, to purchase its pro rata portion of
61
<PAGE>
the additional shares based on that underwriter's percentage underwriting
commitment as indicated in the preceding table.
We have agreed to indemnify the underwriters against liabilities specified
in the underwriting agreement, including liabilities under the Securities Act,
or to contribute to payments that the underwriters may be required to make
because of these liabilities.
We, our officers, directors and stockholders holding approximately
shares of common stock have agreed that, for a period of 180 days from the date
of the final prospectus, we and they will not, subject to some exceptions,
transfer or otherwise dispose of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock. These
restrictions shall cease to apply to:
(a) 25% of our shares of common stock beneficially owned by each of these
persons on the date of the final prospectus upon the later to occur of
(i) the end of the 90-day period after the date of the final prospectus
or (ii) the second trading day following the first public release of our
quarterly results after the date of the final prospectus; and
(b) an additional 25% of our shares of common stock beneficially owned by
each of these persons on the date of the final prospectus, upon the end
of the 135-day period after the date of the final prospectus;
if, in the case of both clauses (a) and (b):
(x) the reported last sale price of the common stock on the Nasdaq National
Market is at least twice the price per share in the offering for 20 of
the 30 trading days ending on (A) in the case of (a) above, the later of
(1) the last trading day of the 90-day period after the date of the
final prospectus or (2) the second trading day following the first
public release of our quarterly results after the date of the final
prospectus and (B) in the case of clause (b) above, the last trading day
of the 135-day after the date of the final prospectus; and
(y) such person is not, and has not been since the date of the final
prospectus, our employee;
provided further, that such person agrees to give to us and Donaldson, Lufkin &
Jenrette Securities Corporation written notice three business days prior to
taking any of the actions described above and to execute any such action only
through Donaldson, Lufkin & Jenrette Securities Corporation or any of its
affiliates acting as broker, unless otherwise agreed in writing by Donaldson,
Lufkin & Jenrette Securities Corporation.
The underwriting agreement contains limited exceptions to these lock-up
agreements.
In addition, during this 180-day period, we have also agreed not to file any
registration statement for, and each of our officers, directors and several of
our stockholders have agreed not to make any demand for, or exercise any right
for, the registration of any of our shares of common stock without Donaldson,
Lufkin & Jenrette Securities Corporation's prior written consent.
Prior to the offering, there has been no established trading market for the
common stock. We and the underwriters negotiated the public offering price for
the shares of common stock offered by this prospectus. The factors they
considered in determining the public offering price included:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable companies;
and
62
<PAGE>
- the general condition of the securities markets at the time of the
offering.
Other than in the United States, neither we nor the underwriters have taken
any action that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered through this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements associated with the offer and sale of any
the shares of common stock offered through this prospectus be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any shares
of common stock offered in this prospectus in any jurisdiction in which an offer
or a solicitation is unlawful.
The Sprout Entities are affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation. The Sprout Entities have placed a sufficient number of
their shares in a voting trust so that upon the closing of this offering, the
Sprout Entities will exercise voting control over less than five percent of our
outstanding common stock. The shares subject to the voting trust are held and
voted by an independent third party, as voting trustee. An
associated person of Donaldson, Lufkin & Jenrette Securities Corporation is a
member of our board of directors.
As a result of the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a syndicate
short position. The underwriters may bid for and purchase shares of common stock
in the open market to cover a syndicate short position or to stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or in some other way or if Donaldson, Lufkin & Jenrette Securities
Corporation receives a report that indicates clients of such syndicate members
have "flipped" the common stock. These activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our employees, directors and other persons designated by
us. The number of shares available for sale to the general public will be
reduced to the extent that any reserved shares are purchased. Any reserved
shares not so purchased will be offered by the underwriters on the same basis as
the other shares offered through this prospectus.
63
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California and for the underwriters by
Sullivan & Cromwell, Los Angeles, California. As of the date of this prospectus,
GC&H Investments, an investment partnership composed of current and former
partners and associates of Cooley Godward LLP, owns 21,174 shares of our common
stock.
EXPERTS
The financial statements of Pharsight Corporation and Scientific Consulting,
Inc. appearing in this prospectus and registration statement have been audited
by Ernst & Young LLP, independent auditors, to the extent indicated in their
reports thereon also appearing elsewhere herein and in the registration
statement. The financial statements have been included herein in reliance upon
these reports given on the authority of Ernst & Young LLP as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement, which term shall
include any amendments thereto, on Form S-1 under the Securities Act with
respect to our common stock offered hereby. This prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement. As used herein, the term "Registration
Statement" means the initial registration statement, including the exhibits,
schedules, financial statements and notes filed as part thereof and any and all
amendments thereto. This prospectus omits information contained in the
Registration Statement as permitted by the rules and regulations of the SEC. For
further information with respect to us and our common stock offered hereby,
reference is made to the Registration Statement. Statements herein concerning
the contents of any contract or other document are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed with the SEC as an exhibit to the Registration Statement, each
such statement being qualified by and subject to such reference in all respects.
With respect to each such document filed with the SEC as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved.
As a result of the offering hereunder, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will file reports and other information with the
SEC. Reports, registration statements, proxy statements, and other information
filed by us with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
New York, New York 10048. Copies of the material can be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as we may determine or as may be
required by law.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PHARSIGHT CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-5
Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)............................ F-6
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
SCIENTIFIC CONSULTING, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-28
Statement of Income......................................... F-29
Statement of Cash Flows..................................... F-30
Notes to Financial Statements............................... F-31
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Pharsight Corporation
We have audited the accompanying balance sheets of Pharsight Corporation as of
March 31, 1998 and 1999, and the related statements of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pharsight Corporation at
March 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1999 in conformity
with accounting principles generally accepted in the United States.
San Jose, California /s/ ERNST & YOUNG LLP
May 14, 1999
F-2
<PAGE>
PHARSIGHT CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY (DEFICIT)
------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
-------- -------- ------------ ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,701 $ 4,148 $ 5,660
Short-term investments.................................... 1,000 1,999 12,679
Accounts receivable, net of allowance for bad debts of $27
for March 31 1998, 1999 and December 31, 1999........... 448 745 2,658
Prepaids and other current assets......................... 331 300 534
------- -------- --------
Total current assets........................................ 4,480 7,192 21,531
Property and equipment, net................................. 381 845 1,057
Intangible assets, net
Core technology........................................... 241 880 551
Other..................................................... 247 651 216
------- -------- --------
488 1,531 767
Other assets................................................ 50 87 159
------- -------- --------
Total assets................................................ $ 5,399 $ 9,655 $ 23,514
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 289 $ 213 $ 23
Accrued interest.......................................... -- 157 145
Accrued expenses.......................................... 164 143 328
Accrued compensation...................................... 136 404 912
Deferred revenue.......................................... 352 753 1,468
Current portion of notes payable.......................... 503 2,660 1,307
Current obligations under capital leases.................. 114 258 356
------- -------- --------
Total current liabilities................................... 1,558 4,588 4,539
Notes payable............................................... 953 2,293 1,316
Obligations under capital leases............................ 268 519 813
Commitments
Series C redeemable convertible preferred stock:
Authorized shares--2,581,640 for March 31, 1998, 1999 and
December 31, 1999 $ 6,109
Issued and outstanding shares--2,577,840 for March 31,
1998, 1999 and December 31, 1999 (Liquidation preference
at December 31, 1999 of $6,109) (no shares pro
forma).................................................. 7,176 7,665 8,032
Series D redeemable convertible preferred stock:
Authorized shares--2,930,000 for March 31, 1999 and
December 31, 1999
Issued and outstanding shares--2,877,254 for March 31,
1999 and December 31, 1999 (Liquidation preference at
December 31, 1999 of $9,408) (no shares pro forma)...... -- 9,676 10,240 --
</TABLE>
F-3
<PAGE>
PHARSIGHT CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY (DEFICIT)
------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
-------- -------- ------------ ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Stockholders' equity (deficit):
Series A convertible preferred stock, no par value:
Authorized shares--1,935,274 for March 31, 1998, 1999
and December 31, 1999
Issued and outstanding shares--1,913,845 for March 31,
1998, 1999 and December 31, 1999 (Liquidation
preference at December 31, 1999 of $1,897) (no shares
pro forma)............................................ 1,787 1,787 1,787 --
Series B convertible preferred stock, no par value:
Authorized shares--540,000 for March 31, 1998, 1999 and
December 31, 1999
Issued and outstanding shares--540,000 for March 31,
1998, 1999 and December 31, 1999 (Liquidation
preference at December 31, 1999 of $810) (no shares
pro forma)............................................ 798 798 798 --
Series E convertible preferred stock, no par value:
Authorized shares--2,777,778 for December 31, 1999
Issued and outstanding shares--2,777,778 for
December 31, 1999 (Liquidation preference at
December 31, 1999 of $20,000) (no shares pro forma)... -- -- 19,967 --
Common stock, no par value:
Authorized shares--9,943,086, 15,013,086 and 19,235,308,
for March 31, 1998, 1999 and December 31, 1999,
respectively
Issued and outstanding shares--3,040,166, 3,570,607, and
3,915,172 for March 31, 1998, 1999 and December 31,
1999, respectively (14,601,889 shares pro forma)...... 330 751 4,754 45,578
Deferred stock compensation............................... -- (239) (2,743) (2,743)
Accumulated deficit....................................... (7,382) (18,078) (25,833) (25,833)
Accumulated other comprehensive loss...................... -- -- (23) (23)
Notes receivable from stockholders........................ (89) (105) (133) (133)
------- -------- -------- --------
Total stockholders' equity (deficit)........................ (4,556) (15,086) (1,426) $ 16,846
------- -------- -------- ========
Total liabilities and stockholders' equity (deficit)........ $ 5,399 $ 9,655 $ 23,514
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PHARSIGHT CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ -------------------------
1997 1998 1999 1998 1999
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License and support...................... -- $ 649 $ 1,800 $ 1,315 $ 2,157
Services................................. -- 457 2,285 1,342 4,095
------- ------- -------- ------- -------
Total revenues............................. -- 1,106 4,085 2,657 6,252
Costs and expenses:
License and support...................... -- 279 748 596 762
Services................................. -- 435 1,772 1,051 2,280
Research and development................. 720 2,134 4,327 3,004 3,759
Sales and marketing...................... 816 1,366 2,292 1,592 2,773
General and administrative............... 438 744 1,105 707 1,332
Amortization of deferred stock
compensation........................... -- -- 57 -- 1,391
Amortization of intangible assets........ -- 82 965 708 764
Acquired in-process research and
development............................ -- 362 2,592 2,592 --
------- ------- -------- ------- -------
Total operating expenses................... 1,974 5,402 13,858 10,250 13,061
------- ------- -------- ------- -------
Loss from operations....................... (1,974) (4,296) (9,773) (7,593) (6,809)
Other income (expense):
Interest expense......................... (17) (44) (602) (454) (392)
Interest income and other, net........... 57 216 482 231 377
------- ------- -------- ------- -------
40 172 (120) (223) (15)
------- ------- -------- ------- -------
Net loss................................... (1,934) (4,124) (9,893) (7,816) (6,824)
Accretion on Series C and D redeemable
convertible preferred stock.............. -- (448) (803) (492) (931)
Series C redeemable convertible preferred
stock dividend........................... -- (644) -- -- --
------- ------- -------- ------- -------
Net loss applicable to common
stockholders............................. $(1,934) $(5,216) $(10,696) $(8,308) $(7,755)
======= ======= ======== ======= =======
Basic and diluted net loss per share....... $ (2.57) $ (3.96) $ (4.41) $ (3.64) $ (2.50)
Shares used to compute basic and diluted
net loss per share....................... 752 1,318 2,424 2,281 3,107
Pro forma basic and diluted net loss per
share.................................... $ (1.23) $ (0.64)
Shares used to compute pro forma basic and
diluted net loss per share............... 8,670 12,194
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PHARSIGHT CORPORATION
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION
-------- -------- -------- -------- -------- -------- ---------------
Balance at April 1, 1996........... -- $ -- 1,914 $ 1,787 1,730 $ 27 $ --
Issuance of common stock........... -- -- -- -- 334 38 --
Issuance of Series B convertible
preferred stock, net of issuance
costs............................ -- -- 540 798 -- -- --
Net loss........................... -- -- -- -- -- -- --
----- ------- ----- ------- ----- ------ -------
Balance at March 31, 1997.......... -- -- 2,454 2,585 2,064 65 --
Issuance of common stock under
employee benefit plans, net of
repurchases...................... -- -- -- -- 25 15 --
Issuance of common stock in
connection with acquisition and
other............................ -- -- -- -- 952 250 --
Issuance of Series C redeemable
convertible preferred stock, net
of issuance costs................ 2,578 6,084 -- -- -- -- --
Deemed dividend on Series C
preferred stock.................. -- 644 -- -- -- -- --
Accretion of preferred stock....... -- 448 -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
----- ------- ----- ------- ----- ------ -------
Balance at March 31, 1998.......... 2,578 7,176 2,454 2,585 3,041 330 --
Issuance of common stock under
employee benefit plans, net of
repurchases...................... -- -- -- -- 284 57 --
Issuance of common stock in
connection with acquisition...... -- -- -- -- 246 68 --
Issuance of Series C redeemable
convertible preferred stock, net
of issuance costs................ -- -- -- -- -- -- --
Issuance of Series D redeemable
convertible preferred stock, net
of issuance costs................ 2,877 9,362 -- -- -- -- --
Accretion of Series C preferred
stock............................ -- 489 -- -- -- -- --
Accretion of Series D preferred
stock............................ -- 314 -- -- -- -- --
Deferred stock compensation related
to stock option grants........... -- -- -- -- -- 296 (296)
Amortization of deferred stock
compensation..................... -- -- -- -- -- -- 57
Net loss........................... -- -- -- -- -- -- --
----- ------- ----- ------- ----- ------ -------
Balance at March 31, 1999.......... 5,455 17,341 2,454 2,585 3,571 751 (239)
Issuance of Series E convertible
preferred stock, net of issuance
costs (unaudited)................ -- -- 2,778 19,967 -- -- --
Issuance of common stock under
employee benefit plans, net of
repurchases (unaudited).......... -- -- -- -- 344 108 --
Deferred stock compensation related
to stock option grants
(unaudited)...................... -- -- -- -- -- 3,895 (3,895)
Amortization of deferred stock
compensation (unaudited)......... -- -- -- -- -- -- 1,391
Accretion of Series C preferred
stock (unaudited)................ -- 367 -- -- -- -- --
Accretion of Series D preferred
stock (unaudited)................ -- 564 -- -- -- -- --
Comprehensive loss
Unrealized loss on short-term
investments (unaudited)........ -- -- -- -- -- -- --
Net loss (unaudited)............. -- -- -- -- -- -- --
Total comprehensive loss
(unaudited)...................... -- -- -- -- -- -- --
----- ------- ----- ------- ----- ------ -------
Balance at December 31, 1999
(unaudited)...................... 5,455 $18,272 5,232 $22,552 3,915 $4,754 $(2,743)
===== ======= ===== ======= ===== ====== =======
<CAPTION>
<S> <C> <C> <C> <C>
ACCUMULATED NOTES
OTHER RECEIVABLE
ACCUMULATED COMPREHENSIVE FROM
DEFICIT LOSS STOCKHOLDERS TOTAL
------------- ---------------- ------------- --------
Balance at April 1, 1996........... $ (232) $ -- $ -- $ 1,582
Issuance of common stock........... -- -- (13) 25
Issuance of Series B convertible
preferred stock, net of issuance
costs............................ -- -- -- 798
Net loss........................... (1,934) -- -- (1,934)
-------- ---- ----- --------
Balance at March 31, 1997.......... (2,166) -- (13) 471
Issuance of common stock under
employee benefit plans, net of
repurchases...................... -- -- -- 15
Issuance of common stock in
connection with acquisition and
other............................ -- -- (76) 174
Issuance of Series C redeemable
convertible preferred stock, net
of issuance costs................ -- --
Deemed dividend on Series C
preferred stock.................. (644) -- -- (644)
Accretion of preferred stock....... (448) -- -- (448)
Net loss........................... (4,124) -- -- (4,124)
-------- ---- ----- --------
Balance at March 31, 1998.......... (7,382) -- (89) (4,556)
Issuance of common stock under
employee benefit plans, net of
repurchases...................... -- -- (16) 41
Issuance of common stock in
connection with acquisition...... -- -- -- 68
Issuance of Series C redeemable
convertible preferred stock, net
of issuance costs................ -- -- -- --
Issuance of Series D redeemable
convertible preferred stock, net
of issuance costs................ -- -- -- --
Accretion of Series C preferred
stock............................ (489) -- -- (489)
Accretion of Series D preferred
stock............................ (314) -- -- (314)
Deferred stock compensation related
to stock option grants........... -- -- -- --
Amortization of deferred stock
compensation..................... -- -- -- 57
Net loss........................... (9,893) -- -- (9,893)
-------- ---- ----- --------
Balance at March 31, 1999.......... (18,078) -- (105) (15,086)
Issuance of Series E convertible
preferred stock, net of issuance
costs (unaudited)................ -- -- -- 19,967
Issuance of common stock under
employee benefit plans, net of
repurchases (unaudited).......... -- -- (28) 80
Deferred stock compensation related
to stock option grants
(unaudited)...................... -- -- -- --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- 1,391
Accretion of Series C preferred
stock (unaudited)................ (367) -- -- (367)
Accretion of Series D preferred
stock (unaudited)................ (564) -- -- (564)
Comprehensive loss
Unrealized loss on short-term
investments (unaudited)........ -- (23) -- (23)
Net loss (unaudited)............. (6,824) -- -- (6,824)
Total comprehensive loss
(unaudited)...................... -- -- -- (6,847)
-------- ---- ----- --------
Balance at December 31, 1999
(unaudited)...................... $(25,833) $(23) $(133) $ (1,426)
======== ==== ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PHARSIGHT CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ -------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(1,934) $(4,124) $(9,893) $(7,816) $(6,824)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred stock compensation............... -- -- 57 -- 1,391
Depreciation.............................................. 31 89 275 218 334
Amortization.............................................. -- 82 965 708 764
Write-off of acquired in-process research and
development............................................. -- 362 2,592 2,592 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (19) (116) (297) (431) (1,914)
Other current assets.................................... (14) (245) 31 (71) (234)
Intangible and other assets............................. 16 40 (37) (57) (72)
Accounts payable........................................ 88 274 (76) (121) (190)
Accrued expenses........................................ -- 53 (21) 158 185
Accrued compensation.................................... 40 92 268 26 508
Deferred revenue........................................ 25 187 401 713 716
Interest payable........................................ -- -- 157 -- (19)
------- ------- ------- ------- -------
Net cash used in operating activities....................... (1,767) (3,306) (5,578) (4,081) (5,355)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (178) (263) (738) (621) (546)
Proceeds from sale of property and equipment................ -- -- 86 161 --
Purchases of short-term investments......................... (982) (1,246) (2,000) -- (11,679)
Maturities of short-term investments........................ 982 245 1,000 -- 978
Acquisition of MGA and SCI.................................. -- (638) (2,368) (2,368) --
------- ------- ------- ------- -------
Net cash used in investing activities....................... (178) (1,902) (4,020) (2,828) (11,247)
FINANCING ACTIVITIES
Proceeds from lease line.................................... 259 211 527 138 602
Proceeds from issuance of notes payable..................... -- 1,000 2,000 2,000 --
Principal payments on notes payable......................... -- -- (753) (431) (2,330)
Principal payments on capital lease obligations............. (24) (63) (132) (138) (205)
Proceeds from the issuance of common stock.................. 25 15 41 41 80
Proceeds from the issuance of convertible preferred stock,
net....................................................... 798 6,084 9,362 9,391 19,967
------- ------- ------- ------- -------
Net cash provided by financing activities................... 1,058 7,247 11,045 11,001 18,114
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (887) 2,039 1,447 4,092 1,512
Cash and cash equivalents at the beginning of the period.... 1,549 662 2,701 2,701 4,148
------- ------- ------- ------- -------
Cash and cash equivalents at the end of the period.......... $ 662 $ 2,701 $ 4,148 $ 6,793 $ 5,660
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
Notes receivable from stockholders.......................... $ 13 $ 76 $ 16 $ 10 $ 28
Property and equipment acquired under capital leases........ 259 211 527 138 602
Common stock issued for acquisition......................... -- 100 68 68 --
Common stock issued for noncompetition agreement............ -- 74 -- -- --
Note payable issued for acquisition......................... -- 456 2,250 2,250 --
Accretion of preferred stock................................ -- 448 803 492 931
Dividend on preferred stock................................. -- 644 -- -- --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 17 $ 34 $ 388 $ 146 $ 358
Cash paid for taxes......................................... -- -- 2 2 2
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
Pharsight Corporation ("Pharsight") was incorporated in California on
April 4, 1995. Pharsight develops and markets integrated products and services
that help pharmaceutical and biotechnology companies improve the drug
development process. In December 1997, Pharsight acquired Scientific
Consulting, Inc. ("SCI"), based in Cary, North Carolina. SCI's operations were
merged into Pharsight at acquisition. In May 1998, Pharsight acquired certain
assets, mainly source code, from Mitchell and Gauthier Associates, Inc. ("MGA").
Pharsight operates in only one business segment comprised of products and
services to pharmaceutical and biotechnology companies to improve the drug
development process. Sales are primarily generated in the United States through
a direct field sales organization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The financial information as of December 31, 1999 and for the nine months
ended December 31, 1998 and 1999 is unaudited, but includes all adjustments,
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of Pharsight's operating results and cash
flows for such period. Results for the nine months ended December 31, 1999 are
not necessarily indicative of results to be expected for the full fiscal year
2000 or for any future period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Pharsight's revenues are derived from two sources: product licenses and
scientific and training services. Pharsight enters into arrangements for sale of
licenses of software products and related maintenance contracts usually for a
period of one year.
Pharsight's revenue recognition policy is in accordance with Statement of
Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition", as amended by
Statement of Position No. 98-4, "Referral of the Effective Date of SOP 97-2,
'Software Revenue Recognition' " ("SOP 98-4"), and Statement of Position
No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions"
("SOP 98-9"). For each arrangement, Pharsight determines whether evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collection is probable. If any of these criteria are not met, revenue
recognition is deferred until such time as all of the criteria are met.
Pharsight considers all arrangements with payment terms extending beyond twelve
months and other arrangements with payment terms longer than normal not to be
fixed or determinable. If collectibility is not considered probable, revenue is
recognized when the fee is collected. No customer has the right of return.
ARRANGEMENTS CONSISTING OF LICENSE AND MAINTENANCE FEES. For those
contracts that consist solely of license and maintenance fees, Pharsight
recognizes license revenue based upon the residual method after all elements
other than maintenance have been delivered as prescribed by SOP 98-9. Pharsight
recognizes maintenance revenues over the term of the maintenance contract as
vendor-specific objective evidence of fair value for maintenance exists. In
accordance with paragraph 10 of SOP 97-2,
F-8
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
vendor-specific objective evidence of fair value of maintenance is determined by
reference to the price the customer will be required to pay when it is sold
separately (that is, the renewal rate). Each license agreement offers additional
maintenance renewal periods typically one year in duration at a stated price.
Maintenance contracts are typically one year in duration. Revenue is recognized
on software that is licensed on a per copy basis when each copy of the license
requested by the customer is delivered. Pharsight has one international
distributor. There is no right of return or price protection for sales to the
international distributor. In situations where the international distributor has
a purchase order from the end user that is immediately deliverable, Pharsight
recognizes revenue on shipment to the distributor, if other criteria in SOP 97-2
are met, since Pharsight has no risk of concessions. Pharsight defers the
revenue on shipments to the international distributor if the international
distributor does not have a purchase order from an end user that is immediately
deliverable or other criteria in SOP 97-2 are not met.
ARRANGEMENTS CONSISTING OF SERVICES. Revenues from services are recognized
as services are performed. For those contracts that include contract milestones
or acceptance criteria, Pharsight recognizes revenue as such milestones are
achieved or as such acceptance occurs. For contracts that are on a fixed price
basis, Pharsight determines if losses should be recognized at the end of each
accounting period.
During the nine months ended December 31, 1999 Pharsight entered into
arrangements that consist of licenses, maintenance, and scientific and training
services. For these arrangements Pharsight assesses whether the service element
of the arrangement is essential to the functionality of the other elements of
the arrangement. In those instances where Pharsight determines that the service
elements are essential to the other elements of the arrangement, Pharsight
accounts for the entire arrangement using contract accounting. For those
arrangements accounted for using contract accounting that do not include
contractual milestones or other acceptance criteria, Pharsight will utilize the
percentage of completion method based upon input measures of hours. For those
contracts that include contract milestones or acceptance criteria, Pharsight
will recognize revenue as such milestones are achieved or as such acceptance
occurs.
CAPITALIZED SOFTWARE
Pharsight capitalizes eligible computer software costs as products achieve
technological feasibility, subject to net realizable value considerations.
Pharsight has defined technological feasibility as completion of a working
model. As of March 31, 1998 and 1999, and December 31, 1999, such internal
capitalizable costs were insignificant. Accordingly, Pharsight has charged all
such internal costs to research and development expenses in the accompanying
statements of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of Pharsight's cash and cash equivalents, short-term
investments, accounts receivable and payable, and accrued liabilities
approximate their fair values due to their short-term nature. The fair values of
the capital lease obligations and notes payable are estimated based on current
interest rates available to Pharsight for debt instruments with similar terms,
degrees of risk, and remaining maturities. The carrying values of these
obligations approximate their respective fair values.
F-9
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Since January 1, 1999, Pharsight has accounted for internal use software
costs, including website development costs, in accordance with Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). In accordance with SOP 98-1, Pharsight
capitalizes costs to develop software for its website and other internal uses
when preliminary development efforts are successfully completed and management
has authorized and committed project funding and it is probable that the project
will be completed and the software will be used as intended. Costs incurred
prior to meeting these criteria, together with costs incurred for training and
maintenance, are expensed. Costs incurred for upgrades and enhancements that are
probable to result in additional functionality are capitalized. All capitalized
costs are amortized to expense over their expected useful lives.
Costs required to be capitalized under SOP 98-1 have been insignificant to
date. Prior to the adoption of SOP 98-1, costs incurred by Pharsight to develop,
enhance, manage, monitor and operate its website were expensed as incurred.
ADVERTISING
Pharsight expenses the cost of advertising as incurred. These costs were
insignificant in all periods presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of highly liquid financial
instruments consisting primarily of investments in money market funds,
commercial paper, and treasury instruments with insignificant interest rate risk
and with original maturities of three months or less at the time of acquisition.
SHORT-TERM INVESTMENTS
All investments are designated as available-for-sale and are carried at fair
value, with unrealized gains and losses, net of tax, reported in stockholders'
equity. The cost of securities sold is based on the specific identification
method. Realized gains or losses and declines in value, if any, judged to be
other-than-temporary, are reported in interest income and other, net. Short-term
investments consist of securities available-for-sale that mature within
12 months of purchase.
F-10
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term investments consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
MARCH 31, 1998
Market auction rate senior note....................... $ 1,000 $ -- $ -- $ 1,000
======= ========= ==== =======
MARCH 31, 1999
United States government and federal agency
obligations......................................... $ 1,999 $ -- $ -- $ 1,999
======= ========= ==== =======
DECEMBER 31, 1999
United States government and federal agency
obligations......................................... $ 8,988 $ -- $(12) $ 8,976
Corporate notes....................................... 3,714 -- (11) 3,703
------- --------- ---- -------
$12,702 $ -- $(23) $12,679
======= ========= ==== =======
</TABLE>
Proceeds from sales and maturities of securities available-for-sale were
$982, $245, $1,000, and $978 for the years ended March 31, 1997, 1998, and 1999,
and the nine months ended December 31, 1999, respectively. Gross realized sales
and losses were insignificant for all periods presented.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to five years. Property under capital leases is amortized
over the lesser of the useful lives of the assets or the lease term.
Amortization expense related to these assets is included in depreciation
expense.
INTANGIBLE ASSETS
Intangible assets related to the purchase of SCI's business and the
acquisition of certain assets of MGA which included core technology, assembled
workforce, developed technology, goodwill, and covenants not to compete. The
intangible assets are being amortized on a straight-line basis over periods
ranging from two to three years. Intangibles consist of:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Developed technology........................................ $223 $ 387 $ 387
Core technology............................................. 241 1,316 1,316
Assembled workforce......................................... 82 258 258
Goodwill.................................................... 24 117 117
Covenants not to compete.................................... -- 500 500
---- ------- -------
570 2,578 2,578
Accumulated amortization.................................... (82) (1,047) (1,811)
---- ------- -------
$488 $ 1,531 $ 767
==== ======= =======
</TABLE>
F-11
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Pharsight accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25"), and has adopted the "disclosure only" alternative
described in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123").
INCOME TAXES
Pharsight accounts for income taxes under the liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current tax laws and rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
vested outstanding shares of common stock. Diluted net loss per share is
computed using the weighted-average number of shares of vested common stock
outstanding and, when dilutive, unvested common stock outstanding, potential
common shares from options and warrants to purchase common stock using the
treasury stock method and from convertible securities using the as-if-converted
basis. All potential common shares have been excluded from the computation of
diluted net loss per share for all periods presented because the effect would be
antidilutive.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of Pharsight's proposed
initial public offering ("IPO"), are included in the calculation of basic and
diluted net loss per share as if they were outstanding for all periods
presented. To date, Pharsight has not had any issuances or grants for nominal
consideration.
Basic and diluted pro forma net loss per share have been computed as
described above and give effect to the automatic conversion of preferred stock
into common stock effective upon the closing of Pharsight's IPO as if their
conversion occurred at the original date of issuance.
F-12
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss........................ $ (1,934) $ (4,124) $ (9,893) $ (7,816) $ (6,824)
Accretion of preferred stock.... -- (448) (803) (492) (931)
Series C redeemable convertible
preferred stock dividend...... -- (644) -- -- --
----------- ---------- ---------- ----------- -----------
Net loss attributable to common
stockholders.................. $ (1,934) $ (5,216) $ (10,696) $ (8,308) $ (7,755)
=========== ========== ========== =========== ===========
Basic and diluted:
Weighted average common shares
outstanding................. 1,880 2,313 3,399 3,343 3,730
Less weighted average common
shares subject to
repurchase.................. (1,128) (995) (975) (1,062) (623)
----------- ---------- ---------- ----------- -----------
Shares used to compute basic and
diluted net loss per share.... 752 1,318 2,424 2,281 3,107
=========== ========== ========== =========== ===========
Basic and diluted net loss per
common share.................. $ (2.57) $ (3.96) $ (4.41) $ (3.64) $ (2.50)
=========== ========== ========== =========== ===========
Pro forma basic and diluted:
Shares used above............... 2,424 3,107
Weighted average convertible
preferred stock outstanding,
as if converted............. 6,246 9,087
---------- -----------
Shares used to compute pro
forma basic and diluted net
loss per share.............. 8,670 12,194
========== ===========
Pro forma basic and diluted net
loss per share................ $ (1.23) $ (0.64)
========== ===========
</TABLE>
F-13
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The number of unvested and potential common shares excluded from the
calculation of diluted net loss per share at March 31, 1997, 1998 and 1999 and
December 31, 1999 is detailed in the following table:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------- DECEMBER 31,
1997 1998 1999 1999
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Preferred stock................................. 2,273 4,728 6,246 9,088
Shares subject to repurchase.................... (1,128) (994) (975) (623)
Outstanding options............................. 349 815 1,125 1,819
Warrants........................................ 21 57 303 297
---------- --------- --------- ----------
1,515 4,606 6,593 10,603
========== ========= ========= ==========
</TABLE>
These instruments were excluded because their effect would be antidilutive.
UNAUDITED PRO FORMA INFORMATION
If Pharsight's IPO as described in Note 16 is consummated, all of the
preferred stock outstanding will be automatically converted into common stock.
In addition, the Series C stockholders will be entitled to receive the original
issue price of $2.37 per share. The unaudited pro forma convertible preferred
stock and stockholders' equity at December 31, 1999 has been adjusted for the
assumed conversion of preferred stock and the repayment of the Series C original
issue price based on the shares of preferred stock outstanding at December 31,
1999.
OTHER COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), requires Pharsight to display comprehensive
income and its components as part of the financial statements. Other
comprehensive income includes certain changes in equity that are excluded from
net income. Pharsight's only component of other comprehensive income, is
unrealized loss on short-term investments for the nine month period ended
December 31, 1999. Comprehensive loss for this period was $6,847. Pharsight's
comprehensive loss was the same as the net loss for all other periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS No. 133 establishes methods for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Because Pharsight does not currently hold any derivative instruments
and does not engage in hedging activities, the adoption of SFAS 133 is not
expected to have a significant impact on its financial position, results of
operations or cash flows. Pharsight will be required to implement SFAS 133, as
amended, for the year ending March 31, 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). Although Pharsight is
currently evaluating the impact of the SAB 101, Pharsight does not believe its
adoption will materially change Pharsight's financial position, results of
operations, or cash flows.
F-14
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Furniture and fixtures...................................... $ 158 $ 274 $ 343
Computers and equipment..................................... 344 863 1,336
Leasehold improvements...................................... -- 27 31
----- ------ ------
502 1,164 1,710
Accumulated depreciation and amortization................... (121) (319) (653)
----- ------ ------
$ 381 $ 845 $1,057
===== ====== ======
</TABLE>
Property and equipment include assets acquired under capital lease
obligations with a cost of approximately $421, $948, and $1,559 and accumulated
amortization of $108, $242, and $525 at March 31, 1998 and 1999, and
December 31, 1999, respectively.
4. BUSINESS AND OTHER ACQUISITIONS
In December 1997, Pharsight purchased all of the outstanding shares of SCI,
a developer of scientific software products for the pharmaceutical industry, for
an aggregate purchase price (including direct acquisition costs) of $1,300.
Pharsight acquired SCI for cash, a note payable, and 400 shares of Pharsight's
common stock valued at an aggregate of $100. Pharsight has accounted for the
acquisition using the purchase method, and the results of operations of SCI have
been included in Pharsight's operations since acquisition. Assets acquired and
liabilities assumed in the acquisition were as follows:
<TABLE>
<S> <C>
Current assets and other tangible assets.................... $ 511
Liabilities assumed......................................... (144)
Core technology............................................. 242
Acquired in-process research and development................ 362
Developed technology........................................ 223
Assembled workforce......................................... 82
Goodwill.................................................... 24
------
Total....................................................... $1,300
======
</TABLE>
A valuation was completed for SCI by an independent appraiser. Using this
information Pharsight made a final purchase price allocation. To determine the
value of the developed technology, the expected future cash flow attributed to
all existing technology was discounted, taking into account risks related to the
characteristics and applications of the technology, existing and future markets,
and assessments of the life cycle state of the technology. The value of the
assembled workforce was derived by estimating the costs to replace the existing
employees, including recruiting and hiring costs and training costs for each
category of employee. Management determined that approximately $362 of the
purchase price represented acquired in-process research and development that had
not yet reached technological feasibility and had no alternative future use. To
estimate the value of the in-process research and development ("IPR&D"), the
expected cash flows attributed to the completed portion of
F-15
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. BUSINESS AND OTHER ACQUISITIONS (CONTINUED)
the IPR&D were calculated. These cash flows considered the contribution of the
core technology, the risks related to the development of the IPR&D and the
percent complete as of the valuation date as well as the expected life cycle of
the technology. Finally, the cash flows attributed to the completed portion of
the IPR&D, net of the core technology contribution, were discounted to the
present value to estimate the value of the IPR&D. This amount was expensed
during the year ended March 31, 1998 as a non-recurring charge upon consummation
of the acquisition. Goodwill is determined based on the residual difference
between the amount paid and the values assigned to identified tangible and
intangible assets. In December 1997, Pharsight began amortizing goodwill,
developed technology and assembled workforce over an estimated useful life of
two to three years.
The pro forma unaudited results of operations for the years ended March 31,
1997 and 1998, assuming the purchase of SCI had been consummated as of April 1,
1996, follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues.................................................... $ 737 $2,259
Net loss applicable to common shareholders.................. 1,799 5,020
Net loss per Common Share
Basic..................................................... 2.39 3.81
Diluted................................................... 2.39 3.81
</TABLE>
In May 1998, Pharsight purchased certain assets, mainly modeling and
simulation technology, from MGA, a consulting and software development firm
based in Concord, Massachusetts. MGA's software allows scientists and engineers,
principally in the aerospace and defense industries, to simulate product
performance. Assets acquired were as follows:
<TABLE>
<S> <C>
Fixed assets................................................ $ 86
Core technology............................................. 1,084
Acquired in-process research and development................ 2,592
Developed technology........................................ 164
Assembled workforce......................................... 177
Goodwill.................................................... 93
Covenants not to compete.................................... 500
------
Total....................................................... $4,696
======
</TABLE>
Pharsight has only derived insignificant revenues ($82 since May 1998)
related to the acquisition of certain assets from MGA. These revenues were
related to maintenance renewals from existing customers of MGA. Pharsight
developed a new product that was released in February 2000 that used part of the
modeling and simulation technology acquired from MGA. The development of the new
product took approximately 21 months and Pharsight's research and development
costs related to the project were approximately $2,200. Pharsight purchased
these assets for cash of $2,000, promissory notes totaling $1,750 due in equal
annual installments over the next two years, and 246 shares of Pharsight's
common stock valued at an aggregate of $62. Pharsight also incurred $250 of
expenses, $500 relating to non-compete agreements, and approximately $134 of
acquisition costs.
F-16
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. BUSINESS AND OTHER ACQUISITIONS (CONTINUED)
A valuation was completed for MGA by an independent appraiser. Using this
information, Pharsight made a final purchase price allocation. To determine the
value of the developed technology, the expected future cash flow attributed to
all existing technology was discounted, taking into account risks related to the
characteristics and applications of the technology, existing and future markets,
and assessments of the life cycle stage of technology. The value of the
assembled workforce was derived by estimating the costs to replace the existing
employees, including recruiting and hiring costs and training costs for each
category of employee. Management determined that approximately $2,600 of the
purchase price represented acquired in-process research and development that had
not yet reached technological feasibility and had no alternative future use.
This amount was expensed during the nine months ended December 31, 1999 as a
non-recurring charge upon consummation of the acquisition. Goodwill is assigned
to identifiable tangible and intangible assets. In June 1999, Pharsight began
amortizing goodwill, developed technology and assembled workforce over an
estimated useful life of two to three years.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Pharsight to concentrations
of credit risk consist primarily of cash and cash equivalents, short-term
investments, and trade receivables. Pharsight generally invests its excess cash
in money market funds, commercial paper, corporate notes and obligations issued
by or fully collateralized by the U.S. government or federal agencies. Pharsight
places its investments with high-credit quality counterparties and, by policy,
limits the amount of credit exposure to any one counterparty.
Pharsight sells primarily to major pharmaceutical and biotechnology
companies. Pharsight evaluates its customers' financial condition when necessary
and routinely receives a deposit for services contracts at the time of sale.
Pharsight generally requires no collateral from its customers. Pharsight
analyzes the need for reserves for potential credit losses and records reserves
when necessary. It maintains an allowance for doubtful accounts based on the
expected collectibility of accounts receivable. To date, Pharsight has not
experienced any significant losses with respect to these balances. For the year
ended March 31, 1998, Pharsight added $27 to its allowance for doubtful accounts
through charges to bad debt expense. There were no bad debt write-offs for the
years ended March 31, 1998 and 1999 and the nine months ended December 31, 1999.
Three customers comprised 20%, 17%, and 12% of accounts receivable at
March 31, 1998, four customers comprised 15%, 13%, 11% and 10% of accounts
receivable at March 31, 1999, and two customers comprised 41% and 10% of
accounts receivable at December 31, 1999, respectively.
Three customers accounted for 19%, 17%, and 16%, and 15%, 13%, and 10% of
revenues for the years ended March 31, 1998 and 1999, respectively. For the nine
months ended December 31, 1998, no customer accounted for more than 10% of
revenues. One customer accounted for 29% of revenues for the nine months ended
December 31, 1999.
F-17
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. COMMITMENTS
Pharsight leases its office facilities and certain equipment under
noncancelable operating leases expiring through 2004. Minimum annual rental
commitments, net of subleases, at March 31, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 902
2001........................................................ 889
2002........................................................ 799
2003........................................................ 797
2004........................................................ 390
------
Total minimum payments...................................... $3,777
======
</TABLE>
Sublease income and future sublease payments are insignificant.
Rent expense was $75 for the year ended March 31, 1997, $221 for the year
ended March 31, 1998 and $676 for the year ended March 31, 1999. Rent expense
was $732 for the nine months ended December 31, 1999.
Pharsight is required to pay royalties based on license revenue or license
shipments for some products. As of March 31, 1999, required minimum payments
under such royalty agreements are as follows:
<TABLE>
<S> <C>
2000........................................................ $174
2001........................................................ 67
----
Total minimum payments...................................... $241
====
</TABLE>
Royalty expense totaled $144 for the year ended March 31, 1999. Royalty
expense for the year ended March 31, 1998 was insignificant. This amount has
been included in cost of revenues.
7. DEBT
Pharsight has entered into various noncancelable capital lease agreements
for equipment and software through a series of sale-leaseback transactions.
Capital lease obligations represent the present
F-18
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. DEBT (CONTINUED)
value of future rental payments under these leases. Future minimum lease
payments under the capital leases at March 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $338
2001........................................................ 269
2002........................................................ 215
2003........................................................ 115
----
Total minimum payments...................................... 937
Less amounts representing interest.......................... 160
----
Present value of minimum lease payments..................... 777
Less current portion........................................ 258
----
$519
====
</TABLE>
In December 1997, in conjunction with the acquisition of SCI, Pharsight
issued a note payable to a stockholder and subsequently an officer of Pharsight
for $456. The payments were due in annual increments of $228, plus accrued
interest at 8% per year. The initial amount due was paid in 1998 and the
remaining payment was made in December 1999. There were no restrictive covenants
or collateral associated with this note.
In March 1998, Pharsight issued a note payable to a financier for $1,000.
Principal and interest, at 7.68% per year, are due in monthly payments of $31
from April 1, 1998 through March 1, 2001. All assets of Pharsight have been
pledged as collateral for this outstanding debt. Pharsight is required to
maintain compliance with certain financial and non-financial covenants
associated with the $1,000 note payable. The note limits the payment of
dividends without the noteholder's consent.
In May 1998, in conjunction with the acquisition of MGA, Pharsight issued a
note payable to a stockholder and entered into two non-compete agreements for a
total of $2,250 bearing interest at 8% per year. In May 1999, Pharsight and the
noteholders modified the note and one of the non-compete agreements. Pharsight
agreed to make a payment of $480 on the note and non-compete agreement and the
noteholder agreed to issue two new notes for the remaining balance owed on the
original note and non-compete agreement which totaled $600. The notes bear
interest at 10%. The note balances, together with accrued interest, were due and
paid in September 1999. The remaining non-compete balance is due in May 2000.
Maturities of long-term debt obligations as of March 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000........................................................ $2,660
2001........................................................ 2,293
------
Total....................................................... $4,953
======
</TABLE>
F-19
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Each share of Series C and Series D redeemable convertible preferred stock
(Series C stock and Series D stock, respectively) is convertible, at the
holder's option, into one share of common stock subject to certain antidilution
adjustments. At conversion, the holders are entitled to any and all declared and
unpaid dividends. Each share of preferred stock automatically converts to common
stock upon the closing of an underwritten public offering of Pharsight's common
stock with aggregate proceeds to Pharsight of at least $20,000 and a per share
offering price of at least $9.63. In addition, each share of Series C preferred
stock shall be entitled to receive the original issue price of $2.37 upon
conversion. The Series C stock and Series D stock are also convertible at the
election of at least 51% of the outstanding shares of Series C stock and at
least 66 2/3% of the outstanding shares of Series D stock, respectively.
Each share of Series C stock and Series D stock may be voted as if converted
to common stock. Each share of Series C stock and Series D stock entitles the
holder to receive, in preference to holders of common shares, cash dividends at
an annual rate of $0.213 per share and $0.327 per share, respectively. Such
dividends shall be payable when and if declared by the Board of Directors and
shall be noncumulative. As of March 31, 1999 and December 31, 1999, no dividends
have been declared.
The Series C stock can be redeemed at any time after May 2002 (five years
from issuance) upon the affirmative vote of at least 51% of the Series C
stockholders. The Series D stock can be redeemed at any time after October 2003
(five years from issuance) upon the affirmative vote of at least 66 2/3% of the
Series D stockholders. The Series C stock can be redeemed at a price of $2.37
per share plus any and all dividends accrued, declared, and unpaid and a payment
amount equal to 8% of the original issue price of the Series C stock multiplied
by the number of full years elapsed between the original issue date and the
redemption date. The Series D stock can be redeemed at a price of $3.27 per
share, plus any and all dividends accrued and unpaid and a payment amount equal
to 8% of the original issue price of the Series D stock multiplied by the number
of full years elapsed between the original issue date and the redemption date.
For the Series C stock and the Series D stock, Pharsight is recording
accretion of the excess redemption value ratably against earnings over the term
of the redemption feature. The accretion resulted in a $448, $489, and $367
increase to the carrying value of the Series C stock for the year ended
March 31, 1998 and 1999 and the nine months ended December 31, 1999,
respectively. The accretion resulted in a $314 and $564 increase in the carrying
value of the Series D stock for the year ended March 31, 1999 and the nine
months ended December 31, 1999. The $644 included in the statement of operations
for the year ended March 31, 1998 represents the fair value on the date of
grant, based upon the Black-Scholes fair value method, of the common stock into
which the Series C stock may be converted.
See Note 9 for the rights and preferences of the Series C and Series D
stockholders in the event of liquidation.
9. CONVERTIBLE PREFERRED STOCK
Each share of Series A and B convertible preferred stock (Series A stock and
B stock, respectively) is convertible, at the stockholder's option, into one
share of common stock, subject to certain adjustments. Each series of preferred
stock automatically converts to common stock upon either
F-20
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. CONVERTIBLE PREFERRED STOCK (CONTINUED)
the closing of an underwritten public offering of Pharsight's common stock with
aggregate proceeds to Pharsight of at least $20,000 and a per share price of at
least $9.63 or the election of the holders of at least 51% of the outstanding
preferred stock.
Each share of Series A stock and B stock may be voted as if converted to
common stock. Each share of Series A stock and B stock entitles the holder to
receive, in preference to holders of common shares, cash dividends at an annual
rate of $0.098 and $0.15 per share, respectively. Such dividends shall be
payable when and if declared by the Board of Directors and shall be
noncumulative. As of March 31, 1999 and December 31, 1999, no dividends have
been declared.
Upon any liquidation event, including a liquidation, dissolution, or winding
up of Pharsight, as well as certain mergers and acquisitions, the holders of the
Series A, B, C, and D stock shall be paid, in preference to the holders of
common stock, an amount equal to $0.98, $1.50, $2.37, and $3.27 per share,
respectively, plus any and all accrued and unpaid dividends. In addition, the
holders of the Series C stock shall be paid, in preference to the holders of
common stock, a payment amount equal to 8% of the original issue price of the
Series C stock multiplied by the number of full years elapsed between the
original issue date and the liquidation date. If the liquidation event occurs
prior to May 1, 1999, the remaining assets would be distributed pro rata to
holders of common and preferred shares on an as-if-converted basis until the
Series A, B, and D stockholders receive an aggregate of $2.94, $4.50, and $9.81
per share, respectively, inclusive of the respective liquidation preference
amounts referred to above. After such amounts have been paid, the remaining
assets would be distributed ratably to common and Series C stockholders on an
as-if-converted basis. If the liquidation event occurs on or after May 1, 1999,
the assets remaining after the distributions noted above would be distributed
ratably to the holders of the common stock and the Series C stock, on an
as-if-converted basis, only.
10. COMMON STOCK
Pharsight is authorized to issue up to 15,013 shares of common stock. At
March 31, 1999, a total of 3,571 shares of common stock were issued and
outstanding. At March 31, 1999, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 1,935
Conversion of Series B preferred stock...................... 540
Conversion of Series C preferred stock...................... 2,582
Conversion of Series D preferred stock...................... 2,877
Warrants outstanding........................................ 278
Future issuance for acquisition of SCI...................... 24
Stock option plans.......................................... 1,237
---------
9,473
=========
</TABLE>
Sales of Pharsight's common stock have been made pursuant to restricted
stock purchase agreements containing provisions established by the Board of
Directors. Pharsight has a right to repurchase the shares at the original sale
price, which generally expires at the rate of 25% after one year and 2.0833% per
month thereafter.
F-21
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. COMMON STOCK (CONTINUED)
For the year ended March 31, 1998, Pharsight has sold 654 shares. For the
year ended March 31, 1999, Pharsight has sold 2,169 shares. At March 31, 1999,
673 shares were subject to repurchase.
Pharsight loaned an officer $12 in July 1996 and $10 in June 1998 in
connection with the purchase of common stock. Interest on each of these loans is
6.74% and 5.77% per year, respectively, and compounds annually. The principal
and accrued interest on each loan is due in July 2001 and may be prepaid without
penalty. The promissory notes will accelerate and become due and payable
30 days after the officer's employment is terminated for any reason. In
addition, Pharsight loaned the officer $23 in 1999 to purchase additional shares
of common stock. The interest on this loan is 6% per year, with the principal
and accrued due in May 2003. This promissory note may be prepaid without penalty
and will accelerate and become immediately due and payable should the officer's
employment with us be terminated for any reason. All notes are full recourse and
the shares of common stock purchased have been pledged as repayment of the
loans.
In January 1998 Pharsight loaned an officer $75 in connection with the
purchase of common stock. The interest on this loan is 5.93% per year and
compounds annually. The principal and accrued interest is due in December 2002
and may be prepaid without penalty. This promissory note will accelerate and
become due and payable 90 days after the officer's employment is terminated. The
note is full recourse and the shares of common stock purchased have been pledged
as repayment of the loans.
11. WARRANTS
In connection with equipment leases entered into in April, 1996, Pharsight
issued warrants to purchase 21 shares of Series A convertible preferred stock at
an exercise price of $0.98 per share. The warrants expire April 30, 2006. The
fair value assigned to these warrants was immaterial.
In connection with equipment leases entered into in November, 1998,
Pharsight issued a warrant that entitles the holder to purchase 4 shares of
Series C convertible redeemable preferred stock at an exercise price of $2.37
per share. The warrants expire November 7, 2004 or, if earlier, 3 years after an
IPO of Pharsight's stock. The fair value assigned to these warrants was
immaterial.
In connection with various convertible promissory notes and loan agreements
entered into throughout fiscal 1999, Pharsight issued warrants to purchase 278
shares of common stock at an exercise price ranging from $0.25 - $3.27 per
share. The warrants expire on dates ranging from March 31, 2008 to February 26,
2009 or, if earlier, 5 years after an IPO of Pharsight's stock. The fair value
assigned to these warrants was immaterial.
12. STOCK-BASED BENEFIT PLANS
In May 1995, Pharsight adopted the 1995 Stock Option Plan (the "1995 Plan"),
which provides for the granting of incentive stock options and nonqualified
stock options to employees, directors, and consultants. Under the 1995 Plan, the
Board of Directors determines the term of each award and the award price. In the
case of incentive stock options, the exercise price may be established at an
amount not less than the fair market value at the date of grant, while
nonstatutory options may have exercise prices not less than 85% of the market
value as of the date of grant. Options generally vest ratably
F-22
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. STOCK-BASED BENEFIT PLANS (CONTINUED)
over a four-year period commencing with the grant date and expire no later than
ten years from the date of grant.
In February 1997, Pharsight adopted the 1997 Stock Option Plan (the "1997
Plan"), which provides for the granting of incentive stock options and
nonqualified stock options to employees, directors, and consultants. When the
1997 Plan was adopted, the 1995 Plan was terminated. All shares that had been
authorized but which had not been granted were returned to the pool of
unreserved shares of common stock. Rights and obligations of options granted
under the 1995 plan were not impaired by the termination of the plan. Under the
1997 Plan, the Board of Directors determines the term of each award and the
award price. In the case of incentive stock options, the exercise price may be
established at an amount not less than the fair market value at the date of
grant, while nonstatutory options may have exercise prices not less than 85% of
the market value as of the date of grant. Options generally vest ratably over a
four-year period commencing with the grant date and expire no later than ten
years from the date of grant.
Pharsight applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock options. Under APB Opinion No. 25, because the
exercise price of Pharsight's employee stock options is not less than the fair
value of the underlying stock on the date of grant, no compensation expense is
recognized.
A summary of Pharsight's stock option activity and related information for
the years ended March 31, 1997, 1998 and 1999 and for the nine months ended
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
OUTSTANDING PER SHARE
----------- --------------
<S> <C> <C>
Balance at March 31, 1996........................... 25 $0.10
Options granted..................................... 340 0.14
Options exercised................................... (1) 0.10
Options canceled.................................... (15) 0.10
-------
Balance at March 31, 1997........................... 349 0.14
Options granted..................................... 519 0.25
Options exercised................................... (29) 0.12
Options canceled.................................... (24) 0.11
-------
Balance at March 31, 1998........................... 815 0.21
Options granted..................................... 575 0.27
Options exercised................................... (183) 0.20
Options canceled.................................... (82) 0.22
-------
Balance at March 31, 1999........................... 1,125 0.24
Options granted..................................... 1,268 0.81
Options exercised................................... (508) 0.37
Options canceled.................................... (66) 0.25
-------
Balance at December 31, 1999........................ 1,819 $0.61
=======
</TABLE>
F-23
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. STOCK-BASED BENEFIT PLANS (CONTINUED)
At March 31, 1999 and December 31, 1999, 1,237 and 2,510 shares were
authorized under the plans, respectively, and 113 and 439 options to purchase
common stock were available for future option grants.
In May 1999, an additional 855 shares were authorized under the 1997 plan.
In September 1999, an additional 500 shares were authorized under the 1997 plan.
The following table summarizes information about stock options outstanding
and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE PRICE NUMBER EXERCISE PRICE
RANGE OF EXERCISE PRICES PER SHARE OUTSTANDING LIFE PER SHARE EXERCISABLE PER SHARE
- ----------------------------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.15...................... 179 7.50 years $0.13 77 $0.13
$0.25 - $0.35...................... 945 8.93 years 0.26 184 0.25
--------- -------
1,124 8.71 years $0.24 261 $0.21
========= =======
</TABLE>
Pharsight recorded deferred compensation of $296 and $3,895 for the year
ended March 31, 1999 and the nine month period ended December 31, 1999. This
amount represented the difference between the exercise price and the deemed fair
value of Pharsight's common stock on the date the stock options were granted.
Pharsight recorded amortization of deferred stock compensation of $57 during the
year ended March 31, 1999 based on a graded vesting method. During the nine
months ended December 31, 1999, Pharsight recorded amortization of deferred
stock compensation of $1,391. At March 31, 1999 and December 31, 1999, Pharsight
had a total of approximately $239 and $2,743, respectively, remaining to be
amortized on a graded vesting method over the corresponding vesting period of
each respective option, generally four years.
Pro forma information regarding net loss is required by SFAS 123, which also
requires that the information be determined as if Pharsight had accounted for
its employee stock options under the fair value method of SFAS 123. For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options' vesting period using an accelerated straight-line
method. The weighted average grant date fair value of options and restricted
stock granted was $.08
F-24
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. STOCK-BASED BENEFIT PLANS (CONTINUED)
per share and $.05 per share during both 1998 and 1999, respectively. The fair
value of these options was estimated at the date of grant using the
Black-Scholes method and the following assumptions.
<TABLE>
<CAPTION>
RESTRICTED STOCK GRANTS
OPTIONS YEARS ENDED MARCH 31, YEARS ENDED MARCH 31,
---------------------------------------- ----------------------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Expected life (years)...... 6.00 6.00 6.00 4.00 4.00 4.00
Expected stock price
volatility............... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Risk-free interest rate.... 6.27% 6.11% 5.00% 5.89% 5.25% 5.00%
Dividend yield............. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported............................................... $(1,934) $(5,216) $(10,696)
Pro forma................................................. (1,945) (5,230) (10,734)
Basic and diluted net loss per share:
As reported............................................... $ (2.57) $ (3.96) $ (4.41)
Pro forma................................................. (2.59) (3.97) (4.43)
</TABLE>
The option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
Pharsight's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
13. INCOME TAXES
There was no provision for income taxes in any year presented due to the
fact that Pharsight incurred net losses.
As of March 31, 1999, Pharsight has federal net operating loss carryforwards
of approximately $11,900 and federal research and development tax credit
carryforwards of approximately $200. The net operating losses will expire at
various dates beginning in 2011 through 2018, if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses before
utilization.
F-25
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. INCOME TAXES (CONTINUED)
Significant components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 2,100 $ 4,760
Research and development tax credits............. 200 200
Other............................................ 200 240
----------- -----------
Total deferred tax assets........................ 2,500 5,200
Valuation allowance.............................. (2,500) (5,200)
----------- -----------
Net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets increased by approximately
$800, $1,700 and $2,700 in the years ended March 31, 1997, 1998 and 1999. There
were no offsets or other deductions to the valuation allowances in any year.
14. SEGMENT INFORMATION
Effective April 1, 1998, Pharsight adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." Pharsight organizes and
manages its products and services as a single product family, and accordingly,
the required disclosures under SFAS No. 131 regarding their products and
services are made to the face of the financial statements. The adoption of SFAS
No. 131 had no effect on the financial position of Pharsight. Pharsight operates
primarily within the United States. All of its assets are also located within
the United States.
15. 401(K) PLAN
Pharsight has a 401(k) plan which covers all employees. Pharsight's
contributions to the plan are discretionary. Through December 31, 1999,
Pharsight has made no contributions to the plan.
16. SUBSEQUENT EVENTS
CONVERTIBLE PREFERRED STOCK
In September 1999, Pharsight sold for cash a total of 2,778 shares of
Series E convertible preferred stock for net proceeds of approximately $19,967.
Shares of Series E convertible preferred stock are entitled to noncumulative
dividends, when and if declared, of $0.72 per share and have a liquidation
preference of $7.20 per share. The Series E convertible preferred shares have
additional rights and privileges similar to those of the preferred stock
discussed in Note 9.
LINE OF CREDIT
In January 2000, Pharsight obtained a $1,500 accounts receivable line of
credit. Under the facility Pharsight may borrow up to 80% of its eligible
accounts receivable. Interest at the bank's prime rate
F-26
<PAGE>
PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. SUBSEQUENT EVENTS (CONTINUED)
plus 1% is payable monthly with principal due January 2001 upon the line's
expiration, if not extended. Pharsight has not yet borrowed under this line.
REGISTRATION STATEMENT
In April 2000, Pharsight's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with the proposed IPO. If the IPO is
consummated under the terms presently anticipated, all of the currently
outstanding shares of convertible preferred stock will be converted into shares
of common stock upon the closing of the IPO. The effect of this conversion has
been reflected in unaudited pro forma stockholders' equity in the accompanying
balance sheet as of December 31, 1999.
REINCORPORATION IN DELAWARE
In April 2000, the Board of Directors approved the reincorporation of
Pharsight in the State of Delaware. The reincorporation is expected to be
approved by the stockholders prior to the closing date of Pharsight's IPO.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Immediately upon the completion of the IPO, Pharsight will amend and restate
its Certificate of Incorporation to provide for authorized capital stock of
120,000 shares of common stock, $0.001 par value per share, and 5,000 shares,
$0.001 par value per share, of undesignated preferred stock.
STOCK-BASED BENEFIT PLANS
In April 2000, Pharsight adopted the 2000 Equity Incentive Plan ("Incentive
Plan") and the 2000 Employee Stock Purchase Plan ("Stock Purchase Plan").
Pharsight has reserved 4,000 and 600 shares of common stock for issuance under
the Incentive and Stock Purchase Plans, respectively.
F-27
<PAGE>
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
The Board of Directors
Pharsight Corporation
We have audited the accompanying statements of income and cash flows of
Scientific Consulting, Inc. for the period from January 1, 1997 through
December 17, 1997. These financial statements are the responsibility of
Pharsight Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Scientific Consulting, Inc. for the period from January 1, 1997 through
December 17, 1997, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
San Jose, California
April 7, 2000
F-28
<PAGE>
SCIENTIFIC CONSULTING, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 17, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues:
License and support....................................... $1,032
Services.................................................. 120
------
1,152
Costs and expenses:
License and support....................................... 34
Services.................................................. 225
Research and development.................................. 449
Provision for bad debts................................... 54
General and administrative................................ 187
------
949
------
Income from operations.................................... 203
Other income (expense):
Interest expense.......................................... (9)
Other, net................................................ 1
------
(8)
------
Net income.................................................. $ 195
======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-29
<PAGE>
SCIENTIFIC CONSULTING, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 17, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 195
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 2
Provision for bad debts................................. 54
Changes in operating assets and liabilities:
Receivables........................................... (301)
Other assets.......................................... (4)
Accounts payable...................................... 54
Accrued compensation.................................. 65
------
Net cash provided by operating activities................... 65
INVESTING ACTIVITIES
Capital expenditures........................................ (5)
------
Net cash used in investing activities....................... (5)
FINANCING ACTIVITIES
Distributions to shareholders............................... (60)
Proceeds from notes payable................................. 49
------
Net cash used in financing activities....................... (11)
------
Net increase in cash........................................ 49
Cash at beginning of period................................. 58
------
Cash at end of period....................................... $ 107
======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 8
======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-30
<PAGE>
SCIENTIFIC CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 17, 1997
(IN THOUSANDS)
1. ORGANIZATION
Scientific Consulting, Inc. ("the Company") designs, manufactures and
markets a suite of specialty medical software products that are used by drug
development companies operating in pharmaceutical, biotechnology and
veterinarian medicine market segments.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from these estimates.
REVENUE RECOGNITION
The Company recognizes software revenue, primarily related to its software
products, in accordance with American Institute of Certified Public Accountants
Statement of Position 97-2 "Software Revenue Recognition." Revenue from license
fees is recognized when persuasive evidence of an agreement exists, delivery of
the product has occurred, the fee is fixed or determinable and collectibility is
probable. Service revenue is primarily consulting fees. Service revenue from
consulting is recognized as the service is performed. Maintenance revenue is
deferred and recognized on a straight-line basis over the life of the related
contract, which is typically one year.
CAPITALIZED SOFTWARE
The Company capitalizes eligible computer software costs as products achieve
technological feasiblity, subject to net realizable value considerations. The
Company has defined technological feasibility as completion of a working model.
As of December 17, 1997, such internal capitalizable costs were insignificant.
Accordingly, the Company has charged all such internal costs to research and
development expenses in the accompanying statements of operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, which is between three and five
years.
INCOME TAXES
The Company is an S Corporation for federal income tax purposes. Income and
losses of the Company are passed through to its shareholders that bear the
responsibility of paying federal income taxes on such amounts. Accordingly, the
Company has not recognized any provision for federal income taxes. The Company
is subject to state taxes. Such taxes were immaterial for the period presented.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The Company performs
ongoing credit evaluations of its customers and
F-31
<PAGE>
SCIENTIFIC CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 17, 1997
(IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
does not require collateral. Credit losses have not been significant and have
been within management's expectations for all periods presented.
3. LEASE COMMITMENT
The Company leases office space under a noncancelable operating lease. The
lease agreement requires the Company to pay certain operating costs associated
with the leased space in addition to the base rent. In addition, the lease
contains an option for renewal. Future minimum lease payments under the lease at
December 17, 1997, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998........................................................ $36
1999........................................................ 36
---
$72
===
</TABLE>
Rent expense for the period from January 1, 1997 through December 17, 1997
totaled approximately $32.
4. SUBSEQUENT EVENT
On December 17, 1997, Pharsight Corporation purchased all of the assets and
assumed certain liabilities of the Company in exchange for cash and stock of
Pharsight Corporation. The total purchase price was $1.3 million. The Company
was subsequently dissolved.
F-32
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
, 2000
[LOGO]
SHARES OF COMMON STOCK
----------------------
P R O S P E C T U S
----------------------
DONALDSON, LUFKIN & JENRETTE
CHASE H&Q
WIT SOUNDVIEW
DLJDIRECT INC.
- ---------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by us in connection with the sale of our
common stock being registered. All amounts shown are estimates except for the
registration fee, the NASD filing fee and the Nasdaq National Market fee.
<TABLE>
<S> <C>
Registration fee............................................ $
NASD filing fee.............................................
Nasdaq National Market fee..................................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
Total....................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law, permits indemnification
of officers, directors, and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate and Bylaws
provide that the Registrant shall indemnify its directors, officers, employees
and agents to the full extent permitted by the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary
under Delaware law. In addition, the Registrant has entered into separate
indemnification agreements with its directors and executive officers which
require the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from acts or omissions not in good faith or willful
misconduct).
These indemnification provisions and the indemnification agreements entered
into between the Registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
From March 31, 1997 through April 14, 2000 (or earlier if specifically
noted), Pharsight has sold and issued the following unregistered securities:
(1) From April 1996 through April 14, 2000, Pharsight has granted stock
options to purchase 3,587,355 shares of common stock, at a weighted average
exercise price of $2.00, to employees, consultants and directors pursuant to its
1995 stock option plan and 1997 stock option plan. Of these stock options,
289,332 shares have been cancelled or have lapsed without being exercised,
721,374 shares have been exercised, no shares have been repurchased and
2,576,649 shares remain outstanding.
(2) In May 1997, Pharsight sold an aggregate of 2,577,840 shares of
Series C preferred stock to 10 accredited investors at $2.37 per share, for an
aggregate purchase price of $6,109,480. Shares of
II-1
<PAGE>
Series C preferred stock are convertible into shares of common stock at the rate
of one share of common stock for each share of Series C preferred stock
outstanding.
(3) In October 1998, Pharsight sold an aggregate of 2,877,254 shares of
Series D preferred stock to 20 accredited investors at $3.27 per share, for an
aggregate purchase price of $9,408,620. Shares of Series D preferred stock are
convertible into shares of common stock at the rate of one share of common stock
for each share of Series D preferred stock outstanding.
(4) In September 1999, Pharsight sold 2,777,778 shares of Series E preferred
stock to McKesson HBOC, Inc. at $7.20 per share, for an aggregate purchase price
of $20,000,000. Shares of Series E preferred stock are convertible into shares
of common stock at the rate of one share of common stock for each share of
Series E preferred stock outstanding.
(5) In November 1997, Pharsight issued a warrant to purchase 3,800 shares of
Series C preferred stock, at an exercise price of $2.37 per share to
Comdusco, Inc., a lender, in connection with a lease financing arrangement.
Shares of Series C preferred stock are convertible into shares of common stock
at the rate of one share of common stock for each share of Series C preferred
stock.
(6) From September 1997 to August 1998, Pharsight issued an aggregate of
40,000 shares of common stock to Steven Brooks, a member of the board of
directors, at a price of $0.25 per share.
(7) From December 1997 to December 1999, Pharsight issued 700,000 shares of
common stock to Daniel Weiner, an officer of Pharsight, and Glenn Stucker, Jr.,
the two shareholders of Scientific Consulting, Inc., as partial consideration
for the outstanding capital stock of Scientific Consulting, Inc.
(8) In January 1998, Pharsight issued 300,000 shares of common stock to
Daniel Weiner, an officer, at a purchase price of $0.25 per share.
(9) From March to June 1998, Pharsight issued warrants to purchase 137,131
shares of common stock, at an exercise price of $2.37 per share, to MMC/GATX
Partnership No. 1, a lender, in connection with a loan agreement.
(10) In May 1998, Pharsight issued an aggregate of 246,250 shares of common
stock as partial consideration for the purchase of assets from Mitchell Gauthier
and Associates, Inc. ("MGA"). These shares were issued, at the direction of MGA,
to a total of eight individuals affiliated with MGA.
(11) In May 1998, Pharsight issued warrants to purchase an aggregate of
127,089 shares of common stock to nine accredited investors in connection with a
short term loan arrangement, at an exercise of $0.25 per share.
(12) In June 1998, Pharsight issued 40,000 shares to Robin Kehoe, an
officer, at a purchase price of $0.25 per share.
(13) In November 1998, Pharsight issued an aggregate of 26,808 shares of
common stock to two consultants, Steven Levene and Anthony Lautmann, at a
purchase price of $0.35 per share.
(14) In February 1999, Pharsight issued warrants to purchase an aggregate of
13,761 shares of common stock to two associated lenders, TransAmerica Business
Credit Corporation and MM Ventures, at an exercise price of $3.27 per share.
(15) From July 1999 through January 2000, Pharsight issued 22,478 shares to
one employee as a commission for prior customer relationships transferred to
Pharsight.
The sales and issuances of securities described in paragraphs (1), (6), (8),
(12) and (13) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by
Rule 701.
II-2
<PAGE>
The sale and issuance of securities described in paragraphs (2), (3), (4),
(5), (7), (9), (10), (11), (14) and (15) above were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act or Regulation D promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1(1) Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of
Pharsight, as currently in effect.
3.2 Amended and Restated Certificate of Incorporation of
Pharsight, to be in effect immediately following the
closing of the offering.
3.3 Bylaws of Pharsight, as currently in effect.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Amended and Restated Investors' Rights Agreement, dated as
of September 2, 1999, by and among Pharsight and the
investors listed on Exhibit A attached thereto.
5.1(1) Opinion of Cooley Godward LLP.
10.1 Asset Purchase Agreement dated as of May 27, 1998, by and
among Pharsight, Mitchell and Gauthier Associates, Inc.,
Edward E.L. Mitchell and Joseph S. Gauthier.
10.2 Lease on Suite 200 at 800 El Camino Real West, Mountain
View, California, by and among the Company and Asset
Growth Partners, dated as of June 11, 1998.
10.3 Co-Ownership Agreement, dated as of the May 27, 1998, by and
between Pharsight and Mitchell and Gauthier Associates,
Inc.
10.4 Noncompetition Agreement, dated as of May 27, 1998, by and
between Pharsight and Joseph S. Gauthier.
10.5 Loan and Security Agreement, dated as of January 18, 2000,
by and between Pharsight and Silicon Valley Bank.
10.6 Loan and Security Agreement, dated as of March 31, 1998, by
and between Pharsight and MMC/GATX Partnership No. 1.
10.7 Loan and Security Agreement, dated as of June 8, 1998, by
and between Pharsight and MMC/GATX Partnership No. l.
10.8 Master Loan and Security Agreement, dated as of February 26,
1999, by and between Pharsight and Transamerica Business
Credit Corporation.
10.9(2) Information Product Distribution Agreement, dated as of June
25, 1999, by and between Pharsight and Protocare Sciences,
Inc.
10.10(2) Database License Agreement, dated as of February 24, 2000 by
and between Pharsight and Duke University.
10.11(2) Data Set License Agreement, dated as of March 1, 2000 by and
between Pharsight and Lovelace Respiratory Research
Institute.
10.12 Promissory note, dated as of July 25, 1996 from Robin Kehoe
in favor of Pharsight.
10.13 Promissory note, dated as of June 2, 1998, from Robin Kehoe
in favor of Pharsight.
10.14 Promissory note, dated as of June 15, 1999 from Robin Kehoe
in favor of Pharsight.
10.15 Promissory note, dated as of January 25, 1998, from Daniel
Weiner in favor of Pharsight.
10.16 Form of Indemnity Agreement to be entered into between
Pharsight and each of its officers and directors.
10.17 Pharsight's 1997 Stock Option Plan.
10.18 Pharsight's 1995 Stock Option Plan.
10.19(1) Pharsight's 2000 Equity Incentive Plan and related
documents.
10.20(1) Pharsight's 2000 Employee Stock Purchase Plan and related
documents.
23.1 Consent of Ernst & Young, LLP.
23.2 Consent of Cooley Godward LLP. (See Exhibit 5.1.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
24.1 Power of Attorney. (See pages II-5 to II-6.)
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) To be filed by amendment.
(2) Confidential treatment has been requested for portions of this exhibit.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission this indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against these liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by a director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether the indemnification by it is against public policy as
expressed in the Securities Act of 1933, and will be governed by the final
adjudication of this issue.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in the denomination and registered in the
names required by the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on the 17th day of April, 2000.
<TABLE>
<S> <C> <C>
PHARSIGHT CORPORATION
By: /s/ ARTHUR H. REIDEL
-----------------------------------------
Arthur H. Reidel
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Arthur H. Reidel and Robin A. Kehoe, his or her true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments and registration statements filed pursuant to Rule 462) to the
Registration Statement on Form S-1, and to any registration statement filed
under Securities and Exchange Commission Rule 462, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
President, Chief Executive
/s/ ARTHUR H. REIDEL Officer and Chairman of the
-------------------------------------- Board (Principal Executive April 17, 2000
Arthur H. Reidel Officer)
Vice President, Finance and
/s/ ROBIN A. KEHOE Chief Financial Officer
-------------------------------------- (Principal Financial and April 17, 2000
Robin A. Kehoe Accounting Officer)
/s/ STEVEN D. BROOKS
-------------------------------------- Director April 17, 2000
Steven D. Brooks
/s/ PHILIPPE O. CHAMBON
-------------------------------------- Director April 17, 2000
Philippe O. Chambon, M.D., Ph.D.
/s/ ROBERT B. CHESS
-------------------------------------- Director April 17, 2000
Robert B. Chess
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ DOUGLAS E. KELLY, M.D.
-------------------------------------- Director April 17, 2000
Douglas E. Kelly, M.D.
/s/ DEAN O. MORTON
-------------------------------------- Director April 17, 2000
Dean O. Morton
/s/ GARY L. NEIL, PH.D.
-------------------------------------- Director April 17, 2000
Gary L. Neil, Ph.D.
/s/ W. FERRELL SANDERS
-------------------------------------- Director April 17, 2000
W. Ferrell Sanders
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1(1) Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of
Pharsight, as currently in effect.
3.2 Amended and Restated Certificate of Incorporation of
Pharsight, to be in effect immediately following the
closing of the offering.
3.3 Bylaws of Pharsight, as currently in effect.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Amended and Restated Investors' Rights Agreement, dated as
of September 2, 1999, by and among Pharsight and the
investors listed on Exhibit A attached thereto.
5.1(1) Opinion of Cooley Godward LLP.
10.1 Asset Purchase Agreement dated as of May 27, 1998, by and
among Pharsight, Mitchell and Gauthier Associates, Inc.,
Edward E.L. Mitchell and Joseph S. Gauthier.
10.2 Lease on Suite 200 at 800 El Camino Real West, Mountain
View, California, by and among the Company and Asset
Growth Partners, dated as of June 11, 1998.
10.3 Co-Ownership Agreement, dated as of the May 27, 1998, by and
between Pharsight and Mitchell and Gauthier Associates,
Inc.
10.4 Noncompetition Agreement, dated as of May 27, 1998, by and
between Pharsight and Joseph S. Gauthier.
10.5 Loan and Security Agreement, dated as of January 18, 2000,
by and between Pharsight and Silicon Valley Bank.
10.6 Loan and Security Agreement, dated as of March 31, 1998, by
and between Pharsight and MMC/GATX Partnership No. 1.
10.7 Loan and Security Agreement, dated as of June 8, 1998, by
and between Pharsight and MMC/GATX Partnership No. l.
10.8 Master Loan and Security Agreement, dated as of February 26,
1999, by and between Pharsight and Transamerica Business
Credit Corporation.
10.9(2) Information Product Distribution Agreement, dated as of June
25, 1999, by and between Pharsight and Protocare Sciences,
Inc.
10.10(2) Database License Agreement, dated as of February 24, 2000 by
and between Pharsight and Duke University.
10.11(2) Data Set License Agreement, dated as of March 1, 2000 by and
between Pharsight and Lovelace Respiratory Research
Institute.
10.12 Promissory note, dated as of July 25, 1996 from Robin Kehoe
in favor of Pharsight.
10.13 Promissory note, dated as of June 2, 1998, from Robin Kehoe
in favor of Pharsight.
10.14 Promissory note, dated as of June 15, 1999 from Robin Kehoe
in favor of Pharsight.
10.15 Promissory note, dated as of January 25, 1998, from Daniel
Weiner in favor of Pharsight.
10.16 Form of Indemnity Agreement to be entered into between
Pharsight and each of its officers and directors.
10.17 Pharsight's 1997 Stock Option Plan.
10.18 Pharsight's 1995 Stock Option Plan.
10.19(1) Pharsight's 2000 Equity Incentive Plan and related
documents.
10.20(1) Pharsight's 2000 Employee Stock Purchase Plan and related
documents.
23.1 Consent of Ernst & Young, LLP.
23.2 Consent of Cooley Godward LLP. (See Exhibit 5.1.)
24.1 Power of Attorney. (See pages II-5 to II-6.)
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) To be filed by amendment.
(2) Confidential Treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHARSIGHT CORPORATION
I.
The name of this corporation is Pharsight Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 Lookerman Street, City of Dover, County of Kent, and the name of
the registered agent of the corporation in the State of Delaware at such address
is the National Registered Agents.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is one hundred thirty-two
million (132,000,000) shares. one hundred and twenty million (120,000,000)
shares shall be Common Stock, each having a par value of one-tenth of one cent
($.001). Twelve million (12,000,000) shares shall be Preferred Stock, each
having a par value of one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
C. One million nine hundred thirty-five thousand two hundred seventy-four
(1,935,274) of the authorized shares of Preferred Stock are hereby designated
"Series A Preferred Stock" (the "Series A Preferred"). Five hundred forty
thousand (540,000) shares of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock" (the
1.
<PAGE>
"Series B Preferred"). Two million five hundred eighty-one thousand six hundred
forty (2,581,640) shares of the authorized shares of Preferred Stock are hereby
designated "Series C Preferred Stock" (the "Series C Preferred"). Two million
nine hundred thirty thousand (2,930,000) shares of the authorized shares of
Preferred Stock are hereby designated "Series D Preferred Stock" (the "Series D
Preferred"). Two million seven hundred seventy-seven thousand seven hundred
seventy-eight (2,777,778) shares of the authorized Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred"). One million
two hundred thirty-five thousand three hundred eight (1,235,308) shares of the
authorized Preferred Stock remain undesignated (the "Undesignated Preferred").
The Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred and Undesignated Preferred are collectively
referred to as the "Preferred Stock."
D. The respective rights, preferences, privileges, restrictions and other
matters relating to the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred are as follows:
1. DIVIDEND RIGHTS.
a. Holders of the Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred, in preference to the
holders of any other stock of the Company ("Junior Stock"), shall be entitled to
receive, when and as declared by the Board of Directors, but only out of funds
that are legally available therefor, cash dividends at the rate of ten percent
(10%) of the "Original Issue Price" with respect to the Series A Preferred, the
Series B Preferred, the Series C Preferred and Series E Preferred and at the
rate of nine percent (9%) of the "Original Issue Price" per annum with respect
to the Series C Preferred on each outstanding share of such series of Preferred
Stock (as adjusted for any stock dividends, combinations, splits
recapitalization and the like with respect to such shares). The Original Issue
Price of the Series A Preferred shall be $0.98; the Original Issue Price of the
Series B Preferred shall be $1.50; the Original Issue Price of the Series C
Preferred shall be $2.37; the Original Issue Price of the Series D Preferred
shall be $3.27; and the Original Issue Price of the Series E Preferred shall be
$7.20. Such dividends shall be payable only when, as and if declared by the
Board of Directors and shall be non-cumulative.
b. So long as any shares of Preferred Stock shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Stock, nor shall any shares of any
Junior Stock of the Corporation be purchased, redeemed, or otherwise acquired
for value by the Corporation (except for acquisitions of Common Stock by the
Corporation pursuant to agreements which permit the Corporation to repurchase
such shares upon termination of services to the Corporation or in exercise of
the Corporation's right of first refusal upon a proposed transfer) until all
dividends (set forth in Section 1(a) above) on the Preferred Stock shall have
been paid or declared and set apart. In the event dividends are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Preferred Stock in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares
of any Junior Stock in exchange for shares of any other Junior Stock, or (iii)
any repurchase of any outstanding securities of the Corporation that is
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unanimously approved by the Corporation's Board of Directors. The holders of the
Preferred Stock expressly waive their rights, if any, as described in California
Corporations Code Sections 502, 503 and 506 as they relate to repurchase of
shares pursuant to a written repurchase option upon termination of employment.
2. VOTING RIGHTS.
a. GENERAL RIGHTS. Except as otherwise provided herein or as
required by law, the Preferred Stock shall be voted equally with the shares of
the Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of the Preferred Stock shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of the Preferred Stock are convertible
(pursuant to Section 4 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
b. SEPARATE VOTE OF SERIES A PREFERRED. For so long as at least
one hundred fifty thousand (150,000) shares of Series A Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of more than fifty percent (50%) of
the outstanding Series A Preferred shall be necessary for effecting or
validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Amended and Restated Certificate of Incorporation (the "Restated
Certificate") or the Bylaws of the Corporation (including any filing of a
Certificate of Determination), that materially alters or changes the rights,
preferences, or privileges of the Series A Preferred;
(ii) Any increase in the authorized number of shares of
Series A Preferred; or
(iii) Any authorization of any class of shares or series of
equity securities of the Corporation ranking on a parity with or senior to the
Series A Preferred in right of redemption, liquidation preference, voting or
dividends.
c. SEPARATE VOTE OF SERIES B PREFERRED. For so long as at least
one hundred fifty thousand (150,000) shares of Series B Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of more than fifty percent (50%) of
the outstanding Series B Preferred shall be necessary for effecting or
validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Restated Certificate or the Bylaws of the Corporation (including any filing
of a Certificate of Determination), that materially alters or changes the
rights, preferences, or privileges of the Series B Preferred;
(ii) Any increase in the authorized number of shares of
Series B Preferred; or
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(iii) Any authorization of any class of shares or series of
equity securities of the Corporation ranking on a parity with or senior to the
Series B Preferred in right of redemption, liquidation preference, voting or
dividends.
d. SEPARATE VOTE OF SERIES C PREFERRED. For so long as at least
one hundred fifty thousand (150,000) shares of Series C Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of more than fifty percent (50%) of
the outstanding Series C Preferred shall be necessary for effecting or
validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Restated Certificate or the Bylaws of the Corporation (including any filing
of a Certificate of Determination), that materially alters or changes the
rights, preferences, or privileges of the Series C Preferred;
(ii) Any increase in the authorized number of shares of
Series C Preferred; or
(iii) Any authorization of any class of shares or series of
equity securities of the Corporation ranking on a parity with or senior to the
Series C Preferred in right of redemption, liquidation preference, voting or
dividends.
e. SEPARATE VOTE OF SERIES D PREFERRED. For so long as at
least one hundred fifty thousand (150,000) shares of Series D Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of more than fifty percent (50%) of
the outstanding Series D Preferred shall be necessary for effecting or
validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Restated Certificate or the Bylaws of the Corporation (including any filing
of a Certificate of Determination), that materially alters or changes the
rights, preferences, or privileges of the Series D Preferred;
(ii) Any increase in the authorized number of shares of
Series D Preferred; or
(iii) Any authorization of any class of shares or series of
equity securities of the Corporation ranking on a parity with or senior to the
Series D Preferred in right of redemption, liquidation preference, voting or
dividends.
f. SEPARATE VOTE OF SERIES E PREFERRED. For so long as at least
one hundred fifty thousand (150,000) shares of Series E Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of more than fifty percent (50%) of
the outstanding Series E Preferred shall be necessary for effecting or
validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Restated Certificate or the Bylaws of the Corporation (including any filing
of a Certificate of
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Determination), that materially alters or changes the rights, preferences, or
privileges of the Series E Preferred;
(ii) Any increase in the authorized number of shares of
Series E Preferred; or
(iii) Any authorization of any class of shares or series of
equity securities of the Corporation ranking senior to the Series E Preferred as
to redemption, liquidation preference, voting or dividend rights; provided,
however, that greater liquidation preference or dividend rights that are merely
proportional to the difference in original issue price of such equity securities
from that of the Series E Preferred shall not cause such equity securities to be
deemed senior to the Series E Preferred.
g. SEPARATE VOTE OF PREFERRED STOCK. For so long as at least
seven hundred fifty thousand (750,000) shares of Preferred Stock remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of more than sixty-six percent (66%)
of the then outstanding shares of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred, voting together as one
class, shall be necessary for effecting or validating the following actions:
(i) Any approval by the Corporation or its stockholders of
an Asset Transfer or Acquisition (each as defined in Section 3(c)) or any
voluntary dissolution or liquidation of the Corporation;
(ii) Any redemption, repurchase, or acquisition of any
Common Stock of the Corporation (except for acquisitions of Common Stock by the
Corporation pursuant to agreements which permit the Corporation to repurchase
such shares upon termination of services to the Corporation or in exercise of
the Corporation's right of first refusal upon a proposed transfer); or
(iii) Any authorization of any debt securities of the
Corporation other than (a) unsecured debt in an amount not to exceed five
million dollars ($5,000,000), (b) equipment financing, or (c) any debt secured
by accounts receivable, inventory, real property, fixtures, or equipment.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, (i) the holders of
Series A Preferred shall be entitled to be paid out of the assets of the
Corporation an amount per share of Series A Preferred equal to the sum of (A)
the Original Issue Price of the Series A Preferred, and (B) all declared and
unpaid dividends on such shares of Series A Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series A Preferred held by them; (ii) the holders
of Series B Preferred shall be entitled to be paid out of the assets of the
Corporation an amount per share of Series B Preferred equal to the sum of (A)
the Original Issue Price of the Series B Preferred, and (B) all declared and
unpaid dividends on such shares of Series B Preferred (as adjusted for any stock
dividends, combinations, splits,
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recapitalizations and the like with respect to such shares) for each share of
Series B Preferred held by them; (iii) the holders of Series C Preferred shall
be entitled to be paid out of the assets of the Corporation an amount per share
of Series C Preferred equal to the sum of (A) the Original Issue Price of the
Series C Preferred, (B) all declared and unpaid dividends on such shares of
Series C Preferred and (C) an amount, if any, equal to eight percent (8%) of the
Original Issue Price of the Series C Preferred times the number of full years
elapsed between the original issue date of the Series C Preferred and the date
of liquidation, dissolution or winding up of the Corporation (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) for each share of Series C Preferred held by them; (iv)
the holders of Series D Preferred shall be entitled to be paid out of the assets
of the Corporation an amount per share of Series D Preferred equal to the sum of
(A) the Original Issue Price of the Series D Preferred, and (B) all declared and
unpaid dividends on such shares of Series D Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series D Preferred held by them; and (v) the
holders of Series E Preferred shall be entitled to be paid out of the assets of
the Corporation an amount per share of Series E Preferred equal to the sum of
(A) the Original Issue Price of the Series E Preferred, and (B) all declared and
unpaid dividends on such shares of Series E Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series E Preferred held by them.
b. After the payment of the full liquidation preference of the
Preferred Stock as set forth in Section 3(a) above, the remaining assets of the
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock and Series C Preferred.
c. The following events shall be considered a liquidation under
Section 3(a):
(i) any consolidation or merger of the Corporation with or
into any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Corporation immediately prior
to such consolidation, merger or reorganization, own less than 50% of the
resulting company's voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions in which in
excess of fifty percent (50%) of the Corporation's voting power is transferred
(an "Acquisition"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Corporation (an "Asset Transfer").
d. If, upon any liquidation, distribution, or winding up, the
assets of the Corporation shall be insufficient to make payment in full to all
holders of Preferred Stock of the liquidation preference set forth in Section
3(a), then such assets shall be distributed among the holders of Preferred Stock
at the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
e. In the event the Corporation proposes to distribute assets
other than cash in connection with any liquidation, dissolution or winding up of
the Corporation, the value
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of the assets to be distributed to the holders of shares of the Preferred Stock
shall be determined in good faith by the Board. Any securities not subject to
investment letter or similar restrictions on free marketability shall be valued
as follows:
(i) If traded on a securities exchange, the value shall be
deemed to be the average of the security's closing prices on such exchange over
the thirty (30) day period ending three (3) days prior to the distribution;
(ii) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the thirty (30) day
period ending three (3) days prior to the distribution; and
(iii) If there is no active public market, the value shall
be the fair market value thereof as determined in good faith by the Board.
The method of valuation of securities subject to investment letter or other
restrictions on free marketability shall be adjusted to make an appropriate
discount from the market value determined as above in clauses (i), (ii) or (iii)
to reflect the fair market value thereof as determined in good faith by the
Board. The holders of at least fifty-one percent (51%) of the outstanding
Preferred Stock shall have the right to challenge any determination by the Board
of fair market value pursuant to this Section 3(e), in which case the
determination of fair market value shall be made by an independent appraiser
selected jointly by the Board and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
4. CONVERSION RIGHTS.
The holders of the Preferred Stock shall have the following
rights with respect to the conversion of the Preferred Stock into shares of
Common Stock (the "Conversion Rights"):
a. OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, and subject to the restriction set forth in
Section 5(e) below, any shares of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred may, at the option of the
holder, be converted at any time into fully-paid and nonassessable shares of
Common Stock. The number of shares of Common Stock to which a holder of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred shall be entitled upon conversion shall be the product obtained by
multiplying the "Series A Conversion Rate," "Series B Conversion Rate," "Series
C Conversion Rate," "Series D Conversion Rate" or "Series E Conversion Rate"
then in effect (determined as provided in Section 4(b)) by the respective number
of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred or Series E Preferred being converted.
b. CONVERSION RATE. Subject to and in compliance with the
provisions of this Section 4, and subject to the restriction set forth in
Section 5(e) below, any shares of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred may, at the option of the
holder, be converted at any time into fully-paid and nonassessable shares of
Common Stock. The number of shares of Common Stock to which a
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holder of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred shall be entitled upon conversion shall be the
product obtained by multiplying the "Series A Conversion Rate," "Series B
Conversion Rate," "Series C Conversion Rate," "Series D Conversion Rate" or
"Series E Conversion Rate" then in effect (determined as provided in Section
4(b)) by the respective number of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred being
converted.
c. CONVERSION PRICE. The conversion price for the Series A
Preferred shall initially be the Original Issue Price of the Series A Preferred
(the "Series A Conversion Price"), the conversion price for the Series B
Preferred shall initially be the Original Issue Price of the Series B Preferred
(the "Series B Conversion Price"), the conversion price for the Series C
Preferred shall initially be the Original Issue Price of the Series C Preferred
(the "Series C Conversion Price"), the conversion price for the Series D
Preferred shall initially be the Original Issue Price of the Series D Preferred
(the "Series D Conversion Price") and the conversion price for the Series E
Preferred shall initially be the Original Issue Price of the Series E Preferred
(the "Series E Conversion Price"). Such initial Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion Price
and Series E Conversion Price shall be adjusted from time to time in accordance
with this Section 4. All references to the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price and
Series E Conversion Price herein shall mean the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion Price
and Series E Conversion Price as so adjusted.
d. MECHANICS OF CONVERSION. Each holder of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
who desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at such office
that such holder elects to convert the same. Such notice shall state the number
of shares of such series of Preferred Stock being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled (and, in the case of conversion of the Series C
Preferred, cash receivable upon such conversion pursuant to Section 4(r), if
any) and shall promptly pay in cash or, to the extent sufficient funds are not
then legally available therefor, in Common Stock (at the Common Stock's fair
market value determined by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of such series of
Preferred Stock being converted. Such conversion shall be deemed to have been
made at the close of business on the date of such surrender of the certificates
representing the shares of such series of Preferred Stock to be converted, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date that the first
share of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred is issued (the "Original Issue Date" for such
series) effect a subdivision of the outstanding Common Stock, the Series A
Conversion Price, the Series B Conversion Price, the Series C
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Conversion Price, the Series D Conversion Price and the Series E Conversion
Price in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Corporation shall at any time or from time to time
after the Original Issue Date combine the outstanding shares of Common Stock
into a smaller number of shares, the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, the Series D Conversion Price
and the Series E Conversion Price in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Section 4(e) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If
the Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price and the Series E Conversion Price that are then in effect shall
be decreased as of the time of such issuance or, in the event such record date
is fixed, as of the close of business on such record date, by multiplying the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price then in effect by a fraction (1) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price and the Series E Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price shall be adjusted pursuant to this Section 4(f) to reflect the actual
payment of such dividend or distribution.
g. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon (and, in the case of conversion of the Series C Preferred,
cash receivable upon such conversion pursuant to Section 4(r), if any) the
amount of other securities of the Corporation which they would have received had
their shares of such series of Preferred Stock been converted into Common Stock
on the date of such event and had they thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of such series of Preferred Stock or with
respect to such other securities by their terms.
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h. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4), in any such event each holder
of such series of Preferred Stock shall have the right thereafter to receive
upon conversion of such series of Preferred Stock (in addition to any cash
receivable upon such conversion of the Series C Preferred pursuant to Section
4(r)) the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Preferred
Stock could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
i. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(c) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
thereafter be entitled to receive upon conversion of such series of Preferred
Stock (in addition to any cash receivable upon such conversion of the Series C
Preferred pursuant to Section 4(r)) the number of shares of stock or other
securities or property of the Corporation to which a holder of the number of
shares of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 4 with respect to
the rights of the holders of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Series A Conversion Price, the Series B Conversion Price,
Series C Conversion Price, the Series D Conversion Price and the Series E
Conversion Price then in effect and the number of shares issuable upon
conversion of such series of Preferred Stock) shall be applicable after that
event and be as nearly equivalent as practicable.
j. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series A Conversion Price, the Series B Conversion Price,
Series C Conversion Price, the Series D Conversion Price or the Series E
Conversion Price for the number of shares of Common Stock or other securities or
property issuable upon conversion of such series of Preferred Stock, if the
Preferred Stock is then convertible pursuant to this Section 4, the Corporation,
at its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of such series of Preferred Stock at the
holder's address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
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such adjustment or readjustment is based, including a statement of (1) the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price at the time in effect, and (2) the type and amount, if any, of other
securities or property which at the time would be received upon conversion of
such series of Preferred Stock.
k. NOTICES OF RECORD DATE. Upon (i) any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or any
Asset Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Preferred Stock at least twenty (20) days prior to the
record date specified therein a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective and a general description of the proposed transaction, and (3) the
date, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up.
l. AUTOMATIC CONVERSION.
(1) Each share of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred shall
automatically be converted into shares of Common Stock (a) (i) with respect to
the Series A Preferred, at any time upon the affirmative vote of the holders of
at least fifty-one percent (51%) of the outstanding shares of Series A
Preferred, based on the then-effective Series A Conversion Price, (ii) with
respect to the Series B Preferred, at any time upon the affirmative vote of the
holders of at least fifty-one percent (51%) of the outstanding shares of Series
B Preferred, based on the then-effective Series B Conversion Price, (iii) with
respect to the Series C Preferred, at any time upon the affirmative vote of the
holders of at least fifty-one percent (51%) of the outstanding shares of Series
C Preferred, based on the then-effective Series C Conversion Price, (iv) with
respect to the Series D Preferred, at any time upon the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Series D Preferred, based on the then-effective Series D
Conversion Price, or (v) with respect to the Series E Preferred, at any time
upon the affirmative vote of the holders of at least fifty-one percent (51%) of
the outstanding shares of Series E Preferred, based on the then-effective Series
E Conversion Price, or (b) immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Corporation in which (i) the per share price is at least
$10.88 (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), and (ii) the gross
cash proceeds to the Corporation (before
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underwriting discounts, commissions and fees) are at least $20,000,000 (a
"Qualified Initial Public Offering").
(2) Upon the occurrence of the event specified in paragraph
(1) above, the outstanding shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; PROVIDED, HOWEVER, that the Corporation shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred are either delivered to the Corporation or its transfer
agent as provided below, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Upon the occurrence of
such automatic conversion of the Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred, the holders of such
series of Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or any transfer agent for the Preferred
Stock. Thereupon, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred surrendered were
convertible on the date on which such automatic conversion occurred, and any
declared and unpaid dividends shall be paid in accordance with the provisions of
Section 4(d).
m. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred or Series E Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.
n. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred and Series E Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of such series of Preferred Stock. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of such series of Preferred
Stock, the Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
12.
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o. NOTICES. Any notice required by the provisions of this Section
4 shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Corporation.
p. PAYMENT OF TAXES. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred and Series E Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Preferred Stock so
converted were registered.
q. NO DILUTION OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred against diminution or other impairment.
r. PAYMENT UPON CONVERSION. Upon any of the following conversion
events, each share of Series C Preferred shall be entitled to receive, in
addition to the Common Stock receivable upon such conversion, an amount in cash
equal to the Original Issue Price of the Series C Preferred:
(i) automatic conversion of the Series C Preferred pursuant
to clause (b) of Section 4(l)(1);
(ii) provided that at least six (6) months have elapsed
since the closing of the first public offering of Common Stock for the account
of the Corporation pursuant to an effective registration statement under the
Securities Act of 1933, as amended, automatic conversion of the Series C
Preferred pursuant to clause (a)(iii) of Section 4(l)(1); or
(iii) provided that at least six (6) months have elapsed
since the closing of the first public offering of Common Stock for the account
of the Corporation pursuant to an effective registration statement under the
Securities Act of 1933, as amended, conversion of the Series C Preferred
pursuant to Section 4(a).
5. REDEMPTION.
a. The Corporation shall be obligated to redeem the Series C
Preferred upon the vote of the holders of at least fifty-one percent (51%) of
the then outstanding
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shares of Series C Preferred to the extent it may lawfully do so, at any time
after the fifth anniversary of the Original Issue Date for the Series C
Preferred. The Corporation shall be obligated to redeem the Series D Preferred
upon the vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the then outstanding shares of Series D Preferred to the extent it may
lawfully do so, at any time after the fifth anniversary of the Original Issue
Date for the Series D Preferred. Such redemptions of the Series C Preferred or
Series D Preferred shall be made in three (3) annual installments beginning
sixty (60) days after the Corporation receives notice of such vote or on the
date specified in such vote, whichever is later, and ending on the date two (2)
years from such first redemption date (each a "Redemption Date"). The
Corporation shall effect such redemptions on the applicable Redemption Date by
paying in cash in exchange for each such share of Series C Preferred or Series D
Preferred to be redeemed a sum equal to (A) the respective Original Issue Price
per share of such Series C Preferred or Series D Preferred, plus (B) all accrued
but unpaid dividends with respect to such share of Series C Preferred or Series
D Preferred, plus (C) an amount, if any, equal to eight percent (8%) of the
respective Original Issue Price of each such share of the Series C Preferred or
Series D Preferred, times the number of full years elapsed between the
respective Original Issue Date of the Series C Preferred or Series D Preferred
and such Redemption Date (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares). The total
amount to be paid for the Series C Preferred or Series D Preferred is
hereinafter referred to as the "Redemption Price." The number of shares of
Series C Preferred or Series D Preferred that the Corporation shall be required
to redeem on any one Redemption Date shall be equal to the amount determined by
dividing (i) the aggregate number of such shares of Series C Preferred or Series
D Preferred outstanding immediately prior to such Redemption Date by (ii) the
number of remaining Redemption Dates (including the Redemption Date to which
such calculation applies). Shares subject to redemption pursuant to this Section
5(a) shall be redeemed from each such holder of Series C Preferred or Series D
Preferred on a pro rata basis.
b. At least thirty (30) days but no more than sixty (60) days
prior to the first Redemption Date, the Corporation shall send by mail, first
class postage prepaid, to all holders of Series C Preferred or Series D
Preferred to be redeemed, as the case may be, a written notice (a "Redemption
Notice") notifying such holders of the redemption to be effected on the
Redemption Date and setting forth (i) the Redemption Price for the shares to be
redeemed, and (ii) the place at which such holders may obtain payment of the
Redemption Price upon surrender of their share certificates. If the Corporation
does not have sufficient funds legally available to redeem all of the shares to
be redeemed at the Redemption Date then it shall redeem such shares pro rata
(based on the portion of the aggregate Redemption Price payable to them) to the
extent possible and shall redeem the remaining shares to be redeemed as soon as
sufficient funds are legally available.
c. On or prior to the Redemption Date, the Corporation shall
deposit the Redemption Price of all shares to be redeemed with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000, as a
trust fund, with irrevocable instructions and authority to the bank or trust
company to pay, on and after such Redemption Date, the Redemption Price of the
shares to their respective holders upon the surrender of their share
certificates. Any moneys deposited by the Corporation pursuant to this paragraph
5(c) for the redemption of shares thereafter converted into shares of Common
Stock pursuant to Section 4 hereof no later than the fifth (5th) day preceding
the Redemption Date shall be returned to the
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Corporation forthwith upon such conversion. The balance of any funds deposited
by the Corporation pursuant to this Section 5(c) remaining unclaimed at the
expiration of one (1) year following such Redemption Date shall be returned to
the Corporation promptly upon its written request.
d. On or after such Redemption Date, each such holder of shares
of Series C Preferred or Series D Preferred to be redeemed shall surrender such
holder's certificates representing such shares to the Corporation in the manner
and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled. In the event less than all the
shares represented by such certificates are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after such Redemption Date,
unless there shall have been a default in payment of the Redemption Price or the
Corporation is unable to pay the Redemption Price due to not having sufficient
legally available funds, all rights of the holders of such shares as holders of
Series C Preferred or Series D Preferred, as the case may be (except the right
to receive the Redemption Price without interest upon surrender of their
certificates), shall cease and terminate with respect to such shares, provided
that in the event that such shares of Series C Preferred or Series D Preferred
are not redeemed due to a default in payment by the Corporation or because the
Corporation does not have sufficient legally available funds, such shares of
Series C Preferred or Series D Preferred shall remain outstanding and shall be
entitled to all of the rights and preferences provided herein.
e. In the event of a call for redemption of any shares of Series
C Preferred or Series D Preferred, the Conversion Rights (as defined in Section
4) for such Series C Preferred or Series D Preferred shall terminate as to the
shares designated for redemption at the close of business on the fifth (5th) day
preceding the Redemption Date, unless default is made in payment of the
Redemption Price.
6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued.
7. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive rights
except as granted by the Company pursuant to written agreements.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
15.
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A.
1. MANAGEMENT OF BUSINESS
The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors that shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section a.2.a of this
Article V shall become effective and be applicable only when the corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL AND is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section a. 2. a. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL AND is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an election
for directors may cumulate such stockholder's votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such
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stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS
Removal of directors shall be governed as provided in the Bylaws
of the corporation.
4. VACANCIES
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then:
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(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. BALLOTS
The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. ACTION BY STOCKHOLDERS
No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering and following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
4. ADVANCE NOTICE
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or
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C. omission to act giving rise to liability or indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph b. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
19.
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Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHARSIGHT CORPORATION
I.
The name of this corporation is Pharsight Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is One Hundred Twenty
Five Million (125,000,000) shares. One Hundred Twenty Million (120,000,000)
shares shall be Common Stock, each having a par value of one tenth of one cent
($.001). Five Million (5,000,000) shares shall be Preferred Stock, each having a
par value of one tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights (voting or otherwise) granted upon, and the qualifications, limitations
or restrictions of, any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
V.
1.
<PAGE>
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. Management of Business.
The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors.
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section A.2.a of this
Article V shall become effective and be applicable only when the corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL and is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section A. 2. a. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL and is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an election
for directors may cumulate such stockholder's votes
2.
<PAGE>
and give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Removal of Directors. Removal of directors shall be governed as
provided in the Bylaws of the corporation.
4. Vacancies
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then:
3.
<PAGE>
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. Bylaw Amendments
Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the voting stock of the corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
2. Ballots.
The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. Action by Stockholders.
No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws prior to the closing of the Initial Public Offering and
following the closing of the Initial Public Offering no action shall be taken by
the stockholders by written consent.
4. Advance Notice.
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
4.
<PAGE>
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
5.
<PAGE>
Exhibit 3.3
BYLAWS
OF
PHARSIGHT CORPORATION
__________________________________________________
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .1
Section 4. Place Of Meetings. . . . . . . . . . . . . . . . . . . . . . . .1
Section 5. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . .3
Section 7. Notice Of Meetings . . . . . . . . . . . . . . . . . . . . . . .4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 9. Adjournment And Notice Of Adjourned Meetings . . . . . . . . . .5
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 11. Joint Owners Of Stock. . . . . . . . . . . . . . . . . . . . . .6
Section 12. List Of Stockholders . . . . . . . . . . . . . . . . . . . . . .6
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . . . .6
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 15. Number And Term Of Office. . . . . . . . . . . . . . . . . . . .7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 17. Classes of Directors . . . . . . . . . . . . . . . . . . . . . .8
Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 19. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 20. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 22. Quorum And Voting. . . . . . . . . . . . . . . . . . . . . . . 11
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . . . . 11
Section 24. Fees And Compensation. . . . . . . . . . . . . . . . . . . . . 12
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . . . . 13
i.
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(CONTINUED)
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ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 27. Officers Designated. . . . . . . . . . . . . . . . . . . . . . 13
Section 28. Tenure And Duties Of Officers. . . . . . . . . . . . . . . . . 13
Section 29. Delegation Of Authority. . . . . . . . . . . . . . . . . . . . 15
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 31. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION. . . . . . . . . . . . . . . . . . . . . . 15
Section 32. Execution Of Corporate Instruments . . . . . . . . . . . . . . 15
Section 33. Voting Of Securities Owned By The Corporation. . . . . . . . . 15
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 34. Form And Execution Of Certificates . . . . . . . . . . . . . . 16
Section 35. Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . 16
Section 36. Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 37. Fixing Record Dates. . . . . . . . . . . . . . . . . . . . . . 17
Section 38. Registered Stockholders. . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . 18
Section 39. Execution Of Other Securities. . . . . . . . . . . . . . . . . 18
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 40. Declaration Of Dividends . . . . . . . . . . . . . . . . . . . 18
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents . . . . . . . . . . . . . 19
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 44. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 45. Amendments.. . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 24
ii.
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TABLE OF CONTENTS
(CONTINUED)
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Section 46. Loans To Officers. . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
iii.
<PAGE>
BYLAWS
OF
PHARSIGHT CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a
die bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for
election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph,
1.
<PAGE>
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice shall
set forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii)
2.
<PAGE>
whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of the proposal,
at least the percentage of the corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting
shares to elect such nominee or nominees (an affirmative statement of such
intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).
3.
<PAGE>
At any time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), stockholders holding fifty
percent (50%) or more of the outstanding shares shall have the right to call
a special meeting of stockholders only as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the
event the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of
4.
<PAGE>
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by statute, the
Certificate of Incorporation or these Bylaws, in all matters other than the
election of directors, the affirmative vote of the majority of shares present
in person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders. Except as otherwise
provided by statute, the Certificate of Incorporation or these Bylaws,
directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. Where a separate vote by a class or classes or series
is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented
by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter and, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, the affirmative vote
of the majority (plurality, in the case of the election of directors) of the
votes cast by the holders of shares of such class or classes or series shall
be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
5.
<PAGE>
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with
the Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented
6.
<PAGE>
in writing and who, if the action had been taken at a meeting, would have
been entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number of
stockholders to take action were delivered to the corporation as provided in
Section 228 (c) of the DGCL. If the action which is consented to is such as
would have required the filing of a certificate under any section of the DGCL
if such action had been voted on by stockholders at a meeting thereof, then
the certificate filed under such section shall state, in lieu of any
statement required by such section concerning any vote of stockholders, that
written consent has been given in accordance with Section 228 of the DGCL.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common
Stock of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act
as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders
as it shall deem necessary, appropriate or convenient. Subject to such rules
and regulations of the Board of Directors, if any, the chairman of the
meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the
Certificate of Incorporation. Directors need not be stockholders unless so
required by the Certificate of Incorporation. If for any cause, the
directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter
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as convenient at a special meeting of the stockholders called for that
purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class I directors shall expire and Class
I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the Initial Public Offering, the
term of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting
of stockholders following the Initial Public Offering, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b)
of the CGCL, this Section 17(a) shall become effective and apply only when
the corporation is a "listed" corporation within the meaning of Section 301.5
of the CGCL.
(b) In the event that the corporation is unable to have a
classified Board of Directors under applicable law(1), Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
(c) No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless,
at the time of the election, the corporation (i) is subject to Section
2115(b) of the CGCL and (ii) is not or ceases to be a "listed" corporation
under Section 301.5 of the CGCL. During this time, every stockholder entitled
to vote at an election for directors may cumulate such stockholder's votes
and give one candidate a number of votes equal to the number of directors to
be elected multiplied by the number of votes to which such stockholder's
shares are otherwise entitled, or distribute the stockholder's votes on the
same principle among as many candidates as such stockholder thinks fit. No
stockholder, however, shall be entitled to so cumulate such stockholder's
votes unless (i) the names of such candidate or candidates have been placed
in nomination prior to the voting and (ii) the stockholder has given notice
at the meeting, prior to the voting, of such stockholder's intention to
cumulate such stockholder's votes. If any stockholder has given proper
notice to cumulate votes, all
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(1) [NOTE THAT WHILE A FOREIGN CORPORATION SUBJECT TO CGCL SECTION 2115 MAY
HAVE A CLASSIFIED BOARD UNDER CGCL SECTION 301.5 IF IT IS A "LISTED"
CORPORATION, THERE IS AN ADDITIONAL REQUIREMENT REGARDING THE NUMBER OF
DIRECTORS NECESSARY TO HAVE A CLASSIFIED BOARD. SECTION 301.5(b) STATES THAT
TO HAVE A TWO-CLASS BOARD, THE COMPANY MUST HAVE AT LEAST SIX AUTHORIZED
DIRECTORS AND TO HAVE A THREE-CLASS BOARD, THE COMPANY MUST HAVE AT LEAST
NINE AUTHORIZED DIRECTORS. MANY OF OUR COMPANIES WILL NOT MEET THE NINE
DIRECTOR REQUIREMENT AND WILL NO BE ABLE TO HAVE A THREE-CLASS BOARD.]
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stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. Under cumulative voting, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by stockholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed
to exist under this Section 18 in the case of the death, removal or
resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the DGCL.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders;
or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any
director shall terminate upon that election of a successor.
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SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board
of Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each Director so chosen shall
hold office for the unexpired portion of the term of the Director whose place
shall be vacated and until his successor shall have been duly elected and
qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject
to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed
by law, the Board of Directors or any individual director may be removed from
office at any time without cause by the affirmative vote of the holders of at
least a majority of the outstanding shares entitled to vote on such removal.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may
be held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings
of the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place
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within or without the State of Delaware whenever called by the Chairman of
the Board, the President or any two of the directors
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person
at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex,
or by electronic mail or other electronic means, during normal business
hours, at least twenty-four (24) hours before the date and time of the
meeting, or sent in writing to each director by first class mail, charges
prepaid, at least three (3) days before the date of the meeting. Notice of
any meeting may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting
duly held after regular call and notice, if a quorum be present and if,
either before or after the meeting, each of the directors not present shall
sign a written waiver of notice. All such waivers shall be filed with the
corporate records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number
of directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; PROVIDED,
HOWEVER, at any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the time fixed
for the next regular meeting of the Board of Directors, without notice other
than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be
required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all
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members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the minutes
of proceedings of the Board of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as
an officer, agent, employee, or otherwise and receiving compensation
therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to (i)
approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the DGCL to be submitted to stockholders for
approval, or (ii) adopting, amending or repealing any bylaw of the
corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or
more members of the Board of Directors and shall have such powers and perform
such duties as may be prescribed by the resolution or resolutions creating
such committees, but in no event shall any such committee have the powers
denied to the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of
any outstanding series of preferred Stock and the provisions of subsections
(a) or (b) of this Bylaw, may at any time increase or decrease the number of
members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
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(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the President (if a director), or if the President is absent,
the most senior Vice President (if a director), or, in the absence of any
such person, a chairman of the meeting chosen by a majority of the directors
present, shall preside over the meeting. The Secretary, or in his absence,
any Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer and the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents with such powers and
duties as it shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall
be fixed by or in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any
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time by the Board of Directors. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers, as the Board
of Directors shall designate from time to time. If there is no President,
then the Chairman of the Board of Directors shall also serve as the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in paragraph (c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer
of the corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the corporation. The President shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers, as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers,
as the Board of Directors shall designate from time to time. The President
may direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President
may direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and
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perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is
specified therein, in which event the resignation shall become effective at
such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the
corporation under any contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of
the directors in office at the time, or by the unanimous written consent of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute on behalf of the
corporation any corporate instrument or document, or to sign on behalf of the
corporation the corporate name without limitation, or to enter into contracts
on behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the
corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation
for itself, or for other parties in any capacity, shall be voted, and all
proxies with respect thereto shall be executed, by the person
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authorized so to do by resolution of the Board of Directors, or, in the
absence of such authorization, by the Chairman of the Board of Directors, the
Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in
full or in summary, all of the powers, designations, preferences, and rights,
and the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or othe special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to agree to indemnify the corporation in such manner as
it shall require or to give the corporation a surety bond in such form and
amount as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen, or destroyed.
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SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to
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corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers" shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL
or any other applicable law; PROVIDED, HOWEVER, that the corporation may modify
the extent of such indemnification by individual contracts with its directors
and executive officers; and, PROVIDED, FURTHER, that the corporation shall not
be required to indemnify any director or executive officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its other officers, employees and other agents as set forth in the
DGCL or any other applicable law. The Board of Directors shall have the power
to delegate the determination of
19.
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whether indemnification shall be given to any such person except executive
officers to such officers or other persons as the Board of Directors shall
determine.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 43 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to
20.
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have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the DGCL or any other
applicable law, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that claimant has not met the
applicable standard of conduct. In any suit brought by a director or
executive officer to enforce a right to indemnification or to an advancement
of expenses hereunder, the buden of proving that the director or executive
officer is not entitled to be indemnified, or to such advancement of
expenses, under this Section 43 or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43 shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this
Section 43 shall be invalid due to the application of the indemnification
provisions of another jurisdiction, then the corporation shall indemnify each
director and executive officer to the full extent under any other applicable
law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement,
21.
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arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Section 43 with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex
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or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last
known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person
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shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the
filing of a certificate under any provision of the DGCL, the certificate need
not state that notice was not given to persons to whom notice was not
required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
24.
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Exhibit 4.2
PHARSIGHT CORPORATION
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
September 2, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
I. GENERAL............................................................2
1.1 Amendment of Prior Agreement..............................2
1.2 Definitions...............................................2
II. REGISTRATION; RESTRICTIONS ON TRANSFER.............................3
2.1 Restrictions on Transfer..................................3
2.2 Demand Registration.......................................5
2.3 Piggyback Registrations...................................6
2.4 Form S-3 Registration.....................................7
2.5 Expenses of Registration..................................8
2.6 Obligations of the Company................................9
2.7 Termination of Registration Rights.......................10
2.8 Delay of Registration; Furnishing Information............10
2.9 Indemnification..........................................10
2.10 Assignment of Registration Rights........................13
2.11 Amendment of Registration Rights.........................13
2.12 Limitation on Subsequent Registration Rights.............13
2.13 "Market Stand-Off" Agreement.............................13
2.14 Rule 144 Reporting.......................................14
III. COVENANTS OF THE COMPANY..........................................14
3.1 Basic Financial Information and Reporting................14
3.2 Inspection Rights........................................15
3.3 Confidentiality of Records...............................15
3.4 Reservation of Common Stock..............................16
3.5 Stock Vesting............................................17
3.6 Proprietary Information and Inventions Agreement.........17
3.7 Directors' Expenses......................................17
3.8 Real Property Holding Corporation........................17
3.9 Stock Issuances and Option Grants........................18
3.10 Initial Offering.........................................18
3.11 Strategic Transactions...................................18
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.13 Termination of Covenants.................................19
IV. RIGHTS OF FIRST OFFER.............................................19
4.1 Subsequent Offerings.....................................19
4.2 Exercise of Rights.......................................19
4.3 Issuance of Equity Securities to Other Persons...........19
4.4 Termination of Rights of First Offer.....................20
4.5 Transfer of Rights of First Offer........................20
4.6 Excluded Securities......................................20
V. ASSIGNED RIGHT OF FIRST REFUSAL...................................21
5.1 Bylaw Right of First Refusal.............................21
5.2 Purchase of Additional Shares............................21
5.3 Purchase of All Offered Shares...........................21
5.4 Compliance with Bylaws...................................21
5.5 Termination of Right to Assignment of Right of
First Refusal............................................22
VI. MISCELLANEOUS.....................................................22
6.1 Governing Law............................................22
6.2 Survival.................................................22
6.3 Successors and Assigns...................................22
6.4 Severability.............................................22
6.5 Amendment and Waiver.....................................22
6.6 Delays or Omissions......................................23
6.7 Notices..................................................23
6.8 Attorneys' Fees..........................................23
6.9 Titles and Subtitles.....................................23
6.10 Counterparts.............................................23
ii.
<PAGE>
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is
entered into as of September 2, 1999, by and among PHARSIGHT CORPORATION, a
California corporation (the "Company"), the holders of the Company's Series A
Preferred Stock (the "Series A Stock"), the holders of the Company's Series B
Preferred Stock (the "Series B Stock"), the holders of the Company's Series C
Preferred Stock (the "Series C Stock"), the holders of the Company's Series D
Preferred Stock (the "Series D Stock"), and the purchasers of the Company's
Series E Preferred Stock (the "Series E Stock") set forth on Exhibit A attached
hereto. The holders of the Series A Stock, the holders of the Series B Stock,
the holders of the Series C Stock, the holders of the Series D Stock, and the
purchaser of the Series E Stock shall be referred to hereinafter as the
"Investors," and each individually as an "Investor."
RECITALS
WHEREAS, the Company, the holders of the Series A Stock, the holders of
the Series B Stock, the holders of the Series C Stock and the holders of the
Series D Stock are parties to that certain Amended and Restated Investors'
Rights Agreement dated as of May 13, 1997, as amended on September 15, 1997,
December 6, 1997, March 23, 1998, May 11, 1998 and October 28, 1998 (the
"Original Agreement");
WHEREAS, the Company proposes to sell and issue up to two million seven
hundred seventy-seven thousand seven hundred seventy-eight (2,777,778) shares of
its Series E Stock pursuant to that certain Series E Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement");
WHEREAS, as a condition of entering into the Purchase Agreement, the
purchaser of the Series E Stock has requested that the Company extend to it
certain registration rights, information rights and other rights; and
WHEREAS, the Company and a majority in interest of the holders of the
Series A Stock, Series B Stock, Series C Stock and Series D Stock desire to
amend the Original Agreement to extend to the purchaser of the Series E Stock
the registration rights, information rights, and other rights granted to the
holders of the Series A Stock, Series B Stock, Series C Stock and Series D Stock
under the Original Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, in the
Original Agreement, and in the Purchase Agreement, the parties hereby amend and
restate the Original Agreement and mutually agree as follows:
1.
<PAGE>
I. GENERAL
1.1 Amendment of Prior Agreement. Effective upon the execution of
this Agreement by the Company and the Holders of a majority of the Registrable
Securities covered by the Original Agreement, the Original Agreement shall be
null and void and shall be superseded in its entirety by the provisions of this
Agreement. Any rights granted in the Original Agreement and not granted in this
Agreement are hereby waived, released and terminated and are null and void as of
the date of this Agreement.
1.2 Definitions. As used in this Agreement the following terms shall
have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.10 hereof.
"Initial Offering" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
"Major Investor" shall mean each Investor (together with its
affiliates) who owns not less than one hundred fifty thousand (150,000) shares
of Registrable Securities (as adjusted for stock splits and combinations).
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company
issued or issuable upon conversion or exercise of the Shares; and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right, or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Article II of this Agreement
are not assigned. For purposes of Article II (except Section 2.2), the term
"Registrable Securities" shall also include any Common Stock of the Company
issued upon the exercise of any warrant issued by the Company in connection with
a commercial financing or equipment leasing arrangement, provided the issuance
of such warrant, including any registration rights associated therewith, is
approved by a majority of the Board of Directors, including the affirmative vote
of at least two of the directors nominated by the holders of the Preferred Stock
under the Amended and Restated Shareholders' Agreement of even date herewith, as
such agreement may be amended from time to time.
2.
<PAGE>
"Registrable Securities then outstanding" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees, and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed fifteen thousand dollars ($15,000) of a single special counsel for the
Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean the Company's Series A Stock issued pursuant to
the Series A Preferred Stock Purchase Agreement dated February 6, 1996; the
Company's Series B Stock issued pursuant to the Series B Preferred Stock
Purchase Agreement dated July 31, 1996; the Company's Series C Stock issued
pursuant to the Series C Preferred Stock Purchase Agreement dated May 13, 1997;
the Company's Series D Stock issued pursuant to the Series D Preferred Stock
Purchase Agreement dated October 28, 1998, the Company's Series E Stock issued
pursuant to the Purchase Agreement; and the shares issued upon exercise of
warrants to purchase Series A Stock and Series C Stock dated April 30, 1996, and
November 7, 1997, respectively.
"Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
II. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 Restrictions on Transfer.
2.1.1 Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be
bound by this Section 2.1, (B) Such Holder shall have notified the Company of
the proposed disposition and
3.
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shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (C) if reasonably requested by the
Company, such Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Securities Act. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i)
and (ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its shareholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
members or trust for the benefit of an individual Holder or his family members,
provided the transferee will be subject to the terms of this Section 2.1 to the
same extent as if he were an original Holder hereunder.
(iv) The Holder shall have complied with the provisions
of the Company's bylaws regarding the Company's right of first refusal, if
applicable.
2.1.2 Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws, the Company's bylaws, or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
2.1.3 The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
2.1.4 Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate state securities authority authorizing such removal.
4.
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2.2 Demand Registration.
2.2.1 Subject to the conditions of this Section 2.2, if the
Company shall receive a written request from the Holders of more than fifty
percent (50%) of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities having an aggregate
offering price to the public in excess of $5,000,000 (or, if such request is
made after the Company's Initial Offering, $2,000,000) (a "Qualified Public
Offering"), then the Company shall, within thirty (30) days of the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of this Section 2.2, effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.
2.2.2 Unless the request under this Section 2.2 is made after
the Company's Initial Offering, the Registrable Securities shall be distributed
only by means of a firm commitment underwriting. If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2.2 and the Company shall include such
information in the written notice referred to in Section 2.2.1. In such event,
the right of any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
2.2, if the underwriter advises the Company that marketing factors require a
limitation of the number of securities to be underwritten (including Registrable
Securities) then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares that may be included in the underwriting shall be allocated to the
Holders of such Registrable Securities on a pro rata basis based on the number
of Registrable Securities held by all such Holders (including the Initiating
Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
2.2.3 The Company shall not be required to effect a
registration pursuant to this Section 2.2:
(i) prior to (A) February 6, 2000, or (B) six (6) months
after the date of the Company's Initial Offering, whichever is earlier; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 2.2, and such registrations have been
declared or ordered effective; or
(iii) during the period starting with the date of filing
of, and ending on the date one hundred eighty (180) days following the effective
date of the registration
5.
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statement pertaining to the Initial Offering, provided that the Company is
making reasonable and good faith efforts to cause such registration statement to
become effective; or
(iv) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2.1, the Company gives
notice to the Holders of the Company's intention to file a registration
statement pertaining to the Initial Offering within ninety (90) days; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company no more than twice in any one-year period.
2.2.4 The rights granted under this Section 2.2 shall not
apply to any person who is a "Holder" by virtue of owning securities that are
included in the term "Registrable Securities" solely by the application of the
final sentence of the definition of that term in Section 1.2 above.
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent such registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.
2.3.1 Underwriting. If the registration statement under which
the Company gives notice under this Section 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the
6.
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Company. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to the Company; second,
to the Holders on a pro rata basis based on the total number of Registrable
Securities held by the Holders; and third, to any shareholder of the Company
(other than a Holder) on a pro rata basis. No such reduction shall reduce the
securities being offered by the Company for its own account to be included in
the registration and underwriting, and in no event shall the amount of
securities of the selling Holders included in the registration be reduced below
twenty-five percent (25%) of the total amount of securities included in such
registration, unless such offering is the Initial Offering and such registration
does not include shares of any other selling shareholders, in which event any or
all of the Registrable Securities of the Holders may be excluded in accordance
with the immediately preceding sentence. In no event will shares of any other
selling shareholder be included in such registration which would reduce the
number of shares which may be included by Holders without the written consent of
Holders of more than fifty percent (50%) of the Registrable Securities proposed
to be sold in the offering.
2.3.2 Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.
2.4 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
2.4.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
2.4.2 as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is
not available for such offering by the Holders; or
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $2,000,000; or
7.
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(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4: provided, that such
right to delay a request shall be exercised by the Company nor more than twice
in any one-year period; or
(iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
2.4.3 Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All Registration Expenses incurred in
connection with registrations requested pursuant to this Section 2.4 shall be
paid by the selling Holders pro rata in proportion to the number of shares sold
by each.
2.5 Expenses of Registration. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 herein shall be borne by the Company. All Selling Expenses incurred
in connection with any registrations hereunder shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered. The Company shall not, however, be required to pay for expenses of
any registration proceeding begun pursuant to Section 2.2, the request of which
has been subsequently withdrawn by the Initiating Holders unless (a) the
withdrawal is based upon material adverse information concerning the Company of
which the Initiating Holders were not aware at the time of such request or (b)
the Holders of a majority of the Registrable Securities agree to forfeit their
right to one requested registration pursuant to Section 2.2 in which event such
right shall be forfeited by all Holders. If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Holders shall not forfeit their rights pursuant to
Section 2.2 to a demand registration.
2.6 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
8.
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2.6.1 Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to ninety (90) days or, if
earlier, until the Holder or Holders have completed the distribution related
thereto.
2.6.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
2.6.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
2.6.4 Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
2.6.5 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
2.6.6 Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
2.6.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
9.
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registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.6.8 Cause all such Registrable Securities covered by such
registration statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
2.6.9 Provide a transfer agent and registrar and a CUSIP
number for all Registrable Securities covered by such registration statement not
later than the effective date of such registration statement.
2.7 Termination of Registration Rights. All registration rights
granted under this Article II shall terminate and be of no further force and
effect seven (7) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act, (ii) such Holder (together with its affiliates, partners and former
partners) holds less than 1% of the Company's outstanding Common Stock (treating
all shares of convertible Preferred Stock on an as converted basis) and (iii)
all Registrable Securities held by such Holder may be sold under Rule 144 during
any ninety (90) day period.
2.8 Delay of Registration; Furnishing Information.
2.8.1 No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Article II.
2.8.2 It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
2.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
2.9.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers, directors and
legal counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
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the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided
however, that the indemnity agreement contained in this Section 2.9.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld, nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
2.9.2 To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder,
severally, but not jointly against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner, director,
officer or controlling person of such other Holder may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder under an instrument duly executed
by such Holder and stated to be specifically for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, or partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.9.2 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the proceeds from the offering received
by such Holder.
2.9.3 Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with
11.
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the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.9.
2.9.4 If the indemnification provided for in this Section 2.9
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
2.9.5 The obligations of the Company and Holders under this
Section 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. In the event any offering of Registrable Securities is
underwritten, and the underwriting agreement provides for indemnification and/or
contribution by the Company and the Holders offering securities thereunder, the
indemnification and/or contribution obligations of the Company and the Holders
hereunder shall in no event exceed the obligations of the parties set forth in
such underwriting agreement.
2.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities that
(i) is a subsidiary, parent, general partner, limited partner or retired partner
of a Holder, (ii) is an individual Holder's family member or trust for the
benefit of an individual Holder or his or her family members, or (iii) acquires
at least fifty thousand (50,000) shares of Registrable Securities (as adjusted
for stock splits and combinations); provided, however, (A) the transferor shall,
within ten (10) days after such transfer, furnish to the Company written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and
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(B) such transferee shall agree to be subject to all restrictions set forth in
this Agreement. With respect to any person who is a "Holder" by virtue of owning
securities that are included in the term "Registrable Securities" solely by the
application of the final sentence of the definition of that term in Section 1.2
above, such Holder may assign its rights to cause the Company to register
Registrable Securities pursuant to Article II without regard to the limitation
in clause (iii) of this Section 2.10, provided the transferee or assignee
acquires at least one (1) share of Registrable Securities.
2.11 Amendment of Registration Rights. Any provision of this Article
II may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of more than fifty percent
(50%) of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Article II, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of more than fifty percent (50%) of the Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company that would grant such holder registration rights senior to or pari
passu with those granted to the Holders hereunder.
2.13 "Market Stand-Off" Agreement. If requested by the Company and
the representative of the underwriters of Common Stock (or other securities) of
the Company, and provided that all officers and directors of the Company and
holders of at least one percent (1%) of the Company's voting securities enter
into similar agreements, each Holder shall not sell or otherwise transfer or
dispose of any shares of Common Stock (or other securities) of the Company held
by such Holder (other than those included in the registration) until the earlier
of
(i) the conclusion of the one hundred eighty (180) day
period (or such shorter period as the Company may specify) following the
effective date of a registration statement of the Company filed under the
Securities Act; or
(ii) the date upon which the five-day trailing average
of the market price of the Common Stock of the Company, as quoted on the Nasdaq
National Market or any exchange or over-the-counter market upon which such
Common Stock is listed or traded is two (2) times the price to the public for
the Common Stock as set forth in the final prospectus included with such
Registration Statement.
The obligations described in this Section 2.13 shall apply only to the
Company's Initial Offering and shall not apply to a registration relating solely
to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the
future. The Company may impose stop-transfer instructions with respect to the
shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of the restricted sale period as set forth in clause
(i) or (ii) above.
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2.14 Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) Take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and
(d) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
III. COVENANTS OF THE COMPANY.
3.1 Basic Financial Information and Reporting.
3.1.1 The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.
3.1.2 As soon as practicable after the end of each fiscal year
of the Company, the Company will furnish each Investor a consolidated balance
sheet of the Company, as of the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company,
for such year, all prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.
3.1.3 The Company will furnish each Major Investor, as soon as
practicable after the end of the first, second, and third quarterly accounting
periods in each fiscal year of the Company, a consolidated balance sheet of the
Company as of the end of each such
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quarterly period, and a consolidated statement of income and a consolidated
statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such statements
and year-end audit adjustments may not have been made.
3.1.4 The Company will furnish each such Major Investor (i)
within thirty (30) days after the beginning of each fiscal year a capitalization
summary, annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto); and (ii) as soon as practicable
after the end of the first and second month of each quarterly accounting period,
a consolidated balance sheet of the Company as of the end of each such month,
and a consolidated statement of income and a consolidated statement of cash
flows of the Company for such month and for the current fiscal year to date,
including a comparison to plan figures for such period, in the form such
statements are provided to the Company's Board of Directors.
3.2 Inspection Rights. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, and to review such information as
is reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 3.2 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 Confidentiality of Records.
3.3.1 Each Investor agrees not to use Confidential Information
(as hereinafter defined) of the Company for its own use or for any purpose
except to evaluate and enforce its equity investment in the Company. Each
Investor shall undertake to treat such Confidential Information in a manner
consistent with the treatment of its own information of such proprietary nature
and agrees that it shall protect the confidentiality of and use reasonable best
efforts to prevent disclosure of the Confidential Information to prevent it from
falling into the public domain or the possession of unauthorized persons. Each
transferee of any Investor who receives Confidential Information shall agree to
be bound by such provisions. For purposes of this Section, "Confidential
Information": means any information, technical data, or know-how, including, but
not limited to, information, technical data or know-how related to the Company's
research, products, software, services, development, inventions, processes,
designs, drawings, engineering, marketing, or finances, disclosed by the Company
either directly or indirectly in writing, orally or by drawings or inspection of
parts or equipment, which written material is stamped "Confidential" or
"Proprietary" or if disclosed orally, is promptly confirmed in writing to be
Confidential Information.
3.3.2 Confidential Information does not include information,
technical data or know-how which (i) is in the Investor's possession or known to
the Investor at the time of disclosure as shown by Investor's files and records
immediately prior to the time of disclosure; (ii) before or after it has been
disclosed to the Investor, is part of the public knowledge or literature, not as
a result of any action or inaction of the Investor; (iii) is disclosed to an
Investor
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on a non-confidential basis by a third party having a legal right to such
information, (iv) is independently developed by Investor without use of or
reference to any Confidential Information of the Company, as properly documented
by the Investor, or (v) is approved for release by written authorization of
Company. The provisions of this Section shall not apply (i) to the extent that
an Investor is required to disclose Confidential Information pursuant to any
law, statue, rule or regulation or any order of any court or pursuant to any
direction, request or requirement (whether or not having the force of law but if
not having the force of law being of a type with which institutional investors
in the relevant jurisdiction are accustomed to comply) of any self-regulating
organization or any governmental, fiscal, monetary or other authority; (ii) to
the disclosure of Confidential Information to an Investor's employees, counsel,
accountants or other professional advisors; (iii) to the extent that an Investor
needs to disclose Confidential Information for the protection of any of such
Investor's rights or interest against the Company, whether under this Agreement
or otherwise; or (iv) to the disclosure of Confidential Information to a
prospective transferee of securities which agrees to be bound by the provisions
of this Section in connection with the receipt of such Confidential Information.
3.3.3 The Company and each Investor agree that, except with
the prior written permission of the Investor disclosing such confidential
information (the "Disclosing Investor"), the Company and each Investor shall at
all times keep confidential and not divulge, furnish or make accessible to
anyone any confidential information, knowledge or data concerning or relating to
the business or financial affairs of the Disclosing Investor to which the
Company or Investors have been or shall become privy by reason of this
Agreement, discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of Shares hereunder,
that have been labeled as "Confidential." If the confidential information is
disclosed orally or visually, it shall be identified as confidential at the time
of disclosure and be confirmed in writing to the receiving party(ies) within
thirty days of such disclosure. The provisions of this Section 3 shall be in
addition to, and not in substitution for, the provisions of any separate
non-disclosure agreement executed by the parties thereto with respect to the
transactions contemplated hereby.
3.4 Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Series A Stock, the Series B Stock, the Series C Stock, Series D Stock
and the Series E Stock all Common Stock issuable from time to time upon such
conversion.
3.5 Stock Vesting. Unless otherwise approved by the Board of
Directors, all stock options, restricted stock and other stock equivalents
issued after the date of this Agreement to employees, directors, consultants and
other service providers shall be subject to vesting as follows: (i) twenty-five
percent (25%) of such stock shall vest at the end of the first year following
the earlier of the date of issuance or such person's services commencement date
with the company, and (ii) one-forty-eighth (1/48) of such stock shall vest each
month thereafter over the remaining three (3) years. With respect to any shares
of stock purchased by any such person, the Company's repurchase option shall
provide that upon such person's termination of employment or service with the
Company, with or without cause, the Company or its assignee (to the extent
permissible under applicable securities laws and other laws) shall have the
option to purchase at cost any unvested shares of stock held by such person.
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3.6 Proprietary Information and Inventions Agreement. The Company
shall require all employees or officers now or hereafter employed by it to
execute and deliver a Proprietary Information and Inventions Agreement
substantially in the form attached to the Purchase Agreement. In addition, the
Company will require that all consultants now or hereafter engaged by the
Company agree to execute a written agreement assigning his or her rights to the
Company on all inventions, pending patent applications, all patents issued, and
all other intellectual property rights developed by such consultant while
working for or on behalf of the Company, and that all consultants who have
access to the confidential information of the Company agree to protect the
confidentiality of such information.
3.7 Directors' Expenses. The Company shall not be obligated to pay
any compensation to any member of the Company's Board of Directors in connection
with the performance of his or her duties as a director. The Company may,
however, provide compensation in the form of stock options or otherwise to
directors not affiliated with any Major Investors or the Company when the Board
of Directors determines that it is in the best interests of the Company to do
so. The Company shall pay (i) each director for out-of-pocket expenses incurred
in connection with the performance of his or her duties as a director when such
expenses are reasonable and, with respect to expenses exceeding $100, authorized
in advance, and (ii) each director for reasonable travel expenses incurred in
connection with his or her attendance at or participation in any meeting of the
Board of Directors held outside the geographical area of the Company's executive
offices, but shall not otherwise pay travel expenses for attendance at meetings
of the Board.
3.8 Real Property Holding Corporation. The Company covenants that it
will operate in a manner such that it will not become a "United States real
property holding corporation" ("USRPHC") as that term is defined in Section
897(c)(2) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder. The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg. ss.
1.897-2(h), or any supplementary or successor provision thereto. Within 30 days
of a request from an Investor or any of its partners, the Company will inform
the requesting party, in the manner set forth in Reg. ss. 1.897- 2(h)(1)(iv) or
any supplementary or successor provision thereto, whether that party's interest
in the Company constitutes a United States real property interest (within the
meaning of Internal Revenue Code Section 897(c)(1) and the regulations
thereunder) and whether the Company has provided to the Internal Revenue Service
all required notices as to its USRPHC status.
3.9 Stock Issuances and Option Grants. The Company will not, without
the approval of a majority of the Board of Directors (including the affirmative
vote of at least two of the directors nominated by the holders of the Preferred
Stock under the Amended and Restated Shareholders' Agreement of even date
herewith, as such agreement may be amended from time to time (the "Shareholders'
Agreement"), issue shares of Common Stock or grant options for the purchase of
shares of Common Stock to any employees, officers, directors, or consultants if
such issuance or grant would cause the total number of shares held and shares
issuable upon options held by such persons in the aggregate to exceed 4,715,000
shares. Shares held by any employee, officer, director, or consultant shall not
be counted toward this limit if such shares were, at the time they were acquired
by such person, excluded from the rights of first
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offer established by Article IV of this Agreement pursuant to sections 4.6.2
through 4.6.8 thereof or if such shares are issued upon conversion of any shares
of Preferred Stock.
3.10 Initial Offering. The Company will not, without the approval of
two-thirds of the Board of Directors (including the affirmative vote of at least
two of the directors nominated by the holders of Preferred Stock under the
Shareholders' Agreement) make an Initial Offering of its Common Stock unless
such offering would be a "Qualified Initial Public Offering" under Article III,
Section C.4(l)(1) of the Company's Amended and Restated Articles of
Incorporation.
3.11 Strategic Transactions. The Company will not, without the
approval of a majority of the Board of Directors (including the affirmative vote
of at least two of the directors nominated by the holders of Preferred Stock
under the Shareholders' Agreement) issue any shares of Common Stock or Preferred
Stock in connection with strategic transactions involving the Company and other
entities, including (i) joint ventures, manufacturing, marketing, or
distribution arrangements, (ii) technology transfer or development arrangements
and (iii) acquisitions involving the issuance of the Company's shares (other
than stock options granted to employees of the company acquired).
3.12 Qualified Small Business Stock. For so long as the Shares or
the Conversion Shares are held by an Investor (or a transferee) in whose hands
such Shares or Conversion Shares are eligible to qualify as "qualified small
business stock" as defined in Section 1202(c) of the Code, the Company will use
reasonable efforts to comply with the reporting and recordkeeping requirements
of Section 1202 of the Code, any regulations promulgated thereunder and any
similar state laws and regulations, and agrees not to repurchase any stock of
the Company if such repurchase would constitute a "significant redemption"
within the meaning of Section 1202(c)(3)(B) of the Code with respect to the
Shares. Within ten (10) days after any Investor has delivered to the Company a
written request for any reports required under Section 1202(d)(1)(C) of the Code
or any related Treasury Regulations, the Company shall deliver to such Investor
a written statement informing the Investor whether, in the Company's good faith
judgment after a reasonable investigation, such Investor's interest in the
Company constitutes "qualified small business stock" as defined in Section
1202(c) of the Code. The Company's obligation to furnish a written statement
pursuant to this Section 3.12 shall continue notwithstanding the fact that a
class of the Company's stock may be traded on an established market.
3.13 Termination of Covenants. All covenants of the Company
contained in Article III of this Agreement (except for Sections 3.1 and 3.2)
shall expire and terminate as to each Investor on the effective date of the
registration statement pertaining to the Company's Qualified Initial Public
Offering (as defined under Article III, Section C.4(l)(1) of the Company's
Amended and Restated Articles of Incorporation). The covenants of the Company
contained in Sections 3.1 and 3.2 of this Agreement shall expire and terminate
as to each Investor on the date the Company becomes subject to the public
company reporting requirements under the Exchange Act.
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IV. RIGHTS OF FIRST OFFER.
4.1 Subsequent Offerings. Each Investor shall have a right of first
offer to purchase its pro rata share of all Equity Securities, as defined below,
that the Company may, from time to time, propose to sell and issue after the
date of this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Investor's pro rata share is equal to the ratio of (A) the sum of
the number of shares of the Series A Stock, the Series B Stock, the Series C
Stock, the Series D Stock and the Series E Stock which such Investor holds
immediately prior to the issuance of such Equity Securities to (B) the total
number of shares of the Company's outstanding Series A Stock, Series B Stock,
Series C Stock, the Series D Stock and Series E Stock immediately prior to the
issuance of the Equity Securities. The term "Equity Securities" shall mean (i)
any Common Stock, Preferred Stock or other security of the Company, (ii) any
security convertible, with or without consideration, into any Common Stock,
Preferred Stock or other security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant or right to
subscribe to or purchase any Common Stock, Preferred Stock or other security, or
(iv) any such warrant or right.
4.2 Exercise of Rights. If the Company proposes to issue any Equity
Securities other than those excluded under Section 4.6, it shall give each
Investor written notice of its intention, describing the Equity Securities, the
price, and the terms and conditions upon which the Company proposes to issue the
same. Each Investor shall have ten (10) days from the giving of such notice to
agree to purchase its pro rata share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written notice
to the Company and stating therein the quantity of Equity Securities to be
purchased. Notwithstanding the foregoing, the Company shall not be required to
offer or sell such Equity Securities to any Investor who would cause the Company
to be in violation of applicable federal securities laws by virtue of such offer
or sale.
4.3 Issuance of Equity Securities to Other Persons. If not all of
the Investors elect to purchase their pro rata share of the Equity Securities,
then the Company shall promptly notify in writing the Investors who do so elect
and shall offer such Investors the right to acquire such unsubscribed shares.
The Investors shall have five (5) days after receipt of such notice to notify
the Company of its election to purchase all or a portion thereof of the
unsubscribed shares. If the Investors fail to exercise in full the rights of
first refusal, the Company shall have one hundred twenty (120) days thereafter
to sell the Equity Securities in respect of which the Investor's rights were not
exercised, at a price and upon general terms and conditions materially no more
favorable to the purchasers thereof than specified in the Company's notice to
the Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within one hundred twenty (120) days of the notice provided
pursuant to Section 4.2, the Company shall not thereafter issue or sell any
Equity Securities, other than those set forth in Section 4.6, without first
offering such securities to the Investors in the manner provided above.
4.4 Termination of Rights of First Offer. The rights of first offer
established by this Article IV shall terminate upon the effective date of the
registration statement pertaining to the Company's Qualified Initial Public
Offering (as defined under Article III, Section C.4(l)(1) of the Company's
Amended and Restated Articles of Incorporation).
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4.5 Transfer of Rights of First Offer. The rights of first offer of
each Investor under this Article IV may be transferred to the same parties,
subject to the same restrictions, as any transfer of registration rights
pursuant to Section 2.10.
4.6 Excluded Securities. The rights of first offer established by
this Article IV shall have no application to any of the following Equity
Securities:
4.6.1 shares of Common Stock (and/or options, warrants or
other rights to purchase Common Stock ) issued or to be issued to employees,
officers or directors of, or consultants or advisors to the Company or any
subsidiary, pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board of Directors;
4.6.2 stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, stock issued pursuant to any
options and warrants outstanding as of the date of this Agreement, and stock
issued pursuant to any rights or agreements granted after the date of this
Agreement; provided that the rights of first refusal established by this Article
IV applied with respect to the initial sale or grant by the Company of such
rights or agreements;
4.6.3 any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
4.6.4 shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
4.6.5 shares of Common Stock issued upon conversion of the
Shares;
4.6.6 any Equity Securities issued pursuant to any equipment
leasing arrangement, or commercial financing;
4.6.7 any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act; and
4.6.8 shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and other
entities, including (A) joint ventures, manufacturing, marketing or distribution
arrangements or (B) technology transfer or development arrangements; provided
that such strategic transaction and the issuance of shares therein, have been
approved by the Company's Board of Directors.
V. ASSIGNED RIGHT OF FIRST REFUSAL.
5.1 Bylaw Right of First Refusal. If the Company receives from any
holder of shares of its Common Stock a notice pursuant to Article XI of its
Bylaws stating such holders' intention to sell or otherwise transfer any of his
shares (a "Transfer Notice"), the Company shall have ten (10) days to exercise
its option to purchase all or some portion of the shares at the price and upon
the terms set forth in such notice. If the Company elects not to exercise such
option, it shall within fifteen (15) days after receipt of such notice notify
the Investors that it is assigning to them, on a pro rata basis (as defined in
Section 4.1 above) its right to purchase such shares (the "Transfer Shares").
Each Investor shall have ten (10) days from the receipt of the
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Company's notice, to notify the Company that it will purchase its pro rata share
of the Transfer Shares at the price and upon the terms set forth in the Transfer
Notice.
5.2 Purchase of Additional Shares. Each Investor electing to
purchase its pro rata share of the Transfer Shares shall also notify the Company
whether it wishes to purchase shares in addition to its pro rata share and the
largest number of shares that it would purchase if offered the opportunity. If
not all of the Investors elect to exercise the option to purchase their pro rata
share of the Transfer Shares, the Company shall assign its right as to the
remaining Transfer Shares to those Investors who do so elect and who have
indicated that they wish to purchase additional shares. To the extent that two
or more Investors wish to purchase the remaining Transfer Shares and there are
not sufficient Transfer Shares remaining to fully accommodate such Investors'
request to purchase the additional Transfer Shares, the remaining Transfer
Shares shall be distributed proportionately to each such Investor based on the
number of shares of Preferred Stock held by such Investor divided by the total
number of shares of Preferred Stock held by all such Investors.
5.3 Purchase of All Offered Shares. Under Section 64 of the
Company's Bylaws, the Company and its assignees have the option to purchase all
(but not less than all) of the shares specified in the Transfer Notice.
Therefore, if the Company and those Investors electing to purchase the shares do
not together agree to purchase the full number of shares, or obtain the consent
of the transferring shareholder to the purchase of less than the full number of
shares, the Company and the Investors shall have no further rights with respect
to the offered shares except as set forth in Section 64 of the Company's Bylaws
requiring the transferring shareholder to consummate the proposed transfer
within sixty (60) days.
5.4 Compliance with Bylaws. If an Investor exercises the option
assigned by the Company as to any part of the Transfer Shares, it shall comply
fully with the notice requirements and other conditions set forth in Section 64
of the Bylaws. Failure by an Investor to so comply shall terminate such
Investor's rights under this Article V and the Company shall have no further
obligations with respect to the Transfer Shares.
5.5 Termination of Right to Assignment of Right of First Refusal.
The rights of the Investors set forth in this Article V shall terminate upon the
termination of the Company's rights under Section 64 of the Company's Bylaws.
VI. MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
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6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
6.4 Severability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.5 Amendment and Waiver.
6.5.1 Except as otherwise expressly provided, this Agreement
may be amended or modified only upon the written consent of the Company and the
holders of more than fifty percent (50%) of the Registrable Securities.
6.5.2 Except as otherwise expressly provided, the obligations
of the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of more than fifty percent (50%) of
the Registrable Securities.
6.6 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default, or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default, or noncompliance, or any acquiescence therein, or of any
similar breach, default, or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default, or noncompliance under the Agreement
or any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
6.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address set forth on the signature page hereof and to an Investor
at the address as set forth on Exhibit A hereto or at such other address as the
Company or Investor may designate by ten (10) days advance written notice to the
other parties hereto.
6.8 Attorneys' Fees. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to
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recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
6.9 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
23.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: INVESTORS:
PHARSIGHT CORPORATION __________________________________________
(Name of Entity, if applicable)
By: /s/ Arthur H. Reidel By:
-------------------------- ---------------------------------------
Arthur H. Reidel
President Name:
-------------------------------------
Title:
------------------------------------
[Amended and Restated Investor's Rights Agreement]
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Name and Address Stock Stock Stock Stock Stock
- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Asset Management Associates 1996, L.P. 1,275,510 267,000 970,465 611,621 -
2275 East Bayshore Road, Suite 150
Palo Alto, CA 94303
Solstice Capital Limited Partnership 102,041 200,000 210,970 93,846 -
33 Broad Street, 3rd Floor
Boston, MA 02109
Stanford University 76,531 21,000 21,097 - -
Attn: Carol Gilmer
2770 Sand Hill Road
Menlo Park,CA 94025
Arthur H. Reidel 191,520 - - - -
P. O. Box 61030
Palo Alto, CA 94306
Camilla Marie Olson, as Trustee 76,724 - - - -
of the Olson Living Trust dated 10/20/93
805 Melville Avenue
Palo Alto, CA 94301
Steven L. Shafer 65,244 - - - -
531 Sullivan Drive
Mountain View, CA 94041
Thomas M. Niermann 57,398 16,000 - - -
116 El Nido Road
Portola Valley, CA 94028
Alex Brown & Sons Inc. 34,438 - - - -
Cust FBO Donald R. Stanski
IRA Account # 247-83199
1432 Brookmill Road
Los Altos, CA 94024-5804
E. Gregory Lee, as Trustee of 22,959 - - - -
the Lee-Chambers Living Trust
dated 5/13/91
811 Guinda Street
Palo Alto, CA 94301
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Name and Address Stock Stock Stock Stock Stock
- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Terrence F. Blaschke, as Trustee 11,480 - 4,000 9,857 -
of the Terrence F. Blaschke and
Jeannette Blaschke Revocable
Trust dated 11/11/93
855 Allardice
Stanford, CA 94035
Gary L. Neil, as Trustee of the - 18,000 - 3,174 -
Neil Family Trust dated 12/16/93
526 Sand Hill Circle
Menlo Park, CA 94025
GC&H Investments - 18,000 - 3,174 -
c/o Cooley Godward LLP
5 Palo Alto Square
Palo Alto, CA 94306
Sprout Capital VII, L.P. - - 1,101,133 468,462 -
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
DLJ First ESC, L.P. - - 126,582 53,853 -
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
DLJ Capital Corp. - - 25,317 10,770 -
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
The Sprout CEO Fund, L.P. - - 12,791 5,442 -
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Bruns H. Grayson - - 31,645 13,463 -
One State Street, Suite 2150
Baltimore, MD 21202
Steven D. Brooks - - 73,840 23,762 -
45 Scenic Way
San Francisco, CA 94121
WPG Enterprise Fund III, L.L.C. - - - 534,679 -
555 California Street, Suite 3130
San Francisco, CA 94104
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Name and Address Stock Stock Stock Stock Stock
- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weiss, Peck & Greer Venture Associates IV, L.L.C. - - - 611,376 -
555 California Street, Suite 3130
San Francisco, CA 94104
Weiss, Peck & Greer Venture Associates IV - - - 77,187 -
Cayman, L.P.
555 California Street, Suite 3130
San Francisco, CA 94104
Needham Capital SBIC II, L.P. - - - 267,898 -
445 Park Avenue
New York, NY 10022
Needham Capital Partners II (Bermuda), L.P. - - - 37,913 -
445 Park Avenue
New York, NY 10022
Robin Kehoe - - - 11,108 -
4136 21st Street
San Francisco, CA 94114
David Pidwell, as Trustee for the Pidwell Family - - - 31,735 -
Trust dated 6/25/87
20628 Vickery Lane
Saratoga, CA 95070
Mark Platshon - - - 7,934 -
3125 Barney Ave.
Menlo Park, CA 94025
McKesson HBOC, Inc. - - - - 2,777,778
1 Post Street
San Francisco, CA 94104
Total 1,913,845 540,000 2,577,840 2,877,254 2,777,778
</TABLE>
A-3
<PAGE>
Exhibit 10.1
ASSET PURCHASE AGREEMENT
among
PHARSIGHT CORPORATION
MITCHELL AND GAUTHIER ASSOCIATES, INC.
EDWARD E. L. MITCHELL
and
JOSEPH S. GAUTHIER
Dated
May 27, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. CERTAIN DEFINITIONS.....................................................1
1.1 "Acquired Assets".................................................1
1.2 "Ancillary Agreements"............................................3
1.3 "Assumed Agreements"..............................................3
1.4 "Assumed Liabilities".............................................3
1.5 "Co-Ownership Agreement"..........................................3
1.6 "Derivative Work".................................................3
1.7 "Disclosure Schedule".............................................3
1.8 "Excluded Assets".................................................3
1.9 "Golden Master"...................................................4
1.10 "Intellectual Property"...........................................4
1.12 "Legal Requirement"...............................................5
1.13 "Lien"............................................................5
1.14 "MGA Facility"....................................................5
1.15 "MGA Fields"......................................................5
1.16 "MGA Intellectual Property".......................................5
1.17 "MGA Products"....................................................5
1.18 "MGA Restricted Software".........................................5
1.19 "MGA Unrestricted Software".......................................5
1.21 "Pharsight Fields"................................................5
1.22 "Person"..........................................................5
1.24 "Used In Connection With".........................................6
2. SALE AND PURCHASE; ASSUMPTION OF LIABILITIES; PURCHASE PRICE; CLOSING...6
2.1 Sale and Purchase of the Acquired Assets..........................6
2.2 Assumed Agreements; Specified Contractual Liabilities.............6
2.3 Assumption of Liabilities.........................................6
2.4 Closing; Closing Deliverables.....................................7
2.5 Assignment of Contracts and Rights................................8
2.6 Complete Transfer.................................................8
2.7 Allocation........................................................8
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
3. REPRESENTATIONS AND WARRANTIES OF SELLERS...............................8
3.1 Organization of MGA...............................................8
3.2 Authorization of Transaction......................................9
3.3 Non-Contravention.................................................9
3.4 Consents..........................................................9
3.5 Title to the Acquired Assets.....................................10
3.6 Assumed Agreements...............................................10
3.7 Intellectual Property............................................10
3.8 Ownership Transfer...............................................12
3.9 Litigation.......................................................12
3.10 Environmental Matters............................................12
3.11 Employment Matters...............................................13
3.12 Use Of Office Facilities.........................................13
3.13 Brokers' Fees....................................................13
3.14 Compliance with Bulk Sales Laws..................................13
3.15 Underlying Documents.............................................14
3.16 Investment Representation........................................14
3.17 Full Disclosure..................................................14
4. REPRESENTATIONS AND WARRANTIES OF PHARSIGHT............................14
4.1 Organization of Pharsight........................................14
4.2 Authorization of Transaction.....................................15
4.3 Non-Contravention................................................15
4.4 Brokers' Fees....................................................15
4.5 Acknowledgement..................................................15
5. POST-CLOSING COVENANTS AND AGREEMENTS..................................16
5.1 Cooperation; Further Assurances..................................16
5.2 Delivery; Removal of Excluded Assets.............................16
5.3 Notice of Developments...........................................16
5.4 Enforcement of Rights............................................16
5.5 Delivery of Notices..............................................16
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
5.6 Payment by Pharsight of Certain of Sellers' Costs................16
5.7 Reimbursement of Remaining Amounts...............................17
6. INDEMNIFICATION........................................................17
6.1 Indemnification and Reimbursement of Pharsight's Losses..........17
6.2 Indemnification and Reimbursement of Sellers's Losses............18
6.3 Payment..........................................................18
6.4 Notice of Claims.................................................18
6.5 Third Party Claims...............................................18
6.6 Disputed Claims..................................................19
6.7 Survival.........................................................19
6.8 Right of Setoff..................................................20
6.9 Sole Remedy; Co-Ownership Agreement Separate.....................20
7. MISCELLANEOUS..........................................................20
7.1 Further Assurances...............................................20
7.2 No Third Party Beneficiaries.....................................20
7.3 Entire Agreement.................................................21
7.4 Succession and Assignment........................................21
7.5 Counterparts.....................................................21
7.6 Headings.........................................................21
7.7 Notices..........................................................21
7.8 Governing Law....................................................22
7.9 Waiver...........................................................23
7.10 Amendments.......................................................23
7.11 Severability.....................................................23
7.12 Expenses.........................................................23
7.13 Transfer Taxes...................................................23
7.14 Confidentiality of Information...................................23
7.15 Construction.....................................................24
iii
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into on May
27, 1998, by and among PHARSIGHT CORPORATION, a California corporation
("Pharsight"), MITCHELL AND GAUTHIER ASSOCIATES, INC., a Delaware corporation
("MGA"), Edward E. L. Mitchell ("Mitchell"), and Joseph S. Gauthier ("Gauthier,"
and together with MGA and Mitchell, "Sellers").
RECITALS
This Agreement contemplates a transaction in which Pharsight shall
purchase certain assets (and assume certain future obligations) of MGA in return
for the consideration described herein.
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms have
the meaning given to them below:
1.1 "Acquired Assets" means the following assets of MGA:
(a) all right, title and interest in and to the MGA Unrestricted
Software, including all software, Intellectual Property Rights and proprietary
assets owned by MGA and exclusively Used In Connection With the MGA Unrestricted
Software;
(b) an exclusive (other than to MGA), unrestricted, perpetual,
irrevocable, royalty-free, world-wide license to use, reproduce, create
Derivative Works of, distribute, sublicense (through multiple tiers of
sublicensees), perform, publicly display, make, manufacture, import and export
any Intellectual Property and other proprietary assets owned by MGA, Used In
Connection With the MGA Unrestricted Software and not included in (a) above;
(c) all of MGA's rights under all Assumed Agreements, including the
lease of the MGA Facility and all rights thereunder (including all security and
other deposits and pre-paid rent);
(d) an undivided one-half ownership interest in and to the MGA
Restricted Software, both in Source Code and Object Code, with no right of
accounting and with exclusive use in the Pharsight Fields (except as set forth
in Section 4.2(b) of the Co-Ownership Agreement), with exclusive use in the MGA
Fields (except as set forth in Section 4.2(a) of the Co-Ownership Agreement) to
remain with MGA, as further set forth in the Co-Ownership Agreement;
(e) an exclusive (even as to MGA), perpetual, irrevocable,
royalty-free, world-wide license to use, reproduce, create Derivative Works of,
distribute, sublicense (through multiple tiers of sublicensees), perform,
publicly display, make, manufacture, import and export any Intellectual Property
and other proprietary assets and all other assets not included in (d)
1
<PAGE>
above owned by MGA and Used In Connection With the MGA Restricted Software in
the Pharsight Fields, as further set forth in the Co-Ownership Agreement;
(f) a non-exclusive, perpetual, irrevocable, royalty-free,
world-wide license to use, reproduce, create Derivative Works of, distribute,
sublicense (through multiple tiers of sublicensees), perform, publicly display,
make, manufacture, import and export any Intellectual Property and other
proprietary assets and all other assets not included in (d) above owned by MGA
and Used In Connection With the MGA Restricted Software, in the MGA Fields,
provided that such Intellectual Property, other proprietary assets or Derivative
Works thereof, are incorporated or bundled with an additional Pharsight product
(including, without limitation, ACSL BioMed or ACSL Tox) such that the resultant
product is designed for use in the Pharsight Fields and represents an
enhancement and/or transformation of such Intellectual Property or proprietary
assets (with regard to both value and function), as further set forth in the
Co-Ownership Agreement;
(g) all machinery, equipment, furniture, leasehold improvements and
other fixed assets owned by MGA located at the MGA Facility, together with all
other assets located at the MGA Facility other than the Excluded Assets set
forth in Section 1.8(a);
(h) all business and financial records, books, files, plans,
documents, correspondence, lists, drawings, notebooks, specifications, creative
materials, advertising and promotional materials, marketing materials, studies
and reports of MGA, whether written or electronically stored or otherwise
recorded if, and only to the extent, that such foregoing items are exclusively
Used in Connection With the Acquired Assets (not including the items of this
subsection (h) for these purposes) or the Assumed Liabilities; provided,
however, if such foregoing items are Used in Connection With the Acquired Assets
(not including the items of this subsection (h) for these purposes) or the
Assumed Liabilities other than on an exclusive basis, copies thereof shall be
proved to Pharsight by MGA and Pharsight shall have the right to use such items
in connection with the exercise of its rights pursuant to this Agreement and the
Co-Ownership Agreement;
(i) all indemnity and contribution rights granted to MGA or owed by
third parties to MGA with respect to the Assumed Liabilities, and any and all
rights or assets arising from and related to the defense, release, compromise,
discharge, administration, management or satisfaction by MGA of the Assumed
Liabilities; and
(j) all of MGA's rights, claims, actions, causes of action, vendor,
supplier and similar claims, judgments and demands of whatever nature arising
out of or related to the Acquired Assets (for purposes hereof not including this
subsection (j)) including, without limitation, MGA's rights, claims, actions,
and causes of action arising out of or related to any employee confidentiality,
proprietary information, invention assignment or other such agreements;
provided, however, that if any of the foregoing items are not related
exclusively to the Acquired Assets (not including the items of this subsection
(j) for these purposes), Pharsight shall use its best efforts to afford MGA the
benefits of the foregoing items in proportion to the extent to which such items
do not relate exclusively to the Acquired Assets (not including the items of
this subsection (j) for these purposes), and MGA and Pharsight will use their
good faith best efforts to agree on such division of benefits.
2
<PAGE>
Notwithstanding the foregoing, the Acquired Assets shall not include the
Excluded Assets.
1.2 "Ancillary Agreements" means each of the agreements referred to in
Section 2.4.
1.3 "Assumed Agreements" means each of the agreements set forth on Exhibit
A.
1.4 "Assumed Liabilities" means only those liabilities and obligations
arising after the Closing under each Assumed Agreement actually assigned to
Pharsight pursuant to this Agreement.
1.5 "Co-Ownership Agreement" means the Co-Ownership Agreement, dated as of
even date herewith, between MGA and Pharsight, pursuant to which, among other
things, MGA assigns to Pharsight a one-half ownership interest in and to the MGA
Restricted Software.
1.6 "Derivative Work" shall mean a work which is based on one or more
pre-existing works, such as a revision, enhancement, modification, translation,
abridgement, condensation, expansion, or any other form in which such software
may be recast, transformed, or adapted, and which, if prepared without
authorization of the owner of the copyright in the software, would constitute a
copyright infringement. For purposes hereof, Derivative Work shall also include
any compilation that incorporates any pre-existing work.
1.7 "Disclosure Schedule" shall mean the disclosure schedule separately
delivered by Sellers to Pharsight concurrently with this Agreement, which
schedule is initialed for identification by the parties.
1.8 "Excluded Assets" means the following assets:
(a) MGA's Unix hardware, disk duplicators, and web site hardware and
all manuals, articles, libraries and licenses Used In Connection With MGA's Unix
system, in each case as listed in Exhibit B hereto;
(b) an undivided one-half ownership interest in and to the MGA
Restricted Software, both in Source Code and Object Code, with no right of
accounting and with exclusive use in the MGA Fields (except as set forth in
Section 4.2(a) of the Co-Ownership Agreement), with exclusive use in the
Pharsight Fields (except as set forth in Section 4.2(b) of the Co-Ownership
Agreement) to remain with Pharsight, as further set forth in the Co-Ownership
Agreement;
(c) except for the Assumed Agreements, all of MGA's rights with
respect to any contracts, bids, subcontracts or other agreements for the
provision of MGA services that do not relate to the Pharsight Fields, together
with all related subcontracts, purchase orders and similar agreements (with such
contracts, bids, subcontracts and agreements and the purchase orders and similar
agreements relating thereto, together with all related change orders, extra work
orders and other amendments and modifications thereto being referred to herein
as the "Retained MGA Contracts");
(d) any capital stock or equity interest of MGA;
3
<PAGE>
(e) all foreign federal, state or local tax refunds, tax refund
claims and tax credits, deductions or other tax benefits of MGA;
(f) all indemnity and contribution rights granted to MGA or owed by
third parties to MGA with respect to any liability or obligations of any nature,
fixed or contingent or known or unknown, of MGA whatsoever other than as set
forth in Section 1.1(i) (herein "Retained Contribution Claims") and any and all
rights or assets arising from and related to the defense, release, compromise,
discharge, administration, management or satisfaction by MGA of the liabilities
in respect of the Retained Contribution Claims;
(g) all of MGA's rights, claims, actions, causes of action, vendor,
supplier and similar claims, judgments and demands of whatever nature arising
out of the Excluded Assets (for purposes hereof not including this subsection
(g));
(h) all of MGA's deferred charges, advance payments, prepaid items,
security and other deposits, claims for refunds, rights of offset, and credits
of all kinds, relating specifically to the Excluded Assets (for purposes hereof
not including this subsection (h));
(i) cash and other liquid assets and accounts receivable (other than
accounts receivable related to the Assumed Agreements for services rendered or
amounts accruing after the closing); and
(j) the rights of MGA under this Agreement.
1.9 "Golden Master" shall mean, with respect to a given software program,
program module, or documentation, a copy of such item that (i) is under source
code control, (ii) is complete and accurate, (iii) represents the producer's
best efforts to meet the applicable specifications, (iv) has passed all
applicable test procedures, and (v) complies with normal industry practices for
verification and duplication.
1.10 "Intellectual Property" means any or all of the following and all
statutory and/or common law rights throughout the world in, arising out of, or
associated therewith: (i) all patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures and improvements, all trade secrets, proprietary
information, know-how and technology; (iii) all works of authorship, "moral
rights", copyrights (including Derivative Works thereof), mask works, copyright
and mask work registrations and applications; (iv) all industrial designs and
any registrations and applications therefor; (v) all trade names, logos,
trademarks and service marks, trademark and service mark registrations and
applications together with the good will of the business symbolized by the names
and the marks; (vi) all computer software and related documentation including
all Source Code, Object Code, firmware, installation programs, source code
control archives, development tools, test plans, test files, test data, build
scripts, file specifications, design and implementation documents, interface
specifications, requirements specifications, data bases, utilities, bug
databases, and all media on which any of the foregoing is recorded; (vii) any
similar, corresponding or equivalent rights to any of the foregoing; and (viii)
all goodwill associated with any of the foregoing.
4
<PAGE>
1.11 "Intellectual Property Rights" shall mean any interest or right
protectable under the law of any country as to any form of Intellectual
Property.
1.12 "Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, rule,
restriction, statute, or treaty.
1.13 "Lien" means any mortgage, pledge, lien, security interest, charge,
claim, equity, encumbrance, restriction on transfer, conditional sale or other
title retention device or arrangement (including a capital lease), transfer for
the purpose of subjection to the payment of any indebtedness, or restriction on
the creation of any of the foregoing, whether relating to any property or right
or the income or profits therefrom.
1.14 "MGA Facility" means MGA's facility located at 200 Baker Avenue,
Concord, Massachusetts.
1.15 "MGA Fields" shall mean all fields other than the Pharsight Fields.
1.16 "MGA Intellectual Property" means Intellectual Property owned by MGA
that constitutes an Acquired Asset.
1.17 "MGA Products" means the MGA Restricted Software and the MGA
Unrestricted Software.
1.18 "MGA Restricted Software" means the "Software" as defined in the
Co-Ownership Agreement.
1.19 "MGA Unrestricted Software" means the following products of MGA and
any Derivative Work thereof, both in Source Code and Object Code: ACSL Biomed,
and ACSL Tox, including any upgrades, updates, works in progress, and all
associated documentation (existing as of the Effective Date) developed by or for
MGA and other components, programs or utilities required for the operation or
execution thereof, except as set forth in Exhibit D of the Co-Ownership
Agreement, but not including the MGA Restricted Software included therein.
1.20 "Object Code" shall mean a machine-executable object code form of the
software.
1.21 "Pharsight Fields" shall mean the biotechnology, pharmaceutical
(including over-the-counter), veterinary, medical devices, environmental and
healthcare fields.
1.22 "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
1.23 "Source Code" shall mean a human-readable source code version of the
software and all related program documentation such that a programmer reasonably
skilled in the programming language could read, understand and modify the
software.
5
<PAGE>
1.24 "Used In Connection With" means with respect to any asset, tangible
or intangible, currently used in connection with, has ever been used in
connection with, is or was intended for use in connection with, is necessary for
use in connection with, or is reasonably desirable for use in connection with,
such assets.
2. SALE AND PURCHASE; ASSUMPTION OF LIABILITIES; PURCHASE PRICE; CLOSING.
2.1 Sale and Purchase of the Acquired Assets. At the Closing (as defined
below), on the terms and subject to the conditions of this Agreement and the
Co-Ownership Agreement, MGA shall sell and Pharsight shall purchase all of the
Acquired Assets for the following consideration:
(a) $2,000,000, to be paid at the Closing by check;
(b) $1,750,000, to be paid at the Closing in the form of a
promissory note (the "Promissory Note") in such principal amount, bearing simple
interest at a rate of 8.0% per annum and which shall be payable (i) one year
from the date of issuance in the principal amount of $875,000 together with
interest accrued on such principal amount paid, and (ii) two years from the date
of issuance in the principal amount of $875,000 together with interest accrued
on such principal amount paid;
(c) 246,250 shares of Pharsight Common Stock, to be issued, at the
direction of the Sellers, to the following persons as follows:
(i) 140,000 shares to Mitchell;
(ii) 60,000 shares to Gauthier;
(iii) 25,000 shares to Mike Gauthier;
(iv) 10,000 shares to Andy Levine;
(v) 5,000 shares to Mark Sale;
(vi) 2,500 shares to Sining Fang;
(vii) 2,500 shares to Michael Dunlavy; and
(viii) 1,250 shares to Sharon Kumnick;
(d) The obligations of Pharsight under Sections 5.6 and 5.7 hereof;
and
(e) The assumption of the Assumed Liabilities.
2.2 Assumed Agreements; Specified Contractual Liabilities. From and after
the Closing, Pharsight shall be entitled to the benefit of all of the Assumed
Agreements. Sellers shall give such assistance to Pharsight as Pharsight shall
reasonably request to enable Pharsight to enjoy the benefit of the Assumed
Agreements.
2.3 Assumption of Liabilities. At the Closing, on the terms and subject to
the conditions of this Agreement, Pharsight agrees to assume and become
responsible for all of the Assumed Liabilities. Pharsight shall not assume or
have any responsibility, however, with respect to any other obligation or
liability of MGA that is not an Assumed Liability. Without limiting the
foregoing, Pharsight shall not assume or be responsible for (i) any liabilities
relating to events arising or occurring prior to the Closing, regardless of when
payable, or (ii) any and all
6
<PAGE>
sales taxes, use taxes, transfer taxes, filing fees and similar taxes, fees,
charges and expenses required to be paid in connection with the transactions
contemplated by this Agreement, and all such liabilities shall be for the
account of MGA.
2.4 Closing; Closing Deliverables. The closing shall occur in the offices
of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA
94306-2155, upon the execution and delivery of this Agreement by the parties
hereto ("Closing"). At the Closing the parties will deliver the following
documents, and such additional documents as the parties may agree to transfer
ownership of the Acquired Assets to Pharsight (which shall be in form
satisfactory to both parties) :
(a) Sellers shall deliver to Pharsight:
(i) A bill of sale and assignment, executed by MGA, for the
Acquired Assets;
(ii) An assignment and assumption agreement (the "Assignment
and Assumption Agreement"), executed by MGA, assigning the Assumed Agreements;
(iii) The Co-Ownership Agreement, executed by Sellers;
(iv) Copyright assignments as set forth in Exhibit C and the
Co-Ownership Agreement;
(v) Noncompetition Agreements, executed by each of Mitchell
and Gauthier;
(vi) An Estoppel Certificate, executed by the lessor under the
lease of the MGA Facility;
(vii) A Quitclaim by Mark Sale as to any right, title and
interest he may have in and to the MGA Products;
(viii) Evidence that notice of termination of each of the
distribution agreements listed on Exhibit D has been given with respect to (A)
the MGA Unrestricted Software covered thereby and (B) the MGA Restricted
Software covered thereby in the Pharsight Fields; and
(ix) The Disclosure Schedule (as defined below).
(b) Pharsight shall deliver the following documents:
(i) The cash portion of the purchase price as set forth in
Section 2.1(a);
(ii) The Promissory Note, as set forth in Section 2.1(b);
(iii) The Noncompetition Agreements, executed by Pharsight;
and
(iv) The Assignment and Assumption Agreement, executed by
Pharsight, pursuant to which Pharsight is assuming the Assumed Liabilities.
7
<PAGE>
2.5 Assignment of Contracts and Rights. Anything in this Agreement to the
contrary notwithstanding, neither this Agreement nor the consummation of the
transactions contemplated hereby shall constitute an assignment, or an agreement
to assign, any Acquired Asset or any claim or right or any benefit arising
thereunder or resulting therefrom (a "Consent-Required Asset") if an attempted
assignment of such Consent-Required Asset, without consent of one or more third
parties, would constitute a breach or other contravention thereof or would in
any way adversely affect the rights of Pharsight or MGA thereunder; provided,
however, that once all such consents are obtained, this Agreement shall
automatically effect an immediate assignment of such Consent-Required Asset
without further action by either party hereto. Pharsight and MGA will use their
commercially reasonable efforts (which shall not be deemed to require any
payment of money or other value by Pharsight or MGA) to obtain the consent of
the other parties to any such Consent-Required Asset for the assignment thereof
to Pharsight as Pharsight may reasonably request. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
adversely affect the rights of MGA thereunder so that Pharsight would not in
fact receive all such rights, Sellers and Pharsight will cooperate in a mutually
agreeable arrangement under which Pharsight would obtain the benefits and assume
the obligations thereunder in accordance with this Agreement, including
sub-contracting or sub-licensing to Pharsight, or under which Sellers would
enforce for the benefit of Pharsight, with Pharsight assuming MGA's obligations,
any and all rights of MGA against a third party thereto. Sellers will promptly
pay or assign to Pharsight when received all monies received by Sellers with
respect to any Consent-Required Asset and any claim or right or any benefit
arising thereunder, except to the extent the same represents an Excluded Asset.
Nothing in this Section 2.5 shall be construed to diminish the representations,
warranties and covenants of Sellers respecting such consents.
2.6 Complete Transfer. Sellers expressly agree that the sale of the
Acquired Assets constitutes a transfer of all of MGA's rights with respect to
the Acquired Assets and that Sellers reserve no rights to market or otherwise
transfer the Acquired Assets (other than the MGA Restricted Software in fields
other than the Pharsight Fields).
2.7 Allocation. Pharsight and MGA shall use their best efforts to mutually
agree, within forty-five (45) days after the Closing, upon the manner in which
the consideration referred to in Section 2.1 is to be allocated among the
Acquired Assets. If Pharsight and MGA shall not agree upon such allocation, at
the end of such 45 day period the parties shall proceed as required by the
Internal Revenue Code. Pharsight and Sellers shall not file any tax return or
other document with, or make any statement or declaration to, any governmental
body that is inconsistent with the allocation determined in accordance with this
Section 2.7.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers, jointly and severally,
represent and warrant to Pharsight that the statements contained in this Section
3 are correct and complete as of the Closing, except as set forth in the
Disclosure Schedule:
3.1 Organization of MGA. MGA is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. MGA has
all requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business as
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presently conducted and as presently proposed to be conducted. MGA is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Acquired Assets or Assumed Liabilities.
3.2 Authorization of Transaction. Each Seller has full power and authority
to execute and deliver this Agreement, and the Ancillary Agreements to which it
is a party, and to perform its obligations hereunder and thereunder. Without
limiting the generality of the foregoing, MGA has taken all corporate and other
action required for the execution, delivery and performance of this Agreement,
and the Ancillary Agreements to which it is a party, including the sale of the
Acquired Assets as provided herein. This Agreement constitutes the valid and
legally binding obligation of each of the Sellers, and each of the Ancillary
Agreements constitutes the valid and legally binding obligation of each of the
Sellers a party thereto, in each case enforceable in accordance with its terms.
The persons who have executed this Agreement, and the Ancillary Agreements to
which MGA is a party, on behalf of MGA have been duly authorized to do so.
3.3 Non-Contravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby or thereby, shall (i) violate any (A) statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which any Seller
is subject or (B) any provision of the charter or bylaws of MGA or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require a notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, security interest, or other arrangement to
which any Seller is a party or by which it is bound or to which any of its
assets is subject, except where the violations, conflicts, breaches, defaults,
accelerations, terminations, modifications, cancellations or failures to give
notice, individually or in the aggregate, would not have a material adverse
effect on the Acquired Assets, the Assumed Liabilities or the ability of the
parties to consummate the transactions contemplated by this Agreement and the
Ancillary Agreements (a "Material Adverse Effect"). Sellers need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the parties to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements, except where the failure to do so, individually or in the aggregate,
would not have a Material Adverse Effect.
3.4 Consents. No approvals, waivers or consents of or assignments by any
Person (including any federal, state or local governmental or administrative
authorities) are necessary in connection with the execution, delivery or
performance of this Agreement or the Ancillary Agreements. All notices, consents
or waivers to the transfer or assignment of the Acquired Assets, including but
not limited to the Assumed Agreements, required from third Persons have been
given or obtained prior to the date hereof.
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3.5 Title to the Acquired Assets. MGA has good and marketable title, free
and clear of all Liens, to the Acquired Assets. When transferred to Pharsight at
the Closing, Pharsight will acquire the Acquired Assets free and clear of all
Liens.
3.6 Assumed Agreements.
(a) True, correct and complete copies of the Assumed Agreements have
been delivered to Pharsight. MGA has performed in all material respects all
obligations required to be performed by MGA under the Assumed Agreements. To
Sellers' knowledge, each of the other parties to the Assumed Agreements has
performed in all material respects all the obligations required to be performed
by them thereunder to date. Each Assumed Agreement (i) is valid, binding and
enforceable against the parties thereto in accordance with its terms, (ii) is in
full force and effect with no default or dispute existing or, to Sellers'
knowledge, threatened with respect thereto, and no notice of termination has
been provided to MGA, or to Sellers' knowledge threatened, thereunder, and (iii)
shall not be terminated or otherwise affected by the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby. No
consent of any third party is required for the assignment of any Assumed
Agreement to Pharsight, other than such consents as have been obtained prior to
the date hereof. Sellers have provided Pharsight with a complete and accurate
list of payments paid to MGA by each licensee under the Assumed Agreements,
indicating the licensee and the month paid, from January 31, 1996 to present.
MGA has not received any advanced payments (including prepayments of royalties,
or other payments by reason of which a licensee is entitled to reduce its
current or future royalty or payment obligations) under the Assumed Agreements
which have not been earned by MGA.
(b) The Assumed Agreements include (i) all supply agreements,
customer agreements, license agreements, maintenance agreements, service
agreements and other contracts to which MGA is a party relating to the MGA
Unrestricted Software, and (ii) all supply agreements, customer agreements,
license agreements, maintenance agreements, service agreements and other
contracts to which MGA is a party relating to the MGA Restricted Software and
that relate to the Pharsight Fields.
3.7 Intellectual Property.
(a) The MGA Intellectual Property constitutes all the Intellectual
Property Used in Connection With the conduct of MGA's business in the Pharsight
Fields as currently being or proposed to be conducted by MGA.
(b) MGA owns no Intellectual Property Rights not included in the
Acquired Assets that are competitive with or are otherwise applicable to the
Intellectual Property Used in Connection With the conduct of MGA's business in
the Pharsight Fields as currently being or proposed to be conducted by MGA.
(c) None of the MGA Intellectual Property is subject to any
proceeding or outstanding decree, order, judgment, agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by MGA or may
affect the validity, use or enforceability of such MGA Intellectual Property.
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(d) With respect to the transfer of MGA Unrestricted Software under
this Agreement, Pharsight will be subject to no limitations, obligations or
restrictions with regard to the sale, license, distribution or other transfer or
exploitation of the MGA Unrestricted Software, whether in the form transferred
to Pharsight or after modification, including, but not limited to, any of the
foregoing arising out of any distribution, license or other agreements
previously entered into by MGA or any of its affiliates.
(e) With respect to the transfer of rights in the MGA Restricted
Software under this Agreement and the Co-Ownership Agreement, Pharsight will be
subject, except as otherwise provided herein or therein, to no limitations,
obligations or restrictions with regard to the sale, license, distribution or
other transfer or exploitation of the MGA Restricted Software in the Pharsight
Fields, whether in the form transferred to Pharsight or after modification,
including, but not limited to, any limitations, obligations or restrictions
arising out of any distribution, license or other agreements previously entered
into by MGA or any of its affiliates.
(f) The Acquired Assets contain all components, programs or
utilities required for the operation or execution of the MGA Products.
(g) MGA has not transferred ownership of or granted any license of
or right to use or authorized the retention of any rights to use any MGA
Intellectual Property to any other Person other than pursuant to the terms of
the Assumed Agreements set forth on Exhibit A hereto.
(h) MGA is not, and following the Closing Pharsight will not be,
required to make or accrue any royalty payment to any third party in connection
with the sale, distribution, license, transfer or other disposition or
exploitation of any of the Acquired Assets.
(i) There are no contracts, licenses or agreements between MGA and
any other Person with respect to MGA Intellectual Property under which there is,
to Sellers' knowledge, any dispute or any threatened dispute regarding the scope
of such agreement, or performance under such agreement including with respect to
any payments to be made or received by MGA thereunder.
(j) Neither the MGA Products nor the use of the MGA Intellectual
Property (A) infringes upon or misappropriates the Intellectual Property of any
Person, (B) violates the rights of any Person (including rights to privacy or
publicity), or (C) constitutes unfair competition or trade practices under the
laws of any jurisdiction. There are no pending or, to Sellers' knowledge,
threatened claims against Sellers alleging any of the foregoing nor are Sellers
aware of any reasonable basis upon which any party might allege any of the
foregoing.
(k) Each software developer or other Person who has performed
services for MGA or otherwise assisted in the development of the MGA Products
has assigned to MGA any right, title and interest he or she may have in and to
the MGA Products and the use thereof.
(l) MGA and, to Sellers' knowledge, each prior owner of the MGA
Intellectual Property have taken and will take all reasonable security measures
to protect the secrecy, confidentiality and value of all Intellectual Property
Rights transferred in accordance with this Agreement and with the Co-Ownership
Assignment Agreement.
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(m) The Acquired Assets include all assets, properties and rights
necessary for compliance by Pharsight with all obligations relating to the
Assumed Liabilities.
(n) Except as set forth on Part 3.7(n) of the Disclosure Schedule,
(i) the MGA Restricted Software is an original work of MGA, and any third
parties with rights thereto have executed binding assignments of rights in favor
or MGA in or to the MGA Restricted Software; (ii) neither the MGA Restricted
Software nor, to Sellers' knowledge, the Trademarks (as defined in Section 4.3
of the Co-Ownership Agreement), nor any element thereof infringes the
Intellectual Property Rights of any third party; (iii) neither the MGA
Restricted Software nor any element thereof is subject to any restrictions or to
any mortgages, liens, pledges, security interests, encumbrances or
encroachments; (iv) the MGA Restricted Software and related documentation
delivered pursuant to Section 3 of the Co-Ownership Agreement is complete,
accurate and current as of the date hereof; (v) to the knowledge of Sellers, the
Trademarks (as defined in Section 4.3 of the Co-Ownership Agreement) licensed
pursuant to Section 4.3 of the Co-Ownership Agreement do not infringe the
Intellectual Property Rights of any third party; and (vi) MGA has not granted,
directly or indirectly, any rights or interest in the MGA Restricted Software to
third parties that are inconsistent with the rights assigned to Pharsight herein
and under the Co-Ownership Agreement.
3.8 Ownership Transfer. Ownership of and all rights to all versions of the
Acquired Assets (other than the one-half ownership interest of MGA in and to the
MGA Restricted Software) will be transferred from MGA to Pharsight at the
Closing; all copies of the MGA Unrestricted Software in the possession of
Sellers or under their control will be transferred to Pharsight at the Closing;
and neither Sellers nor any third party under any Seller's control will have
retained any copies of the MGA Unrestricted Software. Co-ownership of and
certain rights to the MGA Restricted Software all as more fully set forth in the
Co-Ownership Agreement, will be transferred from MGA to Pharsight at the
Closing.
3.9 Litigation. There is no claim, dispute, action, proceeding (including
arbitration), suit or appeal, or investigation, at law or in equity, pending
(other than those, if any, with respect to which service of process or similar
notice has not yet been made and which are not within Sellers' knowledge) or, to
Sellers' knowledge, threatened against any Seller or involving any of the
Acquired Assets before any court, agency, authority, arbitration panel or other
tribunal that would have a Material Adverse Effect. There is no outstanding
order, writ, injunction or decree of any court, agency, authority, arbitration
panel or other tribunal, and MGA is not in default with respect to any notice,
order, writ, injunction, or decree, in each case relating to, or affecting the
Acquired Assets or the Assumed Liabilities.
3.10 Environmental Matters. To Sellers' knowledge, MGA has at all times
been in compliance with, and is not currently in violation of, any Legal
Requirement relating to the environment or occupational health and safety, and
to Sellers' knowledge, no material expenditures are or will be required in order
to comply with any such existing Legal Requirement. Sellers have no basis to
expect, nor has any of them or any other Person for whose conduct they are or
may be held to be responsible received, any actual or threatened order, notice,
or other communication from (i) any governmental body, private citizen acting in
the public interest or any other Person, or (ii) the current or prior owner or
operator of MGA's properties, of any actual or potential violation or failure to
comply with any Legal Requirement
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relating to the environment or occupational health and safety, or of any actual
or threatened obligation to undertake or bear the cost of any environmental,
health, and safety liabilities with respect to any of the properties of MGA
(whether real, personal, or mixed) in which any of Sellers has had an interest,
or with respect to any property at or to which hazardous materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Sellers or any other Person for whose conduct they are or may be held
responsible, or from which hazardous materials have been transported, treated,
stored, handled, transferred, disposed, recycled or received. Sellers have made
all filings with governmental bodies or agencies, voluntary or involuntary,
relating to the environment which may be necessary or appropriate to mitigate
any exposure to liabilities arising from activities related to the environment
or under Legal Requirements related to the environment. Sellers have delivered
to Pharsight true and complete copies and results of any reports, studies,
analyses, tests, or monitoring possessed or initiated by Sellers pertaining to
hazardous materials or hazardous activities in, on, or under the properties of
MGA, or concerning compliance by Sellers or any other Person for whose conduct
they are or may be held responsible, with any Legal Requirement relating to the
environment.
3.11 Employment Matters. Pharsight will not become liable to any employee
of MGA, as a result of the transactions contemplated by this Agreement, for any
obligations under any employment contracts, any pension, bonus, profit-sharing,
stock option or other arrangement providing for employee remuneration or
benefits of MGA, or, to the knowledge of Sellers, under the Employee Retirement
Income Security Act of 1974, other than pursuant to contracts entered into
separately and directly between Pharsight and any such employees, if any.
Sellers and, to the knowledge of Sellers, MGA's officers and directors have (i)
used their best efforts to support Pharsight's offers of employment to MGA
employees who Pharsight desires to employ and to secure for Pharsight the
employment of such MGA employees, and (ii) have taken no actions which would
discourage such MGA employees from accepting such employment or otherwise have
the effect of impeding the efforts of Pharsight to secure employment of such MGA
employees.
3.12 Use Of Office Facilities. MGA has maintained the MGA Facility in
material compliance with MGA's lease of the MGA Facility. The MGA Facility is in
good condition and fit for the purposes for which MGA uses the MGA Facility,
ordinary wear and tear excepted. MGA has obtained all necessary permits and
approvals required for the use of the MGA Facility as is currently being used,
and the transactions contemplated by this Agreement will not cause any such
permit to be canceled or otherwise affected so that Pharsight will not have the
full benefit of such permits or approvals. Since March 12, 1998, MGA has not
removed or allowed the removal of any of the items or materials identified in
Section 1.1(f) from the MGA Facility, other than in the normal course of
business operations.
3.13 Brokers' Fees. No Seller has agreed or become obligated to pay, or
has taken any action that might result in any party claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with any of the transactions contemplated by this Agreement.
3.14 Compliance with Bulk Sales Laws. Sellers have taken all actions
necessary for the sale, transfer and assignment of the Acquired Assets by MGA to
Pharsight hereunder and for
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the consummation of the other transactions contemplated hereby to comply with
the bulk sales laws of all applicable jurisdictions.
3.15 Underlying Documents. Copies of all documents listed or described in
the Disclosure Schedule and the Exhibits hereto have been furnished to
Pharsight. All such documents are true, correct and complete copies, and there
are no amendments or modifications thereto.
3.16 Investment Representation. MGA with respect to the Promissory Note
referenced in Section 2.1(b), and each of Mitchell and Gauthier with respect to
the shares of Pharsight Common Stock referenced in Section 2.1(c) (collectively,
the "Securities"):
(a) taking into account the personnel and resources such Seller can
practically bring to bear on the acquisition of such Securities, either alone or
together with the advice of such Seller's purchaser representative, is
knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in shares presenting an investment
decision like that involved in the acquisition of such Securities, and has
requested, received, reviewed and considered, either alone or with such Seller's
purchaser representative, all information such Seller deems relevant in making
an informed decision to acquire such Securities;
(b) is acquiring such Securities for such Seller's own account for
investment only and with no present intention of distributing any of such
Securities or any arrangement or understanding with any other persons regarding
the distribution of such Securities except in compliance with Section 3.16(c).
(c) will not, directly or indirectly, offer, sell, pledge, transfer
or otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of such Securities acquired hereunder except in
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
applicable blue sky laws, and the rules and regulations promulgated thereunder.
3.17 Full Disclosure. Neither this Agreement, the Ancillary Agreements,
the Disclosure Schedule or the Exhibits hereto, nor, to Sellers' knowledge, any
other documents delivered by Sellers in connection with this Agreement contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they were made, not misleading, and, to Sellers' knowledge, there is no
fact that has not been disclosed to Pharsight that materially and adversely
affects or could reasonably be anticipated to materially and adversely affect
the Acquired Assets, or the operation of the Acquired Assets by Pharsight as
currently conducted by MGA.
4. REPRESENTATIONS AND WARRANTIES OF PHARSIGHT. Pharsight represents and
warrants to Sellers that the statements contained in this Section 4 are correct
and complete as of the Closing.
4.1 Organization of Pharsight. Pharsight is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
California. Pharsight has all requisite corporate power and authority to own and
operate its properties and assets, and to carry
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on its business as presently conducted and as presently proposed to be
conducted. Pharsight is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the business of Pharsight.
4.2 Authorization of Transaction. Pharsight has full power and authority
to execute and deliver this Agreement and the Ancillary Agreements to which it
is a party and to perform its obligations hereunder and thereunder. Without
limiting the generality of the foregoing, Pharsight has taken all corporate and
other action required for the execution, delivery and performance of this
Agreement and the Ancillary Agreements to which it is a party. This Agreement
and each of the Ancillary Agreements to which it is a party constitutes the
valid and legally binding obligation of Pharsight, in each case enforceable in
accordance with its terms. The persons who have executed this Agreement and the
Ancillary Agreements to which Pharsight is a party on behalf of Pharsight have
been duly authorized to do so.
4.3 Non-Contravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby or thereby, shall (i) violate any (A) statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which Pharsight
is subject or (B) any provision of the articles of incorporation or bylaws of
Pharsight or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require a notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, security
interest, or other arrangement to which Pharsight is a party or by which it is
bound or to which any of its assets is subject, except where the violations,
conflicts, breaches, defaults, accelerations, terminations, modifications,
cancellations or failures to give notice, individually or in the aggregate,
would not have a material adverse effect on the business of Pharsight. Pharsight
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
parties to consummate the transactions contemplated by this Agreement, except
where the failure to do so, individually or in the aggregate, would not have a
material adverse effect on the business of Pharsight.
4.4 Brokers' Fees. Pharsight has not agreed or become obligated to pay, or
has taken any action that might result in any party claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with any of the transactions contemplated by this Agreement.
4.5 Acknowledgement. Pharsight understands that MGA may in the future
desire to sell, transfer, assign or license any and all rights, including
Intellectual Property Rights, to the MGA Restricted Software to a third party
for use in the MGA Fields. This acknowledgement does not constitute a consent by
Pharsight to any such action or act in any way restrict or diminish Pharsight's
rights under this Agreement, the Co-Ownership Agreement or any other agreement
contemplated hereby.
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5. POST-CLOSING COVENANTS AND AGREEMENTS.
5.1 Cooperation; Further Assurances. Each party hereto shall, at all times
following the Closing, not take any action inconsistent with the satisfaction of
its obligations hereunder, and shall promptly take any further action necessary
or desirable to carry out the purposes of this Agreement and the Ancillary
Agreements (including the execution and delivery of such further instruments and
documents) as the other party may reasonably request.
5.2 Delivery; Removal of Excluded Assets.
(a) Upon execution of this Agreement, MGA shall provide to Pharsight
five (5) Golden Masters of the Object Code of the MGA Products, two (2)
electronic copies of the Source Code corresponding to the Golden Master Object
Code of the MGA Products, and five (5) Golden Masters and two (2) printed copies
of any end-user documentation for the MGA Products. Without limiting the
foregoing, MGA's delivery shall include everything Pharsight needs to recreate
the most current released version, and every supported prior version, of each of
the MGA Products for all currently supported platforms, including copies of all
firmware, installation programs, source code control archives, development
tools, test plans, test files, test data, build scripts, file specifications,
design and implementation documents, interface specifications, requirements
specifications, data bases, utilities, and bug databases.
(b) Sellers shall promptly put all of the Excluded Assets in the
subleased portion of the MGA Facility.
5.3 Notice of Developments. Each party shall give prompt written notice to
the other parties of any material development that could have a Material Adverse
Effect. Each party shall give prompt written notice to the other parties of any
material development affecting the ability of the parties to perform their
post-Closing obligations under this Agreement.
5.4 Enforcement of Rights. In connection with the enforcement of its
rights of ownership of the Acquired Assets and the enjoyment thereof, Pharsight
may bring actions in the name of Sellers, or cause Sellers to join any such
action as a party, as reasonably necessary, provided that Pharsight shall
indemnify Sellers with respect thereto unless and to the extent such actions are
based upon facts constituting a material breach of a representation, warranty or
covenant of any of Sellers hereunder or under any of the Ancillary Agreements.
5.5 Delivery of Notices. After the Closing, each of Sellers shall promptly
forward to Pharsight any and all notices and correspondence which it may receive
pertaining to the Acquired Assets, and MGA shall remain responsible for the
maintenance of all Consent-Required Assets retained by MGA pursuant to Section
2.5 as a consequence of the failure to obtain a required consent of a third
party until such time as the applicable consent is obtained.
5.6 Payment by Pharsight of Certain of Sellers' Costs. Pharsight shall pay
directly or reimburse Sellers for, up to an aggregate of $250,000, reasonable,
documented out-of-pocket legal, accounting and severance costs incurred by
Sellers and tendered to Pharsight for payment prior to or in the twelve months
following the Closing, in connection with the sale of the Acquired Assets
hereunder and the termination of employment of employees of MGA to whom
Pharsight determines not to offer employment; provided, however, that Pharsight
shall not be
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obligated to pay any amount in connection with the termination of any MGA
employee hereunder unless (i) Sellers shall have obtained from such employee and
delivered to Pharsight a general release of liability, in form and substance
reasonably satisfactory to Pharsight, executed by and enforceable against such
terminated employee releasing Pharsight from any liabilities Pharsight may have
to such employee, and (ii) Sellers shall have complied with all Legal
Requirements in connection with the termination of such MGA employee, including
with respect to obtaining such general release. Following such twelve-month
period Pharsight shall have no further obligations under this Section 5.6.
5.7 Reimbursement of Remaining Amounts. Pharsight will pay to MGA, on the
date twelve months following the Closing, the sum of $250,000 less all amounts
paid by Pharsight under Section 5.6 (the "Remaining Amount); provided, however,
that Pharsight shall have no obligation to pay the Remaining Amount if, on such
date, (i) Pharsight shall not have received a general release from Michael
Gauthier, if terminated on or prior to such date, in form and substance as
referred to in the proviso of Section 5.6, and (ii) Pharsight shall not have
received a general release from Mark Sale, if terminated on or prior to such
date, in form and substance as referred to in the proviso of Section 5.6;
provided further, that if the provisions of the previous proviso have been
complied with, Pharsight shall only be obligated to pay the proportion of the
Remaining Amount as equals the Remaining Amount multiplied by the Release
Termination Ratio. The "Release Termination Ratio" shall be (i) the total number
of MGA employees on the date hereof that are terminated by MGA on or prior to
one year from the date hereof and from which Pharsight has received a general
release in form and substance as referred to in the proviso of Section 5.6,
divided by(ii) the total number of MGA employees on the date hereof that are
terminated by MGA on or prior to one year from the date hereof.
6. INDEMNIFICATION.
6.1 Indemnification and Reimbursement of Pharsight's Losses. Sellers,
jointly and severally, shall indemnify Pharsight and its affiliates, together
with their respective officers, directors and employees (each a "Sellers'
Indemnitee") against Losses (as defined below) as set forth in this Section 6.
If a Sellers's Indemnitee shall have suffered a Loss by reason of (i) the breach
of any of the representations or warranties made by Sellers herein, (ii) any
liabilities under the Assumed Agreements arising prior to the Closing, whether
or not disclosed to Pharsight prior to the Closing, (iii) any liability of
Sellers that is not an Assumed Liability, including any successor liability to
MGA employees or former MGA employees not hired by Pharsight to which Pharsight
may become subject as a result of the purchase of the Acquired Assets, or (iv)
any breach of a covenant of Sellers hereunder, Sellers's Indemnitee shall be
reimbursed for such Loss by Sellers as set forth in this Section 6. For purposes
hereof, "Loss" shall mean any losses, liabilities, claims, damages and expenses
incurred or reasonably expected to be incurred, including penalties, fines,
interest, amounts paid in settlement and reasonable fees and disbursements of
counsel, and expenses incurred in connection with any investigation, action,
suit or proceeding instituted against an indemnified party, including in
connection with any action taken to enforce such indemnified party's rights
under this Agreement or the Ancillary Agreements. Notwithstanding the foregoing,
Sellers shall have no obligation to indemnify Sellers's Indemnitees for Losses
which, cumulatively, total less than $50,000;
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provided, however, that if cumulative Losses equal or exceed said $50,000, then
Sellers shall indemnify Sellers's Indemnitees for all of such Losses, including
such $50,000. The total of all Liquidated Claims (as defined below) actually
paid by Mitchell and/or Gauthier (but not MGA) under this Section 6, other than
Claims or Third Party Claims based upon fraud or willful misconduct by Mitchell
or Gauthier, shall be limited to an aggregate of $4.5 million, including any
payments contemplated under Section 6.8 of this Agreement withheld or set off by
Pharsight.
6.2 Indemnification and Reimbursement of Sellers's Losses. Pharsight shall
indemnify Sellers, together with MGA's affiliates, directors and employees (each
a "Pharsight's Indemnitee") against Losses as set forth in this Section 6. If a
Pharsight's Indemnitee shall have suffered a Loss by reason of (i) the breach of
any of the representations or warranties made by Pharsight herein, (ii) any
Assumed Liability, provided such Assumed Liability is not related to or arising
from any breach of a covenant, representation or warranty of Sellers or any act
or omission by Sellers involving willful misconduct, fraud or bad faith, or
(iii) any breach of a covenant of Pharsight hereunder, Pharsight's Indemnitee
shall be reimbursed for such Loss by Pharsight as set forth in this Section 6.
Notwithstanding the foregoing, Pharsight shall have no obligation to indemnify
Pharsight's Indemnitees for Losses which, cumulatively, total less than $50,000,
provided however that if cumulative Losses equal or exceed said $50,000, then
Pharsight shall indemnify Pharsight's Indemnitees for all of such Losses,
including such $50,000.
6.3 Payment. At such time as the reimbursable amount of a Claim (as
defined below) or a Third Party Claim (as defined below) has been determined in
accordance with this Section 6 (a "Liquidated Claim"), the indemnifying party
shall immediately pay the Person to be indemnified hereunder (an "Indemnitee")
the amount of the Liquidated Claim. No forbearance of an Indemnitee in demanding
payment from the indemnifying party shall act as a waiver of any right of an
Indemnitee to receive payment from the indemnifying party, nor shall it relieve
the indemnifying party of any obligation to an Indemnitee under this Agreement.
6.4 Notice of Claims. In the event an Indemnitee has any claim for
indemnification under Section 6.1 or Section 6.2 (a "Claim"), it shall give
prompt written notice thereof to the indemnifying party, including in such
notice a brief description of the facts upon which such claim is based and the
amount thereof.
6.5 Third Party Claims.
(a) If any third party shall notify an Indemnitee with respect to
any matter (a "Third Party Claim") that may give rise to a claim for
indemnification against a party hereto (the "Indemnifying Party") under this
Section 6, then the Indemnitee shall promptly notify the Indemnifying Party
thereof in writing; provided, however, that no delay on the part of the
Indemnitee in notifying the Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder, unless (and then solely to the extent that)
the Indemnifying Party is prejudiced.
(b) The Indemnifying Party shall have the right to defend the
Indemnitee against the Third Party Claim with counsel of the Indemnifying
Party's choice reasonably
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satisfactory to the Indemnitee so long as: (A) the Indemnifying Party notifies
the Indemnitee within 15 days after the Indemnitee has given notice of the Third
Party Claim that the Indemnifying Party will indemnify the Indemnitee as
required by (and subject to the limitations of) this Section 6 for Losses
arising out of, relating to, in the nature of, or caused by the Third Party
Claim; (B) the Indemnifying Party provides the Indemnitee with evidence
reasonably acceptable to the Indemnitee that the Indemnifying Party will have
the financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder; (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief; and (D)
the Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 6.5(b) above: (A) the
Indemnitee may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim; (B) the Indemnitee shall
not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably); and (C) the Indemnifying
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnitee (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 6.5(b) above is or
becomes unsatisfied; (A) the Indemnitee may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim in any manner it reasonably may deem appropriate (and the Indemnitee
need not consult with or obtain any consent from, any Indemnifying Party in
connection therewith); (B) the Indemnifying Party shall reimburse the Indemnitee
promptly and periodically for the reasonable costs of defending against the
Third Party Claim (including attorneys' fees and expenses), and (C) the
Indemnifying Party shall remain responsible for any Losses the Indemnitee may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this Section 6.
6.6 Disputed Claims. If the Indemnifying Party objects to any Claim, it
shall give written notice of such objection and brief statement of the grounds
of such objection to Indemnitee within 20 business days after notice is
received. If no such objection is given, such Claim, as the case may be, shall
be a Liquidated Claim. If such objection is made, Indemnitee and the
Indemnifying Party shall meet and use their best efforts to settle the dispute
in writing that when resolved shall be a Liquidated Claim.
6.7 Survival. The provisions of this Section 6 shall survive the Closing.
Notwithstanding anything to the contrary in this Agreement, no Claim or Third
Party Claim may be asserted by a Sellers's Indemnitee under this Section 6: (i)
with respect to Losses arising in connection with the obligation to pay taxes,
following the date of the expiration of the applicable statute of limitations
for such obligation; (ii) with respect to a Loss arising out of or in connection
with an Assumed Agreement, following the termination of such Assumed Agreement
in accordance with its terms; (iii) with respect to a Loss arising out of or in
connection with a breach of a representation or warranty (A) set forth in
Section 3.7(n) hereof or (B) relating specifically to a claim that distribution
of the MGA Unrestricted Software relating to ACSL
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Biomed infringes upon the Intellectual Property Rights held or formerly held by
Georgetown University, following five years from the date of this Agreement; and
(iv) with respect to all other Losses, following two years from the date of this
Agreement. No Claim or Third Party Claim may be asserted by a Pharsight's
Indemnitee under this Section 6, other than Losses arising with respect to the
Assumed Liabilities, following two years from the date of this Agreement. Any
Claim or Third Party Claim asserted within the appropriate time periods
specified above shall be indemnifiable hereunder regardless of whether such
claims or Third Party Claims are reduced to Liquidated Claims within such time
periods. Notwithstanding the foregoing provisions of this Section 6.7, an
Indemnitee may assert a Claim or Third Party Claim under this Section 6 with
respect to Losses that are the result of fraud or willful misconduct by the
Indemnifying Party at any time within the applicable statute of limitations for
such Claim or Third Party Claim.
6.8 Right of Setoff. Pharsight shall be entitled to set off any amount
payable by Pharsight under the Promissory Note or the Noncompetition Agreements
referred to in Section 2.4(b), or the amounts payable under Sections 5.6 and 5.7
hereof, in satisfaction, partially or fully as the case may be, of Liquidated
Claims hereunder, and to withhold any such amounts with respect to Claims or
Third Party Claims not reduced to Liquidated Claims; provided, however, that any
and all such amounts so retained by Pharsight as a set off pursuant to this
Section 6.8 shall reduce the indemnification obligation of the Sellers hereunder
by such amount.
6.9 Sole Remedy; Co-Ownership Agreement Separate. The right of each party
hereto to assert Claims and receive indemnification payments pursuant to this
Section 6 shall be the sole and exclusive right and remedy exercisable by such
party with respect to any breach by the other party hereto of any representation
or warranty under this Agreement or failure to perform any covenant required to
be performed by such other party under this Agreement; provided, however, that
the above shall not prevent a party hereto from seeking specific performance of
a covenant which another party hereto has failed to perform under this
Agreement. The rights and remedies of the parties to the Co-Ownership Agreement
are as set forth in the Co-Ownership Agreement and are not governed by, and are
separate from, this Section 6; provided, however, that no party shall be
entitled to indemnification for the same Loss under both this Agreement and the
Co-Ownership Agreement except and only to the extent that such entitlement would
provide coverage for the full amount of the Loss suffered.
7. MISCELLANEOUS.
7.1 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (at or
after the Closing) for the purpose of carrying out or evidencing any of the
transactions contemplated by this Agreement.
7.2 No Third Party Beneficiaries. Except as otherwise specified herein,
this Agreement shall not confer any rights or remedies upon any person other
than the parties and their respective successors and permitted assigns.
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7.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the parties and supersedes any
prior understandings, agreements, or representations by or between the parties,
written or oral, that may have related in any way to the subject matter hereof.
7.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. Sellers shall not assign any of their rights, interests
or obligations hereunder without the prior written consent of Pharsight, which
consent shall not be unreasonably withheld. Pharsight shall not assign any of
its rights, interests or obligations hereunder without the prior written consent
of MGA, which consent shall not be unreasonably withheld.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.7 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received (i) when delivered by hand, (ii)
five days after deposit in the United States mail if by certified mail, (iii) on
the next business day if sent by courier or express delivery service that
guarantees next business day delivery, or (iv) upon confirmation if sent by
facsimile, to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
If to Sellers:
MITCHELL AND GAUTHIER ASSOCIATES, INC.
919 B Willowbrook Drive
Huntsville, Alabama 35802
Attention: President
Facsimile: (205) 883-5516
Copy to:
Richard Stein
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Facsimile: (617) 951-1295
If to Pharsight:
PHARSIGHT CORPORATION
299 California Ave.
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Suite 300
Palo Alto, CA 94306
Attention: Arthur H. Reidel, President
Facsimile: (650) 462-5610
Copy to:
Cooley Godward LLP
5 Palo Alto Square
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile: (650) 857-0663
7.8 Governing Law.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any dispute, claim or controversy of any nature arising out of
or relating to this Agreement, including without limitation any action or claim
based on tort, contract, statute, or for any other cause of action, and which
relates in any way to the interpretation, effect, termination, validity,
enforcement, performance and/or breach of this Agreement, shall be resolved by
final binding arbitration administered by the American Arbitration Association
("AAA"). The arbitration shall be conducted before a panel of three arbitrators
under the commercial arbitration rules of the AAA and shall be held at an AAA
facility (i) in Boston, Massachusetts, if brought by Pharsight, and (ii) in
Santa Clara County, California, if brought by Sellers. The parties hereto agree
that all arbitrators serving on such panel must be available to serve on the
panel in accordance with the timetable of the arbitration.
(c) Not for the adjudication of any matters (other than judicial
review for fraud or undisclosed bias), but for the enforcement of an arbitration
award (which shall be brought in California if Pharsight is enforcing the
arbitration award or in Massachusetts if one or more Sellers are enforcing the
arbitration award) or the granting of injunctive relief (which shall be brought
in Massachusetts if Pharsight is seeking injunctive relief or in California if
one or more Sellers are seeking injunctive relief), the parties hereto
irrevocably elect as the sole two judicial forums for the adjudication of any
matters arising under or in connection with this Agreement, and consent to the
jurisdiction of, the courts of the State of California and the Commonwealth of
Massachusetts.
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7.9 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
7.10 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
7.11 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
7.12 Expenses. Subject only to Sections 5.6 and 5.7, each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees
and accounting fees) that have been incurred or that are incurred by such party
in connection with the transactions contemplated by this Agreement, including
all fees, costs and expenses incurred by such party in connection with or by
virtue of (a) the investigation and review conducted by Pharsight and its
representatives with respect to the Acquired Assets, (b) the negotiation,
preparation and review of this Agreement (including the Disclosure Schedule) and
all agreements, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the transactions contemplated by
this Agreement, and (c) the preparation and submission of any filing or notice
required to be made or given in connection with any of the transactions
contemplated by this Agreement, and the obtaining of any consent required to be
obtained in connection with any of such transactions.
7.13 Transfer Taxes. Any and all sales taxes, use taxes, transfer taxes,
filing fees and similar taxes, fees, charges and expenses required to be paid in
connection with the transactions contemplated by this Agreement shall be paid by
Sellers.
7.14 Confidentiality of Information. All information given to a party by
the other party in connection with this Agreement ("Confidential Information")
shall be used only for purposes related to the consummation of the transactions
contemplated herein, and shall be disclosed to the receiving party's employees
and representatives only on a "need to know" basis
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in connection with such purposes. If the Closing does not occur for any reason,
each party shall maintain in confidence all Confidential Information of the
other party, shall return to the disclosing party or destroy all tangible
embodiments (and all copies) of such Confidential Information and shall not use
such Confidential Information for any purpose; provided, however, that the
forgoing restrictions shall not apply to: (i) information that is or becomes a
matter of public knowledge through no act or failure to act of the receiving
party, its representatives or employees, (ii) information that becomes available
to the receiving party from a source not under an obligation of confidentiality
to the disclosing party, or (iii) information that was known to receiving party
prior to its disclosure to the receiving party by the disclosing party.
7.15 Construction. The language used in this Agreement shall be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Except as otherwise specified, references in this Agreement
to Sections are to Sections of this Agreement. Except where the context clearly
requires to the contrary, "including" shall mean "including, without
limitation."
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IN WITNESS WHEREOF, the parties have executed this Asset Purchase
Agreement on the date first written above.
PHARSIGHT CORPORATION
By: /s/ Arthur H. Reidel
-----------------------------------
Name: Arthur H. Reidel
---------------------------------
Title: President
--------------------------------
MITCHELL AND GAUTHIER ASSOCIATES, INC.
By: /s/ Michael Gauthier
-----------------------------------
Name: Michael Gauthier
---------------------------------
Title: illegible
--------------------------------
/s/ Edward E. L. Mitchell
--------------------------------------
Edward E. L. Mitchell
/s/ Joseph S. Gauthier
--------------------------------------
Joseph S. Gauthier
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EXHIBIT A
ASSUMED AGREEMENTS
1. Lease, dated November 9, 1990, between Concord Office Realty Trust and MGA,
relating to the MGA Facility.
2. The following Customer Agreements, which are all shrink-wrap licenses, a form
of which has been provided to Pharsight:
Customer Product Units Sold By Date
Pharmacia & Upjohn Biomed 3 MGA Nov-96
US/FDA Biomed 1 MGA Nov-96
U Degli St. Udine Biomed 1 MGA Dec-96
Hoffman LaRoche Biomed 1 MGA Jun-97
Pfizer Biomed 1 MGA Aug-97
Glaxo-Wellome Biomed 1 RDL Sep-97
GloboMax Biomed 3 MGA Dec-97
Sanofi Biomed 2 MGA Jan-98
Rohm & Haas Tox 1 MGA Jan-98
Rhone Poulenc Biomed 1 RDL Jan-98
Bayer, Germany Model 7 RDL
CIIT ACSL 3 MGA
CIIT Optimize 3 MGA
Eli Lilly ACSL 1 MGA
Glaxo ACSL 1 MGA
Globomax Optimize 3 MGA
ICF Kaiser Model 9 MGA
Mantech Env Tech ACSL 6 MGA
Mantech Env Tech Model 5 MGA
Monsanto Model 9 MGA
Monsanto Optimize 9 MGA
Rhone Poulenc ACSL 5 RDL
Rhone Poulenc Optimize 1 MGA
EPA ACSL 4 MGA
FDA ACSL 4 MGA
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EXHIBIT B
EXCLUDED ASSETS
1 Silicon Graphics O2 (boole.mga.com)
32Mb of memory
internal 2 GB disk
CDROM player
17" color monitor
running Irix 6.3
2. DEC Alphastation 200 4/166 (alpha.mga.com)
64Mb of memory
2 internal 1GB disks
CDROM Player
17" color monitor
running Digital Unix 4.0c & Open VMS 6.2
3. Sun IPX (eileen.mga.com)
64MB of memory
internal 1 GB disk
17" color monitor
running SunOS 4.1.3
4. HP 710 (9000 Series) (aeneas.mga.com)
32 MB of memory
internal 2 GB disk
external CDROM Player
19" BW monitor
running HPUX 10.20
5. VaxStation 4000 (vax.mga.com)
16MB memory
1 GB internal disk
vt100 monitor
running VMS 6.2
6. PC running Linux used as Web Server
P-120 (www.mga.com)
32MB of memory
2 GB internal disk
CDROM player
14" color monitor
running Linux (kernel 2.30)
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CD Writer and the PC it is attached to.
Floppy Disk Duplicator the PC it is attached to.
Sharp P-120 laptop
Filing cabinets holding MGA customer files and simulation library articles (16
file cabinets)
Shelving holding documentation in shipping department.
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EXHIBIT C
ASSIGNMENT OF COPYRIGHT
For good and valuable consideration which has been received, the
undersigned sells, assigns and transfers to Pharsight, a California corporation,
and its successors and assigns, all right, title and interest in the copyright
in and to the following work, which was created by the following indicated
author(s):
Title:____________________________________
Author(s):________________________________
________________________________
Copyright Office Identification No. (if any):_______________________________
and all of the right, title and interest of the undersigned, vested and
contingent, therein and thereto.
Executed this ________________ day of _______________ , 1998.
Signature:_______________________________________
Printed Name:____________________________________
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EXHIBIT D
TERMINATED DISTRIBUTION AGREEMENTS
1. Distribution Agreement with Jason International Supply, dated July 2,
1991.
2. Distribution Agreement with JTT Corporation, dated June 10, 1993
3. Distribution Agreement with Vanguard Information Company, dated November
1, 1992.
4. Distribution Agreement with Inpol Company Ltd., dated April 17, 1992.
5. Distribution Agreement with Industrial and Offshore Computer Services Pte
Ltd., dated July 13, 1992.
6. Distribution Agreement with Hearne Scientific Software Pty Ltd., dated
January 10, 1995.
7. Distribution Agreement with Jason Advanced Technology, Inc., dated
November 11, 1990.
8. Distribution Agreement with Baruch D. Pekelman and/or Omikron Delta, dated
November 5, 1985.
2
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Exhibit 10.2
STANDARD OFFICE LEASE-GROSS
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only JUNE 11,
1998, is made by and between ASSET GROWTH PARTNERS, LTD. (herein called
"Lessor") and PHARSIGHT CORPORATION, INC., (herein called "Lessee").
1.2 Premises: Suite Number(s) 200 ON THE SECOND floor(s), consisting of
approximately 16,000 rentable square feet, more or less, as defined in
paragraph 2 and as shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 800 W. EL CAMINO
REAL in the City of MOUNTAIN VIEW County of SANTA CLARA State of CALIFORNIA
as more particularly described in Exhibit A hereto, and as defined in
paragraph 2.
1.4: Use: GENERAL OFFICE, RESEARCH & DEVELOPMENT, LABORATORY AND OTHER
RELATED LEGAL USES subject to paragraph 6.
1.5 Term: FIVE YEARS commencing ON THE LATER TO OCCUR OF TENDER OF
POSSESSION, OR SEPTEMBER 1, 1998 ("Commencement Date") and ending as defined
in paragraph 3.
1.6 Base Rent: $3.40 PER RENTABLE SQUARE FOOT per month. payable on the
FIRST day of each month, per paragraph 4.1.
1.7 Base Rent Increase: Base Rent payable under paragraph 1.6 above
shall be adjusted as provided in paragraph 51 below.
1.8 Rent Paid Upon Execution: FIFTY FOUR THOUSAND FOUR HUNDRED & NO/100
DOLLARS ($54,400.00).
1.9 Security Deposit: FIFTY FOUR THOUSAND FOUR HUNDRED & NO/100
DOLLARS ($54,400.00). ADDITIONALLY, LESSEE TO PROVIDE LESSOR UPON MUTUAL LEASE
EXECUTION A STAND-BY LETTER OF CREDIT OR OTHER INSTRUMENT REASONABLY ACCEPTABLE
TO LESSOR IN THE AMOUNT OF ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($150,000.00). THE BALANCE OF THE LETTER OF CREDIT WOULD BE REDUCED ANNUALLY IN
ACCORDANCE WITH A STRAIGHT-LINE AMORTIZATION OVER THE LEASE TERM.
1.10 Lessee's Share of Operating Expense Increase: 13.64% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2 as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: , and subject to the rules and regulations attached
hereto, and as established by Lessor from time to time, Lessee shall be entitled
to rent and use UNDERGROUND RESERVED SPACES AND ADDITIONAL SURFACE SPACES NOT TO
EXCEED A TOTAL OF 3.4 TOTAL SPACES PER 1,000 SQUARE FEET OF PREMISES in the
Office Building Project. THROUGHOUT THE TERM, AND ANY EXTENSIONS THEREOF,
LESSEE SHALL HAVE THE RIGHT TO THE NONEXCLUSIVE AND UNRESERVED USE OF NO LESS
THAN 54 PARKING SPACES FREE OF CHARGE. HOWEVER, LESSOR RESERVES THE RIGHT TO
CHARGE FOR PARKING IN THE EVENT OF A GOVERNMENT IMPOSED PARKING/TRANSIT TAX OR
FEE.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $ --0--
per month at the commencement of the term of this Lease, and is subject to
change ONLY PURSUANT TO THE TERMS OF PARAGRAPH 2.2 ABOVE upon five (5) days
prior written notice to Lessee. Monthly parking fees shall be payable one month
in advance prior to the first day of each calendar month.
2.3 Common Areas-Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators,
Initials ____
Initials ____
Page 1
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parking areas to the extent not otherwise prohibited by this Lease, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas-Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the
right, from time to time, to modify, amend and enforce said rules and
regulations IN A REASONABLE AND NON-DISCRIMINATORY MANNER. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees, their agents, employees and invitees of the
Office Building Project. FOLLOWING A WRITTEN REQUEST FROM LESSEE, LESSOR
SHALL USE COMMERCIALLY REASONABLE EFFORTS TO ENFORCE THE RULES AND
REGULATIONS AGAINST OTHER LESSEES OF THE BUILDING.
2.5 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape.
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, decorative walls, landscaped areas and
walkways; provided, however, Lessor shall at all times provide the parking
facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of the
Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
LESSOR'S RIGHT PURSUANT TO THIS SECTION 2.5 SHALL BE SUBJECT TO THE CONDITION
THAT EXERCISE OF ANY OF SUCH RIGHTS SHALL NOT UNREASONABLY INTERFERE WITH
LESSEE'S USE OF THE PREMISES.
3. TERM.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice In writing to
Lessor cancel this Lease, in which event the parties shall be discharged from
all obligations hereunder; provided, however, that, as to Lessee's obligations,
Lessee first reimburses Lessor for all costs incurred for Non-Standard
Improvements and, as to Lessor's obligations, Lessor shall return any money
previously deposited by Lessee (less any offsets due Lessor for Non-Standard
Improvement).
3.2.1 Possession Tendered-Defined. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, (4) A CERTIFICATE OF OCCUPANCY HAS BEEN ISSUED BY THE
APPROPRIATE GOVERNMENTAL AUTHORITY, and (5) ten (10) days shall have expired
following advance written notice to Lessee of the occurrence of the matters
described in (1), (2), (3), AND (4) above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of
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Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
3.5 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 3.2, IF
LESSOR HAS NOT DELIVERED POSSESSION BY SEPTEMBER 1, 1998, THEN LESSEE SHALL
RECEIVE CREDIT FOR ONE (1) DAY OF FREE RENT FOR EACH SUBSEQUENT DAY, UNTIL SUCH
DELIVERY OF POSSESSION.
4. RENT.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address slated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as 1999.
(c) "Comparison Year" is defined as each calendar year during the term of
this Lease subsequent to the Base Year; provided, however, Lessee shall have no
obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense Increase for the first and
last Comparison Years of the Lease Term shall be prorated according to that
portion of such Comparison Year as to which Lessee is responsible for a share of
such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project, including
but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical systems,
life safety equipment, telecommunication and other equipment used in common by,
or for the benefit of, lessees or occupants of the Office Building Project,
including elevators and escalators, tenant directories, fire detection systems
including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere in
this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10 1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other publicly
mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements
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that have a useful life for Federal income tax purposes in excess of five (5)
years unless it is of the type described in paragraph 4.2(d)(viii}, in which
case their cost shall be included as above provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
(h) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE,
THE FOLLOWING SHALL NOT BE INCLUDED WITHIN OPERATING EXPENSES:
LEASING COMMISSIONS, ATTORNEYS' FEES, COSTS, DISBURSEMENTS AND OTHER EXPENSES
INCURRED IN CONNECTION WITH NEGOTIATIONS OR DISPUTES WITH LESSEES, OR IN
CONNECTION WITH LEASING, RENOVATING, OR IMPROVING SPACE FOR LESSEES OR OTHER
OCCUPANTS OR PROSPECTIVE LESSEES OR OTHER OCCUPANTS OF THE BUILDING. THE COST
OF ANY SERVICE SOLD TO ANY LESSEE (INCLUDING LESSEE) OR OTHER OCCUPANT FOR WHICH
LESSOR IS ENTITLED TO BE REIMBURSED AS AN ADDITIONAL CHARGE OR RENTAL OVER AND
ABOVE THE BASIC RENT AND ESCALATIONS PAYABLE UNDER THE LEASE WITH THAT LESSEE.
ANY DEPRECIATION ON THE BUILDING OR PROPERTY.
COSTS OF A CAPITAL NATURE, INCLUDING BUT NOT LIMITED TO CAPITAL IMPROVEMENTS
AND ALTERATIONS, CAPITAL REPAIRS, CAPITAL EQUIPMENT, AND CAPITAL TOOLS AS
DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
EXPENSES IN CONNECTION WITH SERVICES OR OTHER BENEFITS OF A TYPE THAT ARE NOT
PROVIDED TO LESSEE BUT WHICH ARE PROVIDED ANOTHER LESSEE OR OCCUPANT OF THE
BUILDING OR PROPERTY.
COSTS INCURRED DUE TO LESSOR'S VIOLATION OF ANY TERMS OR CONDITIONS OF THIS
LEASE OR ANY OTHER LEASE RELATING TO THE BUILDING OR PROPERTY.
OVERHEAD PROFIT INCREMENTS PAID TO LESSOR'S SUBSIDIARIES OR AFFILIATES FOR
MANAGEMENT OR OTHER SERVICES ON OR TO THE BUILDING OR FOR SUPPLIES OR OTHER
MATERIALS TO THE EXTENT THAT THE COST OF THE SERVICES, SUPPLIES, OR MATERIALS
EXCEEDS THE COST THAT WOULD HAVE BEEN PAID HAD THE SERVICES, SUPPLIES OR
MATERIALS BEEN PROVIDED BY UNAFFILIATED PARTIES ON A COMPETITIVE BASIS.
ALL INTEREST, LOAN FEES, AN OTHER CARRYING COSTS RELATED TO ANY MORTGAGE OR
DEED OF TRUST OR RELATED TO ANY CAPITAL ITEM, AND ALL RENTAL AND OTHER PAYABLE
DUE UNDER ANY GROUND OR UNDERLYING LEASE, OR ANY LEASE FOR ANY EQUIPMENT
ORDINARILY CONSIDERED TO BE OF A CAPITAL NATURE (EXCEPT JANITORIAL EQUIPMENT
WHICH IS NO AFFIXED TO THE BUILDING).
ANY COMPENSATION PAID TO CLERKS, ATTENDANTS, OR OTHER PERSONS IN COMMERCIAL
CONCESSIONS OPERATED BY LESSOR.
ADVERTISING AND PROMOTIONAL EXPENDITURES.
COSTS OF REPAIRS AND OTHER WORK OCCASIONED BY FIRE, WINDSTORM, OR OTHER
CASUALTY OF AN INSURABLE NATURE.
ANY COSTS, FINES, OR PENALTIES INCURRED DUE TO VIOLATIONS BY LESSOR OF ANY
GOVERNMENTAL RULE OR AUTHORITY, THIS LEASE OR ANY OTHER LEASE IN THE PROPERTY,
OR DUE TO LESSOR'S NEGLIGENCE OR WILLFUL MISCONDUCT.
MANAGEMENT COSTS TO THE EXTEND THEY EXCEED MANAGEMENT COSTS CHARGED FOR
SIMILAR FACILITIES IN THE AREA AND IN ANY EVENT, TO THE EXTEND THEY EXCEED 3% OF
GROSS RENTAL INCOME.
COSTS FOR SCULPTURE, PAINTINGS OR OTHER OBJECTS OF ART (NOR INSURANCE THEREON
OR EXTRAORDINARY SECURITY IN CONNECTION THEREWITH).
WAGES, SALARIES OR OTHER COMPENSATION PAID TO ANY EXECUTIVE EMPLOYEES ABOVE
THE GRADE OF BUILDING MANAGER.
THE COST OF CORRECTING ANY BUILDING CODE OR OTHER VIOLATIONS WHICH WERE
VIOLATIONS PRIOR TO THE COMMENCEMENT DATE.
THE COST OF CONTAINING, REMOVING, OR OTHERWISE REMEDIATING ANY CONTAMINATION
OF THE PROPERTY (INCLUDING THE UNDERLYING LAND AND GROUND WATER) BY ANY TOXIC OR
HAZARDOUS MATERIALS (INCLUDING, WITHOUT
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LIMITATION, ASBESTOS AND "PCB'S") WHERE SUCH CONTAMINATION WAS NOT CAUSED BY
LESSEE.
ANY OTHER EXPENSE THAT UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
PRACTICE CONSISTENTLY APPLIED WOULD NOT BE CONSIDERED A NORMAL MAINTENANCE OR
OPERATING EXPENSE.
(i) WITHIN 90 DAYS AFTER RECEIPT OF LESSOR'S STATEMENT SETTING FORTH
ACTUAL OPERATING EXPENSES (THE "STATEMENT"). LESSEE SHALL HAVE THE RIGHT TO
AUDIT AT LESSOR'S LOCAL OFFICES, AT LESSEE'S EXPENSE, LESSOR'S ACCOUNTS AND
RECORDS RELATING TO OPERATING EXPENSES. SUCH AUDIT SHALL BE CONDUCTED BY A
CERTIFIED PUBLIC ACCOUNTANT APPROVED BY LESSOR, WHICH APPROVAL SHALL NOT BE
UNREASONABLE WITHHELD. IF SUCH AUDIT REVEALS THAT LESSOR HAS OVERCHARGED
LESSEE, THE AMOUNT OVERCHARGED SHALL BE PAID TO LESSEE WITHIN 30 DAYS AFTER
THE AUDIT IS CONCLUDED, TOGETHER WITH INTEREST THEREON AT THE RATE OF 10% PER
ANNUM, FROM THE DATE THE OVERCHARGE WAS PAID BY LESSEE. UNTIL REFUND OF THE
OVERCHARGES IS MADE TO LESSEE. IN ADDITION, IF THE STATEMENT EXCEEDS THE
ACTUAL OPERATING EXPENSES AND REAL PROPERTY TAXES WHICH SHOULD HAVE BEEN
CHARGED TO LESSEE BY MORE THAN 15%, THE COST OF THE AUDIT SHALL BE PAID BY
LESSOR.
4.3 Rent Increase. SEE PARAGRAPH 51.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may
use, apply or retain all or any portion of said deposit for the payment of
any rent or other charge in default for the payment of any other sum to which
Lessor may become obligated by reason of Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so
uses or applies all or any portion of said deposit, Lessee shall within ten
(10) days after written demand therefor deposit cash with Lessor in an amount
sufficient to restore said deposit to the full amount then required of
Lessee. Lessor shall not be required to keep said security deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not heretofore been
applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last
assignee, it any, of Lessee's interest hereunder) at the expiration of the
term hereof, and after Lessee has vacated the Premises. No trust relationship
is created herein between Lessor and Lessee with respect to said Security
Deposit.
6. USE.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
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(a) Lessor warrants to Lessee that the Premises, in the state existing on
the date that the Lease term commences but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project. NOTWITHSTANDING THE FOREGOING OR ANYTHING TO THE
CONTRARY CONTAINED IN THIS LEASE, LESSEE SHALL NOT BE RESPONSIBLE FOR COMPLIANCE
WITH ANY LAWS, CODES, ORDINANCES OR OTHER GOVERNMENTAL DIRECTIVES WHERE SUCH
COMPLIANCE IS NOT RELATED SPECIFICALLY TO LESSEE'S USE AND OCCUPANCY OF THE
PREMISES. FOR EXAMPLE, IF ANY GOVERNMENTAL AUTHORITY SHOULD REQUIRE THE
BUILDING OR THE PREMISES TO BE STRUCTURALLY STRENGTHENED AGAINST EARTHQUAKE, OR
SHOULD REQUIRE THE REMOVAL OF ASBESTOS FROM THE PREMISES AND SUCH MEASURES ARE
IMPOSED AS A GENERAL REQUIREMENT APPLICABLE TO ALL LESSEES RATHER THAN AS A
CONDITION TO LESSEE'S SPECIFIC USE OR OCCUPANCY OF THE PREMISES, SUCH WORK SHALL
BE PERFORMED BY AND AT THE SOLE COST OF LESSOR.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating systems in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it
shall be the obligation of Lessor, after receipt of written notice from
Lessee setting forth with specificity the nature of the violation, to
promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as
of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning,
municipal, county and state laws, ordinances and regulations governing and
regulating the use of the Premises, and any easements, covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent
investigation that the Premises are suitable for its intended use, and that
neither Lessor nor Lessor's agent or agents has made any representation or
warranty as to the present or future suitability of the Premises, Common
Areas, or Office Building Project for the conduct of Lessee's business.
6.4 LESSEE'S ACCESS.
LESSEE SHALL HAVE ACCESS TO THE PREMISES 24 HOURS PER DAY, SEVEN DAYS PER
WEEK.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 Lessors Obligations. Lessor shall keep the Office Building Project,
including the Premises interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings. or to repair or replace
any improvements that are not ordinarily a part of the Building or are above the
Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense because of Lessor's failure to keep the Premises in good order,
condition and repair. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 7.1, IF
LESSOR FAILS TO TIMELY PERFORM ITS MAINTENANCE AND REPAIR OBLIGATIONS HEREUNDER,
AND, AS A CONSEQUENCE, LESSEE'S USE OF THE PREMISES IS SUBSTANTIALLY IMPAIRED,
LESSEE SHALL HAVE THE RIGHT TO CAUSE SUCH REPAIR OR MAINTENANCE TO BE PERFORMED
AT LESSOR'S EXPENSE AND TO DEDUCT THE COSTS THEREOF, TOGETHER WITH INTEREST
THEREON AT THE HIGHEST RATE PERMITTED BY LAW, FROM THE RENT PAYABLE TO LESSOR.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above the Building standards. Lessor may, at its option, upon reasonable notice,
elect to have Lessee perform any particular such maintenance or repairs the
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cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in THE SAME CONDITION RECEIVED IN.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on,
or about the Premises or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, WHICH
APPROVAL SHALL NOT BE UNREASONABLY WITHHELD, and Lessor may require Lessee to
provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in
an amount equal to one and one-half times the estimated cost of such
improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall
desire to make shall be presented to Lessor in written form, with proposed
detailed plans. If Lessor shall give its consent to Lessee's making such
alteration, improvement, addition or Utility Installation, the consent shall
be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior
to the commencement of the work, and compliance by Lessee with all conditions
of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior to
the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal
property and equipment, other than that which is affixed to the Premises so that
it cannot be removed without material damage to the Premises or the Building,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications for
any alterations. improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
7.5 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 7:
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(a) LESSEE SHALL BE ENTITLED TO MAKE ALTERATIONS, ADDITIONS, IMPROVEMENTS
AND UTILITY INSTALLATIONS IN OR TO THE PREMISES, WITHOUT THE PRIOR CONSENT OF
LESSOR, SO LONG AS EACH OF THE SAME (i) DO NOT EXCEED THE SUM OF $20,000 IN COST
AND (ii) DO NOT AFFECT ANY STRUCTURAL OR EXTERIOR PORTIONS OF THE BUILDING OR
ADVERSELY AFFECT THE BUILDING ELECTRICAL, PLUMBING OR HVAC SYSTEMS. HOWEVER,
LESSEE MUST NOTIFY LESSOR AT LEAST 5 BUSINESS DAYS IN ADVANCE OF COMMENCEMENT OF
ANY SUCH WORK.
(b) LESSEE SHALL NOT BE REQUIRED TO REMOVE AN ALTERATIONS, ADDITIONS,
IMPROVEMENTS OR UTILITY INSTALLATIONS FOR WHICH LESSEE HAS OBTAINED LESSOR'S
CONSENT, UNLESS LESSOR HAS INDICATED AT THE TIME GRANTING SUCH CONSENT, THAT
SUCH REMOVAL WILL BE REQUIRED AT THE END OF THE LEASE TERM.
(c) LESSEE'S SURRENDER OBLIGATIONS SHALL NOT INCLUDE THE REMOVAL OF ANY OF
THE INITIAL TENANT IMPROVEMENTS OR ANY REPAIRS MADE PURSUANT TO LESSEE'S REPAIR
OBLIGATIONS HEREUNDER.
8. INSURANCE; INDEMNITY.
8.1 Liability Insurance-Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Commercial
General Liability insurance utilizing an Insurance Services Office standard
form, or equivalent, issued by an insurer with a Best's rating of "A- VII" or
better, in an amount of not less than $2,000,000 per occurrence of bodily
injury and property damage combined or in a greater amount as reasonably
determined by Lessor and shall insure Lessee with Lessor and and Lender of
Lessor as an additional insured against liability arising out of the use,
occupancy or maintenance of the Premises. Compliance with the above
requirement shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 Property Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having
a lien on the Office Building Project. In addition, Lessor shall obtain and
keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all Operating Expenses for said period. Lessee
will not be named in any such policies carried by Lessor and shall have no
right to any proceeds therefrom. The policies required by these paragraphs
8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender
may determine. In the event that the Premises shall suffer an insured loss
as defined in paragraph 9.1(f) hereof, the deductible amounts under the
applicable insurance policies OTHER THAN DEDUCTIBLES ON ANY EARTHQUAKE
INSURANCE CARRIED BY LESSOR shall be deemed an Operating Expense. Lessee
shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall pay the entirety of any
increase in the property insurance premium for the Office Building Project
over what it was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier as being
caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days prior to the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the
other, for direct or consequential loss or damage arising out of or incident
to the perils covered by property insurance carried by such party, whether
due to the negligence of Lessor or Lessee or their agents, employees.
contractors and/or invitees If necessary all property insurance policies
required under this Lease shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project. or from the conduct of
Lessee's business or from any activity. work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall
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further indemnify and hold harmless Lessor from and against any and all
claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, employees, or invitees, and from and against
all costs, attorney's fees, expenses and liabilities incurred by Lessor as
the result of any such use, conduct, activity, work, things done, permitted
or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim
or any action or proceeding involved therein; and in case any action or
proceeding be brought against Lessor by reason of any such matter, Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be
so indemnified. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 8.7:
(a) LESSEE SHALL NOT BE REQUIRED TO INDEMNIFY, DEFEND, OR HOLD LESSOR
HARMLESS FROM OR AGAINST ANY CLAIMS, LIABILITY, LOSS, COST OR EXPENSE ARISING
OUT OF (i) THE BREACH BY LESSOR, OR LESSOR'S AGENTS, EMPLOYEES, LICENSEES,
INVITEES, OR INDEPENDENT CONTRACTORS (COLLECTIVELY "LESSOR'S AGENTS"), OF ANY
COVENANT, REPRESENTATION OR WARRANTY UNDER THIS LEASE, OR (ii) ANY GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR OR LESSOR'S AGENTS.
(b) LESSOR SHALL PROTECT, DEFEND AND HOLD HARMLESS LESSEE AND LESSEE'S
EMPLOYEES, OFFICERS, AGENTS, DIRECTORS AND SHAREHOLDER, AND THE SUCCESSORS AND
ASSIGNS OF EACH OF THE FOREGOING, AGAINST AND FROM ANY AND ALL CLAIMS, DEMANDS,
LOSSES, LIABILITIES, DAMAGES, COSTS AND EXPENSES, (INCLUDING, WITHOUT
LIMITATIONS, ATTORNEYS' AND CONSULTANTS' FEES AND THE COSTS AND EXPENSES OF
DEFENSE) ARISING OR RESULTING FROM (i) LESSOR OR LESSOR'S AGENTS' BREACH OF ANY
COVENANT, REPRESENTATION OR WARRANTY UNDER THIS LEASE, AND (ii) LESSOR OR
LESSOR'S AGENTS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE MUTUAL INDEMNITY
OBLIGATIONS OF LESSOR AND LESSEE UNDER THIS LEASE SHALL NOT, HOWEVER, RELEASE
THE RESPECTIVE INSURERS OF LESSOR AND LESSEE FROM SUCH INSURERS' OBLIGATIONS
UNDER ANY POLICIES COVERING THEIR RESPECTIVE INSUREDS.
8.8 Exemption of Lessor from Liability. EXCEPT IN THE CASE OF LESSOR'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Office Building Project, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's employees,
agents or contractors, whether such damage or injury is caused by or results
from theft, fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said damage or injury results from conditions arising
upon the Premises or upon other portions of the Office Building Project, or
from other sources or places, or from new construction or the repair,
alteration or improvement of any part of the Office Building Project, or of
the equipment, fixtures or appurtenances applicable thereto, and regardless
of whether the cause of such damage or injury or the means of repairing the
same is inaccessible, Lessor shall not be liable for any damages arising from
any act or neglect of any other lessee, occupant or user of the Office
Building Project, nor from the failure of Lessor to enforce the provisions of
any other lease of any other lessee of the Office Building Project.
8.9 No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or destroyed
to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent (50%) of the then Replacement Cost of the
building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all
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improvements made by lessees. other than those installed by Lessor at Lessee's
expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from making any substantial
use of the Premises, Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease as of
the date of the occurrence of such damage, in which event this Lease shall
terminate as of the date of the occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction or (ii) Office Building Project Total Destruction
then Lessor may at Lessor's option either (i) repair such damage or
destruction as soon as reasonably possible at Lessor's expense (to the extent
the required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and terminate this Lease, in which case this
Lease shall terminate as of the date of the occurrence of such damage.
9.4 Damage Near End of Term,
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of
such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense.
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event any part of the Premises are not usable (including loss
of use due to loss of access or essential services), the rent payable hereunder
(including Lessee's Share of Operating Expense Increase) for the period during
which such damage, repair or restoration continues shall be abated, provided (1)
the damage was not the result of the negligence of Lessee, and (2) such
abatement shall only be to the extent the operation of Lessee's business as
operated from the Premises is adversely affected. Except for said abatement of
rent, if any, Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or the
Building under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, OR IF IN THE EVENT THAT ONLY THE PREMISES ARE DAMAGED SUCH THAT
LESSEE CANNOT CONTINUE OPERATION OF ITS BUSINESS IN THE PREMISES AND LESSOR IS
UNABLE TO SUBSTANTIALLY RESTORE THE PREMISES WITHIN FOUR (4) MONTHS AFTER SUCH
OCCURRENCE, Lessee may at Lessee's option cancel and terminate this Lease by
giving Lessor written notice of Lessee's election to do so at any time prior to
the commencement or completion, respectively, of such repair or restoration. In
such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination-Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor
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shall, in addition, return to Lessee so much of Lessee's security deposit as
has not therefore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES,
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with
the provisions of paragraph 4.2, except as otherwise provided in paragraph
10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however. pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax {other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or
any portion thereof by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, sanitary, fire. street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or other income therefrom, and as against Lessor's business of leasing the
Office Building Project. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of "real property tax," or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1,1978, or (iv)
which is imposed as a result of a change in ownership, as defined by
applicable local statutes for property tax purposes, of the Office Building
Project or which is added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such change of ownership, or (v)
which is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are
not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours
as may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of
the ACTUAL cost thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services
over standard office usage for the Office Building Project. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading.
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11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions,
provided Lessor uses reasonable and diligent efforts to reinstate.
12. ASSIGNMENT AND SUBLETTING.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner, and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a material default and breach of this Lease without the need
for notice to Lessee under paragraph 13.1. Prior to any assignment or sublet
of the premises or any portion thereof, Lessee shall notify Lessor in writing
of the name and address of the proposed assignee or sublessee, and deliver to
Lessor financial statements of the proposed assignee or sublessee, a true and
complete copy of the proposed assignment agreement(s) or sublease with said
notice, and shall promptly provide any other information reasonably requested
by Lessor to enable Lessor to evaluate the proposed assignment or sublet.
Lessor shall within five (5) business days of the receipt of complete
information as required above, elect to do one of the following:
(1) consent to such proposed assignment or sublease;
(2) refuse such consent which refusal shall be on reasonable grounds; or
(3) IN THE EVENT LESSEE DESIRES TO ASSIGN OR SUBLEASE MORE THAN 50% OF
THE PREMISES, terminate this lease with respect to the portion of the
premises which Lessee desires to assign or sublease, in which case rental
paid by Lessee to Lessor hereunder shall be reduced in the proportion that
the square feet of the premises that Lessee desires to so assign or sublet
bears to the total square feet of the premises leased by Lessee hereunder,
and thereafter neither party shall have any further obligation or liability
to the other with regard to said portion of the premises except for matters
which arose prior to termination and except for obligations that exist upon
termination. NOTWITHSTANDING THE FOREGOING, LESSEE SHALL HAVE THE RIGHT TO
WITHDRAW ITS PROPOSAL TO ASSIGN OR SUBLET THE PREMISES, IN THE EVENT LESSOR
NOTIFIES IT THAT IT WILL ELECT TO TERMINATE THIS LEASE UNDER THIS
SUBPARAGRAPH (3).
"Transfer" within the meaning of this paragraph 12 shall NOT INCLUDE A
TRANSFER TO ANY ENTITY WHICH ACQUIRES SUBSTANTIALLY ALL OF THE ASSETS OF
LESSEE, AS A GOING CONCERN, WITH RESPECT TO THE BUSINESS THAT IS BEING
CONDUCTED IN THE PREMISES; NOR SHALL "TRANSFER" INCLUDE THE SALE OF STOCK, OR
THE TRANSFER OF THE BENEFICIAL OWNERSHIP OR EFFECTIVE VOTING CONTROL OF
LESSEE FROM THE PERSON(s) HAVING EFFECTIVE VOTING CONTROL AS OF THE DATE OF
LESSEE'S EXECUTION OF THIS LEASE, WHERE SUCH TRANSFER OCCURS IN CONNECTION
WITH ANY BONA FIDE FINANCING OR CAPITALIZATION FOR THE BENEFIT OF LESSEE.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume, in full, the obligations of Lessee under this Lease
and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms
or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to
such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent
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assignment or subletting by Lessee or to any subsequent or successive
assignment or subletting by the sublessee. However, Lessor may consent to
subsequent sublettings and assignments of the sublease or any amendments or
modifications thereto without notifying Lessee or anyone else liable on the
Lease or sublease and without obtaining their consent and such action shall
not relieve such persons from liability under this Lease or said sublease;
however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee
or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such sublease Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a default exists in the performance of Lessee's obligations
under this Lease to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right to rely upon
any such statement and request from Lessor, and that such sublessee shall pay
such rents to Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee
or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor, WHICH APPROVAL SHALL NOT BE
UNREASONABLY DENIED. Such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering
into a sublease under this Lease, be deemed, for the benefit of Lessor, to
have assumed and agreed to conform and comply with each and every obligation
herein to be performed by Lessee other than such obligations as are contrary
to or inconsistent with provisions contained in a sublease to which Lessor
has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event
Lessor shall undertake the obligations of Lessee under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within three
(3) days after service of said notice of default upon such sub-lessee, and
the sublessee shall have a right of reimbursement and offset from and against
Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as
Lessee was expected to be at the time of the execution of this Lease or of
such assignment or subletting, whichever is greater.
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12.7 Surplus Rent. To the extent that the aggregate amount of any
rental or other payments to be made by the proposed assignee, transferee or
sublessee to Tenant exceeds the sum of (i) the aggregate amount of the
monthly Base Rent payable by Tenant to Landlord during the term of such
sublease, transfer or assignment or the remaining Term of the Lease,
whichever expires earlier, (ii) the amount of any commissions payable in
connection with such sublease, transfer or assignment, (iii) the cost of any
alterations or improvements reasonably requested to be installed in
connection with such sublease, transfer or assignment, AND (iv) LESSEE'S
REASONABLE ATTORNEY'S FEES, such excess amount shall be amortized ratably
over the term of such sublease, transfer or assignment or the remaining Term
of the Lease, whichever expires earlier, and one hundred percent (100%) of
such amortized portion of such excess amount shall be paid by Tenant to
Landlord on the first day of each month during the applicable term.
13. DEFAULT; REMEDIES.
13.1 Default. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder. as and when due, where such
failure shall continue for a period of FIVE (5) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c). above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law,
such thirty (30) day notice shall constitute the sole and exclusive notice
required to be given to Lessee under applicable Unlawful Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 US.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within
NINETY (90) days; (iii) the appointment of a trustee or receiver to lake
possession of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease. where possession is not restored to
Lessee within NINETY (90) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within NINETY (90) days. In the event that any provision of this
paragraph 13.1(e) is contrary to any applicable law, such provision shall be
of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor
by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided; that portion of the leasing commission
paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of
this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by
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law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Lessor by the terms of any
mortgage or trust deed covering the Office Building Project. Accordingly, if
any installment of Base Rent, Operating Expense Increase, or any other sum
due from Lessee shall not be received by Lessor or Lessor's designee within
FIVE (5) days notice to Lessee, Lessee shall pay to Lessor a late charge
equal to 6% of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount. nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from
the Premises, Lessee shall have the option, to be exercised only in writing
within thirty (30) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within thirty (30) days
after the condemning authority shall have taken possession), to terminate
this Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the rent and Lessee's Share of Operating Expense
Increase shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. Common Areas
taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease
as of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises
or the Office Building Project under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property
of Lessor, whether such award shall be made ascompensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any separate award for
loss of or damage to Lessee's trade fixtures. removable personal property and
unamortized tenant improvements that have been paid for by Lessee. For that
purpose the cost of such improvements shall be amortized over the original
term of this Lease excluding any options. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are
____________________________as "listing broker" and STEVE LEVERE OF TORY
CORPORATE REAL ESTATE ADVISORS as "cooperating broker," licensed real estate
broker(s). A "cooperating broker" is defined as any broker other than the
listing broker entitled to a share of any commission arising under this
Lease. Upon execution of this Lease by both parties, Lessor shall pay to said
brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate agreement between Lessor and said
broker(s), or in the event there is no separate agreement between Lessor and
said broker(s), the sum of $ PER SCHEDULE for brokerage services rendered
by said broker(s) to Lessor in this transaction. The commission shall be
paid 50% upon execution of this Lease and 50% upon the commencement of this
Lease. HOWEVER, IN NO EVENT SHALL ANY COMMISSION BE DUE IN THE EVENT LESSEE
EXERCISES ITS RIGHT TO TERMINATE UNDER PARAGRAPH 52 OF THIS LEASE.
(b) Lessor shall have no obligation to pay any additional fee or
commission under any of the following circumstances: (i) if Lessee exercises
any Option, as defined in paragraph 3.9.1 of this Lease, which is granted to
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Lessee under this Lease, or any subsequently granted option which is
substantially similar to an Option granted to Lessee under this Lease, or
(ii) if Lessee acquires any rights to the Premises or other premises
described in this Lease which are substantially similar to what Lessee would
have acquired had an Option herein granted to Lessee been exercised, or (iii)
if Lessee remains in possession of the Premises after the expiration of the
term of this Lease after having failed to exercise an Option, or (iv) if said
broker(s) are the procuring cause of any other lease or sale entered into
between the parties pertaining to the Premises and/or any adjacent property
in which Lessor has an interest.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of
this paragraph 15 to the extent of their interest in any commission arising
under this Lease and may enforce that right directly against Lessor;
provided, however, that all brokers having a right to any part of such total
commission shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person. firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability
for compensation or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) BUSINESS days' prior written notice from the other party
("requesting party") execute, acknowledge and deliver to the requesting party
a statement in writing (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to the responding
party's knowledge, any uncured defaults on the part of the requesting party,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Office Building Project or of the business of Lessee.
(b) At the requesting party's option. the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
party. (it) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project. or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
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20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed
by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker
on this transaction nor the Lessor or any employee or agents of any of said
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of the Premises or the Office
Building Project and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. All notices, demands, requests and other communications
required hereunder (a) shall be in writing, (b) shall be deemed to be
properly addressed and transmitted if mailed by United States registered or
certified mail, with return receipt request, postage prepaid, or by United
States Express Mail, or if sent by a national courier service or if
personally served, and the same if sent to a party at its address set forth
on the signature page hereto. Any notice, demand, request or other
communication required hereunder will be deemed delivered (a) upon personal
delivery, if personally served, or (b) if mailed or if sent by courier, upon
receipt (as reflected in the records of the delivering entity) or upon the
addressee's refusal to accept delivery (as reflected in the records of the
delivering entity). Any party may designate a change of address by written
notice to the other, given at least ten (10) days before such change of
address is to be come effective. Absent delivery to a party of the change of
address of another party, no party shall be required to inquire as to the
continuing correctness of the last address delivered to it for the other
party.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent
to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee
of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be two hundred percent (200%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any,
granted under the terms of this Lease shall be deemed terminated and be of no
further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee AND LESSOR shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be
initiated in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation or security now or hereafter placed upon
the Office Building Project and to any and all advances made on the security
thereof and to all renewals,
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modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, PURSUANT TO PARAGRAPH 55 HEREUNDER,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so Iong as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease and any Options granted hereby
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such mortgage, deed of trust or ground lease, whether this
Lease or such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
BUSINESS days after written demand shall constitute a material default by
Lessee hereunder without further notice to Lessee or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. LESSEE'S OBLIGATIONS PURSUANT TO THIS PARAGRAPH 30(b)
SHALL BE SUBJECT TO THE CONDITION THAT ANY SUCH DOCUMENTS SHALL NOT
MATERIALLY INCREASE ANY OBLIGATIONS OR DECREASE ANY RIGHTS OF LESSEE.
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to
decision or judgment. The provisions of this paragraph shall inure to the
benefit of the broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the REASONABLE preparation and service of
notice of default TO LESSEE and consultations in connection therewith,
whether or not a legal transaction is subsequently commenced in connection
with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
UPON REASONABLE PRIOR NOTICE for the purpose of inspecting the same,
performing any services required of Lessor, showing the same to prospective
purchasers, lenders, or lessees, taking such safety measures, erecting such
scaffolding or other necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office Building Project
as Lessor may reasonably deem necessary or desirable and the erecting, using
and maintaining of utilities, services, pipes and conduits through the
Premises and/or other premises as long as there is no material adverse effect
to Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the
Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and
sales, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's properly or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent. The holding of any auction on the Premises or Common
Areas in violation of this paragraph shall constitute a material default of
this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall. at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one
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party is required to an act of the other party such consent shall not be
unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee, under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (2) the option of right of first refusal to lease
the Premises or the right of first offer to lease the Premises or the right
of first refusal to lease other space within the Office Building Project or
other properly of Lessor or the right of first offer to lease other space
within the Office Building Project or other property of Lessor; (3) the right
or option to purchase the Premises or the Office Building Project, or the
right of first refusal to purchase the Premises or the Office Building
Project or the right of first offer to purchase the Premises or the Office
Building Project, or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee; provided,
however, that an Option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant
to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from
Lessee and unpaid (without any necessity 1or notice thereof to Lessee) and
continuing until the obligation is paid, or (iii) In the event that Lessor
has given to Lessee three or more notices of default under paragraph 13.1(c),
or paragraph 13.1(d), whether or not the defaults are cured, during the 12
month period of time immediately prior to the time that Lessee attempts to
exercise the subject Option, (iv) if Lessee has committed any non-curable
breach, or is otherwise in default of any of the terms, covenants or
conditions of this Lease.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(c) or paragraph 13.1 (d), whether or not the
defaults are cured, or (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1 (b), or is
otherwise in default of any of the terms, covenants and conditions of this
Lease.
39.5 Exercise Notice. No exercise of any Option right hereunder
shall be effective unless the required notice is received by the party to
whom it is sent strictly in accordance with the provisions of Paragraph 23
herein. The risk of non-delivery shall be on the sender of the Option notice.
40. SECURITY MEASURES-LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the
benefit of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's
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agents and invitees from acts of third parties. Nothing herein contained
shall prevent Lessor, at Lessor's sole option, from providing security
protection for the Office Building Project or any part thereof, in which
event the cost thereof shall be included within the definition of Operating
Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project
or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof of
the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any.
shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease
This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the
Office Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
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50. ATTACHMENTS. Attached hereto are the following documents which constitute a
part of this Lease:
- - EXHIBIT A Floor Plan
- - EXHIBIT B Rules & Regulations
- - EXHIBIT C Work Letter
ADDITIONAL PARAGRAPHS
51. RENT INCREASES.
Base rent shall increase per the following schedule:
Months 1-24 $3.40 per rentable square foot
Months 24-36 $3.46 per rentable square foot
Months 37-60 $3.55 per rentable square foot
52. IMPROVEMENT ALLOWANCE.
(a) Lessor shall provide an allowance of $7.25 per square foot to be used
for improvements to the Premises only (the "Allowance'); Lessor shall retain any
unused portion of the Allowance. The contractors bidding on the construction
shall be mutually agreed to by Lessor and Lessee.
(b) Lessor shall be solely responsible for the cost of demising the
Premises and bringing existing improvements into compliance with all applicable
local, state and federal regulations and codes, including without limitation,
ADA and Title 24. It is Lessor's belief that the improvements are currently in
100% compliance with all applicable codes.
(c) Lessor shall be solely responsible for the cost of retrofitting the
building HVAC, energy management and lighting systems as described in the
Executive Summary prepared by Viron Energy Services. Owner will conduct any such
work not completed by the Commencement Date after normal building hours.
(d) Any costs incurred by Lessor pursuant to (b) or (c) above shall not
reduce or modify the Allowance.
53. OPTION TO RENEW.
Lessee is granted two (2) options to extend the Term of the Lease Agreement for
an additional five (5) years each, herein defined as the "Extension Period".
Such extension shall be on the same terms and conditions as provided in the
Lease Agreement with the exception of Base Rent. Base Rent for the Extension
Period shall be a sum equal to:
For the Extension Period(s) the Base Rent will be the fair market rental
for the Leased Premises as of the date six (6) months prior to expiration of the
initial Lease Term or the first Extension Period if so exercised. However, the
Base Rent for the Extension Periods shall not be less than the Base Rent as of
the expiration of the initial lease Term and the Base year will be adjusted to
reflect the year the Extension Period commenced.
It shall be a condition precedent to the exercise of this option that
Tenant shall not be in default under the Lease Agreement at the time of exercise
of the option and at the commencement of the extension term. If Lessee elects
to exercise this option, Lessee shall exercise said option only by written
notice delivered to Lessor at least one hundred eighty (180) days prior the
expiration date of the Initial Term or last Extension Period, as applicable but
not earlier than three hundred sixty (360) days prior to the expiration of the
Initial Term or last Extension Period, as applicable.
In the event that the option rental is based upon the fair market rental
for the Premises, the parties shall thereafter immediately meet and endeavor to
agree upon the fair market rental of the Lease Premises. If the parties are
unable to agree upon the amount of rental for the Extension Period at least
ninety (90) days prior to the commencement of said Extension Period ("Initial
Meeting Period"), then the determination of the rental shall be promptly
submitted to arbitration. Each party hereto will select, within fifteen (15)
days of the expiration of the Initial Meeting Period, referred to above, a
licensed real estate agent with at least five years commercial experience in the
City in which the Lease Premises are located involving properties similar to the
Property under this Lease and said arbitrators shall meet for the purpose of
determining the rental for the Extension Period. If one party fails to so
select an agent the one agent retained shall set the fair market rental.
If the two arbitrators do not agree, within thirty (30) days of their
selection, they shall select a third arbitrator with the qualifications referred
to above, within fifteen (15) days, and if they cannot agree on a third
arbitrator, the third arbitrator shall be appointed by the presiding judge of
the Superior Court in the County in
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which the Leased Premises are located. Lessor or Lessee may petition such Court
within ten (10) days of the expiration date of the time for the selection of the
third arbitrator requesting the earliest possible determination by the Court.
The three arbitrators shall determine values within a thirty (30) day period of
the appointment of the third arbitrator and if they cannot agree upon a fair
market rental the three values shall be added together and the total shall be
divided by three. If any value is lower or higher than ten percent (10%) from
the middle value such higher or lower value shall be excluded from the
calculations and the two remaining values shall be divided by two or if only one
value remains, such value shall be the value used. Each party shall pay his
own agent and the cost of the third, if necessary, shall be paid equally. The
determination shall be signed by both parties and shall thereupon become a part
of the lease agreement. If the Base Rent for the Extension Period has not been
determined as of the commencement of the Extension Period, Lessee shall pay an
estimated Base Rent of One Hundred Ten percent (110%) of the Base Rent due for
the last month prior to commencement of the Extension Period. Any deficiency
shall be payable by Lessee to Lessor within ten (10) days of the arbitrator's
determination of the Base Rent for the Extension Period. Any surplus shall be a
credit for Base Rent to become thereafter due.
54. RIGHT OF FIRST OFFER.
Lessee shall have the first right to lease any space becoming available on the
first or second floor of the Building during the initial lease term or option
periods. Lessor shall notify Lessee in writing describing the space coming
available and offering it at the fair market rental rate, to be arrived at by
the method described in Paragraph 53 above. Lessee shall have ten (10) business
days from receipt in which to deliver their written acceptance of the offer.
Failure to respond to the offer within the stated response time shall constitute
a rejection of the offer.
55. NON-DISTURBANCE AGREEMENT.
Lessor shall provide non-disturbance agreements from all lenders and ground
lessors on the Building prior to the Commencement Date. In addition, Lessor
shall provide non-disturbance agreements from all future lenders and ground
lessors on the Building as a condition to Lessee's subordination of its
leasehold interest to such lenders.
56. SIGNAGE.
Pharsight will receive building directory and monument signage, subject to
Lessor's reasonable approval.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
LESSOR: LESSEE:
ASSET GROWTH PARTNERS, LTD. PHARSIGHT CORPORATION, INC.
BY: EL CAMINO EQUITY MANAGER, INC.
GENERAL PARTNER
By /s/ Thomas J. Rees By /s/ Arthur H. Reidel
-------------------------------- -------------------------------
Thomas J. Rees
Its President Its President
-------------------------------
By By
-------------------------------- -------------------------------
Its Its
--------------------------------
--------------------------------
Date 7/23/98 Date
--------------------------------
--------------------------------
Address for Notices: Address for Notices:
2570 W. El Camino Real Suite 502
-------------------------------
Mountain View, CA 94040
--------------------------------
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<PAGE>
[Exhibit A is a picture depicting a floor schematic of the second floor of
the building located at 800 El Camino Real, Mountain View, CA 94040.]
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<PAGE>
EXHIBIT B
RULES AND REGULATIONS FOR STANDARD OFFICE LEASE
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that UNREASONABLY
annoy or interfere with other lessees or persons handling business within the
Office Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts without written permission from Lessor.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not Suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight, and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 6:00 P.M. and
8:00 A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
12. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
13. No window coverings, shades or awnings shall be installed or used by
Lessee.
14. No Lessee, employee or invitee shall go upon the roof of the Building
without written permission from Lessor.
15. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
16. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
17. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
18. The Premises shall not be used for lodging or manufacturing.
19. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
20. Lessor reserves the right to waive any one of these rules or
regulations and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
21. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
22. Lessor reserves the right to make such other reasonable AND
NON-DISCRIMINATORY rules and regulations as it may from time to time deem
necessary for the appropriate operation and safety of the Office Building
Project and its occupants. Lessee agrees to abide by these and such rules
and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded or parked in areas other than those REASONABLY
designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entry that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. VALIDATION, IF ESTABLISHED, WILL BE PERMISSIBLE ONLY BY SUCH METHOD OR
METHODS AS LESSOR AND/OR ITS LICENSEE MAY ESTABLISH AT RATES GENERALLY
APPLICABLE TO VISITOR PARKING.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
FULL SERVICE-GROSS
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EXHIBIT C
WORK LETTER TO STANDARD OFFICE LEASE
Dated: JULY 16, 1998
By and Between: ASSET GROWTH PARTNERS ("LESSOR") AND PHARSIGHT, INC.
("LESSEE")
The premised shall be constructed in accordance with Lessor's Standard
Improvements, as follows:
1. PARTITIONS
Per Exhibit C-1 attached.
2. WALL SURFACES
Per Exhibit C-1 attached.
3. WINDOW COVERINGS
Lessor to repair or replace to match existing as required.
4. FLOORING
Per Exhibit C-1 attached. Building standard books to be provided by owner.
5. DOORS
Per Exhibit C-1 attached.
6. ELECTRICAL AND TELEPHONE OUTLETS
Two duplex outlets and one mudring with pullstring per new or existing office.
7. CEILING
Per Exhibit C-1 attached.
8. LIGHTING
2x4 and 2x2 Lithonia or comparable magnetic ballast fixtures with 6" paracube
lens installed in accordance with Title 24.
9. HEATING AND AIR CONDITIONING DUCTS
One supply and return in each private office and per 250 square feet of common
area.
10. PLUMBING
All plumbing is an overstandard item to be specified by Lessee.
11. ENTRANCE DOORS
Per Exhibit C-1 attached.
12. COMPLETION OF IMPROVEMENTS
Lessor shall construct and complete improvements to the Premises in accordance
with the plans and specifications prepared by ____________________, dated
__________________ consisting of sheets _________ (the Improvements).
13. PREPARATION OF PLANS AND SPECIFICATIONS
Within FIVE (5) days after the date of this Lease lessor shall prepare at its
cost and deliver to Lessee for its approval THREE (3) copies of preliminary
plans and specifications for the completion of the improvements, which plans and
specifications shall itemize the work to be done by each party, including a cost
estimate of any work required of Lessor in excess of Lessor's Standard
Improvements. Lessee shall approve said preliminary plans and specifications
and preliminary cost estimate or specify with particularity its objection
thereto within THREE (3) days following receipt thereof. Failure to so approve
or disapprove within said period of time shall constitute approval thereof.
14. CONSTRUCTION
If Lessor's costs of constructing the Improvements to the Premises APPROVED BY
LESSEE exceeds AN AMOUNT
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EQUAL TO $7.25 PER SQUARE FOOT OF PREMISES, OR
$116,000.00, Lessee shall pay to Lessor in cash before the commencement of such
construction a sum equal to such excess. If the plans and specifications are
approved by Lessor and Lessee, and Lessee pays Lessor for such excess, then
Lessor shall, at its sole cost and expense, construct the Improvements in
accordance with said approved final plans and specifications and all applicable
rules, regulations, laws or ordinances.
15. COMPLETION
15.1 Lessor shall obtain a building permit to construct the Improvements as
soon as possible.
15.2 Lessor shall complete the construction of the Improvements as soon as
reasonably possible after the obtaining of necessary building permits.
15.3 The term "Completion" as used in the Work Letter, is hereby defined to
mean the date the building department of the municipality having jurisdiction of
the Premises shall have made a final inspection of the Improvements and
authorized a final release of restrictions on the use of public utilities in
connection therewith and the same are in a broom-clean condition, or if no
permit is obtained for the Improvements, the date that Lessee is able to move in
its furniture and equipment and conduct business on the Premises.
15.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in Paragraph 1.5 of
the Basic Lease Provisions.
15.5 In the event that the Improvements or any portion thereof have not
reached Completion by the Commencement Date, this Lease shall not be invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
15.6 If Lessor shall be delayed at any time in the progress of the
construction of the Improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions, governmental
procedures or delay or by any other cause beyond Lessor's control, the
Commencement date established in paragraph 1.5 of the Lease shall be extended by
the period of such delay.
16. TERM
Upon Completion of the Improvements as defined in paragraph 15.3 above, Lessor
and Lessee shall execute an amendment to the Lease setting forth the date of
Tender of Possession as defined in paragraph 3.2.1 of the Lease of actual taking
possession, whichever first occurs, as the Commencement date of this Lease.
17. WORK DONE BY LESSEE
Any work done by Lessee shall be done only with Lessor's prior written consent
and in conformity with a valid building permit and all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike manner
with good and sufficient materials. All work shall be done only by contractors
approved by Lessor, it being understood that all plumbing, mechanical,
electrical wiring and ceiling work are to be done only by contractors designated
by Lessor.
18. TAKING OF POSSESSION OF PREMISES
Lessor shall notify Lessee of the Estimated Completion Date at least ten (10)
days before said date. Lessee shall thereafter have the right to enter the
Premises to commence construction of any Improvements Lessee is to construct and
to equip and fixturize the Premises, as long as such entry does not interfere
with Lessor's work. Lessee shall take possession of the Premises upon the
tender thereof as provided in paragraph 3.2.1 of the Lease to which this Work
Letter is attached. Any entry by Lessee of the Premises under this paragraph
shall be under all of the terms and provisions of the Lease to which this Work
Letter is attached.
19. ACCEPTANCE OF PREMISES
Lessee shall notify Lessor in writing of any items that Lessee deems incomplete
or incorrect in order for the Premises to be acceptable to Lessee within ten
(10) days following Tender of Possession as set forth in paragraph 3.2.1 of the
Lease to which this Work Letter is attached. Lessee shall be deemed to have
accepted the Premises and approved construction if Lessee does not deliver such
a list to Lessor within said number of days.
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EXHIBIT C-1
01045 CUTTING AND PATCHING
DESCRIPTION: Contractor will be responsible for inspection of the existing
condition an all cutting, fitting and patching required to complete the
work or to:
Make its several parts fit together properly.
Uncover portions of the work to provide for installation of ill-timed work.
Remove and replace defective work.
Remove and replace work not conforming to requirements of Contract
Documents.
Remove samples of installed work as specified for testing.
Provide routine penetrations of non-structural surfaces for
installation of piping and electrical conduit.
- -METHODS: Inspect existing conditions of the project, including elements
subject to damage or to movement during cutting and patching. Execute
cutting and demolition by methods which will prevent damage to other work
and will provide proper surfaces to receive installation of repairs.
Refinish entire surfaces as necessary to provide an even finish to match
adjacent finishes.
01300 SUBMITTALS
DESCRIPTION: Contractor will be required to review submittals for compliance
with Contract Documents prior to submission. Submittals will be required
for finish materials, color selection, fabricated items, equipment and
administrative procedures such as certificates, inspections, etc., as
follows:
Shop Drawings: One sepia transparency and three prints.
Product Data: Number contractor requires to be returned plus two.
Samples: Will vary usually two of sufficient size to represent color,
texture, utility or other qualities.
Maintenance Data: Two copies for inclusion in Owner's Maintenance
Manual for finish materials, equipment, etc., that will be maintained
by Owner.
Certificates, Test Reports, etc.: Number contractor requires plus three.
01410 TESTING LABORATORY SERVICES
DESCRIPTION: Contractor will be required to arrange for all test and
inspections that are required by law, ordinances, rules and regulations,
order of approval of governing authorities. Owner will employ and pay for
the services of an Independent testing Laboratory to perform testing that
will be specified for items such as Structural Bracing, etc.
01500 TEMPORARY FACILITIES AND CONTROLS
DESCRIPTION: Contractor shall provide connections to existing facilities, sized
to provide service required for power, lighting and water. Arrange with
local telephone service company and Owner to provide direct-line telephone
service at construction site if required for use of personnel and
employees. Pay all costs for installation, maintenance and removal and
service charges. Existing sanitary facilities may be used during
construction period by arrangement with and on approval of Owner.
Completely remove temporary materials and equipment when no longer needed
and restore existing facilities to original condition.
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01600 MATERIALS AND EQUIPMENT
DESCRIPTION: Contractor will be required to comply with specified or otherwise
approved make, type, quality, etc., and to manufacture and assemble in
accordance with the best engineering and shop practices.
Handling: Arrange deliveries in accordance with construction
schedule; deliver materials and equipment in undamaged condition,
suitably packaged and identified.
Storage and Protection: Store properly until installed, protect from
damage after installation.
01631 SUBSTITUTIONS AND PRODUCT OPTIONS
DESCRIPTION: Within 30 days of contract date, contractor will be required to
submit list of major products to be used. Architect will consider
substitutions for specified projects in accordance with the following
options, if submitted in writing:
Products Specified in the Contract Documents by Reference Standard Only:
Select any product meeting that standard.
Products Specified in Contract Documents by naming Several Products or
manufacturers: Select any named manufacturer of product that complies
with the specifications.
Products Specified in the Contract Documents by Naming One or More
Manufacturer of Products and "Or Equal": Submit request for
substitution if proposed product or manufacturer is other than those
specifically named.
Products Specified in the Contract Documents by Naming Only One Product and
Manufacturer: There are no options.
01700 CONTRACT CLOSEOUT
DESCRIPTION: When the Contractor considers the work substantially complete, he
shall submit to the Owner a written notice that the work has been completed
in accordance with the Contract Documents and a list of items to be
completed or corrected. Within a reasonable time after receipt of the
notice, Owner and Architect will make a inspection to determine the status
of completion.
Contractor will be required to obtain and process all required certificate
and notices, arrange for all final inspections, and submit final adjustment
of accounts prior to final payment. For a period of one year from the date
of Final Acceptance, the Contractor will be required to provide supervisor,
labor transportation and materials for investigation and correction of
failures of deficiencies in the Work.
01710 CLEANING
DESCRIPTION: Contractor will be required to keep the Work, site and adjacent
properties free from accumulation of trash and debris resulting from
construction operations, and to periodically dispose of trash and debris at
a legal disposal area away from the site. Immediately prior to final
acceptance. Contractor will be required to clean the work, including
removal of all stains and other foreign materials from exposed surfaces,
and washing and polishing of glass and mirrors.
01720 PROJECT RECORD DOCUMENTS
DESCRIPTION: Contractor will be required to maintain project record documents,
recording information as construction progresses. Prior to final
acceptance, the Contractor will be required to transfer information to
sepia transparencies and submit to the Architect.
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DRAWINGS: Legibly mark to record actual construction:
Location of internal utilities and appurtenances concealed in the
construction, including mechanical and electrical systems installed
above furred ceilings, referred to visible and accessible features
of the structure.
Filed changes by Field Order or by Change Order.
Changes made by Filed Order or by Change Order.
Details not on original contract drawings.
SPECIFICATIONS: Legibly mark each section to record:
Addenda.
Manufacturer, trade name, catalog number, and supplier of each product and
item of equipment actually installed.
Changes made by Field Order or by Change Order.
06410 CASEWORK
GENERAL: Provide base and upper plastic laminated faced cabinets, adjustable
shelves, work surfaces, and storage cabinets as shown on drawings.
MATERIALS:
CASEWORK:
Plastic Laminate: WIC Custom Grade, Flush overlay construction,
plastic laminate veneer as manufactured by Wilsonart, Exxon
Chemical (Novamar), LaminArt, or equal.
Grades: As recommended by manufacturer for each application
and in accordance with Reference Standards.
Colors and Finish: As indicated on schedule and drawings.
Painted Finish: WIC Custom Grade, flush overlay construction,
opaque finish unless otherwise shown.
Exposed surfaces of casework scheduled for opaque finish:
a) Face Veneer: White Birch, rotary sliced, "Sound
Grade."
b) Solid Stock White Birch, plain-sawn.
Semi-exposed and concealed surfaces: Any species allowed by
specified Grade or finish system, except that shelf edges exposed
when doors are open shall be edged with close-grain hardwood.
COUNTERTOPS: Plastic laminate conforming to WIC Custom Grade. Minimum 3/4
inch thick hardwood plywood core.
CASEWORK HARDWARE IS AS FOLLOWS:
Hinges:
Grass Self Closing No. 1200 overlay at end panels.
Grass Self Closing No 1201 at intermediate stiles.
Finish: Polished chrome.
PULLS: Stanley #4433-1/2.
Finish: Polished chrome.
SHELVING STANDARDS: Knape & Vogt No. 255 No. 239 support. Polished
chrome.
DRAWER SLIDES:
File Drawers: Full extension, roller side guides: No. 100 pound
capacity; positive out stop: Accuride #3017, Grant No. 527,
KV No. 1429.
TYPICAL DRAWERS. Full extension guides; roller side guides:
75 pound capacity; positive out stop; Accuride No. 3800,
Grass No. V503, KV No. 8300.
INSTALLATION
Set and secure casework in place rigid, plumb and level in accordance with
WIC Section 26.
Use purpose designed fixture attachments at concealed location for wall
mounted components.
Carefully scribe casework which is against other building materials,
leaving gaps of 1/32 inch maximum. Do not use additional overlay trim
for this purpose.
Secure cabinet and counter bases to floor using appropriate angles and
anchorages.
Counter-sink anchorage devices at exposed locations used to wall-mount
components, and conceal with solid plugs of hardwood with finish
to match surround. Finish flush with surrounding surfaces.
DIVISION 7: THERMAL AND MOISTURE PROTECTION
07200 INSULATION
1. GENERAL: Provide Acoustical Insulation as shown on drawings.
Provide Insulation in root/ceiling spaces as shown on
drawings.
Provide Insulation in exterior walls between studs as shown on
drawings.
MATERIALS:
MANUFACTURER: Acceptable manufacturers:
United Stated Gypsum Company (USG).
Manville.
Owens Corning Fiberglass.
MATERIALS:
SOUND ATTENUATION INSULATION: Paperless, semi-rigid spun mineral
fiber mat, 2-1/2 inch thick: United States Gypsum.
"Thermafiber Sound Attenuation Blankets."
BLANKET INSULATION: Glass fiber manufactured by Owens Corning or
Manville or Mineral Wool Manufactured by U.S. gypsum
conforming to Federal Specifications HH-I-521F. All
insulation materials must be certified to meet the
requirements of Sec. 2-5311 (a) and installed to meet the
requirements of Section 2-5311(b) of the BUILDING ENERGY
EFFICIENCY STANDARDS. 1986 edition as published by the
California Energy Commission.
ACCESSORY MATERIALS: Miscellaneous Fastenings, Accessories:
As acceptable to insulation manufacturer.
INSTALLATION:
Install insulation in accordance with manufacturer's
recommendations, securely anchored, complete with all
required fastenings and accessories.
Vapor barrier: Orient to warm side of areas to be
insulated.
Joints: Butt tightly to form a continuous insulated layer
free of voids or open space.
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Do not install insulation until building is sufficiently
enclosed or protected against absorption of moisture by
the insulation, and do not install insulation unless
supporting framing and surrounding construction is
thoroughly dry.
07900 SEALANTS
GENERAL: Seal exterior and interior joints to provide acoustical integrity.
MATERIALS:
ACOUSTICAL TAPE: Type and size required as a detailed, performed PVC
foam tape, adhesive backed, "Norseal V730", Norton Specialty
Plastics Division. Use at acoustical partitions. Locate between
ceiling and top of partition, under floor runners, and as
detailed.
ACOUSTICAL SEALANT PADS: Resilient pads, composed of polybutene-butyl
and inert fillers, "Lowry Outlet Box Pads", Harry A. Lowry &
Associates, Van Nuys, California 91406, or approved equal. Use
at acoustical partitions to seal edges of gypsum wallboard not
being taped and as detailed.
NEOPRENE GASKETS: ASTM D2000, grade BC610; dense neoprene rubber, 60
duro-meter, 1000 psi tensile strength; 1/8 inch thick; Williams
Products, Inc. Series 1200 dense Neoprene rubber or equal product
substituted under provisions of section 01631.
DIVISION 8: DOORS, WINDOWS AND GLASS
08100 STEEL DOORS AND FRAMES
GENERAL:
U.L. LABEL: Where the Underwriters Laboratories, Inc. labeled
openings are called for on the door schedule, doors and frames
shall be constructed in accordance with the U.L. procedure issued
to the manufacturer and shall bear the designated U.L. labels.
MATERIALS:
DOORS: Ceco Corporation, Regent doors fabricated from 2-18 gauge
steel sheets with flush seamless face sheets and honeycomb core.
The top and bottom of the doors shall be closed flush by 16 gauge
channels.
FRAMES: Ceco Corporation 16 gauge steel hot-dipped galvanized frames.
SF (Standard Frame) Series: For concrete and masonry wall
applications.
DWS or DWC Series: For drywall frame construction. Frames shall
be knocked-down field assembled type designed specifically
for installation after drywall partitions are erected.
Glazing Provisions: Window frames shall be provided with glazing
pockets prepared to receive glazing and shall include steel
glazing beads.
EXECUTION:
Doors and frames shall be installed and erected plumb and in true
alignment. Frames shall be rigid and securely in place.
Clearances at top and sides of doors shall be not less than
1/16" and not more than 1/8".
CLEAN-UP: Clean up all debris resulting from the operation.
08200 WOOD DOORS
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GENERAL:
SUBMITTALS: In accordance with Section 01300
For Review:
Manufacturer's Literature of all products.
Shop Drawings: Submit schedule of doors, using the same
reference numbers for openings as those on the contract
drawings, indicating the core type, veneer grade, site,
location, and extent of hardware blocking, and other
pertinent data.
FOR INFORMATION AND RECORD:
Warranty: Submit written agreement on door manufacturer's
standard form signed by Manufacturer, Installer and
Contractor, agreeing to repair or replace defective doors
which have warped (bow, cup or twist) or which show
telegraphing of core construction below in lace veneers, or
do not conform to tolerance limitations of W.I.C.
Warranty shall be in effect for the life of the door.
MATERIALS
TYPE: Wood doors shall be flush panel, solid core and manufactured to
the standard of "Custom Grade" as defined in the manual of
Millwork of the Woodwork Institute of California (W.I.C.).
FLUSH PANEL DOORS:
Core construction particle board.
Veneer for opaque finish, any W.I.C. custom grade, closed grain,
hardwood at mill option.
EXECUTION
SEALING: Insure that top and bottom edges of doors are sealed when
they arrive at the job site.
INSTALLATION: Wood doors and finish hardware installed under section
06200 Finish Carpentry.
08710 FINISH HARDWARE
GENERAL: Finish Hardware within tenant suite.
MATERIALS:
FINISH HARDWARE SCHEDULE: all finishes to match existing building
hardware U.O.N.
HARDWARE GROUPS: To Be Determined
08800 GLASS AND GLAZING
GENERAL: Full Height Glass Partitions.
MATERIALS:
CLEAR GLASS: Conforming to Reference Standards FS-DD-G-451, Type 1,
Class 1, Quality q3, thickness and shown on drawings, tempered
where shown on drawings, PPG "Clear Glass".
SILICON GLAZING SEALANT: One-part, gun-grade, General Electric
"Silglaze" or equal.
Color: Black
GLAZING GASKETS: types and sizes as required, performed, premoulded
corners, as manufactured by F.H. Moloney, D.S. Brown, Kirkhill
Rubber, or equal.
Full-Density EPDM: Conforming to NAAMM Standard SG-1, 60-70
Shore A hardness, 25% compression set.
Closed-cell Neoprene: Capable of 24% - 40% compression.
GLAZING BLOCKS, SHIMS: Neoprene, 70-9- Shore A hardness.
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GLAZING TAPES: Types and sizes as required, 100% solids,
Polyisobutylene-butyl, preformed sealant tape, as manufactured by
Tremco, Pocora, or equal, black.
GLASS CUTTING: Cut all glass to proper size in accordance with
details, Reference Standards, and manufacturer's recommendations
for technique, tolerances, edge bit, clearance, and climatic
conditions.
EDGE TREATMENT: Edge treatment at butt-joint glazing will be flat
ground with 1/16" ground 45 degree seam and polished unless
otherwise shown on drawings.
DIMENSIONAL TOLERANCES: Glass shall comply with Reference Standard
except for the following:
Edge bow in open or closed joint butt-glazed situation shall not
cause misalignment of adjacent panels in excess of 1/8".
Width of joint dimension shall not vary within any butt-joint by
more than 1/16".
Width of joint dimension shall not vary from nominal dimension by
more than 1/16".
TEMPERING: All tempered glass shall be horizontally tempered and
waves shall be horizontal.
DIVISION 9: FINISHES
09110 METAL SUPPORT SYSTEMS
GENERAL: Interior walls, partitions and ceilings.
MATERIALS:
METAL STUDS: Standard (25) gage, sizes as shown on Drawings, punched
steel type, Milcor "Drywall Steel Studs", unless otherwise noted.
Steel: ASTM C-645, galvanized.
Track and Bridging: Standard (25) gage, unpunched type as
standard with manufacturer of metal studs.
Use at non-bearing partitions as detailed.
METAL STUDS: heavy (20) gage, sizes as shown on the Drawings, punched
steel type, USG "Type CWS", unless noted otherwise.
Steel: ASTM C-645, galvanized.
Track and Bridging: Type CWR, 20 gage, unpunched type as
standard with manufacturer of metal studs.
Use at non-bearing partitions as detailed.
TOP TRACK: Partition Specialties, Inc. "Tapeable Top Track" or
approved equal.
GYPSUM BOARD CEILING SUSPENSION SYSTEM: Direct suspension, United
States Gypsum, or equal.
Main Beam: 1/-1/2" cold rolled, 16 gage, galvanized for exterior
softits.
Furning Channel: 7/8" roll formed, 26 gage-shaped channel,
galvanized.
Miscellaneous Moldings, Clips, fasteners, Hanger Wire, etc.: As
recommended by manufacturer and approved by governing
authorities.
CHANNELS: 16 gage galvanized cold-rolled steel channels, sizes shown,
Milcor "Cold-Rolled Channel," or approved equal.
Deflection Channel at Partition Heads: 1-3/4" flanges.
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Bridging: Sized to fit stud cells.
FURRING CHANNELS: Standard 25 gage galvanized steel, Milcor "Drywall
Furring Channel", or approved equal.
HANGER AND TILE WIRE: galvanized steel wire conforming to federal
Standard QQ-W-461, finish 5, class 1, soft temper.
Hanger Wire: 10 gage
Diagonal Bracing Wire: 16 gage
Double-Strand Tie Wire: 18 gage
EXECUTION
Comply with the requirements of ASTM C 754 for installation of framing
to receive gypsum wallboard.
Full Height Partitions: Secure top and bottom runners at 24 inch
centers. Align to configuration required.
Install studs vertically at 24 inch centers and not more than 2 inches
from abutting construction, each side of openings, and at
corners.
Fit runners under and above openings secure intermediate studs at
spacing of wall studs.
09250 GYPSUM WALLBOARD SYSTEMS
GENERAL: Interior walls, partition and ceilings.
MATERIALS
GYPSUM BOARD: Paper-faced, type "SW" edges, ASTM C36, USG "Sheetrock
Firecode" (type "x") at non-fire-rated and fire-rated
construction.
MISCELLANEOUS ACCESSORIES:
Expansion Joint: USG #093.
Corner Bead: Metal reinforced paper, Beadex manufacturing Co.,
"Paper Bead".
Metal Trim: USG #200B.
Column Furring Clips: Parker Devices Inc., "PDI Single Step
Clips," or approval equal.
Miscellaneous Clips, Screed, and Fastenings: As recommended by
manufacturer of gypsum board and as approved by governing
authorities.
Caulk: Acrylic Latex type.
09510 ACOUSTICAL CEILING SYSTEM
DESCRIPTION: Provide new Suspended acoustical tile system as shown on drawings.
MATERIALS:
EXPOSED SUSPENSION SYSTEM: Direct suspension, double web T-bulb steel
construction; Donn Corporation "Supraline Grid".
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Size of Panel: 2 x 4
Perimeter Trim: Shadow Molding.
Finish: Manufacturer's standard white enamel finish, with white
painted recess.
ACOUSTICAL PANELS: Mineral fiberboard lay-in panels. Armstrong
"Second Look IV Supraline Score", No. 2767B, Tapered edge,
compatible with Donn ceiling system.
Size: 24 inches x 48 inches x 3/4 inch.
Flame Spread: UL labeled, 25 or under.
Noise reduction Coefficient: .50-.60.
Color: White
PLENURN BARRIER: Lead Sheet, 1/64" thickness, 1 pound per sq. ft.
weight, Acoustilead "Sound barrier".
09650 RESILIENT FLOORING
GENERAL: Flooring as indicated on drawings.
MATERIALS:
RESILIENT STRAIGHT BASE: Burke Rubber, 1/8" thickness, 2 1/2 high,
"Covered Base" at hard surfaces, "Carpet Base" at carpet areas.
RESILIENT TILE: Vinyl Composition, FS SS-T-312, Type IV, 12 x 12
inch, 1/8" gage. Armstrong Excelon, Imperial texture or approved
equal.
CARPET REDUCER STRIP: Mercer Plastics, "Royal Custom Edge #1" color
as shown on drawings.
EXECUTION:
Mix tiles from containers to ensure share variations are consistent.
Clean, seal and wax floor and base surface in accordance with
manufacturer's instructions.
09680 CARPET
GENERAL: Flooring as indicated on drawings. Manufacturer as listed on the
drawings or substitutions under provisions of section 01631.
FOR REVIEW:
Seaming diagram indicating carpet configuration in a manner to
show proper seams and pattern match.
Submit (2) samples of each type of carpet for Architect's
approval. 9" x9" minimum.
FOR INFORMATION AND RECORDS:
Warranty: submit a written warranty including, but not limited
to:
10 year wear warranty (including manufacturing defects such
as edge ravel and delamination)
Static Warranty
Tip Shear Warranty
MATERIALS:
Carpets as specified on the drawings.
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Provide 5% overage plus 110 additional square yards of each carpet
type for the owner's future use.
ACCESSORY MATERIALS
Sub-floor filler: Cementitions type recommended by carpet
manufacturer.
Primer and adhesives: Types recommended by carpet manufacturer
to suit application and expected service.
Edge strips:
Carpet to resilient and resinous floorings; rubber
tile/carpet joiner, Roppe Stock number 50; color #100
"Black."
Carpet to ceramic tile: Rubber tile/carpet joiner Roppe
Stock number 56; color #100 "Black".
Carpet Pad: Fairmont Dubl-Bac DB 1416.5/32" double stick pad.
Substitutions under provisions of Section 01631.
INSTALLATION:
Apply carpet and adhesive in accordance with manufacturers
instructions.
Check matching of carpet before cutting and ensure there is no visible
variation between dye lots.
Install carpet in configurations and colors indicated on drawings.
Cut carpet, where required, in manner to allow proper seams and
pattern match. Ensure cuts are straight, true and unfrayed. No
pieces less than 24 inches wide will be permitted.
Where possible and practical, locate seams in areas of least amount of
traffic.
Apply adhesive to edges of carpet at seams and join in manner so as
not to detract from the appearance of the carpet installation and
decrease its life expectancy. Ensure seams are straight, not
overlapped or peaked and free of gaps.
Spread adhesive in quantity recommended by manufacturer after primer
application to ensure proper adhesive over full area of
installation. Apply only enough adhesive to permit proper
adhesion of carpet before initial set.
Lay carpet on floors with the run of the pile in same direction of
anticipated traffic.
Do not change run of pile in any one room or from one room to next
where continuous through a wall opening.
Cut and fit carpet neatly around projection through floor and to walls
and other vertical surfaces.
Fit carpet snugly to walls or other vertical surfaces, leaving no
gaps.
Entire carpet installation is to be laid tight and flat to subfloor,
well fastened at edges, and present a uniform pleasing
appearance. Ensure monolithic color, pattern and texture match
within any one area.
Install edging strips where carpet terminates at other floor
coverings. Use full length pieces only. Butt tight to vertical
surfaces. Where splicing cannot be avoided butt ends tight and
flush.
Clean and vacuum all debris resulting from this work.
09900 PAINTING
GENERAL
PRIMING: All Millwork items and finish carpentry items (except
materials remaining natural) shall be primed immediately upon
arrival on job.
SUBSTITUTIONS: These specifications set quality standards. Kelley-
Moore Products have been used to give a basis for specifications.
In addition, painting material may be first line products of
Pratt and Lambert, Sherwin-Williams, National Lead, Sinclair, and
W.P. Fuller, providing the
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manufacturer submits a list of substituted items as they relate
to the specified items. Other manufacturers will be required to
submit technical data to the Architect for approval no later than
35 days after award of contract.
SCOPE: It is the intent that work under this section of the
specifications shall include the finishing of all surfaces
normally requiring a paint finish. Interior partitions, trims,
gypsum board ceilings, and all other items that are not factory-
finished and shop primed.
INSPECTIONS: Notify the Architect 24 hours prior to the time each
coat of finish is to be applied. Failure to so notify will cause
the work in question to be recoated or rejected. Obtain
Architect's approval of surface or finish prior to application of
each succeeding coat of finish.
COLOR SELECTION: The Architect will furnish to Contractor a complete
color schedule of paint colors for the project prior to
commencement of the painting operation. Color to be approved in
writing by the Architect prior to commencement of painting.
Colors will be chosen from the paint manufacturer's total range
of color mixes. The Contractor shall provide all requested color
information and samples required by the Architect for color
selection, including test samples of approved colors on the
building.
MATERIALS
PAINT SCHEDULE: Finish surfaces in accordance with the following schedule and
as further shown on the drawings. Material shown is Kelly Moore
unless shown otherwise.
INTERIOR GYPSUM BOARD
1st Coat: 970 Wall Sealer
2nd Coat: 555 acrylic flat wall paint
INTERIOR METAL DOORS AND FRAMES AND ALL EXPOSED FERROUS METALS
1st Coat: (touch up only if already primed) 1777 rust inhibiting
primer
2nd Coat: 1625 Alkyd Eggshell enamel
3rd Coat: (for doors and frames) 1625 Alkyd Eggshell enamel
INTERIOR GALVANIZED METAL
Each treatment:Yosemite Galvan Prime
1st Coat (touch up only if already primed) 1722 Galvanized iron
primer
2nd Coat: 1625 Eggshell enamel
EXECUTION
The workmanship shall be of the very best quality. All materials
shall be applied under adequate illumination, evenly spread, and
smoothly flowed on without runs or sags. Cut paint sharply to
lines. Only skilled mechanics shall be employed. Regardless of
number of coats specified the paint shall completely cover
material surface to Architect's satisfaction.
CLEAN-UP: After all work has been completed, the Contractor shall
clean up all debris resulting from his work and shall clean all
paint from all surfaces adjacent to his work, and leave the
premises in perfect condition, subject to acceptance by the
Owner. Remedy all work that is defective or defaced from any
cause, as directed by the Architect.
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FIRST AMENDMENT TO THE LEASE
DATED JUNE 11, 1998 BY AND BETWEEN
ASSET GROWTH PARTNERS, LTD AS LESSOR
AND PHARSIGHT CORPORATION AS LESSEE
This amendment, executed pursuant to Paragraph 3.4 of the Lease, shall establish
the following:
1) Lessor and Lessee agree that the Rent Commencement Date under the lease is
September 26, 1998.
2) The Expiration Date shall be September 25, 2003.
LESSOR: LESSEE:
ASSET GROWTH PARTNERS, LTD. PHARSIGHT CORPORATION
A CALIFORNIA LIMITED PARTNERSHIP A CALIFORNIA CORPORATION
BY: REES PROPERTIES, INC.
GENERAL PARTNER
/s/ Thomas J. Rees /s/ Robin A. Kehoe
- ----------------------------------- -----------------------------------
Thomas J. Rees By: Robin A. Kehoe
President Its: Chief Financial Officer
Date: 11/24/98 Date: November 19, 1998
---------------------------- ----------------------------
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SECOND AMENDMENT TO THE LEASE
DATED JUNE 11, 1998 BY AND BETWEEN
ASSET GROWTH PARTNERS, LTD AS LESSOR
AND PHARSIGHT CORPORATION AS LESSEE
This amendment dated December 10, 1999, shall amend the lease as follows:
1. As of January 1, 2000, the Premises shall be revised to include Suite 280,
measuring 5,160 rentable square feet and shown on the attached Exhibit A.
2. Rent for Suite 280 shall be per the following schedule:
January 1, 2000 - September 25, 2000 $20,124.00 ($3.90 per square foot)
September 26, 2000 - September 25, 2001 $20,485.20 ($3.97 per square foot)
September 26, 2001 - September 25, 2003 $21,001.20 ($4.07 per square foot)
3. As of the Suite 240 Commencement Date (as defined below), the Premises
shall be revised to include Suite 240, measuring 10,840 rentable square
feet and shown on the attached Exhibit A. Suite 240 is currently occupied
by Blue Pumpkin Software, who is expected to vacate the Premises on or
about January 31, 2000. The Suite 240 Commencement Date shall be ten (10)
calendar days after the space is vacated, which date shall be confirmed by
Lessor in writing to Lessee.
4. Rent for Suite 240 shall be per the following schedule:
Suite 240 Commencement Date -
September 25, 2000 $42,276.00 ($3.90 per square foot)
September 26, 2000 - September 25, 2001 $43,034.80 ($3.97 per square foot)
September 26, 2001 - September 25, 2003 $44,118.80 ($4.07 per square foot)
5. Operating Expense pass-throughs for Suite 240 and 280 will be based on
actual increases in building operating expenses over the Base Year 2000.
6. Lessee shall provide additional security deposit in the amount of
$62,400.00 upon the execution of this Amendment.
7. Lessor to repaint and clean carpets. Any other improvements to the
expansion premises shall be at Lessee's sole expense, and shall be subject
to Lessor's prior written approval as provided in the Lease. Lessor
warrants that all building systems in Suites 240 and 280 are in good repair
and operational.
8. All other terms and conditions of the Lease shall remain unchanged.
LESSOR: LESSEE:
ASSET GROWTH PARTNERS, LTD. PHARSIGHT CORPORATION
A CALIFORNIA LIMITED PARTNERSHIP A CALIFORNIA CORPORATION
BY: REES PROPERTIES, INC.
GENERAL PARTNER
/s/ Thomas J. Rees /s/ Robin A. Kehoe
- ----------------------------------- -----------------------------------
Thomas J. Rees By: Robin A. Kehoe
President Its: Chief Financial Officer
Date: 12/21/99 Date: 12/23/99
---------------------------- ------------------------------
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Exhibit 10.3
CO-OWNERSHIP AGREEMENT
THIS CO-OWNERSHIP AGREEMENT (the "Agreement") is by and between PHARSIGHT
CORPORATION, a California corporation having its principal place of business at
299 California Avenue, Suite 300, Palo Alto, CA. 94306 ("Pharsight") and
MITCHELL AND GAUTHIER ASSOCIATES, INC., a Delaware corporation having its
principal place of business at 200 Baker Avenue, Concord, Massachusetts 01742
("MGA"). This Agreement is effective as of May 27, 1998 (the "Effective Date").
Except as specified herein, all the capitalized terms used in this Agreement
shall retain the same meaning as defined in the Asset Purchase Agreement.
RECITALS
A. MGA owns certain computer software programs that are based on the
Advanced Continuous Simulation Language; and
B. MGA is willing to assign a fifty percent (50%) undivided interest in
certain of these software programs to Pharsight in conjunction with the
execution of the Asset Purchase Agreement to be entered into among Pharsight,
MGA, Edward E. L. Mitchell and Joseph S. Gauthier on this date (the "Asset
Purchase Agreement").
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS.
1.1 "ACSL Products" shall mean the object code version of the products
which are listed and described in Exhibit A.
1.2 "Derivative Work" shall mean a work which is based on the Software,
such as a revision, enhancement, modification, translation, abridgement,
condensation, expansion, or any other form in which the Software may be recast,
transformed, or adapted, and which, if prepared without authorization of the
owner of the copyright in the Software, would constitute a copyright
infringement. For purposes hereof, Derivative Work shall also include any
compilation that incorporates the Software.
1.3 "Golden Master" shall mean, with respect to a given software program,
program module, or documentation, a copy of such item that (i) is under source
code control, (ii) is complete and accurate, (iii) represents the producer's
best efforts to meet the applicable specifications, (iv) has passed all
applicable test procedures, and (v) complies with normal industry practices for
verification and duplication.
1.4 "Intellectual Property" means any or all of the following and all
statutory and/or common law rights throughout the world in, arising out of, or
associated therewith: (i) all patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures and improvements, all trade secrets, proprietary
information, know-how
1.
<PAGE>
and technology; (iii) all works of authorship, "moral rights", copyrights
(including derivative works thereof), mask works, copyright and mask work
registrations and applications; (iv) all industrial designs and any
registrations and applications therefor; (v) all trade names, logos, trademarks
and service marks, trademark and service mark registrations and applications
together with the good will of the business symbolized by the names and the
marks; (vi) all computer software and related documentation including all Source
Code, Object Code, firmware, installation programs, source code control
archives, development tools, test plans, test files, test data, build scripts,
file specifications, design and implementation documents, interface
specifications, requirements specifications, data bases, utilities, bug
databases, and all media on which any of the foregoing is recorded; (vii) any
similar, corresponding or equivalent rights to any of the foregoing; and (viii)
all goodwill associated with any of the foregoing.
1.5 "Intellectual Property Rights" shall mean any interest or right
protectable under the law of any country as to any form of Intellectual
Property.
1.6 "MGA Fields" shall mean all fields other than the Pharsight Fields.
1.7 "Object Code" shall mean the machine-executable object code form of
the Software.
1.8 "Pharsight Fields" shall mean the biotechnology, pharmaceutical
(including over-the-counter), veterinary, medical devices, environmental and
healthcare fields.
1.9 "Software" shall mean the computer programs which are listed and
described in Exhibit A, including any upgrades, updates, works in progress and
all associated documentation (existing as of the Effective Date), developed by
or for MGA and any other components, programs or utilities required for the
operation or execution thereof, except those identified in Exhibit D. Unless
otherwise specified, software shall include both Source Code and Object Code.
1.10 "Source Code" shall mean the human-readable source code version of
the Software and all related program documentation such that a programmer
reasonably skilled in the programming language could read, understand and modify
the Software.
2. ASSIGNMENT OF FIFTY PERCENT UNDIVIDED INTEREST.
2.1 Assignment. MGA hereby irrevocably assigns to Pharsight a fifty
percent (50%) undivided right, title and interest worldwide in and to the
Software including, without limitation, patents, copyrights, trade secrets and
any other Intellectual Property Rights (excluding any related trademarks and
trade names) incorporated in the Software, whether in the United States or
abroad. Pharsight acknowledges that MGA has not filed any patent applications
nor obtained any issued patents on the Software as of the Effective Date. It is
the intention of the parties that the Intellectual Property Rights (excluding
any related trademarks and trade names) in the Software shall be jointly owned
without any duty to account or share any royalties based on the licensing or use
of the Software by the other party and as permitted under Section 5.
2.2 Waiver or Assignment of Other Rights. If MGA has any rights in or to
the Software in which a fifty percent (50%) interest cannot be assigned to
Pharsight, MGA
2.
<PAGE>
unconditionally and irrevocably waives the enforcement of such rights, and all
claims and causes of action of any kind against Pharsight with respect to such
rights, and agrees, at Pharsight's request and expense, to consent to and join
in any action to enforce such rights. If MGA has any rights in or to the
Software that cannot be assigned to Pharsight or waived by MGA, MGA
unconditionally and irrevocably grants to Pharsight during the term of such
rights, an irrevocable, perpetual, worldwide, fully paid and royalty-free
license, with rights to sublicense through multiple levels of sublicensees, to
reproduce, create derivative works of, distribute, publicly perform and publicly
display by all means now known or later developed, such rights in or to the
Software.
2.3 Further Assistance. MGA agrees to cooperate with Pharsight or its
designee(s) in the procurement and maintenance of Pharsight's rights in the
Software and to execute, when requested, any other documents deemed necessary by
Pharsight to carry out the purpose of this Agreement. MGA agrees to execute a
signed transfer of a fifty percent (50%) undivided interest of copyright to
Pharsight in the form attached to this Agreement as Exhibit B for all Software
and related documentation.
2.4 Enforcement of Intellectual Property Rights. Upon reasonable request,
each party (the "Assisting Party") will assist the other party (the "Requesting
Party") in every proper way to obtain and from time to time enforce, United
States and foreign Intellectual Property Rights related to the Software in any
and all countries. To that end, the Assisting Party will execute, verify and
deliver such documents and perform such other acts (including appearances as a
witness) as the Requesting Party may reasonably request for use in applying for,
obtaining, perfecting, evidencing, sustaining and enforcing such Intellectual
Property Rights and the ownership of a fifty percent (50%) undivided interest
thereof. The Assisting Party's obligation to assist the Requesting Party with
respect to such Intellectual Property Rights relating to the Software in any and
all countries shall continue in perpetuity, but the Requesting Party shall
compensate the Assisting Party at a reasonable rate for the time actually spent
by such party in providing such assistance. In addition, the Assisting Party
will execute any license agreement requiring the names of both co-owners to make
the license enforceable.
2.5 Execution of Documents. In the event Pharsight is unable for any
reason, after reasonable effort, to secure MGA's signature on any document
needed in connection with the actions specified in Section 2.3 above, MGA hereby
irrevocably designates and appoints Pharsight and its duly authorized officers
and agents as its agent and attorney in fact, which appointment is coupled with
an interest, to act for and in its behalf to execute, verify and file any such
documents and to do all other lawfully permitted acts to further the purposes of
the preceding paragraph with the same legal force and effect as if executed by
MGA. Also, in the event the Requesting Party is unable for any reason, after
reasonable effort, to secure the Assisting Party's signature on any document
needed in connection with the actions specified in Section 2.4 above, the
Assisting Party hereby irrevocably designates and appoints the Requesting Party
and its duly authorized officers and agents as its agent and attorney in fact,
which appointment is coupled with an interest, to act for and in its behalf to
execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph with the same
legal force and effect as if executed by the Assisting Party.
3.
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2.6 Copyright Notice. MGA and Pharsight agree that all copies of the
Software and any Derivative Works, whether or not modified, made by MGA or
Pharsight, or their respective licensees or sublicensees, will contain
applicable proprietary notices. In addition, MGA and Pharsight agree to include
an applicable copyright notice in or on the media of all copies of the Software
or any Derivative Work.
2.7 Patent Applications. Notwithstanding the provisions of Section 7,
either party (the "Proposing Party") may prepare and file a patent application
for a Derivative Work in any country; provided that the Proposing Party (i)
notifies the other party (the "Co-Owner"), in writing, at least sixty (60) days
prior to submitting such patent application; (ii) describes the scope of the
proposed patent application and the countries in which it desires to seek patent
protection; and (iii) permits the Co-Owner to participate, at Co-Owner's
expense, in the prosecution of the patent. The ownership of the patent in a
particular country shall be proportional to the parties' contributions for the
payment of the patent prosecution and maintenance fees. In the event that the
Co-Owner elects not to participate in the patent prosecution, the Co-Owner shall
provide information reasonably necessary for the Proposing Party to prosecute
such patent applications, at the expense of the Proposing Party. If either party
("Abandoning Party") desires to abandon a patent application or a patent issued
thereto, such party shall provide the other party ("Objecting Party") with sixty
(60) days' prior written notice of its intent to abandon such application or
patent. If the Objecting Party desires to continue such prosecution or
maintenance of the patent, the Abandoning Party shall assign all right, title
and interest in and to the application and/or the issued patent to the Objecting
Party and the Objecting Party shall be the sole owner of the application and/or
the issued patent. Notwithstanding any of the foregoing, in no event shall any
issued patent, whether owned solely or jointly, preclude either party from
exercising its rights, exclusive or otherwise, in or to the Software as set
forth in this Agreement.
3. DELIVERY. Upon execution of this Agreement, MGA shall provide to Pharsight
five (5) Golden Masters of the Object Code, two (2) electronic copies of the
Source Code corresponding to the Golden Master Object Code, and five (5) Golden
Masters and two (2) printed copies of any end-user documentation for all
programs included in the Software. Without limiting the foregoing, MGA's
delivery shall include everything Pharsight needs to recreate the most current
released version, and every supported prior version, of each of the programs
included in the software for all currently supported platforms, including copies
of all firmware, installation programs, source code control archives,
development tools, test plans, test files, test data, build scripts, file
specifications, design and implementation documents, interface specifications,
requirements specifications, data bases, utilities, and bug databases.
4. LICENSE GRANTS.
4.1 MGA Grant to Pharsight. Subject to the terms and conditions of this
Agreement and except for the termination periods of the distribution agreements
referenced in Section 2.4 (a) (viii) of the Asset Purchase Agreement, MGA hereby
grants to Pharsight an exclusive (even as to MGA), perpetual, irrevocable,
worldwide, royalty-free license to use, reproduce, create Derivative Works of,
distribute, sublicense (through multiple tiers of sublicensees), perform and
publicly display the Software in the Pharsight Fields.
4.
<PAGE>
4.2 Pharsight Grant to MGA. Subject to the terms and conditions of this
Agreement, Pharsight hereby grants to MGA an exclusive (even as to Pharsight,
except as set forth in this provision), perpetual, irrevocable, worldwide,
royalty-free license to use, reproduce, create Derivative Works of, distribute,
sublicense (through multiple tiers of sublicensees), perform and publicly
display the Software in the MGA Fields. Notwithstanding the foregoing, Pharsight
hereby expressly reserves the right to use, reproduce, create Derivative Works
of, distribute, sublicense (through multiple tiers of sublicensees), perform and
publicly display the Software, and any Derivative Works thereof, in the MGA
Fields, incorporated in or bundled with an additional Pharsight product
(including, without limitation, ACSL BioMed or ACSL Tox) so long as the
resultant product (i) is designed for use in the Pharsight Fields and (ii)
represents an enhancement and/or transformation of the Software (with regard to
both value and function).
4.3 Trademark License. MGA hereby grants to Pharsight an unrestricted,
perpetual, irrevocable, exclusive (even as to MGA), royalty-free, world-wide
license to use all trademarks and trade names owned by MGA and associated with
the Software (herein the "Trademarks") in conjunction with any product designed
for use in the Pharsight Fields. Pharsight agrees to state in appropriate places
that the Trademarks are the trademarks of MGA and to include the symbols (TM)
and (R) as appropriate. Pharsight may grant sublicenses of its rights to use the
Trademarks provided such sublicensees have executed written agreements with
Pharsight containing terms and conditions substantially similar to those
contained herein. Pharsight agrees to maintain the quality of the software
products licensed using the Trademarks, to use the Trademarks in accordance with
guidelines and instructions as may be reasonably promulgated by MGA from time to
time, and to provide to MGA, upon reasonable request but no more often than once
per year, representative samples of product packaging using the Trademarks. MGA
agrees to take all actions reasonably necessary to protect Pharsight's rights in
the Trademarks including, without limitation: (i) maintaining all required
registrations; and (ii) promptly notifying Pharsight of any adverse use by a
third party of the Trademarks or of a mark or a name confusingly similar to the
Trademarks.
5. LICENSING OF THE SOFTWARE.
5.1 MGA Object Code Licenses. Pharsight acknowledges and agrees that MGA
may license the Object Code and/or MGA's Derivative Works in Object Code format
(herein "MGA Object Code") to third parties in accordance with its standard
licensing practices; provided that such licenses are granted only to third
parties in fields other than the Pharsight Fields and include prohibitions on
obtaining the Source Code through reverse engineering.
(a) Such MGA Object Code licenses may include a Source Code escrow
provision; provided that (i) a reputable Source Code escrow agency will maintain
the Source Code or the Source Code of the Derivative Work; (ii) the license to
use the Source Code or the Source Code of the Derivative Work in the event the
licensee rightfully receives the Source Code from the escrow agent shall be
restricted to fields other than the Pharsight Fields; and (iii) MGA agrees to
promptly notify Pharsight of any release of the Source Code or the Source Code
of the Derivative Work from the escrow account.
5.
<PAGE>
(b) To the extent necessary, such MGA Object Code licenses may
include provisions requiring MGA to provide the third party with interpreted
code for models, libraries, etc.
5.2 Pharsight Object Code Licenses. MGA acknowledges and agrees that
Pharsight may license the Object Code and/or Pharsight's Derivative Works in
Object Code format (herein Pharsight Object Code") to third parties in
accordance with its standard licensing practices; provided that such licenses
are granted only to third parties in the fields other than the MGA Fields and
include prohibitions on obtaining the Source Code through reverse engineering.
(a) Such Pharsight Object Code licenses may include a Source Code
escrow provision; provided that (i) a reputable Source Code escrow agency will
maintain the Source Code or the Source Code of the Derivative Work; (ii) the
license to use the Source Code or the Source Code of the Derivative Work in the
event the licensee rightfully receives the Source Code from the escrow agent
shall be restricted to fields other than the MGA Fields; and (iii) Pharsight
agrees to promptly notify MGA of any release of the Source Code or the Source
Code of the Derivative Work from the escrow account.
(b) To the extent necessary, such Pharsight Object Code licenses may
include provisions requiring Pharsight to provide the third party with
interpreted code for models, libraries, etc.
5.3 MGA Source Code Licenses. MGA acknowledges and agrees that in order to
maintain the economic value of the Software, any license entered into by MGA of
all or any portion of the Source Code or of any Derivative Work in Source Code
format (herein "MGA Source Code") shall be restricted as follows:
(a) All such licenses shall be in writing and executed by the third
party and shall include, at a minimum, provisions substantially similar to those
contained in Exhibit C;
(b) Pharsight shall be named as a third party beneficiary of such
licenses;
(c) The third party shall agree to use the MGA Source Code solely
for its internal purposes and agree to maintain written records of the location
of each copy of the MGA Source Code and permit audit of such records by MGA and
Pharsight;
(d) The licenses shall restrict the use of the MGA Source Code, and
any derivative works created by or for the third party, to the MGA Fields;
(e) MGA shall promptly send a copy of all such licenses to
Pharsight, although MGA may delete information relating to license fees and
other financial terms from such copies; and
(f) MGA agrees to report any violations by any third party of the
confidentiality, notice and other provisions that are important to maintain the
value of the Intellectual Property Rights in the Software and to assist
Pharsight in enforcing such provisions.
6.
<PAGE>
5.4 Pharsight Source Code Licenses. Pharsight acknowledges and agrees that
in order to maintain the economic value of the Software, any license entered
into by Pharsight of all or any portion of the Source Code or of any Derivative
Work in Source Code format (herein "Pharsight Source Code"), shall be restricted
as follows:
(a) All such licenses shall be in writing and executed by the third
party and shall include, at a minimum, provisions substantially similar to those
contained in Exhibit C;
(b) MGA shall be named as a third party beneficiary of such
licenses;
(c) The third party shall agree to use the Pharsight Source Code
solely for its internal purposes and agree to maintain written records of the
location of each copy of the Pharsight Source Code and permit audit of such
records by Pharsight and MGA;
(d) The licenses shall restrict the use of the Pharsight Source
Code, and any derivative works created by or for the third party, to the
Pharsight Fields;
(e) Pharsight shall promptly send a copy of all such licenses to
MGA, although Pharsight may delete information relating to license fees and
other financial terms from such copies; and
(f) Pharsight agrees to report any violations by any third party of
the confidentiality, notice and other provisions that are important to maintain
the value of the Intellectual Property Rights in the Software and to assist MGA
in enforcing such provisions.
5.5 No Other Transfer of Right, Title or Interest. Except as set forth in
Sections 5.1, 5.2, 5.3, 5.4 and 13.2, neither party shall grant any right, title
or interest in or to the Software or any Derivative Work without the prior
written consent of the other party, which consent shall not be unreasonably
withheld.
6. OWNERSHIP OF DERIVATIVE WORKS. Upon execution of this Agreement, MGA and
Pharsight shall each own a fifty percent (50%) undivided interest in and to the
Software as it exists on the Effective Date. After the Effective Date, each
party shall be the sole and exclusive owner of any right, title and interest in
or to any Derivative Works of the Software, including any Intellectual Property
Rights contained therein, created by or for such party, other than the original
Software.
7. CONFIDENTIALITY. The parties acknowledge and agree that the Source Code
contains valuable trade secrets and each party shall take all reasonable steps
to prevent unauthorized disclosure or use of the Source Code and to prevent it
from falling into the public domain (other than pursuant to a patent filing
related to a Derivative Work made in accordance with Section 2.7) or into the
possession of unauthorized persons. Except as provided in Sections 5.3 and 5.4
of this Agreement, neither party shall disclose the Source Code or any
Derivative Work in Source Code form, in whole or in part, to any person or
entity other than its officers, employees or contractors that have entered into
written confidentiality agreements with such party that protect the
confidentiality of the Source Code and/or the Source Code of the Derivative
Work. Each party shall give notice to the other party of any unauthorized use or
disclosure of the Source Code or Source Code of the Derivative Work and agrees
to assist the other party in
7.
<PAGE>
remedying any such unauthorized use or disclosure. This obligation shall not
extend to any Intellectual Property information in the Software if such
information (i) has been published or is otherwise readily available to the
public other than by a breach of this Agreement; (ii) has been rightfully
received from a third party without confidential limitations; (iii) has been
independently developed for the party by personnel or agents having no access to
the Source Code or Source Code of the Derivative Work; or (iv) was known to
Pharsight prior to Pharsight's first receipt of such information from MGA.
8. INFRINGEMENT BY THIRD PARTIES.
8.1 Prior Notice. The parties shall consult with each other prior to
filing any action alleging that a third party has infringed or misappropriated
any Intellectual Property Rights of the Software. The parties may agree to
jointly pay for the suit or otherwise share such costs and any resulting
liability or monetary judgment. Except as provided in Section 8.2, if no
agreement is reached within sixty (60) days, the party wishing to file such
action may do so, but shall pay the entire cost of such action and shall
indemnify and hold harmless the non-filing party from any claim, suit or
proceeding (including, without limitation, counterclaims) against such party
arising from the action brought by the filing party. If only one party decides
to proceed with an action and it prevails, that party shall be entitled to
retain the entire amount of any monetary award arising out of that action.
8.2 Immediate Relief. If one party believes that immediate relief is
necessary to protect the trade secrets or other Intellectual Property Rights in
and to the Software, it may, upon written notice to the other party, immediately
file an action to protect such rights. Unless the parties agree otherwise, the
party filing such an immediate action shall have the same rights and obligations
as if no agreement was reached between the parties and one party proceeded to
file a suit as provided in Section 8.1 above.
8.3 Indemnity. To be eligible for the indemnity under Section 8.1 above, a
party must give prompt written notice of any claim, suit or proceeding filed or
threatened against it and let the indemnifying party control the defense.
8.4 Assistance. If only one party files an action as provided in Section
8.1 or 8.2 above, the other party agrees to assist in such action so long as the
filing party pays its out-of-pocket expenses.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each party hereby represents and
warrants that (i) it will not grant, directly or indirectly, any rights or
interest in the Software to third parties that are inconsistent with the rights
assigned to, or retained by, the other party herein; and (ii) it has the full
right and power to enter into and perform this Agreement without the consent of
any third parties.
10. INDEMNITY. Each party (the "Indemnifying Party") shall indemnify and hold
harmless the other party, its officers, directors, employees, sublicensees,
customers, contractors and agents (the "Indemnitees") from any and all claims,
losses, liabilities, damages, expenses and costs (including attorneys' fees and
court costs) which result from a breach or an alleged breach of any
representation or warranty by the Indemnifying Party identified in Section 9
("Representations,
8.
<PAGE>
Warranties and Covenants") or any covenant by the Indemnifying Party set forth
in this Agreement.
11. SUPPORT OBLIGATIONS. In addition to the obligations set forth in this
Agreement, the parties hereby acknowledge and agree to provide the support
services set forth in the Support Appendix attached hereto.
12. TERM. Except as expressly provided herein, the terms of this Agreement shall
commence upon execution and continue in perpetuity.
13. GENERAL PROVISIONS.
13.1 Governing Law.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any dispute, claim or controversy of any nature arising out of
or relating to this Agreement, including without limitation any action or claim
based on tort, contract, statute, or for any other cause of action, and which
relates in any way to the interpretation, effect, termination, validity,
enforcement, performance and/or breach of this Agreement, shall be resolved by
final binding arbitration administered by the American Arbitration Association
("AAA"). The arbitration shall be conducted before a panel of three arbitrators
under the commercial arbitration rules of the AAA and shall be held at an AAA
facility (i) in Boston, Massachusetts, if brought by Buyer, and (ii) in Santa
Clara County, California, if brought by Sellers. The parties hereto agree that
all arbitrators serving on such panel must be available to serve on the panel in
accordance with the timetable of the arbitration.
(c) Not for the adjudication of any matters (other than judicial
review for fraud or undisclosed bias), but for the enforcement of an arbitration
award (which shall be brought in California if Buyer is enforcing the
arbitration award or in Massachusetts if one or more Sellers are enforcing the
arbitration award) or the granting of injunctive relief (which shall be brought
in Massachusetts if Buyer is seeking injunctive relief or in California if one
or more Sellers are seeking injunctive relief), the parties hereto irrevocably
elect as the sole two judicial forums for the adjudication of any matters
arising under or in connection with this Agreement, and consent to the
jurisdiction of, the courts of the State of California and the Commonwealth of
Massachusetts.
13.2 No Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties named herein and their respective successors and
permitted assigns. Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party in whole or in part without the prior
written consent of the other party. Notwithstanding the foregoing, either party
may assign this Agreement to an entity that acquires all or substantially all of
the assets of such party; provided that such permitted assignee agrees to be
bound by the terms hereof and to assume all obligations of the assigning party
hereunder.
9.
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13.3 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.4 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
13.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received (i) when delivered by hand, (ii)
five days after deposit in the United States mail if by certified mail, (iii) on
the next business day if sent by courier or express delivery service that
guarantees next business day delivery, or (iv) upon confirmation if sent by
facsimile, to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
If to MGA:
MITCHELL AND GAUTHIER ASSOCIATES, INC.
919 B Willowbrook Drive
Huntsville, Alabama 35802
Attention: President
Facsimile: (205) 883-5516
Copy to:
Richard Stein
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Facsimile: (617) 951-1295
If to Pharsight:
PHARSIGHT CORPORATION
299 California Ave.
Suite 300
Palo Alto, CA 94306
Attention: Arthur H. Reidel, President
Facsimile: (650) 462-5610
10.
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Copy to:
Cooley Godward LLP
5 Palo Alto Square
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile: (650) 857-0663
13.6 Legal Fees. If any dispute arises between the parties with respect to
the matters covered by this Agreement which leads to a proceeding to resolve
such dispute, the prevailing party in such proceeding shall be entitled to
receive its reasonable attorneys' fees, expert witness fees and out-of-pocket
costs incurred in connection with such proceeding, in addition to any other
relief it may be awarded.
13.7 Injunctive Relief. A breach of any of the promises or agreements
contained in this Agreement by one party may result in irreparable and
continuing damage to the other party for which there may be no adequate remedy
at law, and the non-breaching party is therefore entitled to seek injunctive
relief as well as such other and further relief as may be appropriate.
13.8 Waiver. No waiver by either party of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by either
party of any right under this Agreement shall be construed as a waiver of any
other right. The parties shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
13.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13.10 Entire Agreement. This Agreement, including the Exhibits and
Appendix attached hereto, together with the Asset Purchase Agreement, is the
final, complete and exclusive agreement of the parties with respect to the
subject matter hereof and supersedes and merges all prior discussions between
us. No modification of or amendment to this Agreement, nor any waiver of any
rights under this Agreement, will be effective unless in writing and signed by
the party to be charged.
IN WITNESS WHEREOF, the parties have caused this Co-Ownership Agreement to
be executed by their duly authorized representative.
PHARSIGHT CORPORATION:
/s/ Arthur H. Reidel
- ---------------------------------------
Arthur H. Reidel
- ---------------------------------------
(Printed Name)
By: Arthur H. Reidel
-----------------------------------
Title: President
-----------------------------------
MITCHELL AND GAUTHIER ASSOCIATES, INC.:
/s/ Michael Gauthier
- ---------------------------------------
Michael Gauthier
- ---------------------------------------
(Printed Name)
By: Michael Gauthier
-----------------------------------
Title: illegible
-----------------------------------
11.
<PAGE>
EXHIBIT A
ACSL SOFTWARE PROGRAMS
Existing products:
ACSL: A translator program, a system macro file, a run time library, a builder
program, a run time front end program, programs/procedures to install/uninstall
all of the preceding on all supported computer systems.
ACSL GM: A graphic modeling program, standard racks, programs/procedures to
install/uninstall all of the preceding on all supported computer systems.
ACSL Math: An analysis and visualization program, directories of standard
m-files, programs/procedures to install/uninstall all of the preceding on all
supported compute systems.
ACSL Optimize: The optimization extension of ACSL Math.
ACSL Viewer: The viewer extension of ACSL GM.
ACSL Model: A combination of ACSL, ACSL GM and ACSL MATH, bundled together for
marketing purposes.
ACSL Server: An interface to the model.prx file (the .dll file) that represents
the user model so that it can be driven and interrogated by an external program
such as Visual Basic or any other OLE driver. Only works on a PC.
ACSL Vision: This is ACSL bundled with a DataViews product that really only runs
on a Unix/X Windows system.
ACSL Real Time: A real-time system for a PC version that allows the user to
simulate plants (physical systems represented by differential equations) and
test out hardware controllers on these plants using a real-time clock.
1.
<PAGE>
EXHIBIT B
ASSIGNMENT OF COPYRIGHT
For good and valuable consideration which has been received, the
undersigned sells, assigns and transfers to Pharsight, a California corporation,
and its successors and assigns, a fifty percent (50%) undivided interest in the
copyright in and to the following work, which was created by the following
indicated author(s):
Title: ________________________________
Author(s): ____________________________
____________________________
Copyright Office Identification No. (if any): _________________________
and all of the right, title and interest of the undersigned, vested and
contingent, therein and thereto.
Executed this ________________ day of _________ , 1998.
Signature: _______________________________________
Printed Name: ____________________________________
1.
<PAGE>
EXHIBIT C
MINIMUM TERMS AND CONDITIONS
1. Ownership. The Software is licensed, not sold, to Licensee for use only under
the terms of this Agreement, and Licensor and its Co-owner reserve all rights
not expressly granted to Licensee. Licensee owns the media, if any, on which the
Software is recorded, but Licensor and its Co-owner retain ownership of all
copies of the Software itself.
2. Reservation of Rights. Except as stated above, this Agreement does not grant
Licensee any intellectual property rights in the Software.
3. Termination. Licensor shall have the right to terminate this Agreement in the
event Licensee materially breaches any term or condition herein. Licensee agrees
upon termination to promptly destroy the Software and all copies.
1.
<PAGE>
EXHIBIT D
SOFTWARE EXCEPTIONS
Watcom Fortran from Sybase Corporation (formerly Powersoft)
GRG2 Software from Windward Technology
FlexLM Software from Globetrotter (formerly Highland Software)
MainWin Software from
Mainsoft
1.
<PAGE>
SUPPORT APPENDIX
This Support Appendix sets forth the terms and conditions pursuant to
which MGA and Pharsight will provide support and training services to the other
party related to the MGA Restricted Software and shall be incorporated by
reference into the Co-Ownership Agreement. Such terms and conditions are
applicable only to the support and training services described below. All
capitalized terms used in this Appendix shall retain the same meaning as defined
in the Co-Ownership Agreement and/or the Asset Purchase Agreement.
1. TYPES OF SUPPORT
1.1 Mutual Support.
a. Support and Training. Each party will provide to the other party
support and training related to the MGA Restricted Software.
b. Ownership. Any new inventions, discoveries or developments
jointly conceived by the parties resulting from the support or training provided
under this Support Appendix shall be "co-owned" by the parties pursuant to the
terms and conditions of the Co-Ownership Agreement.
c. Travel and Expenses. Travel and expenses, if any, shall be
pre-approved and paid by the party requesting the support or training.
1.2 MGA Transition Support. Pharsight will provide limited assistance to
MGA for transitioning MGA's business to Huntsville, Alabama. Such assistance may
include the following:
a. Assistance with moving, copying and storing development tools and
programs.
b. Assistance with electronic file transmissions.
c. Assistance transitioning MGA's website, mail server, media
duplication and information technology.
d. Assistance shipping computers to Huntsville, Alabama and support
in re-activating them
1.3 MGA Unix and VAX ACSL Support. MGA shall provide to Pharsight
"support and maintenance" for existing customers in the Pharsight Fields using
Unix and VAX-based ACSL software. "Support and Maintenance" means (a)
second-tier customer support; and (b) assisting Pharsight developers with bug
fixes and resolving technical questions.
a. MGA shall provide second-tier customer support to Pharsight
consisting of the following:
(i) MGA to ensure a maximum of four hour initial response on
incoming technical support-related calls during normal business hours.
1.
<PAGE>
(ii) MGA to respond to email support questions within 24
hours, excluding weekends and holidays.
b. New releases, upgrades and/or bug fixes provided by MGA shall be
subject to the indemnification provisions of the Asset Purchase Agreement for
3rd party claims based upon infringement.
2. LIMITATIONS ON SUPPORT AND TRAINING.
2.1 Support. Support provided by one party to the other during the first
3 months following the Closing shall not exceed 80 person-hours and thereafter
shall not exceed 15 person-hours per month or a total of 225 person-hours over
the term of this Support Appendix. Additional support in excess of these amounts
may be provided, at the discretion of the providing party, at such party's
then-current support rates.
2.2 Training. Pharsight employees Sining Fang, Mike Dunlavey and Ken
Busch will be available, upon reasonable request, for a combined total of 90
hours to provide training to MGA related to the MGA Restricted Software during
the first 6 months following the Closing. A comparable number of hours actually
used by MGA for such training shall be provided by MGA to Pharsight for
additional support and/or training upon reasonable request.
3. TERM AND TERMINATION.
3.1 Term. The obligations of this Support Appendix shall commence on date
of closing and continue for a period of two (2) years.
3.2 Termination for Breach. Either party may terminate this Support
Appendix upon thirty (30) days' written notice of a material breach of this
Support Appendix if such breach is not cured within such thirty (30) day period.
4. WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE SUPPORT AND
TRAINING SERVICES PROVIDED IN THIS SUPPORT APPENDIX ARE PROVIDED ON AN "AS IS"
BASIS WITHOUT ANY WARRANTY WHATSOEVER, AND EACH PARTY EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS, IMPLIED, AND STATUTORY INCLUDING WITHOUT LIMITATION THE
IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT OF THIRD PARTY
RIGHTS AND FITNESS FOR A PARTICULAR PURPOSE.
5. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY
LOSS OF USE, INTERRUPTION OF BUSINESS OR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE
FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY OR OTHERWISE RELATED TO THE PERFORMANCE OF THIS SUPPORT APPENDIX, EVEN
IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
2.
<PAGE>
Exhibit 10.4
NONCOMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT (the "Agreement") is made this 27th day of
May, 1998, by and between PHARSIGHT CORPORATION, a California corporation
("Pharsight"), and Joseph S.Gauthier ("Gauthier").
RECITALS
Gauthier is a substantial shareholder of MITCHELL AND GAUTHIER ASSOCIATES,
INC., a Delaware corporation ("the Company"). Pharsight, the Company, Edward E.
L. Mitchell and Gauthier have entered into an Asset Purchase Agreement dated as
of even date hereof (the "Acquisition Agreement") providing for the acquisition
(the "Acquisition") by Pharsight of certain of the assets of the Company (the
"Acquired Assets"), and the assumption of specified liabilities of the Company.
In connection therewith, Gauthier has agreed not to compete with Pharsight in
the manner and to the extent herein set forth. Gauthier is entering into this
Agreement as an inducement to Pharsight to execute the Acquisition Agreement and
consummate the Acquisition, with all of the attendant financial benefits to
Gauthier as a shareholder of the Company, and for the other consideration set
forth herein.
AGREEMENT
In consideration of the mutual covenants herein contemplated and intending
to be legally bound hereby, Pharsight and Gauthier agree as follows:
1. Acknowledgements by Gauthier. Gauthier acknowledges that by virtue of
his position with the Company he has developed considerable expertise in the
business operations of the Company and has had access to extensive confidential
information with respect to the Company. Gauthier recognizes that Pharsight
would be irreparably damaged, and its substantial investment in the Acquired
Assets materially impaired, if Gauthier were to enter into an activity competing
with Pharsight's business in violation of the terms of this Agreement or if
Gauthier were to disclose or make unauthorized use of any confidential
information concerning the Acquired Assets or the business of the Company
conducted with the Acquired Assets. Accordingly, Gauthier expressly acknowledges
that he is voluntarily entering into this Agreement and that the terms and
conditions of this Agreement are fair and reasonable to Gauthier in all
respects.
2. Confidentiality. Gauthier hereby agrees that, for a period of ten (10)
years from the date hereof, he will hold in confidence and not disclose to any
third party without the prior written consent of Pharsight, any material or
other information that contains trade secrets or information that has otherwise
been treated as confidential by the Company and related to the Acquired Assets
or treated as confidential by Pharsight (the "Confidential Information").
Gauthier further agrees that during this period of time, without the prior
written consent of Pharsight, he will not: (a) transfer the Confidential
Information to any third party; (b) use the Confidential Information for any
purpose other than the benefit of the Company or Pharsight; or
<PAGE>
(c) assist any person other than Pharsight to secure any benefit from the
Confidential Information. Gauthier further agrees that, at any time Pharsight
requests, he shall return to Pharsight all documents and materials of any nature
containing Confidential Information, and shall not make, retain or give to any
other person or entity any copies thereof.
3. Non-competition. Until two (2) years after the date hereof, Gauthier
shall not, directly or indirectly, without the prior written consent of
Pharsight, (i) own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be connected
as an officer, director, employee, partner, principal, agent, representative,
consultant, licensor or otherwise with, any business or enterprise engaged in
any business which is competitive with the business of the Company, within each
of the geographical units which are listed in Appendix A hereto (the
"Territory"), or (ii) engage in any other manner, within the Territory, in any
business which is competitive with the business of the Company. For the purposes
of this Section 3, the "business of the Company" shall be defined as set forth
in Appendix B hereto. Notwithstanding the above, Gauthier shall not be deemed to
be engaged directly or indirectly in any business in contravention of
subparagraphs (i) or (ii) above, if: (x) Gauthier participates in any such
business solely as a passive investor in up to 1% of the equity securities of a
company or partnership, the securities of which are publicly traded; (y)
Gauthier is employed by a business or enterprise that is engaged primarily in a
business other than the business of the Company and Gauthier takes scrupulous
care not to and does in fact not apply his expertise at such business or
enterprise to that part of such business or enterprise that is or could be
competitive with the business of the Company; or (z) Gauthier is employed by a
large multi-divisional business, one or more divisions of which compete with the
Company's business, and Gauthier takes scrupulous care not to and does in fact
not consult with or otherwise apply his expertise at such division(s) of
business which compete with the Company's business.
4. Non-interference. Gauthier further agrees that until two (2) years
following the date hereof he will not, without the prior written consent of
Pharsight, (i) interfere with the business of Pharsight by soliciting,
attempting to solicit, inducing, or otherwise causing any employee or consultant
of Pharsight to terminate his or her employment as such in order to become an
employee, consultant or independent contractor to or for any business that
competes with the business of Pharsight or to or for any company with which
Gauthier is associated in any way; or (ii) induce or attempt to induce any
customers, suppliers, distributors, resellers, or independent contractor of
Pharsight to terminate their relationships with, or to take any action that
would be disadvantageous to the business of, Pharsight.
5. Consideration. In addition to the consideration set forth in the
recitals to this Agreement, as consideration for the obligations of Gauthier
under this Agreement, Pharsight shall pay to Gauthier, in cash, (i) on the first
anniversary of the date of this Agreement, the amount of $135,000, and (ii) on
the second anniversary of the date of this Agreement, the amount of $145,000.
The amounts payable hereunder are subject to Pharsight's right of setoff as set
forth in Section 6.8 of the Acquisition Agreement.
6. Independence of Obligations. The covenants of Gauthier set forth in
this Agreement shall be construed as independent of any other agreement or
arrangement between Gauthier, on the one hand, and Pharsight or any of its
subsidiaries, on the other, and the
2
<PAGE>
existence of any claim or cause of action by Gauthier against Pharsight or any
of its subsidiaries shall not constitute a defense to the enforcement of such
covenants against Gauthier.
7. Equitable Relief. Gauthier expressly acknowledges that damages alone
will not be an adequate remedy for any breach by Gauthier of the covenants set
forth in Sections 2, 3, and 4 hereof and that the other parties hereto, in
addition to any other remedies which they may have, whether at law, in equity,
by contract or otherwise, shall be entitled, as a matter of right, to injunctive
relief, including specific performance, in any court of competent jurisdiction
with respect to any actual or threatened breach by Gauthier of any of said
covenants.
8. Severability, etc.
a. If any provision of this Agreement or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (i) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdiction shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity of
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
b. The parties intend that the covenant contained in Section 3 above
shall be construed as a series of separate covenants, one for each geographical
unit specified. Except for geographical coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in Section 3 above.
If, in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this Agreement, then the unenforceable
covenant shall be deemed eliminated from these provisions for the purpose of
those proceedings to the extent necessary to permit the remaining separate
covenants to be enforced.
9. Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received (i) when delivered by hand, (ii)
five days after deposit in the United States mail if by certified mail, (iii) on
the next business day if sent by courier or express delivery service that
guarantees next business day delivery, or (iv) upon confirmation if sent by
facsimile, to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
3
<PAGE>
If to Gauthier:
Joseph S. Gauthier
MITCHELL AND GAUTHIER ASSOCIATES, INC.
919 B Willowbrook Drive
Huntsville, Alabama 35802
Facsimile: (205) 883-5516
Copy to:
Richard Stein
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Facsimile: (617) 951-1295
If to Pharsight:
PHARSIGHT CORPORATION
299 California Ave.
Suite 300
Palo Alto, CA 94306
Attention: Arthur H. Reidel, President
Facsimile: (650) 462-5610
Copy to:
Cooley Godward LLP
5 Palo Alto Square
Palo Alto, California 94306
Attention: Andrei M. Manoliu, Esq.
Facsimile: (650) 857-0663
10. Waiver of Breach. The failure or delay by Pharsight in enforcing any
provision of this Agreement shall not operate as a waiver thereof, and the
waiver by Pharsight or a breach of any provision of this Agreement by Gauthier
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof. All waivers shall be in writing and signed by the party to be
bound.
11. Assignment. This Agreement shall be assignable by Pharsight only to
any person, firm or corporation which may become a successor in interest by
purchase, merger or otherwise to Pharsight or the business operated by
Pharsight. This Agreement is not assignable by Gauthier.
12. Entire Agreement; Amendment. This Agreement represents the entire
agreement and understanding of the parties with respect to the subject matter
hereof and
4
<PAGE>
supersede all prior agreements and understandings of the parties in connection
therewith. It may not be altered or amended except by an agreement in writing
signed by the parties to be bound.
13. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Pharsight and its permitted successors and assigns and Gauthier and
Gauthier's heirs and legal representatives.
14. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts as
applied to contracts entered into between Massachusetts residents and to be
performed entirely within Massachusetts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
/s/ Joseph S. Gauthier
--------------------------------------
Joseph S. Gauthier
PHARSIGHT CORPORATION,
a California corporation
By: /s/ Arthur H. Reidel
-----------------------------------
Gauthier Noncompetition Agreement
5
<PAGE>
APPENDIX A
TERRITORY
(1) Each county of Massachusetts, (2) all other states and territories of
the United States of America and provinces and territories of Canada, and (3)
any foreign country or territory in which the business of Pharsight is carried
on, or in which Pharsight intends to carry on business, as evidenced by
Pharsight's policy of seeking trademark protection for its product names or
otherwise.
6
<PAGE>
APPENDIX B
BUSINESS
The "business of Pharsight" consists of
(1) the development and marketing of software tools for distribution and
licensing on a commercial basis to third parties for use in (i) the
design, execution, management, and analysis of clinical drug trials and
pre-clinical drug investigations, (ii) the simulation and modeling of
clinical trials and pharmacokinetic and pharmacodynamic data and
relationships, (iii) information management related to clinical and
pre-clinical drug development programs, and (iv) the creation and
maintenance of clinical and pre-clinical data repositories and retrieval
systems and other pharmaceutical information management systems; and
(2) the provision of consulting services in the foregoing areas.
7
<PAGE>
Exhibit 10.5
LOAN AND SECURITY AGREEMENT
PHARSIGHT CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1 ACCOUNTING AND OTHER TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2 LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.1 Advances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.2 Overadvances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.3 Interest Rate, Payments. . . . . . . . . . . . . . . . . . . . . . . . . .4
2.4 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3 CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Conditions Precedent to Initial Advance. . . . . . . . . . . . . . . . . .5
3.2 Conditions Precedent to all Advances.. . . . . . . . . . . . . . . . . . .5
4 CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . .5
4.1 Grant of Security Interest.. . . . . . . . . . . . . . . . . . . . . . . .5
5 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . .5
5.1 Due Organization and Authorization.. . . . . . . . . . . . . . . . . . . .5
5.2 Collateral.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.3 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.4 No Material Adverse Change in Financial Statements.. . . . . . . . . . . .6
5.5 Solvency.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.6 Regulatory Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.7 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.8 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.1 Government Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.2 Financial Statements, Reports, Certificates. . . . . . . . . . . . . . . .7
6.3 Inventory; Returns.. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.6 Primary Accounts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.7 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.8 Further Assurances.. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.1 Dispositions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.2 Changes in Business, Ownership, Management or Business
Locations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.3 Mergers or Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . .9
7.4 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.5 Encumbrance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.6 Distributions; Investments.. . . . . . . . . . . . . . . . . . . . . . . .9
7.7 Transactions with Affiliates.. . . . . . . . . . . . . . . . . . . . . . .9
7.8 Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.9 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.1 Payment Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.2 Covenant Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.3 Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
8.4 Attachment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 Insolvency.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.6 Other Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.7 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.8 Misrepresentations.. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9 BANK'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Accounts Collection. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4 Bank Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.5 Bank's Liability for Collateral. . . . . . . . . . . . . . . . . . . . . 12
9.6 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.7 Demand Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . 12
12 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.1 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . . 13
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.3 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.4 Severability of Provision. . . . . . . . . . . . . . . . . . . . . . . . 13
12.5 Amendments in Writing, Integration.. . . . . . . . . . . . . . . . . . . 13
12.6 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.7 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.9 Attorneys' Fees, Costs and Expenses. . . . . . . . . . . . . . . . . . . 14
13 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE>
THIS LOAN AND SECURITY AGREEMENT dated January 18, 2000, between
SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and PHARSIGHT CORPORATION
("Borrower"), whose address is 800 W. El Camino Real, Suite 200,
Mountain View, California 94040 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.
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 Advances not exceeding the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base. Amounts borrowed under this
Section may be repaid and reborrowed without penalty or premium during the term
of this Agreement.
(b) To obtain an 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 Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based
on instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank
reasonably believes is a Responsible Officer or designee. Borrower will
indemnify Bank for any loss Bank suffers due to such reliance, except for any
loss resulting from Bank's gross negligence or intentional misconduct.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
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 Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate of 1 percentage point above the Prime
Rate. After and during the continuance of an Event of Default, Obligations
accrue interest at 4 percent 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 due on the Committed Revolving Line is payable
on the 15th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number 3300027682 for principal and interest payments owing or
any amounts Borrower owes Bank. Bank will promptly notify
<PAGE>
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.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$9,750 due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and reasonable expenses) incurred through and after the date of this
Agreement, are payable when due.
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, as
specified herein.
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 of Section 5 remain materially
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. In the event of and during the continuance of an Event of Default,
Bank may place a "hold" on any deposit account pledged as Collateral. If this
Agreement is terminated, Bank's lien and security interest in the Collateral
will continue until Borrower fully satisfies its Obligations.
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, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.
<PAGE>
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation 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 reasonably be expected to cause a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The 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.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision could
reasonably be expected to 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 in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to 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 have timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary have 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, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
<PAGE>
5.8 FULL DISCLOSURE.
No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements 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. It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause 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 would reasonably be
expected to have a material adverse effect on Borrower's business or operations
or would reasonably be expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) 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 and certified by a Responsible Officer
reasonably acceptable to Bank; (ii) as soon as available, but no later than 120
days after the last day 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 reasonably acceptable to Bank; (iii) a prompt report of
any legal actions pending or threatened against Borrower or any Subsidiary in
which a likely adverse determination could reasonably be expected to result in
damages or costs to Borrower or any Subsidiary of $250,000 or more; and (iv)
promptly, but in no event within 3 Business Days, budgets, sales projections,
operating plans or other financial information as Bank reasonably from time to
time requests.
(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) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than every year 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
<PAGE>
practices as they exist at execution of this Agreement. 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 unless contested in
good faith and Borrower has adequate reserve under GAAP and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are customary for companies in
Borrower's industry. All property policies will have a lender's loss payable
endorsement showing Bank as an additional 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
reasonable 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.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month, unless otherwise
noted:
(i) QUICK RATIO (ADJUSTED). A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.80 to 1.00.
(ii) QUARTERLY NET INCOME. Quarterly net income before taxes of not
less than 70% of that approved plan by the Borrower's Board of Directors as
attached hereto by Borrower as Schedule I (to be tested on a quarterly basis).
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank reasonably 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 Bank's prior written
consent, which will not be unreasonably withheld:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
<PAGE>
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 reasonably related
thereto or have a material change in its ownership or management (other than the
sale of Borrower's equity securities in a public offering or to venture capital
investors reasonably acceptable to Bank) of greater than 49% Borrower will not,
without at least 30 days prior written notice, relocate its chief 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, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) result in a decrease of more than 25% of Tangible Net Worth.
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 Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
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. 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.
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, which consent
shall not be unreasonably withheld.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or 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 reasonable be
expected to have a material adverse effect on Borrower's
<PAGE>
business or operations or would reasonably be expected to 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.
If 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 Advance will be made during the cure period);
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 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 within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, 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.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral (other than normal depreciation) which is not covered by adequate
insurance or (ii) if the Bank determines, based upon information available to it
and in its reasonable judgment, that there is a reasonable likelihood that
Borrower will fail to comply with one or more of the financial covenants in
Section 6 during the next succeeding financial reporting period.
8.4 ATTACHMENT.
If 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, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if 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.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 45 days (but no Advances will be made before any
Insolvency Proceeding is dismissed);
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;
<PAGE>
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); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement as of the date made in any warranty
or representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
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 is commercially reasonable and 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 requires and make it available as Bank
reasonably 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; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only 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
<PAGE>
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 in its reasonable judgement. 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 and Section 9-207 of
the Code, it is not liable 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 when in Borrower's control and possession.
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 guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about 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 to the addresses set forth 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.
<PAGE>
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF 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 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.
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, with respect to (a) and (b) above, 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.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement 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, constitute 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.
<PAGE>
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 business 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 reasonably considers appropriate 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 reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"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 loan advance (or advances) under the
Committed Revolving Line.
"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.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs and
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 as 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.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
<PAGE>
"COMMITTED REVOLVING LINE" is an Advance of up to $1,500,000.
"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.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contract 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;
BUT Bank may change eligibility standards by giving Borrower notice. Unless
Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days (60
days for Foreign Accounts as defined in (e) below) 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 the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States ("Foreign Accounts"), which in the
aggregate exceed 35% of total Accounts;
(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;
(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;
<PAGE>
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"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.
"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" are proceedings 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.
"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.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or 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.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
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.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(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;
(e) Indebtedness secured by Permitted Liens;
<PAGE>
(f) Other Indebtedness of Borrower, not exceeding $100,000 in the
aggregate at any time outstanding; and
(g) Extensions, renewals, refunding, refinancing, modifications,
amendments and restatements of the 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 on the Borrower.
"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; and
(c) Other Investments not exceeding $250,000 in the aggregate at any
time.
"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;
(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 and any interest or title of a lessor,
licensor or under any lease or license, 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.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"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, plus accounts receivable.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is January 18, 2001.
<PAGE>
"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).
"SUBSIDIARY" is for any Person, 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.
"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.
BORROWER:
PHARSIGHT CORPORATION
By: /s/ Robin A. Kehoe
-----------------------------------
Title: CFO
--------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ R. Bryan Jadot
-----------------------------------
Title: AVP
--------------------------------
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all 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;
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;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights 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, 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;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; 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
and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyrights, copyright applications, copyright registration and
like protection in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; any
patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, trademarks, servicemarks
and applications therefor, whether registered or not, and the goodwill of the
business of Borrower connected with and symbolized by such trademarks, 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 damage by way
of any past, present and future infringement of any of the foregoing
(collectively, the "Intellectual Property"), except that the Collateral shall
include the proceeds of all the Intellectual Property that are accounts,
(i.e. accounts receivable) of Borrower, or general intangibles consisting of
rights to payment, if a judicial authority (including a U.S. Bankruptcy
Court) holds that a security interest in the underlying Intellectual Property
is necessary to have a security interest in such accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property, then
the Collateral shall automatically, and effective as of the Closing Date,
include the Intellectual Property to the extent necessary to permit
perfection of Bank's security interest in such accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property.
<PAGE>
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: Pharsight Corporation
-----------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-----------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
---------------------------------------------------------
PHONE NUMBER:
-----------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
---------------- ----------------------------------
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
-------------------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------------------
INTEREST PAYMENT (ONLY) $
-------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-------------------------------------
</TABLE>
OTHER INSTRUCTIONS:
-----------------------------------------------------------
- ------------------------------------------------------------------------------
All Borrower's representations and warranties in the 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.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
BANK USE ONLY
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)
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- ------------------------------------------------------------------------------
Borrower: Pharsight Corporation Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $1,500,000
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due (60 days for Foreign Accounts) $_________
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 #14) $_________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $_________
*in excess of 35% of the total Accounts.
BALANCES
17. Maximum Loan Amount $_________
18. Total Funds Available: Lesser of #17 or #16 $_________
19. Present balance owing on Line of Credit $_________
20. Outstanding under Sublimits ( none ) $_________
21. RESERVE POSITION (#18 minus #19 and #20) $_________
</TABLE>
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:
_________________________
BANK USE ONLY
Rec'd By:____________
Auth. Signer
Pharsight Corporation Date:________________
Verified:____________
By:____________________________ Auth. Signer
Authorized Signer
Date:________________
_____________________
_________________________
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: PHARSIGHT CORPORATION
The undersigned authorized officer of Pharsight Corporation ("Borrower")
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.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
<S> <C> <C> <C>
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
A/R & A/P Agings Monthly within 20 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a monthly basis (unless otherwise noted):
Minimum Quick Ratio (Adjusted) 1.80:1.00 ____:1.00 Yes No
Quarterly Net Income* Yes No
</TABLE>
* Borrower shall maintain quarterly net income before taxes at least 70% of
the approved plan by the Borrower's Board of Directors as attached hereto
as Schedule I (tested quarterly).
<TABLE>
<S> <C>
___________________________________
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Received by:____________________
Sincerely, AUTHORIZED SIGNER
Date:
Pharsight Corporation Verified:_______________________
AUTHORIZED SIGNER
___________________________________
SIGNATURE Date:___________________________
___________________________________ Compliance Status: Yes No
TITLE ___________________________________
___________________________________
DATE
</TABLE>
<PAGE>
[Logo]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: PHARSIGHT CORPORATION
LOAN OFFICER: BRYAN JADOT
DATE: JANUARY 18, 2000
REVOLVING LOAN FEE $9,750.00
CREDIT REPORT 35.00
UCC SEARCH FEE 200.00
UCC FILING FEE 40.00
DOCUMENTATION FEE 1,000.00
LEGAL FEE 250.00
TOTAL FEE DUE $11,275.00
------------- ==========
PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{X} DEBIT DDA # 3300027682 FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
BORROWER:
BY: /s/ Robin A. Kehoe
-----------------------------------
(AUTHORIZED SIGNER)
/s/ R. Bryan Jadot 1/26/00
- ---------------------------------------
SILICON VALLEY BANK (Date)
ACCOUNT OFFICER'S SIGNATURE
<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of January 18, 2000 by and
between Pharsight Corporation ("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. Borrower 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 or 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 of the
same, including without limitation the patents and patent
applications;
f. Any trademark and servicemark 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, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual property
rights identified above;
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
Copyrights, Trademarks, Patents, or Mask Works; and
j. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;
<PAGE>
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 Corporation
By: /s/ Robin A. Kehoe
----------------------------
Name: Robin A. Kehoe
--------------------------
Title: Chief Financial Officer
-------------------------
BANK:
SILICON VALLEY BANK
By: /s/ R. Bryan Jadot
----------------------------
Name: R. Bryan Jadot
--------------------------
Title: AVP
-------------------------
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: PHARSIGHT CORPORATION BANK: SILICON VALLEY BANK
800 W. EL CAMINO REAL 3003 TASMAN DRIVE
SUITE 200 SANTA CLARA, CA 95054-1191
MOUNTAIN VIEW, CA 94040
I, THE SECRETARY OR ASSISTANT SECRETARY OF PHARSIGHT CORPORATION ("BORROWER"),
CERTIFY that Borrower is a corporation existing under the laws of the State of
California.
I certify that at a meeting of Borrower's Directors (or by other authorized
corporate action) duly held the following resolutions were adopted.
It is resolved that ANY ONE of the following officers of Borrower, whose name,
title and signature is below:
NAMES POSITIONS ACTUAL SIGNATURES
_________________________ _________________________ __________________________
_________________________ _________________________ __________________________
_________________________ _________________________ __________________________
_________________________ _________________________ __________________________
may act for Borrower and:
BORROW MONEY. Borrow money from Silicon Valley Bank ("Bank").
EXECUTE LOAN DOCUMENTS. Execute any loan documents Bank requires.
GRANT SECURITY. Grant Bank a security interest in any of Borrower's
assets.
NEGOTIATE ITEMS. Negotiate or discount all drafts, trade acceptances,
promissory notes, or other indebtedness in which Borrower has an interest
and receive cash or otherwise use the proceeds.
LETTERS OF CREDIT. Apply for letters of credit from Bank.
FOREIGN EXCHANGE CONTRACTS. Execute spot or forward foreign exchange
contracts.
ISSUE WARRANTS. Issue warrants for Borrower's stock.
FURTHER ACTS. Designate other individuals to request advances, pay fees
and costs and execute other documents or agreements (including documents or
agreement that waive Borrowers right to a jury trial) they think necessary
to effectuate these Resolutions.
Further resolved that all acts authorized by these Resolutions and performed
before they were adopted are ratified. These Resolutions remain in effect and
Bank may rely on them until Bank receives written notice of their revocation.
I certify that the persons listed above are Borrower's officers with the titles
and signatures shown following their names and that these resolutions have not
been modified are currently effective.
CERTIFIED TO AND ATTESTED BY:
X ______________________________________________
*Secretary or Assistant Secretary
X ______________________________________________
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
<PAGE>
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:
<PAGE>
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
<PAGE>
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.
2
<PAGE>
"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.
3
<PAGE>
"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
4
<PAGE>
(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
5
<PAGE>
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).
6
<PAGE>
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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<PAGE>
(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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<PAGE>
(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
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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;
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(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
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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
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(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,
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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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
------------------------------------------
<PAGE>
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
<PAGE>
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: _____________________________
<PAGE>
SCHEDULE 2
DISCLOSURE SCHEDULE
<PAGE>
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;
<PAGE>
(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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL
Principal Scheduled
Date Amount Interest Rate Payment Amount Notation By
---- --------- ------------- -------------- -----------
A-3
<PAGE>
EXHIBIT B
WARRANT
<PAGE>
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:
<PAGE>
(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,
_______________________________
<PAGE>
EXHIBIT D
FORM OF STOCK PLEDGE AGREEMENT
<PAGE>
Exhibit 10.7
LOAN AND SECURITY AGREEMENT
Agreement No. _______ Dated as of June 8, 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: $2,000,000
Treasury Note Maturity: 30 months
Loan Margin: 800 basis points
Commitment Termination Date: June 30, 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:
<PAGE>
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
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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.
"Existing Loan Agreement" shall mean the Loan and Security Agreement,
dated as of March 31, 1998, between Borrower and Lender.
"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
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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.
"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,
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 tenth (10th) 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
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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.
"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 and
the Existing Loan 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
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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
(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.
"Qualified Financing" shall mean the closing of and receipt of net
proceeds of at least $5,000,000 from the sale of Equity Securities of Borrower
(in addition to the conversion of any Indebtedness to Equity Securities in
connection with such financing).
"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.
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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 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 Two Million Dollars ($2,000,000).
(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 of the first six Payment
Dates, commencing on July 10, 1998, Borrower shall make a payment of interest
only on the outstanding principal balance hereof. Commencing on January 10,
1999, and continuing for twenty-three (23) Payment Dates thereafter, Borrower
shall make twenty-three (23) payments of $83,333.33 plus accrued and unpaid
interest on the outstanding balance on each such Payment Date and a final
payment of $83,333.41 plus accrued and unpaid interest. Payments of principal
and interest on the Loan may not be prepaid prior to December 10, 1999, 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.
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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 for a portion
of the purchase price of certain assets from MGA Software.
(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 $2,500 (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:
(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.
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(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 constitutes
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. The Notice of Security Interest in Trademarks
executed in connection with this Agreement lists all trademarks and service
marks of Borrower registered or applied for with the United States Patent and
Trademark Office ("PTO").
(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 United States Copyright Office (the "Copyright Office") and the
PTO, 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 by appropriate filings with the Copyright
Office and the Patent and Trademark Office and (ii) are and will continue to be
superior
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and prior to the rights in the Collateral of all other creditors of Borrower
(except to the extent of such Permitted Liens).
(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
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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 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
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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;
(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, including
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; and
(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.
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. Upon the occurrence of a Qualified Financing, Lender shall
release in writing the security interest in Borrower's Intellectual Property and
Section 5.01 shall be amended to read in a manner identical to Section 5.01 of
the Existing Credit Agreement.
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.
5.6 Registration of Copyrights. On or prior to October 15, 1998, Borrower
shall register the copyrights of its material software with the Copyright Office
and shall give Lender written notice of such registration and the registration
numbers of such copyrights. Borrower will subsequently execute and deliver to
Lender a notice of such security interest in a form supplied by Lender or which
is suitable for filing with the Copyright Office and reasonably satisfactory to
Lender.
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.
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(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 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. At any time at which
Intellectual Property does not constitute Collateral, 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, at any time that
Intellectual Property does not constitute Collateral, 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
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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 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 acquire certain
assets of MGA Software ("MGA").
(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. (i) 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.
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(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 after the date of closing of the acquisition.
ARTICLE VIII
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
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(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
(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:
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(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, 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. In connection with
the grant hereunder of a security interest in Borrower's intellectual property
rights, Borrower has executed and delivered a Special Power of Attorney to
Lender. Such Special Power of Attorney shall only be exercisable in connection
with 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
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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
(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
18
<PAGE>
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:
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.
19
<PAGE>
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 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
20
<PAGE>
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.
21
<PAGE>
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
-------------------------------
<PAGE>
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
<PAGE>
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 June 8, 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: June 10, 1998
PHARSIGHT CORPORATION
By:
-----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
SCHEDULE 2
DISCLOSURE SCHEDULE
<PAGE>
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;
(i) Notices of Security Interest in Trademarks; and
(j) 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;
<PAGE>
(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) Each of the Operative Documents remains in full force and effect;
and
(g) The Funding Date of the Loan shall not be later than the Commitment
Termination Date.
<PAGE>
SCHEDULE 4
INDEBTEDNESS PAYMENTS
Under a Promissory Note Dated December 17, 1998 executed in favor of Dan Weiner
an amount equal to $246,250 the first year, and $265,940 the following year;
Under a Non-Competition Agreement dated May 27, 1998, with Edward Mitchell, an
amount equal to $135,000 in the first year and $145,000 in the following year;
Under a Non-Competition Agreement dated May 27, 1998, with Joseph Gauthier, an
amount equal to $135,000 in the first year and $145,000 in the following year;
Under an obligation to pay costs associated with the closing of the Mitchell and
Gauthier Associates asset acquisition, including severance costs, in an amount
not to exceed $250,000 during the year following the May 27, 1998 closing.
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$2,000,000 Dated: June 10, 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 Two Million ($2,000,000) 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 ____% per annum based on a year of twelve 30 day months. On
each of the first six Payment Dates (as defined in the Loan Agreement),
commencing on July 10, 1998, Borrower shall make a payment of interest only on
the outstanding principal balance hereof. On each of the first six Payment
Dates, commencing on July 10, 1998, Borrower shall make a payment of interest
only on the outstanding principal balance hereof. Commencing on January 10,
1999, and continuing for twenty-three (23) Payment Dates thereafter, Borrower
shall make twenty-three (23) payments of $83,333.33 plus accrued and unpaid
interest on the outstanding balance on each such Payment Date and a final
payment of $83,333.41 plus accrued and unpaid interest. Payments of principal
and interest on the Loan may not be prepaid prior to December 10, 1999, 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 June 8, 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.
<PAGE>
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: Chief Financial Officer
-------------------------------
<PAGE>
LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL
Principal Scheduled
Date Amount Interest Rate Payment Amount Notation By
---- ------ ------------- -------------- -----------
<PAGE>
EXHIBIT B
WARRANT
<PAGE>
EXHIBIT C
FORM OF OPINION OF COUNSEL
[To Come from Cooley Godward]
<PAGE>
EXHIBIT D
FORM OF STOCK PLEDGE AGREEMENT
<PAGE>
Exhibit 10.8
Customer No. 1198
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of February 26, 1999, is made by
Pharsight Corporation (the "Borrower"), a California corporation having its
principal place of business and chief executive office at 800 W. El Camino Real,
Mountain View, California, 94040 in favor of Transamerica Business Credit
Corporation, a Delaware corporation (the "Lender"), having its principal office
at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:
Agreement shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public holiday
or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
Collateral shall have the meaning specified in Section 2.
Collateral Access Agreement shall mean any landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Equipment.
Effective Date shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
Event of Default shall mean any event specified in Section 7.
Financial Statements shall have the meaning specified in Section 6.1.
GAAP shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time.
Loans shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with
<PAGE>
the terms of this Agreement and the Notes.
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith, as the same may be modified,
extended, restated, or supplemented from time to time.
"Material Adverse Change", "Material Adverse Effect" and/or "material" as each
of those terms may appear in the Loan Documents, shall mean, each in context, a
negative result arising directly from facts that, in the totality of the
circumstances, are substantive and germane to (a) the business, assets,
operations, financial or other condition of Borrower; (b) the ability of
Borrower to pay or perform in accordance with the terms of this Agreement or any
other Loan Document; (c) the rights and remedies of Lender under this Agreement
or any of the Loan Documents.
Note shall mean each Promissory Note in the form of Exhibit B attached hereto
and incorporated herein by this reference, made by the Borrower in favor of the
Lender, as amended, supplemented, or otherwise modified from time to time.
Obligations shall mean all indebtedness, obligations, and liabilities of the
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
reasonable attorneys' fees, remarketing fees, origination fees, collection fees,
and all other professionals' fees), out-of-pocket costs, out-of-pocket expenses,
taxes, or otherwise.
Permitted Liens shall mean such of the following as to which no enforcement,
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen, mechanics,
laborers, materialmen, and other like Persons arising by operation of law in the
ordinary course of business for sums which are not yet due and payable, or liens
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP; (b) deposits or pledges to secure the payment of
worker's compensation, unemployment insurance, or other social security benefits
or obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business; (c) licenses, restrictions, or covenants for or on
the use of the Equipment which do not materially impair either the use of the
Equipment in the operation of the business of the Borrower or the value of the
Equipment; and (d) attachment or judgment liens that do not constitute an Event
of Default.
Person shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity, party,
or government (including any division, agency, or department thereof), and the
successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
Solvent means, with respect to any Person, that as of the date as to which such
Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The Borrower
hereby assigns and grants to the Lender a continuing general, first priority
lien on, and security interest in, all the
2
<PAGE>
Borrower's right, title, and interest in and to the collateral described in the
next sentence (the "Collateral") to secure the payment and performance of all
the Obligations. The Collateral consists of all equipment set forth on all the
Schedules delivered from time to time under the terms of this Agreement (the
"Equipment"), together with all present and future additions, parts,
accessories, attachments, substitutions, repairs, improvements, and replacements
thereof or thereto, and any and all proceeds thereof, including, without
limitation, proceeds of insurance and all manuals, blueprints, know-how,
warranties, and records in connection therewith, all rights against suppliers,
warrantors, manufacturers, sellers, or others in connection therewith, and
together with all substitutes for any of the foregoing; provided, however, that
there shall be excluded from Collateral all general intangibles including,
without limitation, contract rights, which by their terms, or as a matter of
law, are nonassignable without the consent of the licensor or other third person
where and to the extent that the assignment effected by the foregoing creation
of a security interest (and the perfection thereof) would result in a default
under such general intangible for which the available remedies include the right
to terminate such general intangible.
SECTION 3. THE CREDIT FACILITY.
SECTION 3.1. Borrowings. Each Loan shall be in an amount not
less than $50,000, and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written commitment to the Borrower in effect
from time to time. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the initial Loan and each other Loan only after the
Lender, in its good faith business judgment, determines that the applicable
conditions for borrowing contained in Sections 3.3 and 3.4 are satisfied. The
timing and financial scope of Lender's obligation to make Loans hereunder are
limited as set forth in a commitment letter executed by Lender and Borrower,
dated as of December 11, 1998 and attached hereto as Exhibit A (the "Commitment
Letter").
SECTION 3.2. Application of Proceeds. The Borrower shall not
directly or indirectly use any proceeds of the Loans, or cause, assist, suffer,
or permit the use of any proceeds of the Loans, for any purpose other than for
the purchase, acquisition, installation, or upgrading of Equipment or the
reimbursement of the Borrower for its purchase, acquisition, installation, or
upgrading of Equipment.
SECTION 3.3. Conditions to Initial Loan.
(a) The obligation of the Lender to make the initial Loan is subject
to the Lender's receipt of the following, each dated the date of the initial
Loan or as of an earlier date acceptable to the Lender, in form and substance
reasonably satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11) listing
all effective Uniform Commercial Code financing statements naming
the Borrower as debtor and all tax lien, judgment, and litigation
searches for the Borrower as the Lender shall deem necessary or
desirable;
(ii) Uniform Commercial Code financing statements (Form UCC-1)
duly executed by the Borrower (naming the Lender as secured party
and the Borrower as debtor and in form acceptable for filing in all
jurisdictions that the Lender deems necessary or desirable to
perfect the security interests granted to it hereunder) and, if
applicable, termination statements or other releases duly filed in
all jurisdictions that the Lender deems necessary or desirable to
perfect and protect the priority of the security interests granted
to it hereunder in the Equipment related to such initial Loan;
(iii) a Note duly executed by the Borrower evidencing the
amount of such Loan;
(iv) a Collateral Access Agreement duly executed by the lessor
or mortgagee, as the case may be, of each premises where the
Equipment is located;
(v) certificates of insurance required under Section 5.4 of
this Agreement together with loss payee endorsements for all such
policies naming the Lender as lender loss payee and as
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an additional insured;
(vi) a copy of the resolutions of the Board of Directors of
the Borrower (or a unanimous consent of directors in lieu thereof)
authorizing the execution, delivery, and performance of this
Agreement, the other Loan Documents, and the transactions
contemplated hereby and thereby, attached to which is a certificate
of the Secretary or an Assistant Secretary of the Borrower
certifying (A) that the copy of the resolutions is true, complete,
and accurate, that such resolutions have not been amended or
modified since the date of such certification and are in full force
and effect and (B) the incumbency, names, and true signatures of the
officers of the Borrower authorized to sign the Loan Documents to
which it is a party; and
(vii) such other agreements and instruments as the Lender
reasonably deems necessary in connection with the transactions
contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower
after due inquiry, threatened litigation, proceeding, inquiry, or other action
(i) seeking an injunction or other restraining order, damages, or other relief
with respect to the transactions contemplated by this Agreement or the other
Loan Documents or thereby or (ii) which affects or could reasonably be expected
to affect the business, operations, assets, liabilities, or condition (financial
or otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not be expected to have a
Material Adverse Effect in the good faith business judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to
be paid by it to the Lender as of such date.
(d) The security interests in the Equipment related to the initial
Loan granted in favor of the Lender under this Agreement shall have been duly
perfected and shall constitute first priority liens.
SECTION 3.4. Conditions Precedent to Each Loan. The obligation
of the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements, and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance reasonably satisfactory to the Lender and its counsel
and each dated the date of such Loan or as of an earlier date acceptable to the
Lender;
(b) the Lender shall have received a Schedule of the Equipment and a
duly executed UCC-1 financing statement pertaining to such Equipment related to
such Loan, in form and substance reasonably satisfactory to the Lender and its
counsel, and there shall be no prior security interests in such Equipment
related to such Loan;
(c) all representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have been
true and correct as of such earlier date;
(d) no Event of Default or event which with the giving of notice or
the passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making of the requested Loan
as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and
ratified all security interests, liens, and other encumbrances heretofore
granted by the Borrower to the Lender hereunder.
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SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1. Good Standing; Qualified to do Business. The
Borrower (a) is duly organized, validly existing, and in good standing under the
laws of the State of its organization, (b) has the power and authority to own
its properties and assets and to transact the businesses in which it is
presently, or proposes to be, engaged, and (c) is duly qualified and authorized
to do business and is in good standing in every jurisdiction in which the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect on (i) the Borrower, (ii) the Borrower's ability to perform its
obligations under the Loan Documents, or (iii) the rights of the Lender
hereunder.
SECTION 4.2. Due Execution, etc. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the organizational
documents, if any, of the Borrower, and do not (a) violate any material law or
regulation, or any order or decree of any court or governmental authority, (b)
conflict with or result in a material breach of, or constitute a material
default under, any material indenture, mortgage, or deed of trust or any
material lease, agreement, or other instrument binding on the Borrower or any of
its properties, or (c) require the consent, authorization by, or approval of or
notice to or filing or registration with any governmental authority or other
Person. This Agreement is, and each of the other Loan Documents to which the
Borrower is or will be a party, when delivered hereunder or thereunder, will be,
the legal, valid, and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general principles of equity.
SECTION 4.3. Solvency; No Liens. The Borrower is Solvent and
will be Solvent upon the completion of all transactions contemplated to occur
hereunder (including, without limitation, the Loan to be made on the Effective
Date); the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral other than Permitted
Liens; and the Borrower is, or will be at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer, and create a security interest therein, free and clear
of any and all claims or liens in favor of any other Person other than Permitted
Liens.
SECTION 4.4. No Judgments, Litigation. No judgments are
outstanding against the Borrower nor is there now pending or, to the best of the
Borrower's knowledge after due inquiry, threatened any litigation, contested
claim, or governmental proceeding by or against the Borrower except judgments
and pending or threatened litigation, contested claims, and governmental
proceedings which would not, in the aggregate, have a Material Adverse Effect on
the Borrower.
SECTION 4.5. No Defaults. The Borrower is not in material
default or has not received a notice of default under any material contract,
lease, or commitment to which it is a party or by which it is bound. The
Borrower knows of no dispute regarding any contract, lease, or commitment which
could reasonably be expected to have a Material Adverse Effect on the Borrower.
SECTION 4.6. Collateral Locations. On the date hereof, each
item of the Collateral is located at the place of business specified in the
applicable Schedule.
SECTION 4.7. No Events of Default. No Event of Default has
occurred and is continuing nor has any event occurred which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. No Limitation on Lender's Rights. Except as
permitted herein, none of the Collateral is subject to contractual obligations
that restrict or inhibit the Lender's rights or abilities to sell or dispose of
the Collateral or any part thereof after the occurrence of an Event of Default.
SECTION 4.9. Perfection and Priority of Security Interest.
This Agreement creates a valid and, upon completion of all required filings of
financing statements, perfected first priority security
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interest in the Collateral, securing the payment of all the Obligations, to the
extent such a security interest can be perfected by the filing of such financing
statements.
SECTION 4.10. Model and Serial Numbers. To the Borrower's
knowledge, the Schedules set forth the true and correct model number and serial
number of each item of Equipment that constitutes Collateral.
SECTION 4.11. Accuracy and Completeness of Information. All
data, reports, and information heretofore, contemporaneously, or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and accurate
in all material respects on the date as of which such data, reports, and
information are dated or certified and not incomplete by omitting to state any
material fact necessary to make such data, reports, and information not
materially misleading at such time. There are no facts now known to the Borrower
which individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion, or other written statement
previously furnished by the Borrower to the Lender.
SECTION 4.12. Price of Equipment. To the best of Borrower's
knowledge, the cost of each item of Equipment does not exceed the fair and usual
price for such type of equipment purchased in like quantity and reflects all
discounts, rebates and allowances for the Equipment (including, without
limitation, discounts for advertising, prompt payment, testing, or other
services) given to the Borrower by the manufacturer, supplier, or any other
person.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1. Existence, etc. The Borrower shall: (a) retain
its existence and its current yearly accounting cycle, (b) use best efforts to
maintain in full force and effect all licenses, bonds, franchises, leases,
trademarks, patents, contracts, and other rights necessary or desirable to the
profitable conduct of its business unless the failure to do so could not
reasonably be expected to have a Material Adverse Effect on the Borrower, (c)
continue in, and limit its operations to, the same general lines of business as
those presently conducted by it, and (d) use best efforts to comply with all
applicable laws and regulations of any federal, state, or local governmental
authority, except for such laws and regulations the violations of which would
not, in the aggregate, have a Material Adverse Effect on the Borrower.
SECTION 5.2. Notice to the Lender. As soon as possible, and in
any event within five business days after the Borrower learns of the following,
the Borrower will give written notice to the Lender of (a) any proceeding
instituted or threatened to be instituted by or against the Borrower in any
federal, state, local, or foreign court or before any commission or other
regulatory body (federal, state, local, or foreign) involving a sum, together
with the sum involved in all other similar proceedings, in excess of $100,000 in
the aggregate, (b) any contract that is terminated or amended and which has had
or could reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) the occurrence of any Material Adverse Change with respect to the
Borrower, and (d) the occurrence of any Event of Default or event or condition
which, with notice or lapse of time or both, would constitute an Event of
Default, together with a statement of the action which the Borrower has taken or
proposes to take with respect thereto.
SECTION 5.3. Maintenance of Books and Records. The Borrower
will maintain books and records pertaining to the Collateral in such detail,
form, and scope as is commercially reasonable and in accordance with generally
accepted accounting principles. The Borrower agrees that the Lender or its
agents may enter upon the Borrower's premises once during each quarter upon
reasonable notice during normal business hours, and at any time upon the
occurrence and continuance of an Event of Default, for the purpose of inspecting
the Collateral and any and all records pertaining thereto.
SECTION 5.4. Insurance. The Borrower will maintain insurance
on the Collateral under such policies of insurance, with such insurance
companies, in such amounts, and covering such risks as are at
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all times satisfactory to the Lender in the exercise of its good faith business
judgment. All such policies shall be made payable to the Lender, in case of
loss, under a standard non-contributory "lender" or "secured party" clause and
are to contain such other provisions as the Lender may reasonably require to
protect the Lender's interests in the Collateral and to any payments to be made
under such policies. Certificates of insurance policies are to be delivered to
the Lender, premium prepaid, with the loss payable endorsement in the Lender's
favor, and shall provide for not less than thirty days' prior written notice to
the Lender, of any alteration or cancellation of coverage. If the Borrower fails
to maintain such insurance, the Lender may arrange for (at the Borrower's
expense and without any responsibility on the Lender's part for) obtaining the
insurance. During an Event of Default hereunder, the Lender shall have the
right, in the name of the Lender or the Borrower, to file claims under any
insurance policies, to receive and give acquittance for any payments that may be
payable thereunder, and to execute any endorsements, receipts, releases,
assignments, reassignments, or other documents that may be necessary to effect
the collection, compromise, or settlement of any claims under any such insurance
policies.
SECTION 5.5. Taxes. The Borrower will pay, when due, all
taxes, assessments, claims, and other charges ("Taxes") lawfully levied or
assessed against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
with notice to the Borrower, on the Borrower's behalf, the Lender may pay such
Taxes, and the amount thereof shall be included in the Obligations.
SECTION 5.6. Borrower to Defend Collateral Against Claims;
Fees on Collateral. The Borrower will defend the Collateral against all claims
of which it is aware and demands of which it is aware of all Persons at any time
claiming the same or any interest therein. The Borrower will not permit any
notice creating or otherwise relating to liens on the Collateral or any portion
thereof to exist or be on file in any public office other than Permitted Liens.
The Borrower shall promptly pay, when payable, all transportation, storage, and
warehousing charges and license fees, registration fees, assessments, charges,
permit fees, and taxes (municipal, state, and federal) which may now or
hereafter be imposed upon the ownership, leasing, renting, possession, sale, or
use of the Collateral, other than taxes on or measured by the Lender's income
and fees, assessments, charges, and taxes which are being contested in good
faith by appropriate proceedings diligently conducted and with respect to which
adequate reserves are maintained to the extent required by GAAP.
SECTION 5.7. No Change of Location, Structure, or Identity.
The Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move or
permit the movement of any item of Collateral from the location specified in the
applicable Schedule, except that the Borrower may change its chief executive
office and keep Collateral at other locations within the United States provided
that the Borrower has delivered to the Lender (i) prompt written notice thereof
and (ii) duly executed financing statements and other agreements and instruments
(all in form and substance reasonably satisfactory to the Lender) necessary or,
in the opinion of the Lender, desirable to perfect and maintain in favor of the
Lender a first priority security interest in the Collateral to the extent a
first priority security interest can be maintained by the execution of such
financing statements and agreements. Notwithstanding anything to the contrary in
the immediately preceding sentence, the Borrower may keep any Collateral
consisting of motor vehicles or rolling stock at any location in the United
States provided that the Lender's security interest in any such Collateral is
conspicuously marked on the certificate of title thereof and the Borrower has
complied with the provisions of Section 5.9.
SECTION 5.8. Use of Collateral; Licenses; Repair. The
Collateral shall be operated by competent, qualified personnel as determined by
Borrower in its good faith business judgment, in connection with the Borrower's
business purposes, for the purpose for which the Collateral was designed and in
accordance with applicable operating instructions, laws, and government
regulations, and the Borrower shall use every commercially reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family, or household
purposes. The Borrower shall procure and maintain in effect all material orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the delivery,
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installation, use, and operation of the Collateral. The Borrower shall keep all
of the Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, and will make all repairs and
replacements when and where necessary and practical as determined by Borrower in
its good faith business judgment. The Borrower will not waste or destroy the
Equipment or any part thereof, and will not be negligent in the care or use
thereof. The Equipment shall not be annexed or affixed to or become part of any
realty without the Lender's prior written consent, which consent shall not be
unreasonably withheld.
SECTION 5.9. Further Assurances. The Borrower will, promptly
upon request by the Lender, execute and deliver or use its best efforts to
obtain any document reasonably required by the Lender (including, without
limitation, warehouseman or processor disclaimers, mortgagee waivers, landlord
disclaimers, or subordination agreements with respect to the Obligations and the
Collateral), give any notices, execute and file any financing statements,
mortgages, or other documents (all in form and substance reasonably satisfactory
to the Lender), mark any chattel paper, deliver any chattel paper or instruments
to the Lender, and take any other actions that are necessary or, in the good
faith opinion of the Lender, desirable to perfect or continue the perfection and
the first priority of the Lender's security interest in the Collateral, to
protect the Collateral against the rights, claims, or interests of any Persons,
or to effect the purposes of this Agreement. The Borrower hereby authorizes the
Lender to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic, or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law. To the extent required under this Agreement, the
Borrower will pay all costs incurred in connection with any of the foregoing.
SECTION 5.10. No Disposition of Collateral. The Borrower will
not in any way hypothecate or create or permit to exist any lien, security
interest, charge, or encumbrance on or other interest in any of the Collateral,
except for the lien and security interest granted hereby and Permitted Liens
which are junior to the lien and security interest of the Lender, and the
Borrower will not sell, transfer, assign, pledge, collaterally assign, exchange,
or otherwise dispose of any of the Collateral except used, worn out or obsolete
Equipment or Equipment which is no longer useful in Borrower's business having
an aggregate value of not more than $25,000, provided, however, that such
$25,000 limitation shall not apply to the disposal of any Collateral which is no
longer useful in Borrower's business so long as such Collateral is replaced with
equipment of equal or greater value and Lender is granted a first priority
security interest thereunder. In the event the Collateral, or any part thereof,
is sold, transferred, assigned, exchanged, or otherwise disposed of in violation
of these provisions, the security interest of the Lender shall continue in such
Collateral or part thereof notwithstanding such sale, transfer, assignment,
exchange, or other disposition, and the Borrower will hold the proceeds thereof
in a separate account for the benefit of the Lender. Following such a sale, the
Borrower will transfer such proceeds to the Lender in kind.
SECTION 5.11. No Limitation on Lender's Rights. The Borrower
will not enter into any contractual obligations which may restrict or inhibit
the Lender's rights or ability to sell or otherwise dispose of the Collateral or
any part thereof.
SECTION 5.12. Protection of Collateral. Upon notice to the
Borrower (provided that if an Event of Default has occurred and is continuing
the Lender need not give any notice), the Lender shall have the right at any
time to make any payments and do any other acts the Lender may deem necessary to
protect its security interests in the Collateral, including, without limitation,
the rights to satisfy, purchase, contest, or compromise any encumbrance, charge,
or lien which, in the reasonable judgment of the Lender, appears to be prior to
or superior to the security interests granted hereunder, and appear in, and
defend any action or proceeding purporting to affect its security interests in,
or the value of, any of the Collateral. The Borrower hereby agrees to reimburse
the Lender for all payments made and expenses incurred under this Agreement
including reasonable fees, expenses, and disbursements of attorneys and
paralegals (including the allocated costs of in-house counsel) acting for the
Lender, including any of the foregoing payments under, or acts taken to protect
its security interests in, any of the Collateral, which amounts shall be secured
under this Agreement, and agrees it shall be bound by any payment made or act
taken by the Lender hereunder absent the Lender's gross negligence or willful
misconduct. The Lender shall have no obligation to make any of the foregoing
payments or perform any of the foregoing acts.
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SECTION 5.13. Delivery of Items. The Borrower will (a)
promptly (but in no event later than one Business Day) after its receipt
thereof, deliver to the Lender any documents or certificates of title issued
with respect to any property included in the Collateral, and any promissory
notes, letters of credit or instruments related to or otherwise in connection
with any property included in the Collateral, which in any such case come into
the possession of the Borrower, or shall cause the issuer thereof to deliver any
of the same directly to the Lender, in each case with any necessary endorsements
in favor of the Lender and (b) deliver to the Lender as soon as available copies
of any and all press releases and other similar communications issued by the
Borrower.
SECTION 5.14. Solvency. The Borrower shall be and remain
Solvent at all times.
SECTION 5.15. Name Change. The Borrower shall not amend or
modify its name, unless the Borrower delivers to the Lender thirty days prior to
any such proposed amendment or modification written notice of such amendment or
modification and within ten days before such amendment or modification delivers
executed Uniform Commercial Code financing statements (in form and substance
satisfactory to the Lender).
SECTION 5.16. Fundamental Changes. The Borrower shall not (a)
merge or consolidate with any other entity or make any material change in its
capital structure, in each case without the Lender's prior written consent which
shall not be unreasonably withheld, provided, however, that if the Borrower is
the surviving entity in the transaction and the transaction will have no
Material Adverse Effect on the financial condition of the Borrower, then the
Borrower need only provide ten (10) days' advance notice of the transaction and
Lender's consent will not be required, or (b) permit, without the prior written
consent of the Lender (unless such consent is not required pursuant to the
foregoing clause (a)), a change resulting from a single transaction or series of
related transactions, but not from the sale of newly issued securities to
investors, in more than 35% of the ownership of the combined voting power of the
Borrower's then outstanding voting securities or permit more than 35% of such
voting securities to become subject to any contractual, judicial, or statutory
lien, charge, security interest, or encumbrance. Notwithstanding the foregoing,
in the event that Lender declines to consent to any transaction described in (a)
or (b) of this Section 5.16, Borrower may prepay the Notes by paying an amount
equal to the present value of the remaining payments (principal and interest)
due thereunder discounted at 6% simple interest per annum, together with all
interest, fees and other amounts payable on the amount so prepaid or in
connection therewith to the date of such prepayment.
SECTION 5.17. Additional Requirements. The Borrower shall take
all such further actions and execute all such further documents and instruments
as the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction
in full of all Obligations, the Borrower shall deliver to the Lender the
following financial information:
SECTION 6.1. Annual Financial Statements. As soon as
available, but not later than 120 days after the end of each fiscal year of the
Borrower and its consolidated subsidiaries, the consolidated balance sheet,
income statement, and statements of cash flows and shareholders equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for such
year, reported on by independent certified public accountants without an adverse
qualification; and
SECTION 6.2. Quarterly Financial Statements. As soon as
available, but not later than 60 days after the end of each of the first three
fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within two days after
notice of failure to pay when due any amount required to be paid by the Borrower
under or in connection with any Note and this Agreement;
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(b) any representation or warranty made by the Borrower under
or in connection with any Loan Document or any Financial Statement shall prove
to have been false or incorrect in any material respect when made;
(c) the Borrower shall fail to perform or observe (i) any of
the terms, covenants or agreements contained in Sections 5.4, 5.10, 5.14, or
5.15 hereof or (ii) any other term, covenant, or agreement contained in any Loan
Document (other than the other Events of Default specified in this Section 7)
and such failure remains unremedied for the earlier of fifteen days from (A) the
date on which the Lender has given the Borrower written notice of such failure
and (B) the date on which the Borrower knew of such failure;
(d) any material provision of any Loan Document to which the
Borrower is a party shall for any reason cease to be valid and binding on the
Borrower, or the Borrower shall so state and the foregoing has an adverse effect
on the Borrower or impairs the ability of the Lender to be repaid or to exercise
its rights in accordance with the terms hereof;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
sixty days following the commencement thereof, or any action by the Borrower is
taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, or any action by the Borrower authorizing any such
proceeding;
(h) the Borrower shall default in (i) the payment of principal
or interest on any indebtedness in excess of $100,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of such
indebtedness to cause, with the giving of notice if required, such indebtedness
to become due prior to its stated maturity; or (iii) any loan or other agreement
under which the Borrower has received financing from Transamerica Corporation or
any of its affiliates;
(i) the Borrower suffers or sustains a Material Adverse
Change;
(j) any tax lien, other than a Permitted Lien, is filed of
record against the Borrower and is not bonded or discharged within twenty
Business Days;
(k) any judgment which has had or could reasonably be expected
to have a Material Adverse Effect on the Borrower and such judgment shall not be
stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as
determined in the good faith judgment of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm the Obligations under any of the
Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable, or invalid, or shall not be given the priority contemplated
by this Agreement; or
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(m) more than 35% of the ownership of any equity interests of
the Borrower become subject to any contractual, judicial, or statutory lien,
charge, security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred and
be continuing:
(a) The Lender may, without prejudice to any of its other
rights under any Loan Document or Applicable Law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 7(f) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment, or protest, which are hereby
expressly waived.
(b) The Lender may take possession of the Collateral and, for
that purpose may enter, with the aid and assistance of any person or persons,
any premises where the Collateral or any part hereof is, or may be placed, and
remove the same.
(c) The obligation of the Lender, if any, to make additional
Loans or financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any Loan
Document) or otherwise available to it, all the rights and remedies of a secured
party under the applicable Uniform Commercial Code (the "Code") whether or not
the Code applies to the affected Collateral and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its expense and upon
request of the Lender forthwith, assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place to be
designated by the Lender that is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(e) All cash proceeds received by the Lender in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender
and remaining after the full and final payment of all the Obligations shall be
paid over to the Borrower or to such other Person to which the Lender may be
required under applicable law, or directed by a court of competent jurisdiction,
to make payment of such surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1. Notices. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to Pharsight
Corporation, 800 W. El Camino Real, Mountain View, California 94040, Attention:
Chief Financial Officer or such other address as shall be designated by the
Borrower or the Lender to the other party in accordance herewith. All such
notices and correspondence shall be effective when received.
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SECTION 9.2. Headings. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.
SECTION 9.3. Assignments. The Borrower shall not have the
right to assign any Note or this Agreement or any interest therein unless the
Lender shall have given the Borrower prior written consent and the Borrower and
its assignee shall have delivered assignment documentation in form and substance
satisfactory to the Lender in its sole discretion. The Lender may assign its
rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4. Amendments, Waivers, and Consents. Any amendment
or waiver of any provision of this Agreement and any consent to any departure by
the Borrower from any provision of this Agreement shall be effective only by a
writing signed by the Lender and shall bind and benefit the Borrower and the
Lender and their respective successors and assigns, subject, in the case of the
Borrower, to the first sentence of Section 9.3.
SECTION 9.5. Interpretation of Agreement. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in a Note shall have the meaning set forth in the
applicable Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with any Note, or any term or
provision thereof, and is not dealt with herein with more specificity, this
Agreement shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Agreement shall not be relevant in determining the meaning of this
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
SECTION 9.6. Continuing Security Interest. This Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until the indefeasible payment in full of the
Obligations, (ii) be binding upon the Borrower and its successors and assigns
and (iii) inure, together with the rights and remedies of the Lender hereunder,
to the benefit of the Lender and its successors, transferees, and assigns.
SECTION 9.7. Reinstatement. To the extent permitted by law,
this Agreement and the rights and powers granted to the Lender hereunder and
under the Loan Documents shall continue to be effective or be reinstated if at
any time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8. Survival of Provisions. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
SECTION 9.9. Indemnification. The Borrower agrees to indemnify
and hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
SECTION 9.10. Counterparts; Telecopied Signatures. This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. This Agreement and each of the other Loan Documents and
any notices given in connection herewith or therewith may be executed and
delivered by telecopier or other facsimile transmission all with the same force
and effect as if the same was a fully executed and delivered original manual
counterpart.
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SECTION 9.11. Severability. In case any provision in or
obligation under this Agreement or any Note or any other Loan Document shall be
invalid, illegal, or unenforceable in any jurisdiction, the validity, legality,
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 9.12. Delays; Partial Exercise of Remedies. No delay
or omission of the Lender to exercise any right or remedy hereunder, whether
before or after the happening of any Event of Default, shall impair any such
right or shall operate as a waiver thereof or as a waiver of any such Event of
Default. No single or partial exercise by the Lender of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
SECTION 9.13. Entire Agreement. The Borrower and the Lender
agree that this Agreement, the Schedule hereto, and the Commitment Letter are
the complete and exclusive statement and agreement between the parties with
respect to the subject matter hereof, superseding all proposals and prior
agreements, oral or written, and all other communications between the parties
with respect to the subject matter hereof. Should there exist any inconsistency
between the terms of the Commitment Letter and this Agreement, the terms of this
Agreement shall prevail.
SECTION 9.14. Setoff. In addition to and not in limitation of
all rights of offset that the Lender may have under Applicable Law, and whether
or not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE
LENDER IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. Venue; Service of Process. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO
RIGHTS AND REMEDIES.
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IN WITNESS WHEREOF, the undersigned Borrower has caused this
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first set forth above.
PHARSIGHT CORPORATION
By: /s/ Robin A. Kehoe
----------------------------------
Name: Robin A. Kehoe
Title: CFO
Federal Tax ID: 77-0401273
Accepted as of the
26th day of February, 1999
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Gary P. Moro
----------------------------------
Name: Gary P. Moro
Title: Vice President
Form16
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*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R.SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
EXHIBIT 10.9
PHARSIGHT CORPORATION
INFORMATION PRODUCT DISTRIBUTION AGREEMENT
This Information Product Distribution Agreement (this "Agreement") is made and
entered into as of June 25, 1999 (the "Effective Date") by and between Pharsight
Corporation, a California corporation, (hereinafter "Pharsight") and Protocare
Sciences, Inc., a Delaware corporation (hereinafter "Protocare").
RECITALS
Pharsight is engaged in the sale of software and services relating to clinical
trial design and modeling to pharmaceutical and biotechnology companies and
desires to have the right to reproduce, use, and distribute as part of its
Patient Information Resource (PIR) product a selection of patient therapeutic
data collected by Protocare in the diabetes area.
Protocare is the owner of or has appropriate licenses to all US and foreign
copyrights and all other intellectual property rights pertaining to the database
that is the subject of this Agreement and is willing to grant to Pharsight a
non-exclusive right and license to reproduce, use, and distribute that database
on the terms and conditions set forth herein.
NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES, AS WELL AS THE OBLIGATIONS
HEREIN MADE AND UNDERTAKEN, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOW, WITH
THE CAPITALIZED TERMS HAVING THE MEANING SET FORTH IN EXHIBIT AS:
1. GRANT OF LICENSE.
1.1 LICENSE GRANT. Subject to the payment of royalties as set forth in Section
5, Protocare hereby grants Pharsight a non-exclusive world-wide right and
license (a) to reproduce the Database and Documentation and to display, sell,
license, and otherwise distribute copies of the Database or portions thereof and
the Documentation to Customers, either alone or bundled with other Pharsight
products or services; (b) to use the Database and the Documentation for purposes
of technical support for Customers; (c) to use a reasonable number of copies of
the Database and Documentation for purposes of marketing, training, and
demonstrations; (d) to use the Protocare name in connection with the
distribution and marketing of the Database and the products derived therefrom;
(e) to license Customers to use the data in the Database and to publish
summarized and non-patient-specific portions of the data, or derivatives of the
data as part of works describing their use of the data and to include the data
and derivatives of the data in regulatory submissions, (f) to authorize its
distributors to exercise any or all of the rights set forth in (a) through (e)
above; (g) to use the Database and Documentation in connection with consulting
services provided to Customers and to distribute to such Customers models and
other analyses based on the Database; and (h) to modify the Database and the
Documentation and to create derivative works of the Database and Documentation,
including incorporating the Database or
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Documentation or modifications of either into an internet-based medical query
and response system, and to license the use of such system to Customers.
1.2 COPYRIGHT/TRADEMARK NOTICES. All copies of the Database distributed by
Pharsight will include appropriate copyright and trademark notices as supplied
by Protocare. Pharsight will identify the Database as a product of Protocare on
printed promotional materials and web pages that reference the Database and on
any packaging it develops.
1.3 CUSTOMER RESTRICTIONS. Customers will be licensed to use the data in the
Database and related products, including Database Derivatives, for in-house drug
development but will have no right to further distribute the Database or
Database Derivatives. The Customer license agreement for products containing the
Database or Database Derivatives will authorize use substantially as follows:
user is granted a license for the use of this product for drug discovery and
clinical development purposes. In the event that Pharsight becomes aware that
the Database or Database Derivative licensed by Pharsight to a Customer is being
used for post-approval marketing purposes, and such use is not terminated upon
notice to the Customer, Pharsight will promptly notify Protocare and the parties
will discuss the appropriate actions to take to enforce the use restrictions. If
the parties are in disagreement over the actions to take and Pharsight's actions
are not effectual in terminating the unauthorized use, Pharsight will pay to
Protocare a marketing license fee of [...***...] and Protocare will authorize
use of the Database and Database Derivatives by the Customer for post-approval
marketing purposes.
1.4 OWNERSHIP. Protocare will retain ownership of the Database and the
underlying data. Pharsight and its suppliers will own all right, title, and
interest in and to any Database Derivatives, subject to Protocare's ownership of
the underlying data and Database. Pharsight will own all right, title, and
interest in and to any query or interface or other software developed by or for
Pharsight and integrated or bundled with the Database or a Database Derivative.
Pharsight may register its own copyright in any derivative works, provided the
Database is identified in such registration as an underlying work of Protocare.
Pharsight's ownership of any Database Derivative notwithstanding, it may not
license or otherwise distribute such Database Derivative except in accordance
with the provisions of this Agreement, including the use restriction set forth
in Section 1.3.
2. DELIVERY AND ACCEPTANCE
2.1 DELIVERY OF INITIAL DATABASE. Protocare will build the Database in
accordance with the specifications in Exhibit B and test it against the
Acceptance Criteria in Exhibit C. Protocare will deliver the Database (except
for the practice review system (PRS) elements) to Pharsight electronically
within six weeks of the Effective Date; the addition of the PRS data elements
will be completed within ten weeks after the Effective Date.
2.2 ACCEPTANCE. Pharsight will have thirty (30) working days from receipt of the
Database (including the PRS elements) to test for adherence to the Acceptance
Criteria and will notify Protocare promptly if the Database fails to conform to
such criteria. Protocare will have twenty (20) working days to correct such
nonconformity, and upon redelivery Pharsight will again test the Database
against the Acceptance Criteria. This process will be repeated (except that each
subsequent test period and repair period will be limited to fifteen (15) working
days) until Pharsight either provides Protocare with written
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* Confidential treatment requested.
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notice of acceptance of the Database or is deemed to have accepted the Database
under the provisions of this section, provided, however, that if the Database
fails to meet the Acceptance Criteria on the third delivery, Pharsight shall
have the right to terminate this Agreement and receive a full refund of the
initial license fee. Pharsight shall be deemed to have accepted the Database if
it fails to notify Protocare of any nonconformity therein within thirty (30)
working days of delivery (or within fifteen (15) working days of redelivery in
the case of nonconformities in the original delivery).
3. PRODUCT DEVELOPMENT AND DISTRIBUTION
3.1 PRODUCT DESCRIPTION. Pharsight will distribute the Database to Customers as
part of its PIR product line. Pharsight will make PIR products available to
Customers in three forms: (a) distribution of the full Database (Direct Product
or PIR-DP); (b) use of the Database as a resource by Pharsight's professional
consultants in the course of providing consulting services (Consulting Product
or PIR-CP); and (c) use of the Database in an automated, internet-based medical
query-response service product (Internet-Product or PIR-IP).
3.2 PRODUCT DEVELOPMENT. For the PIR-DP, Pharsight will distribute the Database
either as received from Protocare or with minor changes to improve its
usability. For the PIR-CP, Pharsight employees and consultants will utilize
information from the Database in developing models that will be delivered to
customers. For the PIR-IP, Pharsight will utilize the Database as a resource
that is accessed with Pharsight proprietary query software and a customized user
interface for answering customer queries. The proprietary search software and
user interface are currently under development; Pharsight has targeted the
PIR-IP product for release in late 1999.
3.3 PRICING AND PROMOTION. Subject to the other restrictions contained in this
Agreement, Pharsight is free to price, promote, and distribute the Database in
any manner it deems appropriate. Pharsight will be responsible for all decisions
and costs involved in the marketing and distribution of the PIR, including
pricing, Customer license terms, promotional materials, packaging, distribution
channels, and customer evaluation and training. Pharsight may include material
describing the Database on its web site, in promotional materials, and during
training and professional presentations. Subject to complying with Section 1.2,
Pharsight may repackage, at its own expense, the Database products prior to
shipment to Customers and may include in such packaging the Pharsight logo,
references to Pharsight's website and other products, and the words to the
effect that the product is distributed by Pharsight.
3.4 MARKETING RESTRICTION. Pharsight will not market the PIR product containing
the Database to post-approval marketing groups. Protocare reserves all rights
not granted to Pharsight hereunder, provided, however, that Protocare agrees
that it will not market the Database to clinical development groups. In
addition, Protocare agrees that it will not market any web-based drug
development and clinical trial query and response system that is competitive
with Pharsight's internet query PIR-IP product within the disease types for
which Protocare has provided a Database to Pharsight.
3.5 COSTS. Protocare will be fully responsible for all development costs of the
Database and any updates, including any royalties or payments due to
third-parties. Pharsight will be fully responsible for any and all expenses
involved in the development of the proprietary search software and user
interface for the PIR-IP product, any other software or other tools it develops
to enhance usability of the Database, and distribution of the Database to its
customers, including manufacturing, marketing, and shipping expenses.
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4. UPDATES; CUSTOMER SUPPORT
4.1 MID-YEAR UPDATES. Protocare will provide Pharsight with an update for the
Database at the half-year point of each year of this Agreement to extend the
histories of earlier selected patients by an additional six (6) months.
4.2 RENEWAL UPDATES. Protocare will provide Pharsight with totally refreshed
update (i.e., new statistical database extraction) for the Database at each
annual renewal. The refreshed Database will be subject to QA testing in
accordance with the criteria established by the parties. All copies of the prior
year database and its update held by Pharsight must be returned to Protocare
upon acceptance of the renewal update.
4.3 CUSTOMER SUPPORT. Pharsight will provide all customer support for the PIR
product. Protocare will make a person familiar with the Database available to
resolve problems Pharsight may encounter from time to time with the data
quality. For each [...***... ] in royalties paid by Pharsight to Protocare
(including the initial license fee), Protocare will provide an aggregate of two
days of problem resolution assistance without charge; further assistance will be
provided as necessary at [...***...] per day, prorated on an hourly basis for
usage of less than a full day.
5 PAYMENTS
5.1 INITIAL LICENSE FEE. Pharsight will pay Protocare a license fee of
[...***...] upon execution of this Agreement or upon the agreement of the
parties on Database fields and Acceptance Criteria, whichever is later; this
amount will be credited against actual royalties due with respect to product
sales during the initial term of this Agreement. Upon each renewal of this
Agreement, Pharsight will pay Protocare a license renewal fee of [...***...],
which will be credited against actual royalties due with respect to product
sales during the one-year renewal term. In no event may Pharsight license
products containing the Database or Database Derivatives to its Customers prior
to payment of the [...***...] license fee.
5.2 PER-COPY ROYALTY. Pharsight will pay Protocare a royalty of (i) [...***...]
for each annual license sold to a Customer for the PIR-DP containing the
Database; (ii) [...***...] for each annual license sold to a Customer for the
PIR-IP utilizing the Database or a Database Derivative; and (iii) [...***...]
for each Customer Project for which Pharsight's staff accesses the Database in
connection with providing consulting services to the Customer. For purposes of
calculating the royalty due hereunder for the PIR-DP, each copy of the media
containing the Database will constitute a separate license. For purposes of
calculating the royalty due hereunder for the PIR-IP, the clinical development
team for each therapeutic area (e.g. diabetes, cardio-vascular, etc.) shall
constitute a separate license. No royalty will be due for copies of the PIR
product used for evaluation or training.
5.3 PAYMENTS. Royalty payments will be made on a quarterly basis with payment
due thirty (30) days after the end of each calendar quarter for all revenue
received during such quarter. Refunds to Customers for products returned by
customers will be credited in the quarter in which they are returned.
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* Confidential treatment requested.
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Each payment will be accompanied by a report setting forth the number of each
type of product sold during the quarter.
5.4 AUDIT. Pharsight will, upon written request, during normal business hours,
but not more frequently than once each calendar year, provide access for
purposes of audit to pertinent records relating to royalties payable in
connection with the Database to an independent accounting firm chosen and
compensated (other than on a contingent fee basis) by Protocare and reasonably
acceptable to Pharsight. Such accounting firm will be authorized to report to
Protocare only the amount of royalties due and payable for the period examined.
If the amount under-reported by Pharsight is equal to or greater than ten
percent (10%) of the total payment due to Protocare for the payment period so
audited, then the cost of the audit shall be borne by Pharsight.
5.5 CONFIDENTIALITY. Protocare will not disclose to any third party any sales or
customer information received from Pharsight in connection with royalty payments
and will use such information solely for the purpose of carrying out its
obligations under this Agreement. Pharsight shall restrict access to information
contained in the Database to the person(s) assigned to analyze it or who
otherwise have a need to know it for legitimate health research purposes. Each
Customer license agreement shall require the Customer to restrict access to
information contained in the Database to person(s) assigned to analyze it or who
otherwise have a need to know it for legitimate health research purposes. Each
person given such access must first be advised that information contained in the
Database is confidential and may be used only as specifically permitted by this
Agreement or the applicable Customer license agreement and may not otherwise be
discussed or disclosed. The information contained in the Database is being
licensed to Pharsight and may be licensed to Pharsight's Customers solely for
drug discovery and development purposes, which shall include the right to
publish summarized and non-patient-specific portions of the information, or
derivatives of the information, as part of works describing their use of the
information and to include the data and derivatives of the data in regulatory
submissions, but shall not include any use that would reveal any information
from individual patient records unless so required by the FDA. Pharsight will
not and each Customer's license agreement will provide that the Customer will
not make any attempt to ascertain the names of patients or providers who are the
sources of the information contained in the Database or of any other information
that is "confidentialized" by substituting codes for identifying information
before Protocare provides Database to Pharsight. If Protocare reveals to
Pharsight the source of the data in the Database, Pharsight shall not discuss
with such source the existence of this Agreement or the business conducted
pursuant to this Agreement. Pharsight shall not name or provide information
enabling any person to determine the source of the data in any presentation,
marketing material or report unless Protocare gives its prior written consent.
6. WARRANTIES; INDEMNIFICATION; LIMITATION OF LIABILITY
6.1 WARRANTY. Protocare warrants to Pharsight (a) that the Database does not
infringe the patent, copyright, or trade secret rights of any third party; (b)
that Protocare has all rights and authority necessary for the grant of rights
and licenses effected by this Agreement; (c) that the Database as supplied to
Pharsight was developed in accordance with the quality assurance procedures
described in Exhibit D and Exhibit E for generating and validating the data; (d)
that all appropriate and required consents to use and redistribute the data in
the Database have been obtained; and (e) that use and distribution of the
Database as authorized herein will not violate federal or state patient-privacy
laws or regulations. The warranty in clause (e) shall apply to the initial
Database only on the basis of the federal or state patient-privacy laws or
regulations in effect at the time of delivery of the initial Database. and to
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each revision of the Database only on the basis of the federal or state
patient-privacy laws or regulations in effect at the time of delivery of such
revision.
6.2 INDEMNIFICATION. Protocare will defend, indemnify, and hold Pharsight
harmless from and against any action or other proceeding brought against
Pharsight to the extent that it is based on (i) a claim that any part of the
Database or Documentation infringes any copyright or patent or incorporates any
misappropriated trade secrets of any third party or (ii) a claim that use or
distribution of the Database as authorized herein violates federal or state
patient-privacy laws or regulations or the privacy rights of any patient
included in the Database as such laws were in effect at the time of delivery of
the version of the Database that is the subject of such claim (either claim, an
"Action"). Protocare will pay any and all costs, damages, and expenses
(including but not limited to reasonable attorneys' fees) incurred by Pharsight
in any such Action and will refund to Pharsight any royalties paid on any copies
of the Database for which Pharsight is required to give a refund to a Customer
because such Customer's rights to continue to use the Database have been
terminated or restricted. Protocare will have no obligation under this Section
6.2 as to any Action unless (i) Protocare is promptly notified of the Action;
(ii) Protocare has sole control of the defense and settlement of the Action; and
(iii) Pharsight provides Protocare, at Protocare' expense, with reasonable
assistance in defense and settlement of the Action. Protocare will have no
obligation under this Section 6.2 for any Action if the claim arises from the
combination, operation, or use of the Database with non-Protocare programs,
data, or documentation if such claim would have been avoided by the use of the
Database without combination with such programs, data, or documentation.
6.3 LIMITATION ON LIABILITY. EXCEPT WITH RESPECT TO THE INDEMNIFICATION
OBLIGATIONS UNDER SECTION 6.2, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES (INCLUDING DAMAGES
FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE) ARISING OUT OF THIS AGREEMENT EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT TO THE
INDEMNIFICATION OBLIGATIONS UNDER SECTION 6.2, NEITHER PARTY'S LIABILITY UNDER
THIS AGREEMENT SHALL EXCEED THE AMOUNTS PAID OR PAYABLE TO PROTOCARE UNDER THIS
AGREEMENT. BOTH PARTIES ACKNOWLEDGE THAT THE FOREGOING LIMITATION REFLECTS A
BARGAINED-FOR ALLOCATION OF RISK AND THAT THE ROYALTIES SET FORTH HEREIN REFLECT
SUCH RISK.
7. TERM AND TERMINATION
7.1 TERM OF AGREEMENT. The initial term of this Agreement will be the period
beginning on the Effective Date of this Agreement and ending on the first
anniversary of the date on which Pharsight accepts (in accordance with Section
2.2) the initial Database (including the PRS elements). This Agreement may be
renewed for two successive additional one-year periods at Pharsight's option and
beyond that may be renewed by mutual agreement of the parties.
7.2 TERMINATION FOR NON-DELIVERY. If Protocare fails to deliver the initial
Database in a form meeting the Acceptance Criteria within six (6) months of the
Effective Date, then Pharsight shall have the option to terminate this
Agreement, return any copies of the Database in its possession, and receive from
Protocare a refund of the initial license fee.
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7.3 TERMINATION FOR BREACH. Each party has the right to terminate this Agreement
if the other party has materially breached any obligation herein and such breach
remains uncured for a period of thirty (30) days after written notice thereof is
sent to the other party.
7.4 EFFECT OF TERMINATION. Upon termination or expiration of this Agreement, all
rights and licenses granted to Pharsight hereunder shall terminate (except as
provided in this Section 7.4). Pharsight shall destroy all remaining copies of
the Database in its possession except for the number necessary in its judgment
to carry out its support obligations to Customers. Termination will have no
effect on the rights of any Customer to continue to use any Database in
accordance with its original license terms or on the rights of Pharsight to
provide technical support to such Customers. Notwithstanding any such
termination, Protocare shall remain entitled to fees owed pursuant to this
Agreement resulting from use or license of the Database prior to termination of
this Agreement.
8. MEDIATION AND ARBITRATION.
8.1 MEDIATION. Any dispute arising under this Agreement will be resolved through
a mediation and arbitration approach. The parties agree to select a mutually
agreeable, neutral third party to help them mediate any dispute that arises
under the terms of this Agreement. Costs and fees associated with the mediation
will be shared equally by the parties.
8.2 ARBITRATION. If the mediation is unsuccessful, the parties agree that the
dispute will be decided by binding arbitration under the rules of the American
Arbitration Association. The decision of the arbitrators will be final and
binding on the parties and may be entered and enforced in any court of competent
jurisdiction by either party. The prevailing party in the arbitration
proceedings will be awarded reasonable attorney fees, expert witness costs and
expenses, and all other reasonable costs and expenses incurred in connection
with the proceedings, unless the arbitrators for good cause determine otherwise.
9. GENERAL
9.1 NOTICES. Any notice required or permitted hereunder must be in writing, and
will be effective on the date of delivery when delivered personally, the next
business day after dispatch when sent by Federal Express or other recognized
overnight courier service, or the fifth business day after dispatch when sent by
certified mail, postage prepaid, return receipt requested. Notices should be
addressed to the other party at the address shown below or at such other address
as a party may designate by ten days' advance written notice to the other party:
Pharsight Corporation Protocare Sciences, Inc.
800 West El Camino Real, Suite 200 2400 Broadway
Mountain View, CA 94040 Santa Monica, CA 90404
Attention: Chief Financial Officer Attn: Chief Executive Officer
Phone: (650) 314-3800 Phone:
Fax: (650) 314-3810 Fax:
9.2 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement, including all exhibits,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior
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representations, proposals, discussions, and communications, whether oral or in
writing. This Agreement may be modified or amended only by a writing executed by
a duly authorized representative of each party.
9.3 FORCE MAJEURE. Neither party will be liable to the other for any failure or
delay caused by events beyond such party's control, including, without
limitation, sabotage, riots, insurrections, fires, flood, storm, explosions,
war, or earthquakes. However, if such events shall continue for thirty (30) days
or more, the other party shall have the option of terminating this Agreement by
giving written notice of termination.
9.4 CHANGE IN LAW; CHANGE IN CIRCUMSTANCES. No party shall make or receive any
payment or take any action under this Agreement if any judicial decision,
legislative action, or regulatory or other administrative interpretation,
whether federal or state, would render illegal the conduct of either party under
this Agreement. If performance by either party of any term of this Agreement
should be deemed illegal by any party or third party who is essential to
performance of this Agreement for any such reason, either party shall have the
right to require that the other party renegotiate the terms of this Agreement.
If Protocare's data relationships shall be altered or interrupted, Protocare
shall notify Pharsight and the parties shall attempt to renegotiate the terms of
this Agreement. If the parties fail to reach an agreement satisfactory to both
parties within fifteen (15) days after the receipt of any request for
renegotiation, either party may terminate this Agreement upon fifteen (15) days
prior written notice to the other party, or sooner if required by law. In the
event of such termination, Protocare will refund to Pharsight a pro-rated amount
of the [...*** ...] initial licensing fee or renewal license fee paid for the
year in which termination occurs.
9.5 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of
the parties hereto, their successors and permitted assigns. Either party may
assign this Agreement in its entirety to a successor corporation upon notice to
the other party in the event of a merger or an acquisition of all or
substantially all of the assets of the assigning party.
9.6 GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement will be governed by and
determined in accordance with the laws of the State of California, without
regard to its conflict of laws provisions. Application of the United Nations
Convention on Contracts for the International Sale of Goods is specifically
excluded.
9.7 SEVERABILITY. If a court of competent jurisdiction determines that any
provision of this Agreement is invalid, illegal, or otherwise unenforceable,
such provision shall be replaced with a valid, enforceable provision as nearly
as possible in accordance with the stated intention of the parties, while the
remainder of this Agreement shall remain in full force and effect. To the extent
any provision cannot be enforced in accordance with the stated intentions of the
parties, such provision shall be deemed not to be a part of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts,
all of which together will constitute one and the same instrument.
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IN WITNESS THEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE EXECUTED BY
THEIR RESPECTIVE DULY AUTHORIZED REPRESENTATIVES AS SET FORTH BELOW:
PHARSIGHT CORPORATION PROTOCARE SCIENCES, INC.
By: /s/ Robin A. Kehoe By: /s/ Robert Dubois
------------------------------ ------------------------------
Robin A. Kehoe Robert Dubois
Chief Financial Officer Chief Executive Officer
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EXHIBIT A
DEFINITIONS
DATABASE means the diabetes database as described in Exhibit B and all updates
to the initial database when and as delivered to Pharsight.
DATABASE DERIVATIVE means any derivative works, modifications, or new
compilations of the Database prepared by or on behalf of Pharsight.
DOCUMENTATION means any and all materials provided to Pharsight by Protocare
describing the features, structure, functions, fields, contents, collection
methods, etc. of the Database.
CUSTOMER means a customer of Pharsight or of its distributors to whom Pharsight
has licensed the use of the Database or Database Derivatives or to whom
Pharsight has provided services utilizing the Database or Database Derivatives.
CUSTOMER PROJECT means a set of consulting services provided to a Customer by
Pharsight pursuant to a single statement of work with respect to a single drug
or related set of drugs. A single Customer Project may include follow-on work
based on the results of the initial work so long as the possibility of such
follow-on work is contemplated in the original statement of work.
ACCEPTANCE CRITERIA means the quality requirements for the Database set forth in
Exhibit C or otherwise agreed upon in writing by the parties.
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EXHIBIT B
PHARSIGHT DIABETES DATABASE SPECIFICATION
Using claims from January 1, 1997 through December 31, 1997, all patients who
meet the following criteria for diabetes will be identified:
[...***...]
The data files will be delivered to Pharsight on CDs as 1) Version 5 SAS
Transport Format and 2) Fixed format ASCII files with an accompanying Oracle 7
SQL*Loader control file describing their layout, datatypes, etc.
[...***...]
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EXHIBIT C
ACCEPTANCE CRITERIA
[to be agreed upon]
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EXHIBIT D
DATABASE QUALITY ASSURANCE PROCEDURES
When building a database for a client, there are specific steps taken by the
database analyst to assure quality:
POPULATION SELECTION AND DATA ACQUISITION
1. [...***...]
DATA SCRUBBING
2. Once all claims are assembled, our analyst `scrubs' the data to assure
completeness of each field. The following document outlines check list for
the data quality edits:
DATA SCRUBBING EDIT CHECKS
[...***...]
DATABASE ELEMENT INCLUSION CHECK LIST:
[...***...]
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EXHIBIT E
PROTOCARE SCIENCES DATA WAREHOUSE QUALITY ASSURANCE PROCEDURES
Protocare Sciences maintains an in-house proprietary database comprised of
claims and eligibility records from patient populations covered under various
benefit plans. Protocare receives monthly paid claims files from the plans and
"scrubs" the data for entry into the warehouse. The warehouse is updated on a
quarterly basis. The data cleansing process begins prior to extracts being sent
to Protocare. The typical process is as follows:
1. Protocare works with the data source to assign a quality level to
the data. Issues that are of highest importance in determining data
quality are: the percentage of complete encounter claims, usually
for capitated services, that are included in the claims source; the
predominant coding schemes used for diagnoses and procedures,
preferably ICD-9-CM, CPT4, and HCPCS; and, the ability to uniquely
identify members/patients across all types of data within the
source.
2. Protocare works with the data source to address volume and
processing issues, "claims experts" who can address current and
historic issues with the data source, and business analysts who
currently use the data and are aware of its anomalies.
3. Prior to receiving all claims from the data source, Protocare asks
the source to send a sample extract of all data formats for further
analysis. Protocare typically evaluates eligibility, provider, and
claims data formats. The values stored within the sample data are
compared to data dictionary and database questionnaire information.
4. When this process is complete, Protocare asks the source to send a
historic load. Before loading the data into the, the data is
"scrubbed".
5. For claims, the scrubbing process includes subsetting the raw,
source data to include only those data elements of interest to
Protocare; including only final, paid claims; and, verifying that
dollar fields at the line level for each claim sum to the claim
level values. Data are not deleted if they contain invalid
diagnosis, procedure, or NDC codes; however, reference files are
available to compare these codes to valid values. On a study by
study basis, inappropriate or incorrect diagnostic, procedural, and
drug codes are removed.
6. For eligibility, the scrubbing process includes collapsing multiple
eligibility records for a patient into one continuous record and
supplementing the demographic fields (such as residence state) with
information from claims data when the information is not available
in the eligibility file.
The Protocare data warehouse is stored in a relational database. These data are
arrayed in chronological order to provide a very detailed longitudinal profile
of all medical and pharmacy services used by a patient. Services typically
include the following types of information: demographics, inpatient and
outpatient diagnoses by ICD-9-CM codes, inpatient and outpatient procedures,
billed and reimbursed charges, outpatient drugs dispensed, and dates of service
for drug and medical information.
As stated above, the data scrubbing process does not exclude claims that may
have "homegrown" or "invalid" diagnosis, procedure, or outpatient pharmacy drug
codes. Many times, invalid codes contribute to an analysis. For example, the
diagnosis code "250" (diabetes) is invalid because fourth and/or fifth digits
are required in reporting diabetes diagnoses; however, a claim with this
diagnosis indicates that a patient was treated for diabetes. It just does not
specify what type of diabetes. In conducting a cost and utilization analysis,
excluding this claim would result in under representation of the condition of
diabetes. These claims can easily be excluded from an analysis if it is
appropriate.
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Protocare employs a team of experts who are skilled in data extraction, data
hygiene and cleansing, and data translation and manipulation. Within the data
warehouse:
- Data extraction is accomplished in one of three ways: (1) ad hoc
isql queries to unload tables and/or fields of interest, (2) Oracle
applications to create subsets of the relational database, or (3) ad
hoc isql queries to ASCII files which are then loaded into
SAS-Registered Trademark- for further analysis.
- Data cleansing is performed prior to loading the data into the
Protocare warehouse. Additional "data hygiene" activities are
executed on an ad hoc, project by project basis. The most common of
these activities are to compare diagnosis, procedure, and drug codes
to reference sources to determine the validity of each code used in
a study.
- The data can be translated and manipulated in many ways through the
use of analysis tools such as SAS-Registered Trademark-. Common
manipulations include building inpatient hospitalization shells from
all of the facility and professional claims that are associated with
each hospitalization. From these shells, inpatient length of stay
and total cost of services can be captured. Additional data
manipulation may include data summarizations across key dimensions
such as the types of services provided within different provider
specialties or the number and type of drug classes used in treating
a specific condition. Finally, we can apply PRS to the claims data
to create a more enhanced database.
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*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R.SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
EXHIBIT 10.10
PHARSIGHT CORPORATION
DATABASE LICENSE AGREEMENT
This Database License Agreement (this "Agreement") is made and entered into as
of February 24, 2000 (the "Effective Date") by and between Pharsight
Corporation, a California corporation, (hereinafter "Pharsight") and Duke
University, a nonprofit educational and healthcare institution (hereinafter
"Duke").
RECITALS
Pharsight is engaged in the sale of software and services relating to clinical
trial design and modeling to pharmaceutical and biotechnology companies and
desires to have the right to use certain databases developed by Duke, through
its Duke Clinical Research Institute, both as a data resource for an
Internet-based query-response product and internally in its professional
consulting practice.
Duke is the owner of or has appropriate licenses to all US and foreign
copyrights and all other intellectual property rights pertaining to the
databases that are the subject of this Agreement and has the right to grant
licenses under such copyrights and other intellectual property rights. Duke
wishes to have these databases utilized in the public interest and is willing to
grant to Pharsight a non-exclusive right and license to use, reproduce, modify,
and create derivatives of the subject database on the terms and conditions set
forth herein.
NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES, AS WELL AS THE OBLIGATIONS
HEREIN MADE AND UNDERTAKEN, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOW, WITH
THE CAPITALIZED TERMS HAVING THE MEANING SET FORTH IN APPENDIX A:
1. DATABASE DELIVERY, TESTING, AND UPDATES
1.1 DELIVERY OF DATABASES. Duke will perform the statistical extraction of its
patient-level data to create the Databases in accordance with the specifications
in Appendix B and will test the Databases against the Acceptance Criteria. As a
first step, Duke will prepare and deliver to Pharsight electronically within
four (4) weeks of the Effective Date a sample database based on the Databases
that Pharsight can use for testing purposes. The complete Databases will be
delivered within twelve (12) weeks of the Effective Date.
1.2 ACCEPTANCE. Pharsight will have thirty (30) working days from receipt of
each Database to test for adherence to the Acceptance Criteria and will notify
Duke promptly if the Database fails to conform to such criteria. Duke will have
twenty (20) working days to correct such nonconformity, and upon redelivery
Pharsight will again test the Database against the Acceptance Criteria. This
process will be repeated (except that each subsequent test period and repair
period will be limited to fifteen (15)
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working days) until Pharsight either provides Duke with written notice of
acceptance of the Database or is deemed to have accepted the Database under the
provisions of this section, provided, however, that if the Database fails to
meet the Acceptance Criteria on the third delivery, Pharsight shall have the
right to terminate this Agreement with respect to that particular Database and
receive a full refund of all payments made to Duke prior to such termination for
the licensing of said Database. Pharsight shall be deemed to have accepted the
Database if it fails to notify Duke of any nonconformity therein within thirty
(30) working days of delivery (or within fifteen (15) working days of redelivery
in the case of nonconformities in the original delivery).
1.3 PATIENT ANONYMITY. The Databases will be totally anonymous as to the
identity of individual patients, the study in which those patients participated,
the sponsors of clinical trials in which data may have been collected, and the
identity of medical practitioners and institutions providing treatment.
Pharsight will not make any attempt to ascertain such information or any other
information that was "confidentialized" by substituting codes for identifying
information before Duke provided the Databases to Pharsight. Pharsight will
promptly notify Duke if it finds that any such information has inadvertently
been included in a Database and will promptly purge such information from the
Database.
1.4 DATA ACCESS. Customers using the Product will have access only to summary
statistics presented in numeric, tabular, and graphical form. The Product will
be constructed so that it is not possible for Customers to access data records
for individual patients or to identify individual practitioners or institutions
providing treatment or the sponsors of clinical trials in which data may have
been collected. Pharsight will maintain sufficient security measures, including
firewalls and secure transmission protocols, to ensure that patient records from
the Databases are always under Pharsight's control and cannot be accessed by its
Customers. Pharsight will provide its consulting services Customers with
tabular, graphical, numerical or narrative results based upon statistical
analysis of data extracted from the Databases by its own consultants. All
results provided to Customers will be in summary and non-patient specific form,
and Pharsight's consultants will not share data from individual patient records
in the Databases with Customers unless required to do so by the FDA.
1.5 UPDATES. During the term of this Agreement, Duke will provide Pharsight with
an Update for each Database within thirty (30) days after the beginning of each
year of this Agreement (including any renewal terms). The Update will be subject
to QA testing in accordance with the criteria established by the parties.
1.6 COSTS. Duke will be fully responsible for all development and extraction
costs of the Databases and any Updates, including any royalties or payments due
to third-parties.
2. GRANT OF LICENSE
2.1 LICENSE GRANT FOR PRODUCT. Subject to the payment of royalties as set forth
in Section 4.2, Duke hereby grants Pharsight a world-wide right and license (a)
to use, reproduce, and modify the Databases and Documentation and to create
Database Derivatives for development of the Product; (b) to license the Product
to its Customers; (c) to license its Customers to use results obtained through
the use of the Product for drug development and marketing activities, including
regulatory submissions and research publications; (d) to use the Databases, the
Documentation, and the Database Derivatives for purposes of technical support
for Customers; and (e) to use a reasonable number of copies of the
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Product, Databases, Documentation, and Database Derivatives for purposes of
marketing, training, and demonstrations.
2.2 LICENSE GRANT FOR CONSULTING . Pharsight will have unrestricted access to
data in the Databases and Database Derivatives for use in its consulting
activities and, subject to the royalty obligations of Section 4.3 and other
material terms of this Agreement, Duke hereby grants Pharsight a world-wide
right and license (a) to use the Databases, the Database Derivatives, and the
Documentation to prepare statistical results and conclusions based on data
extracted from the Databases and Database Derivatives under consulting contracts
with Customers; (b) to distribute to such Customers models, other analyses, and
conclusions based on its analysis of the data in the Databases and Database
Derivatives; and (c) to allow such Customers to use such models, analyses, and
conclusions for drug development and marketing activities, including regulatory
submissions and research publications.
2.3 OWNERSHIP. Pharsight acknowledges that the Databases and the underlying data
are, and shall remain, the exclusive property of Duke, that Pharsight has no
rights in such properties except those expressly granted by this Agreement and
that those properties shall not be used in any way not specifically allowed by
this Agreement. Duke acknowledges that Pharsight will own all right, title, and
interest in and to the query, user interface, and other software developed by or
for Pharsight as part of the Product and that Duke has no rights in the Product
except as may be expressly granted by Pharsight. Database Derivatives created by
Pharsight, including but not limited to a loading or other translation of the
Databases from one format to another, shall be owned by Pharsight, but such
ownership of the Database Derivatives shall be subject to Duke's underlying
ownership of the data and shall not give Pharsight any rights to use such
Database Derivatives, to the extent they contain such data, in any way not
authorized by this Agreement. Pharsight will treat any Database Derivative and
the underlying data contained therein with the same care and under the same
restrictions defined in this Agreement.
2.4 LIMITED EXCLUSIVITY. During the term of this Agreement, Duke will not sell
or license either Database to any third party for use in or development of
commercial Internet-based query-response products or services similar to those
provided by Pharsight. This Agreement shall not be taken to place any other
restriction on Duke's rights to license its data to third parties or to use its
data in providing services to third parties. This Agreement shall not be taken
to place any restrictions on Duke's right to use, copy, or modify the Databases
for Duke's research, educational, and healthcare purposes, including in projects
that may be sponsored by commercial third parties, except that Duke will not
make such use in support of any commercial Internet-based query-response
products or services similar to those provided by Pharsight.
2.5 LIMITED LICENSE TO DUKE FOR PRODUCT. Pharsight hereby grants Duke a
royalty-free, non-exclusive license (limited to ten users to be identified by
Duke) to use the Product for Duke's internal research purposes, including
research sponsored by governmental organizations, non-profit foundations, or
through gifts, and for educational and other non-profit purposes, including the
preparation of scientific publications by Duke personnel. Duke will acknowledge
the contribution of Pharsight in any scientific publication resulting from
Duke's use of the Product.
3. PRODUCT DEVELOPMENT, MARKETING AND DISTRIBUTION
3.1 PRODUCT DEVELOPMENT. Pharsight will develop the query, user interface, and
other software for the Product that will allow licensed Customers to access the
information in the Databases, as described
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in the application overview in Appendix B. The target date for commercial
release of the Product is June 2000.
3.2 PRODUCT MARKETING ACTIVITIES. Pharsight will be responsible for all
decisions and costs involved in the marketing and distribution of the Product
and consulting services utilizing the Databases, including pricing, end-user
license terms, promotional materials, packaging, distribution channels, and
customer evaluation and training. Pharsight may distribute the Product through
Distributors so long as such Distributors have no direct access to the
Databases. Pharsight may authorize its Distributors to use the Product for
marketing, training, and demonstrations.
3.3 DATABASE SOURCE IDENTIFICATION. Neither party will, without the prior
written consent of the other party: (a) use in advertising, publicity or
otherwise, the name of any employee or agent, any trade-name, trademark, trade
device, service mark, symbol, or any abbreviation, contraction or simulation
thereof owned by the other party, or (b) represent, either directly or
indirectly, that any product or service of the other party is a product or
service of the representing party. Notwithstanding the foregoing, Pharsight may
identify the Databases as having been prepared by Duke, subject to Duke's
approval of the copy, which shall not be unreasonably withheld. Pharsight will
submit all marketing materials referencing Duke to the Reviewers identified in
Appendix A at the addresses set forth therein at least thirty (30) days prior to
their intended use. Duke shall be deemed to have approved the marketing
materials if it fails to notify Pharsight of any problems therein within thirty
(30) days of submission. Pharsight will not represent or imply that use of the
Databases represents any endorsement of the Product by Duke.
3.4 CUSTOMER SUPPORT. Pharsight will provide customer support for the Product.
Duke will make one or more persons familiar with each Database available to
assist Pharsight personnel in the resolution of problems they may encounter from
time to time in use of the Databases. For each [...*** ...] in royalties paid by
Pharsight to Duke (including the initial payment), Duke will provide one day of
problem resolution assistance to Pharsight personnel without charge; further
assistance will be provided as reasonably necessary at [...***...] per day,
prorated on an hourly basis for usage of less than a full day (minimum charge of
four hours per day).
3.5 PRESS ANNOUNCEMENTS. Pharsight will issue a press release announcing the
relationship between Pharsight and Duke (target release date: ACC Scientific
Session 2000), which announcement shall be subject to approval by Duke. Duke
agrees that it will consider supplying a quotation for the press release. The
parties agree that as further news about the relationship is generated in the
future, they will cooperate with each other to issue appropriate press releases,
subject to prior approval by Duke, to cover such news.
4. PAYMENTS
4.1 PREPAID ROYALTIES. To allow Duke to cover up-front expenses associated with
the preparation of the Databases, Pharsight will make lump-sum, minimum royalty
payments to Duke as follows:.(a) [...***...] upon execution of this Agreement
and (b) [...***...] upon delivery of the Databases.; To cover the up-front costs
for creating the Updates, Pharsight will make lump-sum,
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minimum royalty payments to Duke as follows: (a) [...*** ...] at the start of
each subsequent year of this Agreement (including any renewal terms); and (d)
[...***...] upon the delivery of the Updates in accordance with Section 1.5. All
of these royalty payments, together with the [...***...] previously paid by
Pharsight in connection with the parties' letter of intent on December 22, 1999,
will be credited against actual royalties due in each year under section 4.2 and
4.3 below. Should the royalties due under sections 4.2 and 4.3 for a year be
less than these minimum payments, then Duke shall be entitled to retain the full
minimum payment.
4.2 PRODUCT ROYALTY. Pharsight will pay Duke a royalty of [...***...] for each
annual Customer subscription license allowing use of the Product. No royalty
will be due for evaluation licenses allowing a Customer limited use of the
Product, provided Pharsight receives no revenue for such evaluation licenses, or
for use of the Product in Customer training programs.
4.3 SERVICE USE ROYALTY. Pharsight will pay Duke a running royalty of
[...***...] of revenues that Pharsight receives for consulting services where
its professional staff utilize the Databases or Database Derivatives. Pharsight
will invoice Customers separately for the portion of such services that utilizes
the Databases or Database Derivatives, and the royalty will be based on the
invoiced amounts. No royalty will be due for use of the Databases or Database
Derivatives for Pharsight staff training.
4.4 PAYMENTS. Royalty payments will be made on a quarterly basis with payment
due thirty (30) days after the end of each calendar quarter for all Product
license revenue received during such quarter and all consulting service revenue
recognizable (under generally accepted accounting principles) during such
quarter. Each payment will be accompanied by a report setting forth the
calculation of such payment amount. Checks shall be made payable to Duke
University (EIN 56 0532129) and sent to the address supplied by Duke. Pharsight
shall be responsible for all taxes (local, state and federal), including all
sales and use taxes, that may now or hereafter be imposed upon this license or
the possession or use of the Databases by Pharsight, provided, however, that
Pharsight shall have no responsibility for any taxes based upon Duke's net
income.
4.5 AUDIT. Pharsight will, upon written request, during normal business hours,
but not more frequently than once each calendar year, provide access for
purposes of audit to pertinent records relating to royalties payable in
connection with the Databases to an independent accounting firm chosen and
compensated (other than on a contingent fee basis) by Duke and reasonably
acceptable to Pharsight. Such accounting firm will be authorized to report to
Duke only the amount of royalties due and payable for the period examined. If
the amount under-reported by Pharsight is equal to or greater than ten percent
(10%) of the total payment due to Duke for the payment period so audited, then
the cost of the audit shall be borne by Pharsight.
4.6 CONFIDENTIALITY. Duke will not disclose to any third party any sales or
customer information received from Pharsight in connection with royalty payments
and will use such information solely for the purpose of carrying out its
obligations under this Agreement. Pharsight will protect the confidentiality of
the Databases and will not disclose the Databases or the information contained
therein to any third party except as expressly allowed by this Agreement.
5. WARRANTIES; INDEMNIFICATION; LIMITATION OF LIABILITY
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5.1 WARRANTIES. Duke represents and warrants to Pharsight (a) that Duke has all
rights and authority necessary for the grant of rights and licenses effected by
this Agreement; (b) that the data in the Databases were developed in substantial
accordance with Duke's standard medical record-keeping procedures; (c) that all
required consents to use and redistribute the data in the Databases have been
obtained; and (d) that use and distribution of the Databases as authorized
herein will not violate federal or state patient-privacy laws or regulations.
The warranty in clause (d) shall apply to the Databases only on the basis of the
federal or state patient-privacy laws or regulations in effect at the time of
initial delivery of the Databases and to each Update only on the basis of the
federal or state patient-privacy laws or regulations in effect at the time of
delivery of such Update. If Pharsight is required to cancel any Customer license
for the Product because of Duke's breach of one of the foregoing warranties,
Duke will refund to Pharsight any royalties paid with respect to such cancelled
licenses.
5.2 LIMITATIONS OF WARRANTY. THE FOREGOING WARRANTIES ARE THE ONLY WARRANTIES
MADE BY DUKE. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE EXPRESSLY DISCLAIMED.
5.3 NON-INFRINGEMENT. Duke represents that to the best of its knowledge the
Databases do not infringe upon any third party copyrights or other intellectual
property rights, and that Duke has obtained all necessary consents to use and
redistribute the data in the Databases as set forth in this agreement. If the
Databases are found to infringe upon any third party rights, Duke agrees, at no
cost to Pharsight to modify the infringing Database to eliminate such
infringement, or if such modification is not practical to refund to Pharsight
any royalties paid with respect to licenses that Pharsight cancels because of
such infringement.
5.4 INDEMNIFICATION. Pharsight will defend, indemnify, and hold Duke harmless
from and against any action or other proceeding brought against Duke arising
from Pharsight's use, reproduction, modification, and creation of derivatives of
the Databases, except where such action arises from negligence or willful
misconduct on the part of Duke or from Duke's breach of the representations and
warranties set forth in Section 5.1. Duke will defend, indemnify, and hold
Pharsight harmless from and against any action or other proceeding brought
against Pharsight to the extent that it is based on (i) Duke's negligence or
willful misconduct; (ii) a claim that any part of the Databases or Documentation
infringes any copyright or patent or incorporates any misappropriated trade
secrets of any third party; or (iii) a claim that use or distribution of the
Databases as authorized herein violates federal or state patient-privacy laws or
regulations or the privacy rights of any patient included in the Databases as
such laws were in effect at the time of delivery of the version of the Database
that is the subject of such claim.
5.5 CONDITIONS OF INDEMNIFICATION. The indemnifying party will pay any and all
costs, damages, and expenses (including but not limited to reasonable attorneys'
fees) incurred by the indemnified party in any action or proceeding requiring
indemnification under section 5.4 (an "Action"). The indemnifying party will
have no obligation as to any Action unless (i) the indemnified party gives it
prompt notice of the Action; (ii) the indemnifying party has sole control of the
defense and settlement of the Action; and (iii) the indemnified party provides
the indemnifying party, at the indemnifying party's expense, with reasonable
assistance in defense and settlement of the Action.
5.6 LIMITATION ON LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES (INCLUDING
DAMAGES FOR LOSS
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OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND
THE LIKE) ARISING OUT OF THIS AGREEMENT EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT TO THE INDEMNIFICATION
OBLIGATIONS UNDER SECTIONS 5.4 AND 5.5, NEITHER PARTY'S LIABILITY UNDER THIS
AGREEMENT SHALL EXCEED THE AMOUNTS PAID TO DUKE UNDER THIS AGREEMENT. BOTH
PARTIES ACKNOWLEDGE THAT THE FOREGOING LIMITATION REFLECTS A BARGAINED-FOR
ALLOCATION OF RISK AND THAT THE ROYALTIES SET FORTH HEREIN REFLECT SUCH RISK.
6. TERM AND TERMINATION
6.1 TERM OF AGREEMENT. The initial term of this Agreement will be the period
beginning on the Effective Date of this Agreement and ending on the second
anniversary of the date on which Pharsight accepts (in accordance with Section
2.2) both Databases. This Agreement may be renewed for two successive additional
one-year periods at Pharsight's option and beyond that may be renewed by mutual
agreement of the parties.
6.2 TERMINATION FOR NON-DELIVERY. If Duke fails to deliver both Databases in a
form meeting the Acceptance Criteria within six (6) months of the Effective
Date, then Pharsight shall have the option to terminate this Agreement, return
any copies of the Databases in its possession, and receive from Duke a refund of
all payments made to Duke prior to such termination, except that Duke may retain
such portion of the payments, not to exceed [...*** ...], reflecting the cost of
the statistical database development effort performed by Duke up to the date of
termination under this Section 6.2.
6.3 TERMINATION FOR BREACH. Each party has the right to terminate this Agreement
if the other party has materially breached any obligation herein and such breach
remains uncured for a period of thirty (30) days after written notice thereof is
sent to the other party. Either party may immediately terminate this Agreement
for fraud, willful misconduct, or illegal conduct of the other party upon
written notice of same to that other party.
6.4 EFFECT OF TERMINATION. Upon termination or expiration of this Agreement, all
rights and licenses granted to Pharsight hereunder shall terminate and Pharsight
shall promptly return, or at Duke's election destroy, the Databases and all
copies thereof and shall cease use of any Database Derivatives to the extent
such Database Derivatives contain data from the Databases. Termination will have
no effect on the rights of any Customer to continue to use any information
obtained from the Databases or Database Derivatives prior to such termination in
accordance with its original license for the Product. Notwithstanding any
termination of this Agreement, Duke shall remain entitled to fees owed pursuant
to this Agreement resulting from use of the Databases or license of the Product
prior to termination of this Agreement.
6.5 SURVIVAL. The provisions of Sections 2.3, 3.3, 4.5, 4.6, 5, 6.4, 6.5, 8, and
9 will survive any termination or expiration of this Agreement.
8. MEDIATION AND ARBITRATION
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* Confidential treatment requested.
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8.1 MEDIATION. Any dispute arising under this Agreement will be resolved through
a mediation and arbitration approach. The parties agree to select a mutually
agreeable, neutral third party to help them mediate any dispute that arises
under the terms of this Agreement. Costs and fees associated with the mediation
will be shared equally by the parties.
8.2 ARBITRATION. If the mediation is unsuccessful, the parties agree that the
dispute will be decided by binding arbitration under the rules of the American
Arbitration Association through a panel of three arbitrators with each party
nominating one arbitrator who will select the third who shall serve as chairman
of the panel. The decision of the arbitrators will be final and binding on the
parties and may be entered and enforced in any court of competent jurisdiction
by either party. The findings of the arbitration panel may include an award of
reasonable attorney fees, expert witness costs and expenses, and all other
reasonable costs and expenses incurred in connection with the proceedings
9. GENERAL
9.1 NOTICES. Any notice required or permitted hereunder must be in writing, and
will be effective on the date of delivery when delivered personally, the next
business day after dispatch when sent by Federal Express or other recognized
overnight courier service, or the fifth business day after dispatch when sent by
certified mail, postage prepaid, return receipt requested. Notices should be
addressed to the other party at the address shown below or at such other address
as a party may designate by ten days' advance written notice to the other party:
Pharsight Corporation Duke University
800 West El Camino Real, Suite 200 2400 Pratt Street
Mountain View, CA 94040 Room 0311 Terrace Level
Attention: Chief Financial Officer Durham, NC 27705
Phone: (650) 314-3800 Attention: Contracts Manager
Fax: (650) 314-3810 Phone: (919) 886-6997
Fax: (919) 668-7009
9.2 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement, including all appendices,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior representations, proposals, discussions,
and communications, whether oral or in writing. This Agreement may be modified
or amended only by a writing executed by a duly authorized representative of
each party.
9.3 FORCE MAJEURE. Neither party will be liable to the other for any failure or
delay caused by events beyond such party's control, including, without
limitation, sabotage, riots, insurrections, fires, flood, storm, explosions,
war, or earthquakes. However, if such events shall continue for thirty (30) days
or more, the other party shall have the option of terminating this Agreement by
giving written notice of termination.
9.4 CHANGE IN LAW; CHANGE IN CIRCUMSTANCES. No party shall make or receive any
payment or take any action under this Agreement if any judicial decision,
legislative action, or regulatory or other administrative interpretation,
whether federal or state, would render illegal the conduct of either party under
this Agreement. If performance by either party of any term of this Agreement
should be deemed illegal by any party or third party who is essential to
performance of this Agreement for any such reason,
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either party shall have the right to require that the other party renegotiate
the terms of this Agreement. If the parties fail to reach an agreement
satisfactory to both parties within fifteen (15) days after the receipt of any
request for renegotiation, either party may terminate this Agreement upon ten
(10) days prior written notice to the other party, or sooner if required by law.
9.5 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of
the parties hereto, their successors and permitted assigns. Neither party may
assign its rights and obligations under this Agreement to a third party without
the written permission of the other party, except that either party may assign
this Agreement in its entirety to a successor corporation upon notice to the
other party in the event of a merger or an acquisition of all or substantially
all of the assets of the assigning party.
9.6 GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement will be governed by and
determined in accordance with the laws of the State of North Carolina, without
regard to its conflict of laws provisions. Application of the United Nations
Convention on Contracts for the International Sale of Goods is specifically
excluded.
9.7 SEVERABILITY. If a court of competent jurisdiction determines that any
provision of this Agreement is invalid, illegal, or otherwise unenforceable,
such provision shall be replaced with a valid, enforceable provision as nearly
as possible in accordance with the stated intention of the parties, while the
remainder of this Agreement shall remain in full force and effect. To the extent
any provision cannot be enforced in accordance with the stated intentions of the
parties, such provision shall be deemed not to be a part of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts,
all of which together will constitute one and the same instrument.
IN WITNESS THEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE EXECUTED BY
THEIR RESPECTIVE DULY AUTHORIZED REPRESENTATIVES AS SET FORTH BELOW:
PHARSIGHT CORPORATION DUKE UNIVERSITY
By: /s/ Robin A. Kehoe By: /s/ illegible
------------------------------- -------------------------------
Robin A. Kehoe Name:
Chief Financial Officer Title
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APPENDIX A
DEFINITIONS
DATABASE means the either of the cardio-vascular databases described in Appendix
B and all Updates to such databases when and as delivered to Pharsight.
DATABASE DERIVATIVE means any derivative works, modifications, or new
compilations of one or both of the Databases prepared by or on behalf of
Pharsight for use with the Product or in consulting services.
DISTRIBUTOR means a third-party sales and marketing organization contracted by
Pharsight to market and sell Product subscriptions in selected geographic
regions or market segments, provided such organization has been approved by
Duke. Pharsight will notify Duke of the names of its third-party sales
organizations, and Duke shall be deemed to have approved such third parties as
Distributors if it fails to notify Pharsight of its reasons for disapproval
within thirty (30) days of submission.
DOCUMENTATION means any and all materials provided to Pharsight by Duke
describing the features, structure, functions, fields, contents, collection
methods, etc. of the Databases.
CUSTOMER means a customer of Pharsight or of its distributors to whom Pharsight
has licensed the use of the Product or to whom Pharsight has provided consulting
services utilizing the Databases.
ACCEPTANCE CRITERIA means the specifications for the Databases set forth in
Appendix B and the quality requirements for the Databases set forth in Appendix
C or otherwise agreed upon in writing by the parties.
PRODUCT means Pharsight's Internet query-response product utilizing the
Databases or Database Derivatives in the fields of Acute Coronary Syndrome and
Chronic Ischemic CHF, respectively, and all updates, upgrades, and new versions
thereof.
REVIEWER means the person authorized by Duke to approve marketing materials
submitted by Pharsight. The initial Reviewer is Patricia Hodgson, with an
address at 2400 Pratt Street, Room 0311 Terrace Level, Durham, NC 27705 (phone:
919 668-8914) with a copy to be sent to Gilbert Smith, Ph.D., Associate Director
Science and Technology, Duke University Medical Center, Davison Building, Room
M454, DUMC Box 3664, Durham, NC 27715. Duke shall notify Pharsight of changes in
the Reviewer in accordance with section 9.1.
UPDATE means a new version of the Database, consisting of a new statistical
extraction made from the most recent provider database according to the
specifications defined in Appendix B.
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APPENDIX B
SPECIFICATION AND APPLICATION FOR PHARSIGHT/DUKE CV DATABASES
APPLICATION OVERVIEW
The databases are intended for use with the Pharsight Internet query-response
system, which 1) allows users to ask detailed drug development questions, 2)
acts as an intelligent interface to find and extract the relevant information
from the database, 3) performs relevant numerical analysis to produce summary
results, and 4) presents the aggregate results to the users via lists, graphs
and plots. Typical question areas include incidence and statistical
distributions of specific patient characteristics in anonymous patient databases
and determination of the time course of medical condition and status in both
normal aging and pathological disease states. The system and its methods produce
reports that can be used to improve the process of developing new medical
therapeutics, including new drugs, drug delivery systems, and medical devices
and supplies. The system uses secure Internet technology, allowing users to
access the system 24-hours/day.
OUTLINE OF SPECIFICATIONS FOR DATABASES I AND II
The databases will focus on two important applications in the acute
cardiovascular therapeutic area: acute coronary syndrome and chronic ischemic
congestive heart failure.
[...***...]
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* Confidential treatment requested.
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APPENDIX C
ACCEPTANCE CRITERIA
A. GENERAL
1. Data types (e.g. alpha vs. numeric, etc.) are as described in Appendix B,
"Variable Definitions Acute Coronary Syndrome Database".
2. Value ranges are as described in Appendix B, "Variable Definitions Acute
Coronary Syndrome Database".
3. Missing values are encoded consistently within each field, using definitions
provided by Duke.
B. MISSING DATA
[...***...]
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* Confidential treatment requested.
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*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R.SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
EXHIBIT 10.11
PHARSIGHT CORPORATION
DATA SET LICENSE AGREEMENT
This Data Set License Agreement (this "Agreement") is made and entered into as
of March 1, 2000 (the "Effective Date") by and between Pharsight Corporation, a
California corporation, (hereinafter "Pharsight") and the Lovelace Respiratory
Research Institute (hereinafter "Lovelace").
RECITALS
Pharsight is engaged in the sale of software and services relating to clinical
trial design and modeling to pharmaceutical and biotechnology companies and
desires to have the right to use certain data sets developed by Lovelace both as
a data resource for an Internet-based query-response product and internally in
its professional consulting practice.
Lovelace is the owner of all rights to the data set necessary to carry out this
Agreement and is willing to grant to Pharsight a non-exclusive right and license
to use, reproduce, modify, and create derivatives of the subject data set on the
terms and conditions set forth herein.
NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES, AS WELL AS THE OBLIGATIONS
HEREIN MADE AND UNDERTAKEN, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOW, WITH
THE CAPITALIZED TERMS HAVING THE MEANING SET FORTH IN APPENDIX A:
1. DATA SET DELIVERY, TESTING, AND UPDATES
1.1 DELIVERY OF INITIAL DATA SET. Lovelace will pool patient-level healthcare
data from the members of the Lovelace Data Consortium (the "Consortium") to
create the Data Set in accordance with the specifications in Appendix B and the
quality assurance procedures in Appendix C and will test the Data Set against
the Acceptance Criteria in Appendix D. As a first step, Lovelace will prepare
and deliver to Pharsight electronically within four (4) weeks of the Effective
Date a sample data set based on the Data Set that Pharsight can use for testing
and marketing purposes. The complete Data Set will be delivered within twelve
(12) weeks of the Effective Date.
1.2 ACCEPTANCE. Pharsight will have thirty (30) working days from receipt of the
Data Set to test for adherence to the Acceptance Criteria and will notify
Lovelace promptly if the Data Set fails to conform to such criteria. Lovelace
will have twenty (20) working days to correct such nonconformity, and upon
redelivery Pharsight will again test the Data Set against the Acceptance
Criteria. This process will be repeated (except that each subsequent test period
and repair period will be limited to fifteen (15) working days) until Pharsight
either provides Lovelace with written notice of acceptance of the Data Set or is
deemed to have accepted the Data Set under the provisions of this section,
provided, however, that if the Data Set fails to meet the Acceptance Criteria on
the third delivery, Pharsight shall have the right
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to terminate this Agreement and receive a full refund of any royalty or license
payments made to Lovelace prior to such termination. Pharsight shall be deemed
to have accepted the Data Set if it fails to notify Lovelace of any
nonconformity therein within thirty (30) working days of delivery (or within
fifteen (15) working days of redelivery in the case of nonconformities in the
original delivery).
1.3 PATIENT ANONYMITY. The Data Set will be totally anonymous as to the identity
of individual patients, the study, if any, in which those patients participated,
and the identity of medical practitioners and institutions providing treatment
and health plans covering treatment. Pharsight will not make any attempt to
ascertain such information or any other information that was rendered
confidential by substituting codes for identifying information before Lovelace
provided the Data Set to Pharsight. The parties will follow the confidentiality
protocol described in Appendix E hereto.
1.4 DATA ACCESS. Customers using the Product will have access only to summary
statistics presented in numeric, tabular, and graphical form. The Product will
be constructed so that it is not possible for Customers to access data records
for individual patients. Pharsight will maintain sufficient security measures,
including firewalls and secure transmission protocols, to ensure that patient
records from the Data Set are always under Pharsight's control and cannot be
accessed by its Customers. Pharsight will provide its consulting services
Customers with tabular, graphical, numerical or narrative results based upon
statistical analysis of data extracted from the Data Set by its own consultants.
All results provided to Customers will be in summary and non-patient specific
form, and Pharsight's consultants will not share data from individual patient
records in the Data Set with Customers unless required to do so by the FDA, in
which case Pharsight will notify Lovelace.
1.5 UPDATES. During the term of this Agreement, Lovelace will provide Pharsight
with an Update for the Data Set within thirty (30) days after the beginning of
each year of this Agreement (including any renewal terms). The Update will be
subject to quality assurance testing in accordance with the criteria established
by the parties.
1.6 COSTS. Lovelace will be fully responsible for all development and extraction
costs of the Data Set and any Updates, including any royalties or payments due
to third parties.
2. GRANT OF LICENSE
2.1 LICENSE GRANT FOR PRODUCT. Subject to the payment of royalties as set forth
in Section 4.2, Lovelace hereby grants Pharsight a world-wide right and license
(a) to use, reproduce, modify, and create derivatives of the Data Set and
Documentation internally for development of the Product; (b) to license the
Product to its Customers; (c) to license its Customers to use results obtained
through the use of the Product for research in support of therapeutic innovation
in drug development and related marketing activities, including regulatory
submissions and research publications; (d) to use the Data Set and the
Documentation for purposes of technical support for Customers; (e) to use a
reasonable number of copies of the Product and Data Set for purposes of
marketing, training, and demonstrations.
2.2 LICENSE GRANT FOR CONSULTING. Pharsight will have unrestricted access to the
Data Set for use in its consulting activities related to research in support of
therapeutic innovation in drug development and related marketing activities and,
subject to the royalty obligations of Section 4.3 and the confidentiality
clauses of Appendix E, Lovelace hereby grants Pharsight a world-wide right and
license (a) to use the Data Set and Documentation to prepare statistical results
and conclusions based on the Data Set under
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consulting contracts with Customers; (b) to distribute to such Customers models,
other analyses, and conclusions based on its analysis of the data in the Data
Set; and (c) to allow such Customers to use such models, analyses, and
conclusions for drug development and related marketing activities, including
regulatory submissions and research publications. Pharsight will provide
Lovelace with an anonymized summary list of the types of analyses performed for
Customers every six months.
2.3 OWNERSHIP. Lovelace will retain ownership of the Data Set and the underlying
data. Pharsight will own all right, title, and interest in and to the query,
user interface, and other software developed by or for Pharsight as part of the
Product, as well as all models and analyses created for Customers as part of its
consulting activities.
2.4 LIMITED EXCLUSIVITY. During the term of this Agreement, Lovelace will not
sell or license the Data Set or any other data set from the Consortium to any
third party for use in or development of Internet-based software systems related
to clinical drug development or for providing services related to clinical trial
simulation or clinical drug development in the biopharmaceutical industry.
3. PRODUCT DEVELOPMENT, MARKETING AND DISTRIBUTION
3.1 PRODUCT DEVELOPMENT. Pharsight will develop the query, user interface, and
other software for the Product that will allow licensed Customers to access the
information in the Data Set, as described in the application overview in
Appendix B. The target date for commercial release of the Product is June 2000.
3.2 PRODUCT MARKETING ACTIVITIES. Pharsight will be responsible for all
decisions and costs involved in the marketing and distribution of the Product
and consulting services utilizing the Data Set, including pricing, end-user
license terms, promotional materials, packaging, distribution channels, and
customer evaluation and training. Pharsight may distribute the Product through
Distributors so long as such Distributors have no direct access to the Data Set.
Pharsight may authorize its Distributors to use the Product for marketing,
training, and demonstrations.
3.3 DATA SET SOURCE IDENTIFICATION. Pharsight may identify the Data Set as
having been prepared by Lovelace, but will not represent that use of the Data
Set represents any endorsement of the Pharsight product by Lovelace or any
member of the consortium. Pharsight agrees to adhere to the organizational
confidentiality clauses stipulated in Appendix E. Any marketing materials
containing references to Lovelace other than identification of the source of the
Data Set, as set forth in Appendix E, will be submitted to Lovelace (to the
attention of Patricia J. Marx, Chief Operating Officer, via certified mail) for
advance approval at least thirty (30) days prior to their intended use. Lovelace
shall be deemed to have approved the marketing materials if it fails to notify
Pharsight of any problems therein within thirty (30) days of submission.
3.4 CUSTOMER SUPPORT. Pharsight will provide customer support for the Product.
Lovelace will make one or more persons familiar with the Data Set available to
assist Pharsight personnel in the resolution of problems they may encounter from
time to time in use of the Data Set. For each [...*** ...] in royalties paid by
Pharsight to Lovelace (including the annual license fee), Lovelace will provide
one day of problem resolution assistance to Pharsight personnel without charge;
further
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* Confidential treatment requested.
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assistance will be provided as reasonably necessary at [...***...] per day,
prorated on an hourly basis for usage of less than a full day.
3.5 PRESS ANNOUNCEMENTS. Pharsight will issue a press release announcing the
relationship between Pharsight and Lovelace (target release date: March 28,
2000), which announcement shall be subject to approval by Lovelace and subject
to Sections 3.2, 3.3 and Appendix E. Lovelace agrees that it will supply a
quotation for the press release. The parties agree that as further news about
the relationship is generated in the future, they will cooperate with each other
to issue appropriate press releases to cover such news.
4. PAYMENTS
4.1 ANNUAL LICENSE FEE. To allow Lovelace to cover up-front expenses associated
with the preparation of the Data Set, Pharsight will make a lump-sum, minimum
royalty payment to Lovelace as follows: (a) [...***...] upon execution of this
Agreement and (b) [...***...] upon delivery of the Data Set. To cover the
up-front expenses for creating the Updates, Pharsight will make lump-sum,
minimum royalty payments to Lovelace as follows: (a) [...***...] at the start of
each subsequent year of this Agreement (including renewal terms); and (b)
[...***...] upon the delivery of the Updates in accordance with Section 1.5.
These non-refundable payments will be credited against actual royalties due in
each year under Section 4.2 and 4.3 below. Should the royalties due under
Sections 4.2 and 4.3 for a year be less than these minimum payments, then
Lovelace shall be entitled to retain the full minimum payment.
4.2 PRODUCT ROYALTY. Pharsight will pay Lovelace a royalty of [...***...] for
each annual Customer subscription license allowing use of the Product. No
royalty will be due for evaluation licenses allowing a Customer limited use of
the Product, provided Pharsight receives no revenue for such evaluation
licenses, or for use of the Product in Customer training programs.
4.3 SERVICE USE ROYALTY. Pharsight will pay Lovelace a royalty of [...***...]
for each Customer project for which Pharsight's staff accesses the Data Set in
connection with providing consulting services to the Customer. No royalty will
be due for use of the Data Set for Pharsight staff training.
4.4 PAYMENTS. Royalty payments will be made on a quarterly basis with payment
due thirty (30) days after the end of each calendar quarter for all Product
license revenue received during such quarter and all consulting service revenue
recognizable (under generally accepted accounting principles) during such
quarter. Each payment will be accompanied by a report setting forth the
calculation of such payment amount.
4.5 DELIVERY BONUS. Should Lovelace deliver the Data Set meeting the Acceptance
Criteria to Pharsight by May 15, 2000, Lovelace shall receive a Delivery Bonus
of [...***...]. Should Lovelace deliver the Data Set meeting the Acceptance
Criteria to Pharsight by April 30, 2000, Lovelace shall receive a Delivery Bonus
of [...***...]. The Delivery Bonus is a one-time payment and need not be
credited against any other royalty payments.
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* Confidential treatment requested.
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4.6 ADDITIONAL CONSORTIUM MEMBERS. For additional Consortium members in excess
of three (3) members, up to and including six (6) members, Lovelace will receive
the following payment increases: (a) the minimum annual royalty in Section 4.1
will be increased by [...*** ...] per new member to a maximum of [...***...],
with [...***...] paid at signing or renewal of the Agreement, and [...***...]
paid at delivery of the Data Set or Updates; (b) the product royalty in Section
4.2 will be increased by [...***...] per new member to a maximum of [...***...];
and (c) the service use royalty in Section 4.3 will be increased by [...***...]
per new member to a maximum of [...***...]. These increased payments will apply
only to minimum annual royalties, annual Customer subscription license
royalties, or Customer consulting project royalties accrued after the Data Set
has been contributed to by such added Consortium member(s).
4.7 AUDIT. Pharsight will, upon written request, during normal business hours,
but not more frequently than once each calendar year, provide access for
purposes of audit to pertinent records relating to royalties payable in
connection with the Data Set to an independent accounting firm chosen and
compensated (other than on a contingent fee basis) by Lovelace and reasonably
acceptable to Pharsight. Such accounting firm will be authorized to report to
Lovelace only the amount of royalties due and payable for the period examined.
If the amount under-reported by Pharsight is equal to or greater than ten
percent (10%) of the total payment due to Lovelace for the payment period so
audited, then the cost of the audit shall be borne by Pharsight.
4.8 CONFIDENTIALITY. Lovelace will not disclose to any third party any sales or
customer information received from Pharsight in connection with royalty payments
and will use such information solely for the purpose of carrying out its
obligations under this Agreement.
5. WARRANTIES; INDEMNIFICATION; LIMITATION OF LIABILITY
5.1 WARRANTY. Lovelace represents and warrants to Pharsight (a) that Lovelace
will obtain prior to delivery of the Data Set, all rights and authority
necessary for the grant of rights and licenses pertaining to this Agreement; (b)
that the Data Set as supplied to Pharsight will be developed in substantial
accordance with the quality assurance procedures described in Appendix C for
generating and validating the data; (c) that no consents are required to use and
redistribute the data in the Data Set as authorized in this Agreement; and (d)
that agreements between Lovelace and the Consortium to use and redistribute the
data in the Data Set will be obtained prior to delivery of the Data Set and will
be available for review by Pharsight. If Pharsight is required to cancel any
Customer license for the Product because of Lovelace's breach of one of the
foregoing warranties, Lovelace will refund to Pharsight any royalties paid with
respect to such cancelled licenses.
5.2 INDEMNIFICATION. Pharsight will defend, indemnify, and hold Lovelace
harmless from and against any action or other proceeding brought against
Lovelace arising from Pharsight's use of the Data Set, except where such action
arises from negligence or willful misconduct on the part of Lovelace or from
Lovelace's breach of the representations and warranties set forth in Section
5.1. Lovelace will defend, indemnify, and hold Pharsight harmless from and
against any action or other proceeding brought against Pharsight to the extent
that it is based on (i) Lovelace's negligence or willful misconduct; (ii) a
claim that any part of the Data Set or Documentation infringes any copyright or
patent or incorporates any misappropriated trade secrets of any third party; or
(iii) a claim that use or distribution of the Data
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* Confidential treatment requested.
5
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Set as authorized herein violates federal or state patient-privacy laws or
regulations or the privacy rights of any patient included in the Data Set as
such laws were in effect at the time of delivery of the version of the Data Set
that is the subject of such claim.
5.3 CONDITIONS OF INDEMNIFICATION. The indemnifying party will pay any and all
costs, damages, and expenses (including but not limited to reasonable attorneys'
fees) incurred by the indemnified party in any action or proceeding requiring
indemnification under section 5.2 (an "Action"). The indemnifying party will
have no obligation as to any Action unless (i) the indemnified party gives it
prompt notice of the Action; (ii) the indemnifying party has sole control of the
defense and settlement of the Action; and (iii) the indemnified party provides
the indemnifying party, at the indemnifying party's expense, with reasonable
assistance in defense and settlement of the Action.
5.4 LIMITATION ON LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES (INCLUDING
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE) ARISING OUT OF THIS AGREEMENT EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT TO THE
INDEMNIFICATION OBLIGATIONS UNDER SECTIONS 5.2 AND 5.3, NEITHER PARTY'S
LIABILITY UNDER THIS AGREEMENT SHALL EXCEED THE AMOUNTS PAID TO LOVELACE UNDER
THIS AGREEMENT. BOTH PARTIES ACKNOWLEDGE THAT THE FOREGOING LIMITATION REFLECTS
A BARGAINED-FOR ALLOCATION OF RISK AND THAT THE ROYALTIES SET FORTH HEREIN
REFLECT SUCH RISK.
6. TERM AND TERMINATION
6.1 TERM OF AGREEMENT. The initial term of this Agreement will be the period
beginning on the Effective Date of this Agreement and ending on the first
anniversary of the date on which Pharsight accepts (in accordance with Section
1.2) the Data Set. This Agreement may be renewed for two successive additional
one-year periods at Pharsight's option and beyond that may be renewed by mutual
agreement of the parties.
6.2 TERMINATION FOR NON-DELIVERY. If Lovelace fails to deliver the Data Set in a
form meeting the Acceptance Criteria within six (6) months of the Effective
Date, then Pharsight shall have the option to terminate this Agreement, return
any copies of the Data Set in its possession, and receive from Lovelace a refund
of any royalty or license payments made to Lovelace prior to such termination.
If Lovelace fails to deliver an Update meeting the Acceptance Criteria within
sixty (60) days of the start of the renewal term, then Pharsight shall have the
option to terminate this Agreement, return any copies of the Data Set in its
possession, and receive from Lovelace a refund of any royalty or license
payments made to Lovelace with respect to such renewal term prior to such
termination.
6.3 TERMINATION FOR BREACH. Each party has the right to terminate this Agreement
if the other party has materially breached any obligation herein and such breach
remains uncured for a period of thirty (30) days after written notice thereof is
sent to the other party.
6.4 LOSS OF DATA ACCESS. In the event that at any time during the term of this
Agreement there is a period of at least sixty (60) days in which the number of
Consortium members having access to data to contribute to the Data Set is less
than three (3), Lovelace shall so notify Pharsight and shall thereafter have no
obligation to provide Updates. Pharsight's rights with respect to the Data Set
shall continue for
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one year from the date of such notice, but the royalties due under Sections 4.2
and 4.3 shall be reduced to fifty percent (50%) of the amount set forth in such
sections during such one-year period.
6.5 EFFECT OF TERMINATION. Upon termination or expiration of this Agreement, all
rights and licenses granted to Pharsight hereunder shall terminate. Termination
will have no effect on the rights of any Customer to continue to use the Product
or any information obtained from the Data Set or Product prior to such
termination in accordance with its original license for the Product or grant of
rights from Pharsight with respect to consulting services deliverables.
Notwithstanding any termination of this Agreement, Lovelace shall remain
entitled to royalties owed pursuant to this Agreement resulting from use or
license of the Data Set or Product prior to termination of this Agreement.
6.6 SURVIVAL. The provisions of Sections 2.3, 3.3, 4.7, 4.8, 5, 6.5, 6.6, 8, and
9 will survive any termination or expiration of this Agreement.
7. ADDITIONAL DATA SETS
If Pharsight identifies other therapeutic areas where Pharsight wishes to
license a data set for its Internet query-response product and consulting use,
Pharsight will propose specifications for data set development to Lovelace.
Lovelace will respond within sixty (60) days, and if Lovelace agrees that the
proposed data set is practicable to develop, the parties will then work together
to finalize the specifications. At the time such specifications are agreed upon
for a given data set, the parties will enter into an agreement similar to this
Agreement setting forth the provisions for delivery, quality assurance testing,
and licensing terms. The royalty provisions for any additional data set in any
such agreement that is entered into during the term of this Agreement will be
the same as those in this Agreement.
8. MEDIATION AND ARBITRATION
8.1 MEDIATION. Any dispute arising under this Agreement will be resolved through
a mediation and arbitration approach. The parties agree to select a mutually
agreeable, neutral third party to help them mediate any dispute that arises
under the terms of this Agreement. Costs and fees associated with the mediation
will be shared equally by the parties.
8.2 ARBITRATION. If the mediation is unsuccessful, the parties agree that the
dispute will be decided by binding arbitration under the rules of the American
Arbitration Association. The decision of the arbitrators will be final and
binding on the parties and may be entered and enforced in any court of competent
jurisdiction by either party. The prevailing party in the arbitration
proceedings will be awarded reasonable attorney fees, expert witness costs and
expenses, and all other reasonable costs and expenses incurred in connection
with the proceedings, unless the arbitrators for good cause determine otherwise.
9. GENERAL
9.1 NOTICES. Any notice required or permitted hereunder must be in writing, and
will be effective on the date of delivery when delivered personally, the next
business day after dispatch when sent by Federal Express or other recognized
overnight courier service, or the fifth business day after dispatch when sent
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by certified mail, postage prepaid, return receipt requested. Notices should
be addressed to the other party at the address shown below or at such other
address as a party may designate by ten days' advance written notice to the
other party:
<TABLE>
<S> <C>
Pharsight Corporation Lovelace Respiratory Research Institute
800 West El Camino Real, Suite 200 P.O. Box 5890
Mountain View, CA 94040 Albuquerque, NM 87185-5890
Attention: Chief Financial Officer Attention: Patricia J. Marx,
Phone: (650) 314-3800 Chief Operating Officer
Fax: (650) 314-3810 Phone: (505) 845-1193
Fax: (505) 845-1067
</TABLE>
9.2 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement, including all appendices,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior representations, proposals, discussions,
and communications, whether oral or in writing. This Agreement may be modified
or amended only by a writing executed by a duly authorized representative of
each party.
9.3 FORCE MAJEURE. Neither party will be liable to the other for any failure or
delay caused by events beyond such party's control, including, without
limitation, sabotage, riots, insurrections, fires, flood, storm, explosions,
war, or earthquakes. However, if such events shall continue for thirty (30) days
or more, the other party shall have the option of terminating this Agreement by
giving written notice of termination.
9.4 CHANGE IN LAW; CHANGE IN CIRCUMSTANCES. No party shall make or receive any
payment or take any action under this Agreement if any judicial decision,
legislative action, or regulatory or other administrative interpretation,
whether federal or state, would render illegal the conduct of either party under
this Agreement. If performance by either party of any term of this Agreement
should be deemed illegal by any party or third party who is essential to
performance of this Agreement for any such reason, either party shall have the
right to require that the other party renegotiate the terms of this Agreement.
If the parties fail to reach an agreement satisfactory to both parties within
fifteen (15) days after the receipt of any request for renegotiation, either
party may terminate this Agreement upon ten (10) days prior written notice to
the other party, or sooner if required by law.
9.5 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of
the parties hereto, their successors and permitted assigns. Either party may
assign this Agreement in its entirety to a successor corporation upon notice to
the other party in the event of a merger or an acquisition of all or
substantially all of the assets of the assigning party.
9.6 GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement will be governed by and
determined in accordance with the laws of the State of New Mexico, without
regard to its conflict of laws provisions. Application of the United Nations
Convention on Contracts for the International Sale of Goods is specifically
excluded.
9.7 SEVERABILITY. If a court of competent jurisdiction determines that any
provision of this Agreement is invalid, illegal, or otherwise unenforceable,
such provision shall be replaced with a valid, enforceable provision as nearly
as possible in accordance with the stated intention of the parties, while the
remainder of this Agreement shall remain in full force and effect. To the extent
any provision cannot
8
<PAGE>
be enforced in accordance with the stated intentions of the parties, such
provision shall be deemed not to be a part of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts,
all of which together will constitute one and the same instrument.
IN WITNESS THEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE EXECUTED BY
THEIR RESPECTIVE DULY AUTHORIZED REPRESENTATIVES AS SET FORTH BELOW:
PHARSIGHT CORPORATION LOVELACE RESPIRATORY RESEARCH INSTITUTE
By: /s/ Robin A. Kehoe By: /s/ Patricia J. Marx
---------------------------------- ------------------------------------
Robin A. Kehoe Name: Patricia J. Marx
Chief Financial Officer Title: Chief Operating Officer
9
<PAGE>
APPENDIX A
DEFINITIONS
DATA SET means the anonymized database in the diabetes therapeutic area
described in Appendix B and all Updates when and as delivered to Pharsight.
DOCUMENTATION means any and all materials provided to Pharsight by Lovelace
describing the features, structure, functions, fields, contents, collection
methods, etc. of the Data Set.
CUSTOMER means a customer of Pharsight or of its distributors to whom Pharsight
has licensed the use of the Product or to whom Pharsight has provided consulting
services utilizing the Data Set.
ACCEPTANCE CRITERIA means the specifications for the Data Set set forth in
Appendix B and the quality requirements for the Data Set set forth in Appendix D
or otherwise agreed upon in writing by the parties.
PRODUCT means Pharsight's Internet query-response product, and all updates,
upgrades, and new versions thereof, utilizing the Data Set or any Updates.
DISTRIBUTOR means a third-party sales and marketing organization contracted by
Pharsight to market and sell Product subscriptions in selected geographic
regions or market segments.
UPDATE means a new version of the Data Set, consisting of a new statistical
extraction made from the most recent provider database according to the
specifications defined in Appendix B.
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APPENDIX B
SPECIFICATION AND APPLICATION FOR INITIAL DATA SET
APPLICATION OVERVIEW
The Data Set is intended for use with the Pharsight Internet query-response
system, which 1) allows users to ask detailed drug development questions, 2)
acts as an intelligent interface to find and extract the relevant information
from the database, 3) performs relevant numerical analysis to produce summary
results, and 4) presents the aggregate results to the users via lists, graphs
and plots. Typical question areas include incidence and statistical
distributions of specific patient characteristics in anonymous patient databases
and determination of the time course of medical condition and status in both
normal aging and pathological disease states. The system and its methods produce
reports that can be used to improve the process of developing new medical
therapeutics, including new drugs, drug delivery systems, and medical devices
and supplies. The system uses secure Internet technology, allowing users to
access the system 24-hours/day.
OUTLINE OF SPECIFICATIONS FOR DATA SET
DIABETES DATA SET SPECIFICATIONS
[...***...]
FILE FORMAT: The data shall be provided to Pharsight in the form of ascii files,
with multiple files or tables acceptable (i.e., [...***...]). If multiple files
are provided, all individual patient records shall be linkable across all files
by a common encrypted patient identification number.
DATA SETS IN OTHER THERAPEUTIC AREAS
Should the Lovelace Data Consortium agree to provide databases to Pharsight
Corporation in additional therapeutic areas, the data elements to be provided
shall be substantively the same as those described above for the Diabetes Data;
however, a different, mutually agreed upon algorithm appropriate to the
therapeutic area will be used for identifying patients and laboratory values to
be provided will be relevant to the therapeutic area.
- ----------------
* Confidential treatment requested.
11
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APPENDIX C
DATABASE QUALITY ASSURANCE PROCEDURES
For the purposes of this Appendix C, the variable "X" as it appears below is to
be determined and agreed upon by the parties at a later date. Before providing
the Data to Pharsight, Lovelace will perform the following quality assurance
procedures:
[...***...]
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* Confidential treatment requested.
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<PAGE>
APPENDIX D
ACCEPTANCE CRITERIA
1. A completed Quality Assurance Checklist (as stipulated in Appendix C) is
received from Lovelace with the delivered Data package.
2. The Quality Assurance Checklist indicates the Data conforms to the criteria
outlined in Appendix C, Quality Assurance Procedures
3. [...***...]
6. The Data package contains a text file describing the contents and structure
of the delivered Data files (a "ReadMe" file).
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* Confidential treatment requested.
13
<PAGE>
APPENDIX E
CONFIDENTIALITY PROTOCOL
The purpose of this confidentiality protocol is to describe the means by which
patient and organizational confidentiality will be protected during the term of
Lovelace's agreement with Pharsight.
I. PROTECTION OF PATIENT CONFIDENTIALITY
A. Data Transfer from Lovelace to Pharsight
1. Data provided to Pharsight will be stripped of any patient identifiers
before the Data is shipped to Pharsight. These patient identifiers include:
- - Name
- - Home address, including street number, building name, apartment number,
city and zip code
- - Home phone number
- - Medical record number
- - Plan ID number
- - Plan guarantor ID number
- - Social security number
- - Complete birth date
- - Physician name (primary care or other physician)
- - Physician address
- - Physician phone number
- - Employer group or name
- - Work address
- - Work phone number
- - Any other identifier identified by the contributing organization
2. [...***...]
3. If Pharsight inadvertently receives a data file that contains any of the
identifying information listed in item 1 above, the Pharsight staff person
working with the file will:
- - Immediately note the location of the electronic file(s)
- - Delete any electronic copies of the record(s) from Pharsight computers,
floppy disks or tapes
- - Shred any hard copies of the file output
- - Provide written notification to Lovelace describing the identifying file
information
- - Place written documentation of the incident in Pharsight files
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* Confidential treatment requested.
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II. PROTECTION OF ORGANIZATIONAL CONFIDENTIALITY
A. The merged data file provided by Lovelace to Pharsight will contain no data
element(s) that can be used to identify the organization that contributed
the data for a given patient or group of patients.
B. In its marketing, client consulting activities, or other activities,
Pharsight will be prohibited from divulging the names of the contributing
organizations, except when given prior written authorization by the
appropriate Consortium member.
C. Pharsight may describe the source of the Data as follows
"The health care data which underlie the Pharsight (PRODUCT/CONSULTING
SERVICE) are derived from three health care organizations that are
members of the Lovelace Data Consortium. This Consortium was created
and is managed by the Southwest Center for Managed Care Research of the
Lovelace Respiratory Research Institute. The patient-level data from
these three organizations have been merged into one combined database.
One of the contributing organizations is a managed care organization in
the southwestern United States. The second organization is a provider
group with a capitated outpatient population in the southwestern United
States. The third organization is a network model managed health care
plan in the mid-Atlantic region of the United States."
In addition to using the above language as a whole, Pharsight may alternatively
use the first two sentences alone or the first three sentences alone. Any other
wording that Pharsight uses to describe the source of the Data must first be
approved by Lovelace in writing in accordance with Section 3.3.
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<PAGE>
Exhibit 10.12
Secured Promissory Note
$12,000.00 July 25, 1996
For Value Received, the undersigned ("Borrower") hereby promises to pay to
the order of Pharsight Corporation, a California corporation ("Holder"), the
principal sum of twelve thousand dollars ($12,000.00), together with interest
thereon at the rate of 6.74% per annum, compounded annually, on the unpaid
balance of such principal amount from the date hereof. The principal hereof, and
all accrued and unpaid interest thereon, shall be due and payable on the earlier
of (i) July 25, 2001, or (ii) 30 days after the termination of Borrower's
employment by Holder. The principal hereof, and accrued interest thereon, may be
prepaid at any time, in whole or in part, without premium or penalty.
Payments of principal and interest on this Secured Promissory Note (this
"Note") shall be made in legal tender of the United States of America and shall
be made at the office of Holder at 299 California Avenue, Suite 300, Palo Alto,
CA 94306 or at such other place as Holder shall have designated in writing to
Borrower. If the date set for any payment on this Promissory Note is a Saturday,
Sunday or legal holiday, then such payment shall be due on the next succeeding
business day.
As of the date hereof, Borrower has purchased 120,000 shares (the
"Shares") of the Common Stock of Holder, pursuant to the terms of that certain
Restricted Stock Purchase Agreement dated as of July 25, 1996 by and between
Borrower and Holder. This Note shall be secured by the Shares as provided in
that certain Stock Pledge Agreement (the "Pledge Agreement") of even date
herewith by and between Holder and Borrower.
In the event Borrower shall (i) fail to make complete payment of principal
or accrued interest when due under this Note or (ii) commit a breach of, or
default under, the Pledge Agreement, Holder may accelerate this Note and declare
the entire unpaid principal amount of this Note and all accrued and unpaid
interest thereon to be immediately due and payable and, thereupon, the unpaid
principal amount and all such accrued and unpaid interest shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Borrower). The
failure of Holder to accelerate this Note shall not constitute a waiver of any
of Holder's rights under this Note as long as Borrower's default under this Note
or breach of or default under the Pledge Agreement continues.
The provisions of this Note shall be governed by, and construed in
accordance with, the laws of the State of California without regard to the
conflicts of law rules thereof. In the event that Holder is required to take any
action to collect or otherwise enforce payment of this Note, Borrower agrees to
pay such attorneys' fees and court costs as Holder may incur as a result
thereof, whether or not suit is commenced.
In Witness Whereof, this Note has been duly executed and delivered by
Borrower on the date first above written.
/s/ Robin Kehoe
- --------------------------------------------
Robin Kehoe
<PAGE>
Exhibit 10.13
Secured Promissory Note
$10,000.00 June 2, 1998
For Value Received, the undersigned ("Borrower") hereby promises to pay to
the order of Pharsight Corporation, a California corporation ("Holder"), the
principal sum of twelve thousand dollars ($10,000.00), together with interest
thereon at the rate of 5.77% per annum, compounded annually, on the unpaid
balance of such principal amount from the date hereof. The principal hereof, and
all accrued and unpaid interest thereon, shall be due and payable on the earlier
of (i) July 25, 2001, or (ii) 30 days after the termination of Borrower's
employment by Holder. The principal hereof, and accrued interest thereon, may be
prepaid at any time, in whole or in part, without premium or penalty.
Payments of principal and interest on this Secured Promissory Note (this
"Note") shall be made in legal tender of the United States of America and shall
be made at the office of Holder at 299 California Avenue, Suite 300, Palo Alto,
CA 94306 or at such other place as Holder shall have designated in writing to
Borrower. If the date set for any payment on this Promissory Note is a Saturday,
Sunday or legal holiday, then such payment shall be due on the next succeeding
business day.
As of the date hereof, Borrower has purchased 40,000 shares (the "Shares")
of the Common Stock of Holder, pursuant to the terms of that certain Restricted
Stock Purchase Agreement dated as of June 2, 1998 by and between Borrower and
Holder. This Note shall be secured by the Shares as provided in that certain
Stock Pledge Agreement (the "Pledge Agreement") of even date herewith by and
between Holder and Borrower.
In the event Borrower shall (i) fail to make complete payment of principal
or accrued interest when due under this Note or (ii) commit a breach of, or
default under, the Pledge Agreement, Holder may accelerate this Note and declare
the entire unpaid principal amount of this Note and all accrued and unpaid
interest thereon to be immediately due and payable and, thereupon, the unpaid
principal amount and all such accrued and unpaid interest shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or other notices or
demands of any kind (all of which are hereby expressly waived by Borrower). The
failure of Holder to accelerate this Note shall not constitute a waiver of any
of Holder's rights under this Note as long as Borrower's default under this Note
or breach of or default under the Pledge Agreement continues.
The provisions of this Note shall be governed by, and construed in
accordance with, the laws of the State of California without regard to the
conflicts of law rules thereof. In the event that Holder is required to take any
action to collect or otherwise enforce payment of this Note, Borrower agrees to
pay such attorneys' fees and court costs as Holder may incur as a result
thereof, whether or not suit is commenced.
In Witness Whereof, this Note has been duly executed and delivered by
Borrower on the date first above written.
/s/ Robin Kehoe
- --------------------------------------------
Robin Kehoe
<PAGE>
Exhibit 10.14
PROMISSORY NOTE
$22,750.00 Palo Alto, California
June 15, 1999
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of PHARSIGHT CORPORATION, a California corporation (the "Company"),
at 800 West El Camino Real, Suite 200, Mountain View, CA 94040, or at such other
place as the holder hereof may designate in writing, in lawful money of the
United States of America and in immediately available funds, the principal sum
of twenty-two thousand seven hundred fifty Dollars ($22,750.00) together with
interest accrued from the date hereof on the unpaid principal at the rate of 6%
per annum, or the maximum rate permissible by law (which under the laws of the
State of California shall be deemed to be the laws relating to permissible rates
of interest on commercial loans), whichever is less, as follows:
Principal Repayment. The outstanding principal amount hereunder shall be due and
payable in full on May 1, 2003 (the "Principal Repayment Date"); and
Interest Payments. Interest shall be payable in arrears on the Principal
Repayment Date and shall be calculated on the basis of a 360-day year for the
actual number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company or its Affiliate is terminated for any reason prior
to payment in full of this Note, this Note shall be accelerated and all
remaining unpaid principal and interest shall become due and payable immediately
after such termination.
If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase Agreement and Stock Pledge Agreement of even date
herewith between the undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
<PAGE>
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
Signed /s/ Robin Kehoe
------------------------------
Robin Kehoe
<PAGE>
Exhibit 10.15
SECURED PROMISSORY NOTE
$75,000 January 25, 1998
For Value Received, the undersigned ("Borrower") hereby promises to pay
to the order of Pharsight Corporation, a California corporation ("Holder"), the
principal sum of Seventy-Five Thousand dollars ($75,000), together with interest
thereon at the rate of 5.93% per annum, compounded annually, on the unpaid
balance of such principal amount from the date hereof. The principal hereof, and
all accrued and unpaid interest thereon, shall be due and payable on the earlier
of (i) December 17, 2002 or (ii) 90 days after the termination of Borrower's
employment by Holder. The principal hereof, and accrued interest thereon, may be
prepaid at any time, in whole or in part, without premium or penalty.
Payments of principal and interest on this Secured Promissory Note
(this "Note") shall be made in legal tender of the United States of America and
shall be made at the office of Holder at 299 California Avenue, Suite 300, Palo
Alto, CA 94306 or at such other place as Holder shall have designated in writing
to Borrower. If the date set for any payment on this Promissory Note is a
Saturday, Sunday or legal holiday, then such payment shall be due on the next
succeeding business day.
As of the date hereof, Borrower has purchased 300,000 shares (the
"Shares") of the Common Stock of Holder, pursuant to the terms of that certain
Employee Restricted Stock Purchase Agreement of even date herewith by and
between Borrower and Holder. This Note shall be secured by the Shares as
provided in that certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith by and between Holder and Borrower.
In the event Borrower shall (i) fail to make complete payment of
principal or accrued interest when due under this Note or (ii) commit a breach
of, or default under, the Pledge Agreement, Holder may, upon five (5) business
days notice of any such event which shall not have been cured during such five
(5) business day period, accelerate this Note and declare the entire unpaid
principal amount of this Note and all accrued and unpaid interest thereon to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor or other notices or demands of any kind (all
of which are hereby expressly waived by Borrower). The failure of Holder to
accelerate this Note shall not constitute a waiver of any of Holder's rights
under this Note as long as Borrower's default under this Note or breach of or
default under the Pledge Agreement continues.
The provisions of this Note shall be governed by, and construed in
accordance with, the laws of the State of California without regard to the
conflicts of law rules thereof. In the event that Holder is required to take any
action to collect or otherwise enforce payment of this Note, Borrower agrees to
pay such attorneys' fees and court costs as Holder may incur as a result
thereof, whether or not suit is commenced.
1
<PAGE>
In Witness Whereof, this Note has been duly executed and delivered by
Borrower on the date first above written.
/s/ Daniel Weiner
-----------------------------
Daniel Weiner
2
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Exhibit 10.16
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this _____ day of
________________, 2000 by and between PHARSIGHT CORPORATION, a Delaware
corporation (the "Corporation"), and __________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _________ of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as ________
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. Services to the Corporation. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws or the Code permitted prior to
adoption of such amendment).
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3. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and the Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section 3
hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an accounting
of profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the
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proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Agent's separate counsel shall be at the
3.
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expense of the Corporation. The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Agent shall have made the conclusion provided for in
clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the final disposition
of any proceeding, promptly following request therefor, all expenses incurred by
Agent in connection with such proceeding upon receipt of an undertaking by or on
behalf of Agent to repay said amounts if it shall be determined ultimately that
Agent is not entitled to be indemnified under the provisions of this Agreement,
the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
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12. Survival of Rights.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
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(b) If to the Corporation, to:
Pharsight Corporation
800 West El Camino Real, Suite 200
Mountain View, CA 94040
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
PHARSIGHT CORPORATION
By:_________________________________________
Arthur Reidel
President and Chief Executive Officer
AGENT
By:_________________________________________
Name:____________________________________
Address:_________________________________
_________________________________
6.
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Exhibit 10.17
PHARSIGHT CORPORATION
1997 STOCK OPTION PLAN
Adopted February 17, 1997
Approved by the Shareholders March 17, 1997
Amended May 11, 1998
Amended May 14, 1999
Amended September 15, 1999
Amended April 7, 2000
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Pharsight Corporation, a California corporation.
(f) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "Continuous Service" means that the service of an individual to the
Company, whether as an Employee, Director or Consultant, is not interrupted or
terminated. The Board or the
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chief executive officer of the Company may determine, in that party's sole
discretion, whether Continuous Service shall be considered interrupted in the
case of: (i) any leave of absence approved by the Board or the chief executive
officer of the Company, including sick leave, military leave, or any other
personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(h) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(i) "Director" means a member of the Board.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
(1) If the common stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of common stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Company's common stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.
(2) In the absence of such markets for the common stock, the Fair
Market Value shall be determined in good faith by the Board.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(o) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure
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would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise
considered a "non-employee director" for purposes of Rule 16b-3.
(p) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(q) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(t) "Optionee" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
(u) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "Plan" means this 1997 Stock Option Plan.
(w) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(x) "Securities Act" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; whether an Option will be an Incentive Stock Option or a Nonstatutory
Stock Option; the provisions of each Option granted (which need not be
identical), including the time or times such Option may be exercised in whole or
in part; and the number of shares for which an Option shall be granted to each
such person.
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(2) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or an Option as provided in Section 11.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the Listing Date, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Options to eligible persons who (1) are not then subject
to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Option, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate three million eight hundred thousand (3,800,000) shares
of the Company's common stock. If any Option shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not purchased under such Option shall revert to and again become
available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Nonstatutory
Stock Options may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Option if, at the time
of grant, such person owns (or is deemed to own pursuant to Section 424(d) of
the Code) stock possessing more than ten
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percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the exercise price of such Option is
at least one hundred ten percent (110%) of the Fair Market Value of such stock
at the date of grant and the Option is not exercisable after the expiration of
five (5) years from the date of grant.
(c) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than four hundred fifty thousand (450,000) shares of the Company's common
stock in any calendar year. This subsection 5(c) shall not apply prior to the
Listing Date and, following the Listing Date, shall not apply until (i) the
earliest of: (A) the first material modification of the Plan (including any
increase to the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of common
stock reserved for issuance under the Plan; (C) the expiration of the Plan; or
(D) the first meeting of stockholders at which directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
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(d) Transferability. An Option shall not be transferable except by will or
by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. A
Nonstatutory Stock Option granted after the Listing Date shall only be
transferable by the Optionee upon such terms and conditions as are set forth in
the Option Agreement for such Nonstatutory Stock Option, as the Board or the
Committee shall determine in its discretion. The person to whom the Option is
granted may, by delivering written notice to the Company, in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option; provided, however, that an Option granted to an officer, director or
consultant (within the meaning of Section 260.140.41 of Title 10 of the
California Code of Regulations) may become fully exercisable, subject to
reasonable conditions such as continued employment, at any time or during any
period established by the Company or of any of its Affiliates. The provisions of
this subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require the Optionee to provide
such other representations, written assurances or information which the Company
shall determine is necessary, desirable or appropriate to comply with applicable
securities and other laws as a condition of granting an Option to such Optionee
or permitting the Optionee to exercise such Option. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Service terminates (other than upon the
Optionee's death or disability),
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the Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3) months following
the termination of the Optionee's Continuous Service, or such longer or shorter
period, which shall not be less than thirty (30) days, specified in the Option
Agreement, or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) Disability of Optionee. In the event an Optionee's Continuous Service
terminates as a result of the Optionee's disability, the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled to exercise it
as of the date of termination), but only within such period of time ending on
the earlier of (i) the date twelve (12) months following such termination (or
such longer or shorter period, which in no event shall be less than six (6)
months, specified in the Option Agreement), or (ii) the expiration of the term
of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(i) Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Service, the Option may be exercised (to the extent the
Optionee was entitled to exercise the Option as of the date of death) by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period, which in no event shall be less than six (6)
months, specified in the Option Agreement), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; provided,
however, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money
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indebtedness for the shares. Notwithstanding the foregoing, shares received on
exercise of an Option by an officer, director or consultant (within the meaning
of Section 260.140.41 of Title 10 of the California Code of Regulations) may be
subject to additional or greater restrictions.
(k) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this Subsection (k), such right of first
refusal shall otherwise comply with the provisions of the Bylaws of the Company.
(l) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Subject to any applicable provisions of the California Corporate
Securities Law of 1968 and related regulations relied upon as a condition of
issuing securities pursuant to the Plan, the Board shall have the power to
accelerate the time at which an Option may first be exercised or the time during
which an Option or any part thereof will vest pursuant to subsection 6(e),
notwithstanding the provisions in the Option stating the time at which it may
first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any
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shares subject to such Option unless and until such person has satisfied all
requirements for exercise of the Option pursuant to its terms.
(c) Throughout the term of any Option, the Company shall deliver to the
holder of such Option, not later than one hundred twenty (120) days after the
close of each of the Company's fiscal years during the Option term, a balance
sheet and an income statement. This section shall not apply (i) after the
Listing Date, or (ii) when issuance is limited to key employees whose duties in
connection with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's Bylaws and
the provisions of the General Corporation Law of the State of California, or to
terminate the relationship of any Consultant subject to the terms of that
Consultant's agreement with the Company or Affiliate to which such Consultant is
providing services.
(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) (1) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of common stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option or, in the
case of a ten percent (10%) stockholder (as defined in subsection 5(b)), not
less than one hundred and ten percent (110%) of the Fair Market Value) per share
of common stock on the new grant date.
(2) Shares subject to an Option canceled under this subsection 9(f)
shall continue to be counted, for the applicable period in which it was granted,
against the maximum award of Options permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option under this subsection
9(f), resulting in a reduction of the exercise price, shall be deemed to be a
cancellation of the original Option and the grant of a substitute Option; in the
event of such repricing, both the original and the substituted Options shall be
counted for the applicable period against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions
of this subsection 9(f)(2) shall be applicable only to the extent required by
Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will
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be appropriately adjusted in the type(s) and maximum number of securities
subject to the Plan pursuant to subsection 4(a) and the maximum number of
securities subject to award to any person during any calendar year pursuant to
subsection 5(c), and the outstanding Options will be appropriately adjusted in
the type(s) and number of securities and price per share of stock subject to
such outstanding Options. Such adjustments shall be made by the Board or
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then: (i) any surviving or acquiring corporation shall assume
Options outstanding under the Plan or shall substitute similar options
(including an option to acquire the same consideration paid to stockholders in
the transaction described in this Subsection 10(b)) for those outstanding under
the Plan, or (ii) in the event any surviving or acquiring corporation refuses to
assume such Options or to substitute similar options for those outstanding under
the Plan, (A) with respect to Options held by persons then performing services
as Employees, Directors or Consultants and subject to any applicable provisions
of the California Corporate Securities Law of 1968 and related regulations
relied upon as a condition of issuing securities pursuant to the Plan, the
vesting of such Options and the time during which such Options may be exercised
shall be accelerated prior to such event and the Options terminated if not
exercised after such acceleration and at or prior to such event, and (B) with
respect to any other Options outstanding under the Plan, such Options shall be
terminated if not exercised prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under the
Plan;
(2) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with applicable stock exchange listing
requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
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(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Options; provided, however, that the rights and obligations
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on February 16, 2007, which shall be within
ten (10) years from the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
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Exhibit 10.18
PHARSIGHT CORPORATION
1995 Stock Option Plan
As Adopted May 12, 1995
As Amended January 26, 1996
As Amended April 19, 1996
Approved by the Shareholders May 2, 1996
1. Purpose. This 1995 Stock Option Plan (the "Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Pharsight Corporation, a California
corporation (the "Company"). Capitalized terms not previously defined herein are
defined in Section 17 of this Plan.
2. Types of Options and Shares. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock of the Company.
3. Number of Shares. The aggregate number of Shares that may be issued
pursuant to Options granted under this Plan is 507,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Option shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. Eligibility. Options may be granted to employees, officers, directors,
consultants, independent contractors and advisers of the Company or any Parent,
Subsidiary or Affiliate of the Company (provided such consultants, independent
contractors and advisers render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction). ISOs may be
granted only to employees of the Company or of a Parent or Subsidiary of the
Company (including officers and directors who are also employees). The Committee
(as defined in Section 14) in its sole discretion shall select the recipients of
Options ("Optionees"). An Optionee may be granted more than one Option under
this Plan. The Company may also, from time to time, assume outstanding options
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either (i) granting an Option under this Plan in
replacement of the option assumed by the Company, or (ii) treating the assumed
option as if it had been granted under this Plan if the terms of such assumed
option could be applied to an Option granted under this Plan. Such assumption
shall be permissible if the holder of the assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant.
5. Terms and Conditions of Options. The Committee shall determine whether
each Option is to be an ISO or an NQSO, the number of Shares subject to the
Option, the exercise price of the Option, the period during which the Option may
be exercised, and all other terms and conditions of the Option, subject to the
following:
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(a) Form of Option Grant. Each Option granted under this Plan shall
be evidenced by a written Stock Option Grant (the "Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Date of Grant. The date of grant of an Option shall be the date
on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to the Optionee with a copy of this Plan within a reasonable time
after the granting of the Option. The Committee shall also determine the vesting
start date for each Option. Unless otherwise specified by the Committee, the
vesting start date shall be (i) for employees of the Company, the first day of
full-time employment, and (ii) for consultants, independent contractors and
advisors, the date of grant.
(c) Exercise Price. The exercise price of an Option shall be
determined by the Committee; provided that (i) the exercise price of an NQSO
shall not be less than 85% of the Fair Market Value of the Shares on the date
the Option is granted; (ii) the exercise price of an ISO shall not be less than
100% of the Fair Market Value of the Shares on the date the Option is granted;
and (iii) the exercise price of any Option granted to a person owning more than
10% of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not be
less than 110% of the Fair Market Value of the Shares on the date the Option is
granted.
(d) Exercise Period. Options shall be exercisable within the times
or upon the events determined by the Committee as set forth in the Grant;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date the Option is granted, and provided further, that
no ISO granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five (5) years from the date the Option is granted, and provided
further, that all Options granted under this Plan must become exerciseable as to
at least twenty percent (20%) of the Shares for each full year from the vesting
start date so long as the Optionee is providing services to the Company.
(e) Limitations on ISOs. The aggregate Fair Market Value (determined
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares with respect to which ISOs are exercisable for the first
time by an Optionee during any calendar year exceeds $100,000, the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
shall be ISOs and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year shall be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the effective date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
(f) Options Non-Transferable. Options granted under this Plan, and
any interest therein, shall not be transferable or assignable by the Optionee,
and may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the Optionee only by the Optionee; provided,
however, that NQSOs held by an Optionee who is not an officer or director of the
Company or other person whose transactions in the Company's common stock are
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (in each case, an "Insider"), may be transferred to such family
members, trusts and charitable institutions as the Committee, in its sole
discretion, shall approve at the time of the grant of such Option.
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(g) Assumed Options. In the event the Company assumes an option
granted by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424(a) of the Code). In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option may be granted with a similarly adjusted exercise price.
6. Exercise of Options. The following provisions shall apply to the
exercise of Options:
(a) Notice. Options may be exercised only by delivery to the Company
of a written stock option exercise agreement (the "Exercise Agreement") in a
form approved by the Committee (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if any, as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares purchased upon exercise of an
Option may be made in cash (by check) or, where approved by the Committee in its
sole discretion at the time of grant and where permitted by law: (i) by
cancellation of indebtedness of the Company to the Optionee; (ii) by surrender
of shares of common stock of the Company (free and clear of all liens, claims,
encumbrances and security interests) having a Fair Market Value equal to the
applicable exercise price of the Options, that (A) have been owned by Optionee
for more than six (6) months and have been paid for within the meaning of
Securities and Exchange Commission ("SEC") Rule 144 and, if such Shares were
purchased from the Company by use of a promissory note, such note has been fully
paid with respect to such shares, or (B) were obtained by Optionee in the open
public market; (iii) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274 of the
Code; (iv) by waiver of compensation due or accrued to Optionee for services
rendered; (v) provided that a public market for the Company's stock exists,
through a "same day sale" commitment from Optionee and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD Dealer")
whereby Optionee irrevocably elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the exercise
price directly to the Company; (vi) provided that a public market for the
Company's stock exists, through a "margin" commitment from Optionee and an NASD
Dealer whereby Optionee irrevocably elects to exercise the Option and to pledge
the Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (vii) by any combination of the
foregoing. Optionees who are not employees of the Company shall not be entitled
to purchase Shares with a promissory note unless the note is adequately secured
by collateral other than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon exercise
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following:
(i) If the Optionee ceases to be employed by the Company or
any Parent, Subsidiary or Affiliate of the Company for any reason except death
or disability, then the Optionee may exercise such Optionee's Options to the
extent (and only to the extent) that they would have been exercisable upon the
date of termination of Optionee's employment, within three (3) months after the
date of termination (or such shorter time
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period as may be specified in the Grant, so long as such shorter time period
provides that the Optionee may exercise his or her Option for at least 30 days
from the date of termination), but in any event no later than the expiration
date of the Options.
(ii) If the Optionee's employment with the Company or any
Parent, Subsidiary or Affiliate of the Company is terminated because of the
death of the Optionee or the disability of the Optionee, the Optionee's Options
may be exercised to the extent (and only to the extent) that they would have
been exercisable by the Optionee on the date of termination of the Optionee's
employment, by the Optionee (or the Optionee's legal representative) within
twelve (12) months after the date of termination of the Optionee's employment
(or such shorter time period as may be specified in the Grant so long as such
shorter time period is at least six (6) months), but in any event no later than
the expiration date of the Options. If the Option is an ISO and if Optionee's
disability does not fall within the meaning of that term in Section 22(e)(3) of
the Code, then such ISO shall automatically become a NQSO if it has not been
exercised prior to the end of three (3) months from the date of termination.
(iii) The Committee shall have discretion to determine whether
the Optionee has ceased to be employed by the Company or any Parent, Subsidiary
or Affiliate of the Company and the effective date on which such employment
terminated.
(iv) In the case of an Optionee who is a director, consultant,
independent contractor or adviser, the Committee will have the discretion to
determine whether the Optionee is "employed by the Company or any Parent,
Subsidiary or Affiliate of the Company" pursuant to the foregoing Sections.
(v) The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
(vi) An Option shall not be exercisable unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or national market system, and the Company shall have no
liability for any inability or failure to do so.
7. Restrictions on Shares. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Grant a right of first
refusal to purchase all Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party. The Company may also reserve to itself
and/or its assignee(s) in the Grant a right to repurchase a portion of or all
Shares held by an Optionee upon Optionee's termination of employment or service
with the Company or a Parent, Subsidiary or Affiliate of the Company, for any
reason within 90 days of such termination for cash or cancellation of purchase
money indebtedness at the higher of (i) Optionee's original purchase price or
(ii) the Fair Market Value of such Shares on the date of termination.
8. Modification, Extension, and Renewal of Options. The Committee shall
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of the Optionee, impair any rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee shall have the power to reduce the exercise price of
outstanding Options without the consent of Optionees by a written notice to the
Optionees affected;
4
<PAGE>
provided, however, that the exercise price per Share may not be reduced below
the minimum exercise price that would be permitted under Section 5(c) of this
Plan for Options granted on the date the action is taken to reduce the exercise
price.
9. Privileges of Stock Ownership. No Optionee shall have any of the rights
of a shareholder with respect to any Shares subject to an Option until such
Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date of
exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company within 120
days after the close of each fiscal year of the Company.
10. No Obligation to Employ. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
11. Adjustment of Option Shares. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per Share of such Options
shall be proportionately adjusted, subject to any required action by the Board
of Directors (the "Board") or shareholders of the Company and compliance with
applicable securities laws; provided, however, that a fractional share shall not
be issued upon exercise of any Option and any fractions of a Share that would
have resulted shall either be cashed out at Fair Market Value or the number of
Shares issuable under the Option shall be rounded up to the nearest whole
number, as determined by the Committee; and provided further that the exercise
price may not be decreased to below the par value, if any, for the Shares.
12. Assumption of Options by Successor. In the event of (a) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company and the Options granted
under this Plan are assumed by the successor corporation), (b) a dissolution or
liquidation of the Company, (c) the sale of all or substantially all of the
assets of the Company, or (d) any other transaction which qualifies as a
"corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition of all or substantially all of the outstanding
shares of the Company), any or all outstanding Options may be assumed by the
successor corporation, which assumption shall be binding on all Optionees. In
the alternative, the successor corporation may substitute an equivalent option
or provide substantially similar consideration to Optionees as was provided to
shareholders (after taking into account the existing provisions of Optionees'
options, such as the exercise price and the vesting schedule). The successor
corporation may also issue, in place of outstanding shares of the Company held
by Optionee as a result of the exercise of an Option that are subject to
repurchase, substantially similar shares or other property subject to similar
repurchase restrictions no less favorable to Optionee. In the event such
successor corporation, if any, refuses to assume or substitute Options, as
provided above, the Options shall expire upon consummation of the transaction.
Subject to the foregoing provisions of this Section 12, in the event of the
occurrence of any transaction described in clauses (a) - (d) of this Section 12,
all outstanding Options shall be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation, sale of assets or
other "corporate transaction".
5
<PAGE>
13. Assumption of Options by the Company. The Company, from time to time,
also may substitute or assume outstanding stock options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Option under this Plan in substitution of
such other company's option, or (b) assuming such other company's option as if
it had been granted under this Plan if the terms of such assumed option could be
applied to an Option granted under this Plan. Such substitution or assumption
shall be permissible if the holder of the substituted or assumed Option would
have been eligible to be granted an Option under this Plan if the other company
had applied the rules of this Plan to such grant. In the event the Company
assumes an option granted by another company, the terms and conditions of such
option shall remain unchanged (except that the exercise price and the number and
nature of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted exercise price.
14. Adoption and Shareholder Approval. This Plan shall become effective on
the date that it is adopted by the Board of the Company. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Upon the effective date of the Plan, the Board may
grant Options pursuant to this Plan; provided that, in the event that
shareholder approval is not obtained within the time period provided herein, all
Options granted hereunder shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such shareholder approval is not obtained.
After the Company becomes subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 of the Exchange Act
("Rule 16b-3") with respect to shareholder approval.
15. Administration. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). If, at the time the Company
registers its Common Stock under the Exchange Act, a majority of the Board is
not comprised of Disinterested Persons, the Company will take appropriate steps
to comply with the disinterested director requirements of Section 16(b) of the
Exchange Act, which may consist of the appointment by the Board of a committee
consisting of not less than three persons (who need not be members of the
Board), each of whom is a Disinterested Person. As used in this Plan, references
to the "Committee" shall mean either the committee appointed by the Board to
administer this Plan or the Board if no committee has been established. After
registration of the Company's Common Stock under the Exchange Act, Board members
who are not Disinterested Persons may not vote on any matters affecting the
administration of this Plan or on the grant of any Options pursuant to this Plan
to Insiders, but any such member may be counted for determining the existence of
a quorum at any meeting of the Board during which action is taken with respect
to Options or administration of this Plan and may vote on the grant of any
Options pursuant to this Plan otherwise than to Insiders. The interpretation by
the Committee of any of the provisions of this Plan or any Option granted under
this Plan shall be final and binding upon the Company and all persons having an
interest in any Option or any Shares purchased pursuant to an Option. The
Committee may delegate to officers of the Company the authority to grant Options
under this Plan to Optionees who are not Insiders of the Company.
16. Term and Termination of Plan; Amendment. Options may be granted
pursuant to this Plan from time to time within a period of ten (10) years from
the date on which this Plan is adopted by the Board. The Committee may at any
time terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the shareholders of the Company, amend this Plan in any manner
that requires shareholder approval pursuant to the Code or the regulations
promulgated thereunder as such
6
<PAGE>
provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or
its successor) promulgated thereunder.
17. Certain Definitions. As used in this Plan, the following terms shall
have the following meanings:
(a) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
(c) "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(d) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the SEC under Section 16(b) of the Exchange Act,
as such rule is amended from time to time and as interpreted by the SEC.
(e) "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the NASDAQ
National Market System, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
working days preceding the date of determination as the Committee shall deem
appropriate).
7
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 14, 1999 with respect to the financial statements of
Pharsight Corporation and our report dated April 7, 2000 with respect to the
financial statements of Scientific Consulting, Inc., in the Registration
Statement and related Prospectus of Pharsight Corporation for the registration
of shares of its common stock.
/s/ ERNST & YOUNG LLP
San Jose, California
April 10, 2000
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<INTEREST-EXPENSE> 15 120 (172)
<INCOME-PRETAX> (7,555) (10,696) (5,216)
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