0000912057-02-025942.txt : 20020701 0000912057-02-025942.hdr.sgml : 20020701 20020628212754 ACCESSION NUMBER: 0000912057-02-025942 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARSIGHT CORP CENTRAL INDEX KEY: 0001040853 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770401273 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-31253 FILM NUMBER: 02692481 BUSINESS ADDRESS: STREET 1: 800 WEST EL CAMINO REAL STREET 2: STE 200 CITY: PALO ALTO STATE: CA ZIP: 94040 BUSINESS PHONE: 6503143800 MAIL ADDRESS: STREET 1: 800 WEST EL CAMINO REAL STREET 2: STE 200 CITY: MOUNTAINVIEW STATE: CA ZIP: 94040 10-K 1 a2083003z10-k.htm 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

ý	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended March 31, 2002

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number: 0-31253

Pharsight Corporation
(Exact name of Registrant as specified in its charter)

Delaware		77-0401273
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
800 W. El Camino Real, Mountain View, CA (Address of principal executive office)		94040 (zip code)

Registrant's telephone number, including area code: (650) 314-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange On which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on May 31, 2002, as reported on the National Market of The Nasdaq Stock Market, was approximately $8,750,000. Excludes an aggregate of 11,766,707 shares of common stock held by officers and directors and by each person known by the registrant to own 5% or more of the outstanding common stock. Exclusion of shares held by any of these persons should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant. As of May 31, 2002, registrant had 18,770,422 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for Registrant's 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 2.	Properties	8
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	9
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	10
Item 6.	Selected Financial Data	12
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risks	29
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	54
PART III
Item 10.	Directors and Executive Officers of the Registrant	55
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management	58
Item 13.	Certain Relationships and Related Transactions	58
PART IV
Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	59
Signatures		62

PART I

FORWARD-LOOKING STATEMENTS

This report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "plan," "believe," "hope," "assume," "estimate" and other similar words and expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the business risks discussed under the caption "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operation—Business Risks" in this report on Form 10-K. These business risks should be considered in evaluating our prospects and future financial performance.

ITEM 1. BUSINESS

Overview

Pharsight Corporation develops and markets 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 strategic decision making and the sciences of pharmacology, drug and disease modeling, human genetics and biostatistics.

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. 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. 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.

Fourteen 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 2,150 researcher desktops. To date, we have been engaged in over 150 clinical development projects in more than 15 therapeutic areas.

Our operations consist of strategic services and computer-based development applications. 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 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.

The following illustrates a typical customer application 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 that 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 were incorporated in California in April 1995, and we reincorporated in Delaware in June 2000. In August 2000, we had our initial public offering.

Pharsight Products and Services

We provide strategic services and computer-based development applications. We first offered our Model and Trial Workbench applications and scientific services in fiscal 1997. In fiscal 1998, we expanded our consulting offering to include decision services. At the end of fiscal 2001, we combined our scientific, decision support, methodology and training groups into an integrated group renamed strategic services. In fiscal 2002, we began selling our Pharsight® Knowledgebase Server™ (PKS), providing a means of capturing and managing both summary and detailed pharmacokinetic/pharmacodynamic (PK/PD) data across a large set of compounds and development phases.

We believe that a key part of continued growth is to continue to deliver new products to our current and prospective customers. These new products need to address a broader set of customer needs related to clinical development of drugs and thereby expand the number of prospective users we may sell to inside pharmaceutical companies. Our most recently announced product, PKS, was the first step in providing a broader set of product functionality.

In a typical project, our products and services are used together to design clinical trials or development programs. Some customers purchase only services from us and other customers purchase our computer-based development applications on a stand-alone basis as a tool for drug or disease modeling. In many cases our computer-based development applications continue to be utilized upon

completion of a project as our customers seek to further redesign their drug development processes. The following chart depicts typical issues that we are asked to address in projects.

Phase I		Phase II/Phase III		Phase IV
• Bridge preclinical results to clinical process. • Explore dose ranging and population variability. • Determine surrogate endpoint relevance, i.e. alternate indicators of efficacy. • Support early "go/no-go" decisions. • Assess strategic fit in franchise.		• Balance efficacy with side effects. • Explore trial sensitivity to patient compliance and dropout. • Investigate impact of population genetic variability. • Evaluate alternate protocols. • Assess time/cost versus information trade-off. • Develop licensing/acquisition strategy.		• Explore new indications and label changes. • Plan life-cycle strategy, e.g. generic defense and "over-the-counter" switch. • Evaluate special patient populations. • Assess capital productivity and franchise strategy.

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.

Strategic Services

Our strategic services consist of consulting, training and process redesign conducted by our clinical and decision scientists in the application and implementation of our core decision methodology. The methodology employed by our services group uses four types of models that work in concert:

Drug-Disease Models		Our drug-disease models predictively characterize the distribution of treatment outcomes (safety, efficacy, surrogate outcomes) for a NCE (new chemical entity) and related compounds as a function of dosing strategy, disease and patient and trial characteristics.
Trial Models		Our trial models predict probability distributions of outcomes and reductions in uncertainty around them as a function of dosing strategy, number of treatment arms, type of control, sample population characteristics, sample size and treatment duration.
Market Models		Our market models characterize the demand for products (market size and share) under different feature sets and different competitive and innovation scenarios and their evolution over time.
Financial Models		Our financial models incorporate the foregoing scientific, clinical and commercial insight to create a dynamic understanding of the value of a program at any point in time.

By using these models in an integrated fashion, our consultants are able to place key decisions in development into quantitative terms of uncertainty and value. Drug development is, after all, a process by which uncertainty about a drug's efficacy and safety is progressively reduced. Our methodology enables customers to identify which uncertainties are greatest and matter most, and then to design

development programs, trial sequences, and individual trials in such a way that they systematically reduce those uncertainties—and do so as rapidly and cost-effectively as possible.

The methodology is most valuably applied very early in the life of a potential drug, but we have beneficially applied it at all stages of development. The integration of our models at the asset strategy (overall positioning of a new drug) and program/trial strategy (focusing on a specific indicator) phases enables us to help our customers position their drugs as competitively as possible in the market, to do so conducting all necessary and no unnecessary trials (and only as large, lengthy and costly as is required), and to redeploy resources away from unpromising compounds at the earliest possible point.

As of May 31, 2002, our strategic services group included 33 full-time personnel. Our personnel are located throughout the United States and Europe. Most have 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 a 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. Workbench applications are being designed to be increasingly deployed together with our strategic services.

Our Model Workbench™ products are used to build a drug model 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™. 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 population. The Trial Workbench supports the use of simulation scenarios allowing the clinical researcher to perform "virtual clinical trials" on the computer.

Our most recent product, the Pharsight® Knowledgebase Server™ (PKS), provides a means of capturing and managing both summary and detailed pharmacokinetic/pharmacodynamic (PK/PD) data across a large set of compounds and development phases. PKS also provides a unified data environment for supporting clinical pharmacology modeling and analysis activities. PKS is directly integrated with WinNonlin® Enterprise, a product in Model Workbench, which also provides import/export interfaces to other modeling and analysis tools. PKS was developed to help enable compliance with the Federal Drug Administration (FDA) regulation 21 CFR 11, which requires electronic data security and auditing on submissions to the FDA. Linked to PKS, a separate product, the PKS Reporter™ 1.0, will provide regulatory-compliant authoring of Microsoft® Word documents containing analysis results, source data, tables, and plots produced by WinNonlin® or other tools and securely managed within the PKS.

may sell to inside pharmaceutical companies. Our most recently announced product, PKS, was the first step in providing a broader set of product functionality.

In February 2001, we announced the signing of a Cooperative Research and Development Agreement (CRADA) with the FDA's Center for Drug Evaluation and Research (CDER) to collaborate over the next three years on future versions of our Model and Trial Workbench products.

Sales and Marketing

Our customers range in size from the largest pharmaceutical companies to small biopharmaceutical companies, and the focus of our work differs somewhat depending on the size and maturity of the customer. In our smaller and medium-sized customers, we tend to engage in discrete projects often with challenging analytic and design problems, where modeling and simulation can be particularly valuable. This kind of work may or may not lead to subsequent engagements. By contrast, in our largest customers, we tend to have ongoing relationships progressively focused on helping improve the process by which they develop drugs, broadening and deepening the application of modeling and simulation over time, with the intent of achieving systematic, lasting performance improvement.

PKS is our first enterprise-level software product, serving more than 100 users in our largest customers. Typically, the customer's purchase decision involves many groups, potentially including clinical pharmacology, ADME, toxicology, regulatory and early clinical as well as IT. It also involves a significant validation process. PKS therefore requires a longer selling cycle than our previous software products, and demands a team of sales, marketing and support professionals in the sales process.

Information Products

In November 2001, Pharsight decided to suspend all marketing and acquisition of data for its information products business. This business was 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 permitted 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. There was very limited revenue inception to date in this area, therefore its discontinuance will not negatively impact future earnings. We have discontinued relationships that were established with Duke University, Lovelace, and Protocare Sciences, Inc. Our Clinical Workbench™ (CWB) product continues to be available but, as of March 30, 2002, had generated very limited revenues. The CWB product, which can be used in conjunction with our strategic services, enables customers to access, organize and search their large databases containing patient level information. Because the market for this product is new and emerging, it continues to be difficult to predict the level of market acceptance.

Customers

Our customers currently consist of large pharmaceutical companies and biotechnology companies. During our fiscal year ended March 31, 2002, we provided products and services for which we recognized revenue from more than 600 customers. Pfizer Inc., our largest customer, accounted for 20% of our revenue in fiscal 2002. Consequently, we are dependent on Pfizer Inc. for a substantial portion of our revenues, and if we were to lose Pfizer Inc. as a customer, it would have a material adverse effect on our revenues and business. Information regarding long-lived assets and sales to customers by major geographic regions is set forth in Note 13 to our financial statements, which appear in "Item 8—Financial Statements and Supplementary Data."

Research and Development

We employ engineers with expertise in software development, web-based applications, database systems, and mathematical modeling, and scientists 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, which helps guide our product development efforts.

As of May 31, 2002, we had 34 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 principally at our executive offices in Mountain View, California, and Cary, North Carolina. Our research and development expenses were $6.6 million, $8.1 million and $5.5 million, in fiscal 2002, 2001, and 2000, respectively. In November 2001, we refocused our research and development activities to concentrate only on our core modeling and simulation products and the development of our next generation platform. We believe research and development expenses will decline in fiscal 2003 as compared to fiscal 2002, as the full year effect of last year's reduction of non-core and information products resources are realized.

Pharsight is investing to grow our business by expanding our ability to achieve potential breakthrough improvements in drug development productivity for our customers. The primary focus of this investment is in software that enables customers to adopt and implement our model-based drug development methodology. New software will complement our existing modeling tools, which are used by a relatively small number of technical experts, thereby enabling a much larger number of other participants in the drug development process to utilize those models in a systematic, integrated fashion to collaborate and make better decisions. We are also broadening the capabilities of our services organization to help our customers take maximum advantage of the new tools.

Intellectual Property Rights

Technology In-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. We incorporate such 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.

Intellectual Property

Our success is dependent upon our ability to develop and protect our proprietary technology and intellectual property rights. We rely primarily on a combination of contractual provisions, confidentiality procedures, trade secrets, and patent, copyright and trademark laws to accomplish these goals.

We license our software products pursuant to non-exclusive license agreements which impose restrictions on customers' ability to utilize the software. In addition, we seek to avoid disclosure of our trade secrets, including but not limited to, requiring employees, customers and others with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We also seek to protect our software, documentation and other written materials under trade secret and copyright laws.

We have 13 U.S. patent applications pending. It is possible that the patents that we have applied for, if issued, or our potential future patents may be successfully challenged or that no patent will be issued from our patent application. It is also possible that we may not develop proprietary products or technologies that are patentable, that any patent issued to us may not provide us with any competitive advantages, or that the patents of others will seriously harm our ability to do business.

Despite our efforts to protect our proprietary rights, existing laws afford only limited protection. Attempts may be made to copy or reverse engineer aspects of our product or to obtain and use information that we regard as proprietary. Accordingly, there can be no assurance that we will be able to protect our proprietary rights against unauthorized third party copying or use. Use by others of our proprietary rights could materially harm our business. Furthermore, policing the unauthorized use of our product is difficult and expensive litigation may be necessary in the future to enforce our intellectual property rights.

Government Regulation

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 and PKS products compete with products produced by InnaPhase Corporation. Although we believe we currently do not have direct competitors for our Trial Workbench product line or our scientific 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 May 31, 2002, we had a total of 114 employees. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good.

ITEM 2. PROPERTIES

Pharsight's principal administrative, sales, marketing and product development facilities are located in Mountain View, California. We lease approximately 32,000 square feet of space in Mountain View, California under a lease that expires in September 2003. Pharsight leases sales, development and training facilities in: Cary, North Carolina; Burlington, Massachusetts; and San Diego and San Francisco, California. Pharsight also leases a sales and service office in the United Kingdom. We believe that our existing facilities are adequate for our current needs and that additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS

From time to time, Pharsight may become involved in claims, legal proceedings, or state or federal government agency proceedings that arise in the ordinary course of its business. We are currently subject to one such agency proceeding. We do not believe that the resolution of these Agency proceedings will have a material adverse effect on us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of Pharsight's stockholders during the fourth quarter of its fiscal year ended March 31, 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed on the Nasdaq National Market under the symbol "PHST." Our common stock first traded on August 9, 2000, concurrent with the underwritten initial public offering of shares of our common stock. Prior to this time there was no established public trading market for our common stock.

As of May 31, 2002, there were 18,770,422 shares of common stock outstanding that were held of record by approximately 111 stockholders.

We have never declared or paid any cash dividends on our common stock and do not anticipate paying such cash dividends on our common stock 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 on our common stock 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.

Set forth below are the high and low closing prices per share of our common stock for each quarterly period in our fiscal years ended March 31, 2001 and 2002, as reported on the Nasdaq National Market.

FY 2001	High		Low
Second Quarter (8/9/00-9/30/00)	$	10.69	$	8.00
Third Quarter (10/1/00-12/31/00)	$	8.88	$	2.06
Fourth Quarter (1/1/01-3/31/01)	$	4.88	$	2.00

FY 2002	High		Low
First Quarter (4/1/01-6/30/01)	$	3.50	$	1.98
Second Quarter (7/1/01-9/30/01)	$	3.08	$	1.34
Third Quarter (10/1/01-12/31/01)	$	2.00	$	0.80
Fourth Quarter (1/1/02-3/31/02)	$	2.18	$	1.53

On August 14, 2000, we closed the sale of a total of 3,000,000 shares of our common stock, par value $0.001 per share, at a price of $10.00 per share in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1, Registration No. 333-34896, declared effective on August 8, 2000. Of the $20.3 million in net proceeds raised by us in the offering, after deducting underwriting discounts and commissions, offering expenses and the repayment of $6.1 million to our holders of Series C preferred stock:

1.: Approximately $18.8 million was used to fund ongoing operations, including research and development of new and existing products; acquisitions; and
2.: The remainder of the proceeds from the offering, approximately $1.5 million, remains invested in investment grade securities.

This application of the proceeds from the initial public offering did not represent a material change from the use of proceeds as described in the prospectus for the initial public offering.

Stock is entitled to receive out of legally available funds quarterly dividends at the annual rate of 8% and is payable in cash or Series B Convertible Preferred Stock, of which payments will commence in September 2002. The Preferred Stock is redeemable at any time after five years from issuance upon the affirmative vote of at least 75% of the Preferred Stock stockholders. The Preferred Stock is redeemable at a price of $4.008 per share plus any unpaid dividends with respect to such share. Each share of Preferred Stock is convertible into four shares of our Common Stock at the election of the holder or upon the occurrence of certain other events. The warrants are exercisable for a period of five years from the date of issuance with an exercise price of $1.15 per share. We relied on Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), for the exemption from registration under Section 5 of the Securities Act. All purchasers of the Series A Convertible Preferred Stock and warrants to purchase shares of our Common Stock represented that they were "accredited investors" (as defined in Regulation D of the Securities Act). Subject to the necessary stockholder approval at a meeting currently scheduled to take place in September 2002, we expect to sell to the same existing stockholders in the second tranche of the two-tranche financing, an additional 1,052,742 shares of Series A Convertible Preferred Stock and additional warrants to purchase 1,052,742 shares of Common Stock for approximately $4,350,000.

ITEM 6. 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 Operation" appearing elsewhere in this Form 10-K. We have derived our balance sheet data as of March 31, 2002 and 2001, and statements of operations data for each of the years ended March 31, 2002 and 2001, from our audited financial statements included in this Form 10-K. We have derived our balance sheet data as of March 31, 2000, 1999 and 1998 and statements of operations data for the years ended March 31, 2002, 2001, and 2000, from our audited financial statements not included in this Form 10-K.

		Years Ended March 31,
Statements of Operations Data		2002			2001			2000			1999			1998
		(In thousands, except per share data)
Revenues		$	14,249		$	11,948		$	8,859		$	3,891		$	736
Costs and expenses:
	Cost of revenues		8,275			6,630			4,433			2,480			645
	Research and development		6,596			8,096			5,451			4,327			2,134
	Sales and marketing		8,626			6,703			4,059			2,292			1,366
	General and administrative		5,877			4,004			1,967			1,105			744
	Amortization of deferred stock compensation		2,993			7,552			2,180			57			—
	Amortization of intangible assets		370			572			941			965			82
	Restructuring		676			—			—			—			—
	Acquired in-process research and development		—			—			—			2,592			362

Total operating expenses			33,413			33,557			19,031			13,818			5,333

Loss from operations			(19,164	)		(21,609	)		(10,172	)		(9,927	)		(4,597	)
Other income (expense), net			212			1,038			185			(120	)		172

Net loss			(18,952	)		(20,571	)		(9,987	)		(10,047	)		(4,425	)
Accretion on convertible preferred stock			—			(443	)		(1,241	)		(803	)		(448	)
Series C redeemable convertible preferred stock dividend			—			—			—			—			(644	)

Net loss applicable to common stockholders		$	(18,952	)	$	(21,014	)	$	(11,228	)	$	(10,850	)	$	(5,517	)

Basic and diluted net loss per share applicable to common stockholders		$	(1.03	)	$	(1.62	)	$	(3.48	)	$	(4.48	)	$	(4.19	)

Shares used to compute basic and diluted net loss per share applicable to common stockholders			18,419			12,974			3,225			2,424			1,318

	Years Ended March 31,
Balance Sheet Data	2002			2001			2000			1999			1998
Cash, cash equivalents and short-term investments	$	13,492		$	21,223		$	16,482		$	6,147		$	3,701
Working capital		6,821			19,502			12,837			2,149			2,621
Total assets		19,954			28,929			21,320			9,668			5,407
Long-term obligations, net of current portion		3,194			962			708			2,812			1,221
Redeemable convertible preferred stock		—			—			18,582			17,341			7,176
Deferred stock compensation		(1,813	)		(5,197	)		(3,459	)		(239	)		—
Accumulated deficit		(66,179	)		(47,227	)		(29,761	)		(18,533	)		(7,683	)
Total stockholders' equity (deficit)	$	6,684		$	22,229		$	(4,525	)	$	(15,541	)	$	(4,857	)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The financial and business analysis below provides information which Pharsight believes is relevant to an assessment and understanding of Pharsight's financial position and results of operations for the years ended March 31, 2002, 2001, and 2000. This financial and business analysis should be read in conjunction with Item 6 "Selected Financial Data" and our Financial Statements and related notes thereto set forth under Item 8 "Financial Statements and Supplementary Data."

The following discussion and certain other sections of this Report on Form 10-K contain statements reflecting our views about our future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These views may involve risks and uncertainties that are difficult to predict and may cause actual results to differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including changes in general economic conditions, nature of competition, relationships with key customers, industry consolidation, influence of e-commerce and other factors discussed in the "Business Risks" section below may effect our ability to attain the projected performance. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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.

Substantially all of our sales activities are conducted through a dedicated direct sales organization located in the United States and Europe. In addition, our strategic services consultants and technical support personnel conduct sales and marketing activities. Pfizer Inc. accounted for 20% of our revenue in fiscal 2002. Consequently, we are dependent on Pfizer Inc. for a substantial portion of our revenues, and if we were to lose Pfizer Inc. as a customer, it would have a material adverse effect on our revenues and business. In fiscal 2001, Johnson & Johnson and Pfizer Inc. were our largest revenue customers, accounting for 17% and 11%, respectively.

In the second half of fiscal 2001, we also signed agreements with iBiomatics LLC, Intrasphere and PriceWaterhouseCoopers (PWC) to support our current and future product and service offerings. These are lead referral and support agreements. These agreements are not based on minimums or royalties.

In the second half of fiscal 2002, we signed agreements with Oracle, Intrasphere and PriceWaterhouseCoopers (PWC) to support our current and future product and service offerings. These are lead referral and support agreements. These agreements are not based on minimums or royalties to be paid by Pharsight. The Oracle agreement does contain contingent royalties to be paid to Pharsight, based on future sales.

Critical Accounting Policies and Estimates

Our financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate estimates, including those related to revenue and restructuring. Estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from

other sources. Actual results may differ materially from these estimates under different assumptions or conditions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Revenue Recognition

Our revenue recognition policy is significant because our revenue is a key component of our results of operations. We follow very specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue recognition policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter.

Restructuring

During fiscal year 2002, we recorded reserves in connection with our restructuring program. These reserves include estimates pertaining to employee separation costs, the ability to sub-lease vacated facilities and the settlements of contractual obligations resulting from our actions. Although we do not anticipate significant changes, the actual costs may differ from these estimates.

Source of Revenue and Revenue Recognition

Our revenues are derived from two primary sources: initial and renewal fees for product licenses and scientific and training consulting services. Additionally, we had a small amount of revenue from subscriptions to our information products in fiscal 2002.

Our revenue recognition policy is in accordance with Statement of Position No. 97-2, "Software Revenue Recognition," or SOP 97-2, as amended by Statement of Position No. 98-4, "Deferral of the Effective Date of SOP 97-2, `Software Revenue Recognition,' " or SOP 98-4, and Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions," or SOP 98-9. For each arrangement, we determine 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, we defer revenue recognition until such time as all of the criteria are met. We do not currently offer, have not offered in the past, and do not expect to offer in the future, extended payment term arrangements. If we do not consider collectibility to be probable, we recognize revenue when the fee is collected. No customer has the right of return.

Contracts from which we receive solely license and renewal fees consist of one year software licenses (initial and renewal fees) bundled with post contract support services, or PCS. We do not have vendor specific objective evidence to allocate the fee to the separate elements, as we do not sell PCS separately. We recognize each of the initial and renewal license fees ratably over the one year period of the license during which the PCS is expected to be provided as required by paragraph 12 of SOP 97-2.

We do not present PCS revenue separately as we do not have vendor specific objective evidence of PCS, and we do not believe other allocation methodologies, namely allocation based on relative costs, provide a meaningful and supportable allocation between license and PCS revenues.

We have one international distributor. There is no right of return or price protection for sales to the international distributor. We recognize revenue ratably over the one-year initial license or renewal period. Revenue from this distributor in 2002, 2001, and 2000 was less than 1% of total revenues.

For arrangements consisting solely of services, we recognize revenue as services are performed. Arrangements for services may be charged at daily rates for different levels of consultants and out-of-pocket expenses or may be for a fixed fee. For fixed fee contracts with payments based on milestones or acceptance criteria, we recognize revenue as such milestones are achieved or upon

acceptance, which approximates the level of services provided. For fixed fee arrangements at the end of each accounting period (i) we analyze the appropriateness of the daily rates charged based upon total fees to be charged and total hours to be incurred, and (ii) we determine if losses should be recognized.

We also enter into arrangements consisting of licenses, renewal fees and scientific consulting services. The scientific consulting services meet the criteria of paragraph 65 of SOP 97-2 for separate accounting. As the only undelivered elements are services and PCS, and the PCS term (expressed or implied) and the period over which we expect the services to be performed are the same period, we recognize revenue based on the lesser of actual services performed and licenses delivered or straight line over the period of the agreement. If the PCS term and the period over which we expect the services to be performed are not the same period, we recognize revenue based on the lesser of actual services performed and licenses delivered or straight line over the longer of the PCS term and the period over which we expect the services to be performed. Vendor specific objective evidence of fair value of scientific services for purposes of revenue recognition in these multiple element arrangements is based on daily rates for different levels of consultants and out-of-pocket expenses.

Our strategic services included in multiple element arrangements are not essential to the functionality of the other elements of an arrangement. To date we have not used and do not expect to use contract accounting for the entire software arrangement.

We recognize revenue from the subscription to information products over the contract period, provided we have evidence of an arrangement, the price of the subscription is fixed or determinable and payment is reasonably assured. The subscription fees have been included in license revenues.

Acquisitions

In February 2001, we acquired the assets of Metazoa.com., a privately-held company that develops collaborative software for the life science research community. We purchased Metazoa's assets for cash of $250,000 and incurred acquisition expenses of $102,000. The acquisition was accounted for using the purchase method. We allocated the purchase price to intangible assets and goodwill based on a valuation.

Deferred Stock Compensation

During the years ended March 31, 2001 and 2000, we recorded aggregate deferred compensation of $10.1 million and $5.4 million, respectively, representing the difference between the exercise price of stock options granted and the then deemed fair value of our common stock. The amortization of deferred compensation is charged to operations over the vesting period of the options using the graded method for employee options, and the straight-line method for non-employee options. During the year ended March 31, 2002, we recorded deferred stock compensation of $114,000 representing the intrinsic value of a certain stock award issued to an officer as a bonus. The amortization of this deferred stock compensation is charged to operations over the vesting period of the stock award using the straight-line method. We amortized $3.0 million, $7.6 million and $2.2 million of deferred compensation for the years ended March 31, 2002, 2001, and 2000. The amount of deferred compensation relating to stock options issued to employees and consultants to be amortized in future periods, ending March 31, is as follows:

2003	$	1,402,000
2004	$	379,000
2005	$	32,000

Results of Operations

Years Ended March 31, 2002 and 2001

Revenues. License and renewal revenues increased $1.4 million, or 38%, from $3.6 million in fiscal 2001 to $5.0 million in fiscal 2002. Of this increase, $1.1 million was due to an approximately 26% increase in the number of licenses sold from fiscal 2001 to fiscal 2002, and approximately $253,000 reflected an increase in annual renewal revenue due to the growth in the installed base.

Service revenues increased $1.0 million, or 12%, from $8.3 million in fiscal 2001 to $9.3 million in fiscal 2002. We view this increase as our customers' increased adoption of our methodologies. As of March 31, 2002, we were engaged with 14 of the top 20 major pharmaceutical companies. Significant customer expansions and additions this past year included Aventis, Lilly and expansion to all R&D locations of Pfizer, Inc., as well as Millennium Pharmaceuticals. As a result of these expansions, revenue from existing customers increased $3.0 million or 34%, from $8.7 million in fiscal 2001 to $11.7 million in fiscal 2002. Over the same period, revenue from new customers declined 18%, as we focused on enhancing our existing relationships.

Cost of revenues. Cost of license and renewal revenues consists of royalty expense for third-party software included in our products, and cost of materials for both initial products and product updates provided for in our annual license agreements. Cost of license and renewal revenues increased 25% to $2.0 million for the year ended March 31, 2002, from $1.6 million for the year ended March 31, 2001. The increase was due primarily to the inclusion of costs of our information products as cost of revenues beginning with the release of these products for general distribution in December 2000. During the year ended March 31, 2002, we implemented a restructuring program to better align operating expenses with anticipated revenues. The restructuring actions reduced resources in non-core areas such as our information products. Cost of license and renewal revenues as a percentage of license and renewal revenues was 40% for the year ended March 31, 2002, compared to 45% for fiscal 2001. This percentage should decline substantially in fiscal 2003, as product royalties continue and all information product costs, as of November 2001, are now expensed. In addition, this percentage will also decrease to the extent revenues increase.

Cost of services revenues increased 26% to $6.3 million for the year ended March 31, 2002, from $5.0 million for the year ended March 31, 2001. The increase was due primarily to additional personnel in strategic services. 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. The cost of service revenues, as a percentage of service revenues, was 68% in fiscal 2002 and 60% in fiscal 2001. The increase in this percentage in fiscal 2002, was due to under utilized capacity in our services organization. In fiscal 2003, we are more closely aligning project teams with key customer accounts. This is being implemented to make improvements to our productivity, margins and revenues on an annual basis. Because we are still in transition to this new model, we do not expect to see significant benefits from this realignment until the second half of fiscal 2003, at the earliest.

Research and development. Research and development expenses decreased $1.5 million, or 19%, from $8.1 million in fiscal 2001 to $6.6 million in fiscal 2002. The decrease resulted primarily from reduced numbers of software developers and outside contractors in non-core product areas including our information products areas. As a percentage of revenues, research and development expenses decreased from 68% in fiscal 2001 to 46% in fiscal 2002. We believe research and development expenses will decline in fiscal 2003 as compared to fiscal 2002, as we see the full year impact of the headcount reductions.

Sales and marketing. Sales and marketing expenses increased $1.9 million, or 29%, from $6.7 million in fiscal 2001 to $8.6 million in fiscal 2002. 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 increased from 56% in fiscal 2001 to 61% in fiscal 2002. The increase in marketing and sales expense as a percentage of total revenues reflects the growth in the number of professionals selling and marketing our products and services, offset in part by increased revenues. This percentage is expected to decrease in the future to the extent revenues increase.

General and administrative. General and administrative expenses increased from $4.0 million in fiscal 2001 to $5.9 million in fiscal 2002. The increase is related to growth in management and administrative support staff as well as professional fees as a result of the expansion of our business and the costs of being a public company. As a percentage of total revenues, general and administrative expenses increased from 34% in fiscal 2001 to 41% in fiscal 2002. This percentage is expected to decrease in the future to the extent revenues increase.

Restructuring. In fiscal 2002, we implemented a restructuring program to better align operating expenses with anticipated revenues. Our restructuring actions reduced resources in non-core areas. We recorded a $676,000 restructuring charge, which consists of $402,000 in facility exit costs (including $81,000 in equipment impairment), $253,000 in personnel severance costs and $21,000 in other exit costs. The restructuring program resulted in the reduction in force across all company functions of approximately 14% or 20 employees. As of March 31, 2002, all 20 employees had been terminated as a result of the program. The restructuring actions did not impact the resources assigned to develop or support our current and future PKS, WinNonlin®, WinNonMix® and Trial Simulator™ product families. At March 31, 2002, we had $249,000 of accrued restructuring costs related to monthly lease expenses for two facilities that were exited in fiscal 2002, employee severance payments and other exit costs. We estimate that the restructuring program will save the company approximately $4.5 million of expenses on an annualized basis.

Other income (expense), net. Other income, net, decreased to $212,000 for fiscal 2002 from other income, net, of $1.0 million for fiscal 2001. This decrease occurred as a result of lower interest income on a smaller average balance of cash and short-term investments, as well as higher interest expense as we began paying for our utilization of our term loan. We continued to reduce the outstanding balance of our obligations under capital leases. We expect our interest income to be reduced in 2003 due to lower interest rates and lower average balances. We also expect to have increased interest expense as we exercise our term loan credit facility for an entire year.

Provision for income taxes. As a result of our net operating losses, no provision was recorded for income taxes during fiscal years 2002 and 2001. As of March 31, 2002, we had federal and state net operating losses of $50 million and $20 million respectively, which begin to expire in the years 2003 through 2022. We have recorded a valuation allowance against the entire net operating loss carry-forwards because of the uncertainty that we will be able to realize the benefit of the net operating loss carry-forwards before they expire.

Years Ended March 31, 2001 and 2000

Revenues. License and renewal revenues increased $1.0 million, or 37%, from $2.6 million in fiscal 2000 to $3.6 million in fiscal 2001. Of this increase, $560,000 was due to an approximately 27% increase in the number of licenses sold from fiscal 2000 to fiscal 2001, and approximately $403,000 reflected an increase in annual renewal revenue due to the growth in the installed base.

Service revenues increased $2.1 million, or 34%, from $6.2 million in fiscal 2000 to $8.3 million in fiscal 2001. We view this increase as an indication of our customers' acceptance of our methodologies. As of March 31, 2001, we were engaged with 14 of the top 20 major pharmaceutical companies. Significant customer additions this past year included Aventis, Lilly and Bayer, as well as an additional leading biotechnology company. Over 80% of our revenue increase from last year came from existing customers.

Cost of revenues. Cost of license and renewal revenues consists of royalty expense and cost of materials for both initial products and product updates provided for in our annual license agreements. Cost of license and renewal revenues increased 54% to $1.6 million for the year ended March 31, 2001, from $1.1 million for the year ended March 31, 2000. The increase was due primarily to the inclusion of costs of our information products as cost of revenues beginning with the release of these products for general distribution in December 2000. We began including our product team's costs to convert data from contract providers into customer usable information as cost of revenue in the latter part of fiscal 2001. New versions of products shipped in fiscal 2001 contained a slightly higher royalty expense component than the older versions. These increases were partially offset by a reduction in salary-related expenses in the second half of fiscal 2001, as we increased efficiency and productivity in our customer support staff. Cost of license and renewal revenues as a percentage of license and renewal revenues was 45% for the year ended March 31, 2001, compared to 40% for fiscal 2000.

Cost of services revenues increased 48% to $5.0 million for the year ended March 31, 2001, from $3.4 million for the year ended March 31, 2000. The increase was due primarily to increased personnel in strategic services. The cost of service revenues, as a percentage of service revenues, was 60% in fiscal 2001 and 54% in fiscal 2000.

Research and development. Research and development expenses increased $2.6 million, or 49%, from $5.5 million in fiscal 2000 to $8.1 million in fiscal 2001. 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 increased from 62% in fiscal 2000 to 68% in fiscal 2001.

Sales and marketing. Sales and marketing expenses increased $2.6 million, or 65%, from $4.1 million in fiscal 2000 to $6.7 million in fiscal 2001. 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 increased from 46% in fiscal 2000 to 56% in fiscal 2001. The increase in marketing and sales expense as a percentage of total revenues reflects the rapid growth in the number of professionals selling and marketing our products and services, offset by increased revenues.

General and administrative. General and administrative expenses increased from $2.0 million in fiscal 2000 to $4.0 million in fiscal 2001. The increase is related to growth in management and administrative support staff as well as professional fees as a result of the expansion of our business and the costs of being a public company. As a percentage of total revenues, general and administrative expenses increased from 22% in fiscal 2000 to 34% in fiscal 2001.

Other income (expense), net. Other income, net, increased to $1.0 million for fiscal 2001 from other income, net, of $185,000 for fiscal 2000. This increase occurred as a result of higher interest income on a larger average balance of cash and short-term investments as a result of the net proceeds received in August 2000 from our initial public offering, as well as lower interest expense as we reduced the outstanding balance of our notes payable.

Provision for income taxes. As a result of our net operating losses, no provision was recorded for income taxes during fiscal years 2001 and 2000. As of March 31, 2001, we had federal and state net operating loss carry forwards of $42.3 million available to offset future taxable income, which may be used, subject to limitations, to offset future state and federal taxable income through 2020. We have recorded a valuation allowance against the entire net operating loss carryforwards because of the uncertainty that we will be able to realize the benefit of the net operating loss carryforwards before they expire.

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. In August 2000, we completed our initial public offering of 3,000,000 shares of common stock, at a price of $10.00 per share, all of which shares were issued and sold by us for net proceeds of $26.4 million, net of underwriting discounts and commissions of $2.1 million and expenses of $1.5 million. We paid $6.1 million to holders of our Series C preferred stock at the closing of the offering as required by the terms of the Series C preferred stock. After this payment, our net proceeds were $20.3 million.

As of March 31, 2002, we had $13.5 million in cash and short-term investments, which include $4.5 million of cash borrowed under our credit facilities with Silicon Valley Bank. Cash and short-term investments decreased by $7.7 million from those held as of March 31, 2001. Our working capital, defined as current assets less current liabilities, at March 31, 2002, was $6.8 million, a decrease of $12.7 million in working capital from March 31, 2001. The decrease in the working capital is primarily attributable to our net loss, and the borrowing of $4.5 million on our credit facilities, offset by continued payment of our previous notes payable. In June 2001 we extended and enhanced our previously unused credit facilities with Silicon Valley Bank, providing $7.5 million available under three different facilities. All have rates which are based on the prime interest rate plus one point or prime interest plus 1.25 points, and were fundable over the next year and are payable over a four year period. The term loan facility of $3.5 million was fully exercised in fiscal 2002 and is payable, beginning in July 2002, over the next four years, ending June 2006. In addition, $1.0 million of the accounts receivable facility was also utilized in fiscal 2002 and is payable in June 2003.

As of March 31, 2002, we were in violation of a debt/tangible net worth covenant under our credit facilities with Silicon Valley Bank. On May 10, 2002, a loan modification agreement was signed with Silicon Valley Bank which removed the debt/tangible net worth covenant thereby curing the breach.

The following covenants apply to our Silicon Valley Bank loan facilities: Quick Ratio (excluding deferred revenue) greater than 1.0, Remaining months liquidity of 6 months, Liquidity of two times the term loan advance, and annual Net Losses within 20% of our plan, measured at specific quarterly amounts. We are in compliance with each of these covenants.

Net cash used in operating activities was $10.4 million in fiscal 2002, $11.6 million in fiscal 2001 and $6.6 million in fiscal 2000. The cash used in these periods was primarily attributable to net losses in each period of $19.0 million, $20.6 million and $10.0 million, respectively, partially offset by non-cash charges of $3.0 million, $7.6 million and $2.2 million in deferred stock compensation in fiscal 2002, 2001, and 2000, respectively.

Net cash provided by investing activities was $1.5 million in fiscal 2002 and $2.1 million in fiscal 2001, which resulted from maturities of short-term investments, partially offset by purchases of short-term investments and property and equipment. Net cash used for investing activities was $10.0 million in fiscal 2000 including the purchase of short-term investments and capital expenditures.

Financing activities provided net cash of $4.1 million in fiscal 2002, $19.5 million in fiscal 2001 and $17.7 million in fiscal 2000. In fiscal 2002, these amounts were primarily proceeds from our credit facility borrowings, partially offset by $689,000 in payments on our notes payable and capital lease obligations.

We have incurred quarterly and annual losses in each of the seven years since we were formed. We incurred a net loss of $19.0 million for the fiscal year ended March 31, 2002, as well as net losses of $20.6 million and $10.0 million for the fiscal years ended March 31, 2001 and 2000, respectively.

In June 2002, we extended our secured revolving credit facility agreement with Silicon Valley Bank for an additional year. We continue to have up to $4.0 million available under two accounts receivable

facilities. These include $2.5 million of secured revolving credit against 80% of eligible domestic accounts receivable and $1.5 million of secured revolving credit against 90% of eligible foreign accounts receivable. We continue to have $1.0 million of the accounts receivable facilities utilized.

In June 2002, we closed the first tranche of a two-tranche financing and sold to certain existing stockholders 761,920 shares of Series A Convertible Preferred Stock and warrants to purchase 761,920 shares of our Common Stock for approximately $3,149,000. The Series A Convertible Preferred Stock is entitled to receive out of legally available funds quarterly dividends at the annual rate of 8% and is payable in cash or Series B Convertible Preferred Stock, of which payments will commence in September 2002. The Preferred Stock is redeemable at any time after five years from issuance upon the affirmative vote of at least 75% of the Preferred Stock stockholders. The Preferred Stock is redeemable at a price of $4.008 per share plus any unpaid dividends with respect to such share. Each share of Preferred Stock is convertible into four shares of our Common Stock at the election of the holder or upon the occurrence of certain other events. The warrants are exercisable for a period of five years from the date of issuance with an exercise price of $1.15 per share, subject to the necessary stockholder approval at a meeting currently scheduled to take place in September 2002, we expect to sell to the same existing stockholders in the second tranche of the two-tranche financing, an additional 1,052,742 shares of Series A Convertible Preferred Stock and additional warrants to purchase 1,052,742 shares of Common Stock for approximately $4,350,000.

Management believes the Company has adequate cash to sustain operations through fiscal year 2003 and is managing its business to achieve positive cash flow utilizing existing assets. During 2002, the Company's commitments and liabilities were significantly reduced via restructuring events. In addition, the Company reduced ongoing operating expenses by reducing purchases of other services and making workforce reductions. We are committed to the successful execution of our operating plan and will take further restructuring actions as necessary to align our revenues and reduce expenses.

The following table depicts our contractual obligations as of March 31, 2002:

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years
	(in thousands)
Notes Payable	$	4,500	$	1,656	$	1,750	$	1,094
Capital Lease Obligations		1,119		749		370		0
Operating Leases *		2,725		1,636		970		119

Total Contractual Cash Obligations	$	8,344	$	4,041	$	3,090	$	1,213

*: Net of subleases and payments included in the current year restructuring charge

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The new rules require business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting and goodwill acquired after this date will not be amortized. Goodwill existing at June 30, 2001, continued to be amortized through the end of our fiscal year ended March 31, 2002, and will be tested for impairment using the current method, which uses an undiscounted cash flow test. Beginning in our first fiscal quarter ended June 30, 2002, Pharsight will adopt SFAS 141 and SFAS 142. Based on acquisitions completed as of June 30, 2001, it is not expected to have a significant impact on our results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. Pharsight adopted FAS 144 as of April 1, 2002, and Pharsight does not expect that the adoption of the Statement will have a significant impact on our financial position and results of operations.

In November 2001, the FASB issued a Staff Announcement (the "Announcement"), Topic D-103, which concluded that the reimbursement of "out-of-pocket" expenses should be classified as revenue in the statement of operations. This Announcement should be applied in financial reporting periods beginning after December 15, 2001. Upon application of this Announcement, comparative financial statements for prior periods should be reclassified to comply with the guidance in this Announcement. Pharsight previously recorded reimbursement of "out-of-pocket" expenses in cost of services. Effective January 1, 2002, Pharsight adopted the Announcement. The adoption of the Announcement had no significant impact on our results of operation and on our comparative financial statements for prior periods.

Business Risks

Items That Affect Our Future Operations

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 March 31, 2002, we had an accumulated deficit of $66.2 million. We expect to incur further losses as we continue to develop our business. Since the amounts we may determine to invest to grow our business are uncertain, we are unable to be certain when, if ever, we may become profitable. We have announced that we intend to achieve cash breakeven (ebitda—earnings before interest, taxes, depreciation and amortization) by June 2003; however, this expectation is based on a number of assumptions, including some outside of our control, including the state of the overall economy and the demand for our products, and if these assumptions do not prove to be accurate then we may never generate sufficient revenues to achieve profitability. Furthermore, even if we do achieve ebitda breakeven profitability and positive operating cash flow, we may not be able to sustain or increase profitability or positive operating cash flow on a quarterly or annual basis. If our losses exceed the expectations of investors, the price of our common stock may decline.

We have experienced restructuring actions, which may not sufficiently reduce operating expenses, and there is a continued risk of restructuring until the company reaches profitability.

Our restructurings were designed to lower our cash used for operating expenses by reducing expenses for facilities, sales and marketing, hosting, professional services and marketing arrangements and significantly reducing our current employee and contractor staffing levels. While the restructurings have reduced cash operating expenses, our ability to adequately reduce cash used in operations, and ultimately generate profitable results from operations, is dependent upon successful execution of our business plan, including obtaining new customers. As of March 31, 2002, we had working capital of $6.8 million and had equity of $6.7 million. During the year ended March 31, 2002, we used cash in operating activities of $10.4 million. There can be no assurance that we will be successful in implementing our new business plan or sufficiently reducing our operating expenses in the future. Our inability to generate adequate revenue growth, reduce costs or to integrate acquisitions and continue to

develop successful product and services offerings could have a material adverse effect upon our ability to successfully achieve breakeven operations and result in additional restructuring actions.

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 "Business Risks" section of Form 10-K, 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;
•: Changes in industry conditions affecting our customers; and
•: Reorganization.

As a result, quarterly comparisons may not indicate reliable trends of future performance.

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.

In November 2001, we announced that we were taking actions intended to reduce our expenses by approximately $5 million on an annualized basis. Our current estimate is a reduction of approximately $4.5 million on an annualized basis. However if we are unable to achieve the productivity increases we have planned and if we are unable to achieve other expense reduction goals, we may not achieve this level of annualized savings, which would limit our ability to become profitable.

Our cost-cutting actions leave us with less available capacity to deliver our products and services. If there is a significant increase in demand from our estimates, it will take us longer to react to satisfy this demand, which would limit our ability to grow our business and potentially become profitable.

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 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 2002, sales to our top customer accounted for 20% of our revenue and sales to our top five customers accounted for 49% of our revenue. In fiscal 2001, sales to our top two customers collectively accounted for 28% of our revenue and sales to our top five customers accounted for 43% 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. 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.

Our revenues and results of operations would be adversely affected if a customer cancels a contract for services with us.

Our services agreements can be canceled upon prior notice by our customers. Additionally, due to the nature of our services engagements, customers sometimes delay projects because of timing of the clinical trials and the need for data and information that prevent us from proceeding with our projects. These delays and contract cancellations cannot be predicted with accuracy and we cannot assure you that we will be able to replace any delayed or canceled contracts with the customer or other customers. If we are unable to replace those contracts, our revenues and results of operations would be adversely affected.

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, including the expansion of our product to address a broader set of customer needs related to clinical development of drugs and thereby expand the number of its prospective users, on a timely basis. If we cannot adapt to changing technologies, emerging industry standards, new scientific developments and increasingly sophisticated customer needs, we may not achieve revenue growth and 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, programming errors, attacks by third parties or similar disruptive problems. We do not have insurance to cover us for losses incurred in many of these events. 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 revenue from our short-term agreements 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.

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 patent, trademark, trade secret and copyright law, confidentiality agreements and technical measures. We have filed thirteen patent applications, but do not currently have any patents issued. 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. We may also 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. In addition, the laws of some foreign countries provide less protection of intellectual property rights than the laws of the United States and Europe. As a result, we may have an increasingly difficult time adequately protecting our intellectual property rights as our sales in foreign countries grow.

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.

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 intangible assets and charges against earnings.

Any of the above factors, if they occur, could harm our business.

International sales of our product account for a significant portion of our revenue which exposes us to risks inherent in international operations.

We market and sell our products and services in the United States and internationally. International sales of our products and services accounted for approximately 36% of our total revenues for the year ending March 31, 2002. We have a total of 12 employees based outside the United States

that market and sell our products and services, including a sales/consulting/product support office in London with seven employees. In addition, we may in the future open offices in other countries. The expansion of our existing international operations and entry into additional international markets may require significant management attention and financial resources. We cannot be certain that our existing international operations or the expansion of our operations to other countries will produce desired levels of revenue. We currently have limited experience in developing localized versions of our products and services and marketing and distributing our products internationally. Our operations in the United States and Europe also expose us to the following general risks associated with international operations:

•: Disruptions to commercial activities or damage to our facilities as a result of political unrest, war, terrorism, labor strikes and work stoppages;
•: Difficulties and costs of staffing and managing foreign operations;
•: The impact of recessions in economies outside the United States;
•: Greater difficulty in accounts receivable collection and longer collection periods;
•: Potential adverse tax consequences, including higher tax rates generally in Europe;
•: Tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries;
•: Unexpected changes in regulatory requirements of foreign countries, especially those with respect to software, pharmaceutical and biotechnology companies; and
•: Fluctuations in the value of currencies.

To the extent that such disruptions and costs interfere with our commercial activities, our results of operations could be harmed.

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.

Government regulation of the pharmaceutical industry may 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 Our Stock

The public market for our common stock may be volatile.

The market price of our common stock has been, and we expect it to continue 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;
•: Changes in the conditions and trends in the pharmaceutical market; and
•: We have experienced very low trading volume in our stock, and so small purchases and sales can have a significant effect on our stock price.

In addition, the stock markets, including the Nasdaq National Market, have experienced extreme price and volume fluctuations, particularly in the past year, 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.

We are at risk of having our stock delisted from the Nasdaq National Market.

Our common stock is listed on the Nasdaq National Market, which has minimum quantitative listing criteria that are required to be maintained. Two of these criteria are a minimum stock price of one dollar per share and, beginning in November 2002, minimum stockholders' equity of $10 million. If our stock price were to decline to below one dollar per share, The Nasdaq Stock Market may take action to have our common stock delisted from the Nasdaq National Market. In addition, we currently do not have $10 million in stockholders' equity, and do not expect to have stockholders' equity in excess of $10 million in November 2002. If The Nasdaq Stock Market chooses to do so, it may take

action to have our common stock delisted from the Nasdaq National Market after November 2002 if we do not meet this requirement. Our failure to complete the second tranche of our current two-tranche financing may increase the likelihood of the delisting of our Common Stock.

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. Our executive officers and directors beneficially owned or controlled 7,765,687 shares, or 41.4%, of the outstanding common stock, calculated on an as-if-converted basis, as of May 31, 2002. In addition, our two largest stockholders with which two of our directors are affiliated, purchased in June 2002, 761,920 shares of our preferred stock and will, subject to the necessary stockholder approval of the additional issuance, purchase an additional 1,052,742 shares of our preferred stock which would increase the holdings of our executive officers and directors to 16,838,997 shares, or 60.5%, of our outstanding common stock, calculated on an as-if-converted basis. 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 3,185,338 shares of preferred stock (less any shares of preferred stock to be issued as dividends) 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 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.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS

We have considered the provisions of Financial Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent In Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." We have no holdings of derivative financial or commodity-based instruments at March 31, 2002. A review of our other financial instruments and risk exposures at that date revealed that we have exposure to interest rate and foreign currency exchange rate risks. At March 31, 2002, we performed sensitivity analyses to assess the potential effect of these risks and concluded that near-term changes in interest rates and foreign currency exchange rates would not materially affect our financial position, results of operations or cash flows.

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 very little 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 debt instruments. Due to the nature of our short-term investments, we believe that there is no material market risk exposure. As of March 31, 2002, our cash, cash equivalents and short-term investments consisted primarily of demand deposits, money market funds, treasury instruments and commercial paper.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Supplementary Data

The following tables set forth unaudited quarterly supplementary data for each of the years in the two-year period ended March 31, 2002.

	Quarter Ended
In thousands, except per share amounts	Quarter Ended
In thousands, except per share amounts	June 30			September 30			December 31			March 31
FISCAL 2002
Revenues	$	2,744		$	3,716		$	4,020		$	3,769
Cost of revenues		2,442			2,245			1,854			1,734
Gross profit		302			1,471			2,166			2,035
Loss from operations		(6,617	)		(4,698	)		(4,461	)		(3,388	)
Net loss attributable to common stockholders		(6,450	)		(4,629	)		(4,457	)		(3,416	)
Net loss per common share attributable to common stockholders, basic and diluted	$	(0.35	)	$	(0.25	)	$	(0.24	)	$	(0.18	)
FISCAL 2001
Revenues	$	2,461		$	3,009		$	3,476		$	3,002
Cost of revenues		1,397			1,307			1,872			2,054
Gross profit		1,064			1,702			1,604			948
Loss from operations		(5,181	)		(5,012	)		(5,157	)		(6,259	)
Net loss		(5,074	)		(4,687	)		(4,808	)		(6,002	)
Accretion on redeemable convertible preferred stock		(310	)		(133	)		—			—
Net loss attributable to common stockholders		(5,384	)		(4,820	)		(4,808	)		(6,002	)
Net loss per common share attributable to common stockholders, basic and diluted	$	(1.39	)	$	(0.40	)	$	(0.27	)	$	(0.33	)

INDEX TO FINANCIAL STATEMENTS

		Page
Pharsight Corporation
Report of Ernst & Young LLP, Independent Auditors		31
Balance Sheets		32
Statements of Operations		33
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)		34
Statements of Cash Flows		36
Notes to Financial Statements.		37

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Pharsight Corporation

We have audited the accompanying balance sheets of Pharsight Corporation as of March 31, 2002 and 2001, 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, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

		/s/ Ernst & Young LLP

San Jose, California April 24, 2002, except for Note 15, as to which the date is June 26, 2002

PHARSIGHT CORPORATION
BALANCE SHEETS
(In thousands, except share and per share amounts)

		March 31,
		2002			2001
Assets
Current assets:
	Cash and cash equivalents	$	10,498		$	15,264
	Short-term investments		2,994			5,959
	Accounts receivable, net of allowance for bad debts of $94 and $95 for March 31, 2002 and 2001, respectively		2,629			2,901
	Recognized income not yet billed		160			102
	Prepaids and other current assets		616			1,014

Total current assets			16,897			25,240
Property and equipment, net			2,708			2,952
Restricted cash			150			150
Intangible assets, net			—			370
Other assets			199			217

Total assets		$	19,954		$	28,929

Liabilities and stockholders' equity
Current liabilities:
	Accounts payable	$	664		$	541
	Accrued expenses		1,854			883
	Accrued compensation		1,830			1,326
	Deferred revenue		3,412			2,251
	Notes payable, current portion		1,656			75
	Current obligations under capital leases		660			662

Total current liabilities			10,076			5,738
Obligations under capital leases			350			962
Notes payable			2,844			—
Commitments and Contingencies
Stockholders' equity:
	Preferred stock, $0.001 par value: Authorized shares—5,000,000 at March 31, 2002 and 2001 Issued and outstanding shares—none at March 31, 2002 and 2001		—			—
	Common stock, $0.001 par value: Authorized shares—120,000,000 at March 31, 2002 and 2001 Issued and outstanding shares—18,758,922 and 18,382,320 for March 31, 2002 and 2001, respectively		19			18
	Additional paid-in capital		74,754			74,770
	Deferred stock compensation		(1,813	)		(5,197	)
	Accumulated other comprehensive income (loss)		(1	)		8
	Notes receivable from stockholders		(96	)		(143	)
	Accumulated deficit		(66,179	)		(47,227	)

Total stockholders' equity			6,684			22,229

Total liabilities and stockholders' equity		$	19,954		$	28,929

The accompanying notes are an integral part of these financial statements.

PHARSIGHT CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)

		Years Ended March 31,
		2002			2001			2000
Revenues:
	License and renewal	$	4,971		$	3,615		$	2,634
	Services		9,278			8,333			6,225

Total revenues			14,249			11,948			8,859
Costs and expenses:
	License and renewal(1)		2,009			1,624			1,054
	Services(2)		6,266			5,006			3,379
	Research and development(3)		6,596			8,096			5,451
	Sales and marketing(4)		8,626			6,703			4,059
	General and administrative(5)		5,877			4,004			1,967
	Amortization of deferred stock compensation		2,993			7,552			2,180
	Amortization and impairment of intangible assets and goodwill		370			572			941
	Restructuring		676			—			—

Total operating expenses			33,413			33,557			19,031

Loss from operations			(19,164	)		(21,609	)		(10,172	)
Other income (expense):
	Interest expense		(238	)		(219	)		(498	)
	Interest income and other, net		450			1,257			683

Total other income			212			1,038			185

Net loss			(18,952	)		(20,571	)		(9,987	)
Accretion on Series C and D redeemable convertible preferred stock			—			(443	)		(1,241	)

Net loss applicable to common stockholders		$	(18,952	)	$	(21,014	)	$	(11,228	)

Basic and diluted net loss per share applicable to common stockholders		$	(1.03	)	$	(1.62	)	$	(3.48	)

Shares used to compute basic and diluted net loss per share applicable to common stockholders			18,419			12,974			3,225

(1): Excluding $192, $457 and $126 in amortization of deferred stock-based compensation for the years ended March 31, 2002, 2001, and 2000, respectively.
(2): Excluding $226, $842 and $501 in amortization of deferred stock-based compensation for the years ended March 31, 2002, 2001, and 2000, respectively.
(3): Excluding $291, $889 an $531 in amortization of deferred stock-based compensation for the years ended March 31, 2002, 2001, and 2000, respectively.
(4): Excluding $684, $1,749 and $579 in amortization of deferred stock-based compensation for the years ended March 31, 2002, 2001, and 2000, respectively.
(5): Excluding $1,600, $3,615 and $443 in amortization of deferred stock-based compensation for the years ended March 31, 2002, 2001, and 2000, respectively.

The accompanying notes are an integral part of these financial statements.

PHARSIGHT CORPORATION
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)

		Redeemable Convertible Preferred Stock					Convertible Preferred Stock
												Common Stock									Accumulated Other Comprehensive Income
												Common Stock			Additional Paid-In Capital			Deferred Stock Compensation						Notes Receivable from Stockholders			Accumulated Deficit
		Shares		Amount			Shares		Amount			Shares	Amount		Additional Paid-In Capital			Deferred Stock Compensation						Notes Receivable from Stockholders			Accumulated Deficit			Total
Balance at March 31, 1999		5,455		$	17,341		2,454		$	3		3,571	$	4	$	3,329		$	(239	)		—		$	(105	)	$	(18,533	)	$	(15,541	)
Issuance of Series E convertible preferred stock, net of issuance costs		—			—		2,778			3		—		—		19,964			—			—			—			—			19,967
Issuance of common stock under employee benefit plans, net of repurchases		—			—		—			—		484		—		150			—			—			(30	)		—			120
Deferred stock compensation related to stock option grants		—			—		—			—		—		—		5,400			(5,400	)		—			—			—			—
Amortization of deferred stock compensation		—			—		—			—		—		—		—			2,180			—			—			—			2,180
Accretion of Series C preferred stock		—			489		—			—		—		—		—			—			—			—			(489	)		(489	)
Accretion of Series D preferred stock		—			752		—			—		—		—		—			—			—			—			(752	)		(752	)
Comprehensive loss:
	Unrealized loss on short-term investments	—			—		—			—		—		—		—			—			(23	)		—			—			(23	)
	Net loss	—			—		—			—		—		—		—			—			—			—			(9,987	)		(9,987	)

Total comprehensive loss		—			—		—			—		—		—		—			—			—			—			—			(10,010	)

Balance at March 31, 2000		5,455			18,582		5,232			6		4,055		4		28,843			(3,459	)		(23	)		(135	)		(29,761	)		(4,525	)
Accretion of Series C preferred stock		—			174		—			—		—		—		—			—			—			—			(174	)		(174	)
Accretion of Series D preferred stock		—			269		—			—		—		—		—			—			—			—			(269	)		(269	)
Issuance of common stock in initial public offering, net of issuance costs		—			—		—			—		3,000		3		26,368			—			—			—			—			26,371
Conversion of redeemable convertible preferred stock and convertible preferred stock to common stock		(5,455	)		(12,916	)	(5,232	)		(6	)	10,687		10		9,364			—			—			—			3,548			12,916
Redemption of Series C redeemable convertible preferred stock		—			(6,109	)	—			—		—		—		—			—			—			—			—			—
Issuance of common stock under employee benefit plans, net of repurchases		—			—		—			—		618		1		905			—			—			—			—			906
Issuance of common stock on net exercise of warrants		—			—		—			—		22		—		—			—			—			—			—			—
Interest on notes receivable from stockholders		—			—		—			—		—		—		—			—			—			(8	)		—			(8	)
Deferred stock compensation related to stock option grants		—			—		—			—		—		—		10,070			(10,070	)		—			—			—			—
Amortization of deferred stock compensation		—			—		—			—		—		—		—			7,552			—			—			—			7,552
Reversal of deferred stock compensation for terminated employees		—			—		—			—		—		—		(780	)		780			—			—			—			—
Comprehensive loss:
	Unrealized loss on short-term investments	—			—		—			—		—		—		—			—			31			—			—			31
	Net loss	—			—		—			—		—		—		—			—			—			—			(20,571	)		(20,571	)

Total comprehensive loss		—			—		—			—		—		—		—			—			—			—			—			(20,540	)

Balance at March 31, 2001		—		$	—		—		$	—		18,382	$	18	$	74,770		$	(5,197	)	$	8		$	(143	)	$	(47,227	)	$	22,229

The accompanying notes are an integral part of these financial statements.

PHARSIGHT CORPORATION
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(In thousands)

		Redeemable Convertible Preferred Stock			Convertible Preferred Stock
								Common Stock									Accumulated Other Comprehensive Income
								Common Stock			Additional Paid-In Capital			Deferred Stock Compensation						Notes Receivable from Stockholders			Accumulated Deficit
		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital			Deferred Stock Compensation						Notes Receivable from Stockholders			Accumulated Deficit			Total
Balance at March 31, 2001		—	$	—	—	$	—	18,382	$	18	$	74,770		$	(5,197	)	$	8		$	(143	)	$	(47,227	)	$	22,229
Issuance of common stock under employee benefit plans, net of repurchases		—		—	—		—	377		1		320			—			—			—			—			321
Interest on notes receivable from stockholders		—		—	—		—	—		—		—			—			—			(8	)		—			(8	)
Write off of notes receivable from stockholders		—		—	—		—	—		—		—			—			—			55			—			55
Amortization of deferred stock compensation		—		—	—		—	—		—		—			2,993			—			—			—			2,993
Reversal of deferred stock compensation for terminated employees		—		—	—		—	—		—		(505	)		505			—			—			—			—
Issuance of restricted common stock to officer as a bonus		—		—	—		—	—		—		114			(114	)		—			—			—			—
Acceleration of option vesting		—		—	—		—	—		—		35			—			—			—			—			35
Issuance of options in consideration for service		—		—	—		—	—		—		20			—			—			—			—			20
Comprehensive loss:
	Unrealized loss on short-term investments	—		—	—		—	—		—		—			—			(9	)		—			—			(9	)
	Net loss	—		—	—		—	—		—		—			—			—			—			(18,952	)		(18,952	)

Total comprehensive loss		—		—	—		—	—		—		—			—			—			—			—			(18,961	)

Balance at March 31, 2002		—	$	—	—	$	—	18,759	$	19	$	74,754		$	(1,813	)	$	(1	)	$	(96	)	$	(66,179	)	$	6,684

The accompanying notes are an integral part of these financial statements.

PHARSIGHT CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)

			Years Ended March 31,
			2002			2001			2000
Operating activities
Net loss			$	(18,952	)	$	(20,571	)	$	(9,987	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Amortization of deferred stock compensation			2,993			7,552			2,180
	Depreciation and amortization			1,572			877			482
	Amortization of intangible assets			370			572			941
	Restructuring charges			81			—			—
	Issuance of options in consideration for services			20			—			—
	Compensation expenses related to accelerated vesting of options			35			—			—
	Changes in operating assets and liabilities:
		Accounts receivable		272			(901	)		(1,255	)
		Recognized income not yet billed		(58	)		123			(212	)
		Other current assets		398			(329	)		(385	)
		Other assets		18			(70	)		(61	)
		Accounts payable		123			226			102
		Accrued expenses		971			487			253
		Accrued compensation		504			238			684
		Deferred revenue		1,161			326			704
		Accrued interest and other		47			(174	)		4

Net cash used in operating activities				(10,445	)		(11,644	)		(6,550	)
Investing activities
Purchases of property and equipment				(1,409	)		(2,638	)		(828	)
Purchases of short-term investments				(7,501	)		(13,287	)		(13,220	)
Maturities of short-term investments				10,457			18,555			4,000
Transfer to restricted cash				—			(150	)		—
Acquisition of Metazoa.com				—			(352	)		—

Net cash provided (used) in investing activities				1,547			2,128			(10,048	)
Financing activities
Proceeds from lease line				—			1,000			611
Proceeds from issuance of notes payable				4,500			—			—
Principal payments on notes payable				(75	)		(2,218	)		(2,660	)
Principal payments on capital lease obligations				(614	)		(456	)		(309	)
Proceeds from the issuance of common stock				321			27,277			127
Proceeds from the issuance of convertible preferred stock, net				—			—			19,967
Redemption of redeemable convertible preferred stock				—			(6,109	)		—

Net cash provided by financing activities				4,132			19,494			17,736

Net (decrease) increase in cash and cash equivalents				(4,766	)		9,978			1,138
Cash and cash equivalents at the beginning of the year				15,264			5,286			4,148

Cash and cash equivalents at the end of the year			$	10,498		$	15,264		$	5,286

Supplemental disclosures of noncash activities
Common stock issued in exchange for notes			$	—		$	—		$	30
Property and equipment acquired under capital leases				—			1,000			611
Deferred stock compensation				114			10,070			5,400
Reversal of deferred stock compensation upon cancellation of unvested stock options				(505	)		(780	)		—
Accretion of preferred stock				—			443			1,241
Conversion of preferred stock to common stock				—			9,374			—
Reversal of preferred stock accretion upon conversion				—			3,548			—
Supplemental disclosure of cash flow information
Cash paid for interest			$	245		$	319		$	436
Cash paid for taxes			$	37		$	30		$	2

The accompanying notes are an integral part of these financial statements.

PHARSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS

1. Description of Business

Pharsight Corporation develops and markets integrated products and services that help pharmaceutical and biotechnology companies improve the drug development process. Pharsight's solution combines proprietary computer-based simulation, statistical and data analysis tools with the sciences of pharmacology, drug and disease modeling, human genetics and biostatistics. Pharsight Corporation was incorporated in California on April 4, 1995 and reincorporated in Delaware in June 2000.

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 and Europe through a direct field sales organization.

As of March 31, 2002, Pharsight had working capital of $6.8 million and had stockholders' equity of $6.7 million. During 2001, Pharsight used cash and cash equivalents in operating activities of $10.4 million. The net decrease in cash for operating, investing and financing activities in 2002 was approximately $4.8 million. Management believes that its restructuring activities have reduced its ongoing operating expenses and that it will have sufficient working capital to support Pharsight's planned activities through fiscal year 2003. Pharsight is committed to the successful execution of its operating plan and will take further action as necessary to align operations and reduce expenses.

2. Summary of Significant Accounting Policies

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.

Certain amounts have been reclassified to conform to the current period classification. The reclassification had no impact on Pharsight's historical operating result of financial position.

Revenue Recognition

Pharsight's revenues are derived from two primary sources: initial and renewal fees for product licenses and scientific and training consulting services. Additionally, Pharsight had a small amount of revenue from subscriptions related to Pharsight's information products in fiscal 2002.

Pharsight's revenue recognition policy is in accordance with Statement of Position No. 97-2, "Software Revenue Recognition," or SOP 97-2 as amended by Statement of Position No. 98-4, "Deferral of the Effective Date of SOP 97-2, 'Software Revenue Recognition,' " or SOP 98-4, and Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions," or 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, Pharsight defers revenue recognition until such time as all of the criteria are met. Pharsight does not currently offer, has not offered in the past, and does not expect to offer in the future, extended payment term arrangements. If Pharsight does not consider collectibility to be probable, Pharsight recognizes revenue when the fee is collected. No customer has the right of return.

Contracts from which Pharsight receives solely license and renewal fees consist of one-year software licenses (initial and renewal fees) bundled with post contract support services, or PCS. Pharsight does not have vendor specific objective evidence to allocate the fee to the separate elements, as Pharsight does

not sell PCS separately. Pharsight recognizes each of the initial and renewal license fees ratably over the one year period of the license during which the PCS is expected to be provided as required by paragraph 12 of SOP 97-2.

Pharsight does not present PCS revenue separately as Pharsight does not have vendor specific objective evidence of PCS, and Pharsight does not believe other allocation methodologies, namely allocation based on relative costs, provide a meaningful and supportable allocation between license and PCS revenues.

Pharsight has one international distributor. There is no right of return or price protection for sales to the international distributor. Pharsight recognizes revenue ratably over the one-year initial license or renewal period. Revenue from this distributor in 2002, 2001, and 2000 was less than 1% of total revenues.

For arrangements consisting solely of services Pharsight recognizes revenue as services are performed. Arrangements for services may be charged at daily rates for different levels of consultants and out of pocket expenses or may be for a fixed fee. For fixed fee contracts with payments based on milestones or acceptance criteria, Pharsight recognizes revenue as such milestones are achieved or upon acceptance, which approximates the level of services provided. For fixed fee arrangements at the end of each accounting period (i) Pharsight analyzes the appropriateness of the daily rates charged based upon total fees to be charged and total hours to be incurred, and (ii) Pharsight determines if losses should be recognized.

Pharsight also enters into arrangements consisting of licenses, renewal fees and scientific consulting services. The scientific consulting services meet the criteria of paragraph 65 of SOP 97-2 for separate accounting. As the only undelivered elements are services and PCS, and the PCS term (expressed or implied) and the period over which Pharsight expects the services to be performed are the same period, Pharsight recognizes revenue based on the lesser of actual services performed and licenses delivered or straight line over the period of the agreement. If the PCS term and the period over which Pharsight expects the services to be performed are not the same period, Pharsight recognizes revenue based on the lesser of actual services performed and licenses delivered or straight line over the longer of the PCS term and the period over which Pharsight expects the services to be performed. Vendor specific objective evidence of fair value of scientific services for purposes of revenue recognition in these multiple element arrangements is based on daily rates for different levels of consultants and out of pocket expenses.

Pharsight's strategic services included in multiple element arrangements are not essential to the functionality of the other elements of an arrangement. To date Pharsight has not used and does not expect to use contract accounting for the entire software arrangement.

Pharsight recognizes revenue from the subscription to information products over the contract period, provided Pharsight has evidence of an arrangement, the price of the subscription is fixed or determinable and payment is reasonably assured. The subscription fees have been included in license revenues.

Research and Development

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, 2002 and 2001, 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.

Internal Use Software

Pharsight accounts for internal use software 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 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 included in property, plant and equipment and are amortized to expense over their expected useful lives.

Advertising

Pharsight expenses the cost of advertising as incurred. These costs were insignificant in all periods presented.

Shipping Costs

The Company's shipping and handling costs are included under cost of sales for 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, corporate notes and obligations issued by or fully collateralized by the U.S. government or federal agencies 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 twelve months of purchase.

Short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
March 31, 2002
Money market funds, commercial paper and treasury instruments	$	2,495	$	—	$	—		$	2,495
Corporate notes		500		—		(1	)		499

	$	2,995	$	—	$	(1	)	$	2,994

March 31, 2001
Money market funds, commercial paper and treasury instruments	$	987	$	—	$	—		$	987
Corporate notes		4,964		8		—			4,972

	$	5,951	$	8	$	—		$	5,959

Gross realized gains and losses were insignificant for all periods presented.

Restricted Cash

At March 31, 2002 and 2001, the Company had $150,000 of restricted cash for a lease deposit on the Company's facilities.

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 arise from Pharsight's acquisition of certain businesses and assets. The intangible assets are being amortized on a straight-line basis over periods ranging from two to three years and consist of (in thousands):

	March 31,
	2002			2001
Developed technology	$	387		$	387
Core technology		1,441			1,441
Assembled workforce		383			383
Goodwill		219			219
Covenants not to compete		500			500

		2,930			2,930
Accumulated amortization		(2,930	)		(2,560	)

	$	—		$	370

Pharsight assesses the realizability of its long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS No. 121, Pharsight is required to assess the valuation of its long-lived assets, including intangible assets, based on the estimated cash flows to be generated by such assets.

Deferred Revenue

Deferred revenue is primarily comprised of license fees (initial and renewal), which are recognized ratably over the one-year period of the license. In addition, deferred revenue includes deferred services and training revenue, which will be recognized as services are performed.

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 related interpretations in accounting for its employee stock option plans. Pharsight has adopted the "disclosure only" alternative described in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Pharsight accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force ("EITF") 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.

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

Basic net loss per share is computed using the weighted-average number of 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, due to the Company's net loss in each period.

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share amounts):

		Years Ended March 31,
		2002			2001			2000
Net loss		$	(18,952	)	$	(20,571	)	$	(9,987	)
Accretion of preferred stock			—			(443	)		(1,241	)

Net loss attributable to common stockholders		$	(18,952	)	$	(21,014	)	$	(11,228	)

Basic and diluted:
	Weighted average common shares outstanding		18,559			13,317			3,791
	Less weighted average common shares subject to repurchase		(140	)		(343	)		(566	)

Shares used to compute basic and diluted net loss per share applicable to common stockholders			18,419			12,974			3,225

Basic and diluted net loss per share applicable to common stockholders		$	(1.03	)	$	(1.62	)	$	(3.48	)

The number of unvested and potential common shares excluded from the calculation of diluted net loss per share applicable to common stockholders at March 31, 2002, 2001, and 2000 is detailed in the following table (in thousands):

	March 31,
	2002	2001	2000
Preferred stock	—	—	10,687
Outstanding options	4,452	3,541	1,835
Warrants	276	276	297

	4,728	3,817	12,819

These instruments were excluded because their effect would be antidilutive.

Other Comprehensive Income

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), requires Pharsight to display comprehensive income (loss) and its components as part of the financial statements. Other comprehensive income (loss) includes certain changes in equity that are excluded from net income (loss). Pharsight's only component of other comprehensive income (loss) is unrealized income (loss) on available-for-sale marketable securities for the years ended March 31, 2002 and 2001.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The new rules require business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting and goodwill acquired after this date will not be amortized. Goodwill existing at June 30, 2001, will continue to be amortized through the end of our fiscal year ended March 31, 2002, and will be tested for impairment using the current method, which uses an undiscounted cash flow test. Beginning in the first fiscal quarter ended June 30, 2002, Pharsight will adopt SFAS 141 and SFAS 142. Based on acquisitions completed as of June 30, 2001, it is not expected to have a significant impact on our results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. Pharsight will adopt FAS 144 as of April 1, 2002, and does not expect that the adoption of the Statement will have a significant impact on its financial position and results of operations.

In November 2001, the FASB issued a Staff Announcement (the "Announcement"), Topic D-103, which concluded that the reimbursement of "out-of-pocket" expenses should be classified as revenue in the statement of operations. This Announcement should be applied in financial reporting periods beginning after December 15, 2001. Upon application of this Announcement, comparative financial statements for prior periods should be reclassified to comply with the guidance in this Announcement. Pharsight previously recorded reimbursement of "out-of-pocket" expenses in cost of services. Effective January 1, 2002, Pharsight adopted this Announcement. The adoption of the Announcement had no

significant impact on its results of operations and on its comparative financial statements for prior periods.

3. Property and Equipment

Property and equipment are stated at cost and consist of the following (in thousands):

	March 31,
	2002			2001
Furniture and fixtures	$	647		$	643
Computers and equipment		5,125			3,721
Leasehold improvements		180			180

		5,952			4,544
Accumulated depreciation and amortization		(3,244	)		(1,592	)

	$	2,708		$	2,952

Property and equipment includes assets acquired under capital lease obligations with a cost of $2,491,000 at March 31, 2002 and 2001, and accumulated amortization of $1,933,000 and $1,284,000 at March 31, 2002 and 2001, respectively.

Depreciation expense was $924,000, $163,000 and $83,000 for the years ended March 31, 2002, 2001, and 2000, respectively.

Amortization expense of assets acquired under capital lease obligations was $648,000, $714,000 and $399,000 for the years ended March 31, 2002, 2001, and 2000, respectively.

4. Business and Other Acquisitions

In February 2001, Pharsight acquired the assets of Metazoa, Inc., a privately held company that develops collaborative software for the life science research community. Pharsight purchased the assets of Metazoa for cash of $250,000 and incurred acquisition expenses of $102,000. The assets acquired were as follows (in thousands):

Core technology	$	125
Assembled workforce		125
Goodwill		102

Total	$	352

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. Goodwill is determined based on the residual difference between the amount paid and the values assigned to identified intangible assets. In February 2001, Pharsight began amortizing goodwill, core technology and assembled workforce over the estimated useful life of these assets.

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, 2001, Pharsight added $98,000 to its allowance for doubtful accounts through charges to bad debt expense. For the years ended March 31, 2002 and 2001, Pharsight wrote-off $1,000 and $30,000, respectively against the allowance for doubtful accounts.

No customers comprised more than 10% of accounts receivable at March 31, 2002. Two customers comprised 17% and 14% of accounts receivable at March 31, 2001. No customers comprised over 10% of accounts receivable at March 31, 2000.

One customer accounted for 20% of revenues for the year ended March 31, 2002. Two customers accounted for 17% and 11% of revenues for the year ended March 31, 2001. One customer accounted for 26% of revenues for the year ended March 31, 2000.

6. 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 value of future rental payments under these leases.

In March 1998, Pharsight issued a note payable to a financier for $1,000,000. Principal and interest, at 7.68% per year, were due in monthly payments of $31,000 from April 1, 1998 through March 1, 2001. All assets of Pharsight were pledged as collateral. Pharsight was required to maintain compliance with certain financial and non-financial covenants associated with the note. The note also limited the payment of dividends without the noteholder's consent. The balance of the note was paid in full during the year ended March 31, 2002.

In June 2001, Pharsight extended and enhanced the previously unused credit facilities with Silicon Valley Bank. Pharsight has $7.5 million available under three different facilities. The credit facilities include $2.5 million of secured revolving credit against 80% of eligible domestic accounts receivable, $1.5 million of secured revolving credit against 90% of eligible foreign accounts receivable and $3.5 million in a term loan secured by certain assets of the Company, excluding Intellectual Property.

During the year ended March 31, 2002, Pharsight borrowed $3.5 million from its Silicon Valley Bank term loan. The secured term loan principal is payable over forty-eight months, beginning in July 2002, interest is accrued at 1.25% above prime and is payable monthly from the date of borrowing. During the year ended March 31, 2002, Pharsight also borrowed $1 million from its secured revolving credit facility. This secured revolving credit facility expires in June 2002; interest is accrued at 1.00% above prime and is payable monthly from the date of borrowing.

As of March 31, 2002, Pharsight was in violation of a debt/tangible net worth covenant under its credit facilities with Silicon Valley Bank. On May 10, 2002, a loan modification agreement was signed with Silicon Valley Bank which removed the debt/tangible net worth covenant that was in Pharsight's existing credit facilities.

Future minimum lease payments under notes payable and capital leases at March 31, 2002 are as follows (in thousands):

	Notes Payable		Capital Leases
2003	$	1,656	$	749
2004		875		313
2005		875		57
2006		875		—
2007		219		—

Total minimum payments		4,500		1,119
Less amounts representing interest		—		109
Present value of minimum lease payments		4,500		1,010
Less current portion		1,656		660

Long-term portion	$	2,844	$	350

7. Commitments and Contingencies

Operating Leases

Pharsight leases its office facilities and certain equipment under noncancelable operating leases expiring through 2006. Minimum annual rental commitments, excluding sublease income and facilities under restructuring, at March 31, 2002, are as follows (in thousands):

2003	$	1,636
2004		796
2005		174
2006		119

Total minimum payments	$	2,725

Net sublease income for the year ended March 31, 2002 and 2001, was approximately $939,000 and $602,000, respectively. These amounts have been reflected as a reduction of operating expenses. Pharsight expects to receive net sublease payments of approximately $148,000 in fiscal 2003.

Rent expense, net of sublease income, was $1,344,000, $1,383,000 and $955,000 for the years ended March 31, 2002, 2001, and 2000, respectively.

From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. In the opinion of management, final judgements from such pending claims, charges, and litigation, if any, against the Company, would not have a material adverse effect on its financial position, result of operations, or cash flows.

8. Restructuring Charge

During the year ended March 31, 2002, the Company implemented a restructuring program to better align operating expenses with anticipated revenues. The restructuring actions reduced resources in non-core areas such as our Information Products. The Company recorded a $676,000 restructuring charge, which consists of $402,000 in facility exit costs, including $81,000 in equipment impairment, $253,000 in personnel severance costs and $21,000 in other exit costs. The restructuring program resulted in the reduction in force across all company functions of approximately 14%, or 20 employees. As of December 30, 2001, all 20 employees had been terminated as a result of the program. The restructuring actions did not impact the resources assigned to develop and support current and future

Pharsight Knowledgebase Server™, WinNonlin®, WinNonMix® and Trial Simulator™ product families. At March 31, 2002, the Company had $249,000 of accrued restructuring costs related to monthly lease expenses for two facilities that were exited during the year ended March 31, 2002, and other exit costs. The restructuring accrual is included within Accrued Expenses in the balance sheets.

The following table depicts the restructuring activity during the year ended March 31, 2002 (in thousands):

			Expenditures
Category			Expenditures						Balance at March 31, 2002
Category	Additions		Cash			Non-Cash			Balance at March 31, 2002
Vacated facilities and operating assets	$	402	$	(78	)	$	(81	)	$	243
Employee severance		253		(253	)		—			—
Other costs		21		(15	)					6

Total	$	676	$	(346	)	$	(81	)	$	249

9. Stockholders' Equity

Redeemable Convertible Preferred Stock

Prior to the Company's initial public offering in August 2000, the Company had Series C and D redeemable convertible preferred stock outstanding. Each share of Series C and Series D redeemable convertible preferred stock (Series C stock and Series D stock, respectively) was convertible, at the holder's option, into one share of common stock subject to certain antidilution adjustments. At conversion, the holders were entitled to any and all declared and unpaid dividends. Each share of preferred stock automatically converted to common stock upon the closing of Pharsight's initial public offering in August 2000. In addition, each share of Series C preferred stock received in cash the original issue price of $2.37 upon conversion.

The Series C stock was redeemable 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 was redeemable at any time after October 2003 (five years from issuance) upon the affirmative vote of at least 66²/3% of the Series D stockholders. The Series C stock was redeemable 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 was redeemable 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 recorded accretion of the excess redemption value ratably against earnings over the term of the redemption feature. The accretion resulted in a $174,000 and $489,000 increase to the carrying value of the Series C stock for the years ended March 31, 2001and 2000, respectively. The accretion resulted in a $269,000 and $752,000 increase in the carrying value of the Series D stock for the years ended March 31, 2001, and 2000, respectively.

Convertible Preferred Stock

Each share of Series A, B and E convertible preferred stock (Series A stock, B stock and E stock, respectively) was convertible, at the stockholder's option, into one share of common stock, subject to certain adjustments. Each series of preferred stock automatically converted to common stock upon the closing of Pharsight's initial public offering in August 2000.

Preferred Stock

Pharsight is authorized to issue up to 5,000,000 shares of preferred stock. The Board of Directors may determine the rights and preferences of the preferred stock.

Common Stock

Pharsight is authorized to issue up to 120,000,000 shares of common stock. At March 31, 2002, common stock was reserved for future issuance as follows (in thousands):

Warrants outstanding		276
Stock option plans		7,895
Employee stock purchase plan		1,126

		9,297

Pharsight has sold common stock 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.

For the year ended March 31, 2000, Pharsight sold 2,981,000 restricted shares. For the year ended March 31, 1999, Pharsight sold 2,169,000 restricted shares. At March 31, 2002 and 2001, 76,000 and 228,000 shares were subject to repurchase.

Pharsight loaned an officer $12,000 in July 1996 and $10,000 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 of these is due in July 2001 and June 2003, respectively, and may be prepaid without penalty. The promissory notes become due and payable 30 days after the officer's employment is terminated for any reason. In addition, Pharsight loaned the officer $23,000 in July 1999 to purchase additional shares of common stock. The interest on this loan is 6% per year, with the principal and accrued interest due in May 2003. The officer is on leave from Pharsight beginning in October 2001, and the loans were written off.

In January 1998 Pharsight loaned an officer $75,000 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.

10. Warrants

In connection with various convertible promissory notes and loan agreements entered into throughout fiscal 1999, Pharsight issued warrants to purchase 272,000 shares of common stock at exercise prices ranging from $0.25—$3.27 per share. The fair value assigned to these warrants was immaterial. As of March 31, 2002, all of these warrants remained outstanding. The warrants expire on August 9, 2005.

In connection with certain equipment leases, Pharsight issued a warrant to purchase 4,000 shares of common stock at an exercise price of $7.20 per share in fiscal 2001. The fair value assigned to these warrants was immaterial. At March 31, 2002, warrants for 4,000 shares remained outstanding. The warrants expire on August 2005.

11. Stock-Based Benefit Plans

Stock Option Plans

In April 2000, the Board of Directors adopted and in May 2000, the stockholders approved, the 2000 Equity Incentive Plan ("Incentive Plan"). The Incentive Plan became effective upon Pharsight's initial public offering in August 2000. The Incentive Plan provides for the granting of stock awards, including incentive stock options, nonstatutory stock options, stock bonuses and rights to acquire restricted stock, to Pharsight's employees and consultants. In addition, the Incentive Plan provides for non-discretionary grants of nonstatutory stock options to Pharsight's non-employee directors.

Under the Incentive 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 not be less than the fair market value on the date of grant, while nonstatutory options and restricted stock awards have exercise prices of not less than 85% of fair market value on the date of grant. Stock bonuses may be granted with a zero exercise price in consideration of past services rendered. In general, stock options vest over a four-year period, 25% on the first anniversary of the grant and ratably on a monthly basis thereafter.

Non-employee directors are eligible to receive nonstatutory stock options with an exercise price equal to fair market value on the date of grant under the Incentive Plan. Each eligible director received an option to purchase 5,000 shares of common stock on the date of Pharsight's initial public offering. In addition, each newly elected director will be granted an option to purchase 5,000 shares of common stock on the date of his election (2,500 shares if he is elected more than six months after the previous Annual Meeting of Stockholders). Each eligible director is also granted an additional option to purchase 5,000 shares of common stock on the day after each Annual Meeting of Stockholders, beginning in 2001. Options granted to non-employee directors generally vest on the date of the Annual Meeting immediately following the grant and have a maximum term of 10 years.

Pharsight initially reserved 4,000,000 shares for grant under the Incentive Plan. On each January 1, the number of shares reserved will increase automatically by the least of 5% of the total number of common shares outstanding on that date, 2,000,000 shares or such fewer number of shares as determined by the Board of Directors. On January 1, 2001, an additional 914,000 shares were reserved for issuance under the Incentive Plan. On January 1, 2002, an additional 932,000 shares were reserved for issuance under the Incentive Plan.

In April 2001, the Board of Directors approved the UK Company Share Option Plan ("UK Plan"). The UK Plan became effective upon approval of its terms by the Inland Revenue of the United Kingdom ("Inland Revenue"). The UK Plan provides for the granting of stock options to Eligible Employees (as defined in the UK Plan). Pharsight has reserved 200,000 shares for grant under the UK Plan.

Under the UK Plan, the Board of Directors determines the term of each award and the award price (subject to the approval of Inland Revenue). The exercise price of all options may not be less than the Market Value (as defined in the UK Plan) on the date of the grant. In general, stock options vest over a four-year period, 25% on the first anniversary of the grant and ratably on a monthly basis.

Under the UK Plan, any option granted to an Eligible Employee shall be limited and take effect so that, immediately following such grant, the aggregate Market Value of all the shares which he may acquire on the exercise in full of all unexercised options then held by him under the UK Plan and any share option plan (other than a savings-related share option plan) approved by the Inland Revenue under Schedule 9 and adopted by the Company or any Associated Company (as defined in the Plan) of the Company, shall not exceed 30,000 English Pounds.

Pharsight has two predecessor plans to the Incentive Plan, the 1997 Stock Option Plan ("1997 Plan") and the 1995 Stock Option Plan ("1995 Plan"). The 1997 Plan and the 1995 Plan were

terminated upon the effective date of the Incentive Plan. Options outstanding under the 1997 Plan and 1995 Plan remain outstanding and may be exercised until they expire or are otherwise cancelled. No new options may be granted under these Plans. Options outstanding under the 1997 Plan and 1995 Plan have terms and vesting periods substantially the same as options outstanding under the Incentive Plan.

In May 2000, the Board of Directors adopted the 2000 CEO Non-Qualified Stock Option Plan ("CEO Plan"). The sole person eligible to receive an option under the CEO Plan was Pharsight's former Chief Executive Officer, who received an option to purchase all 443,000 shares reserved for issuance under the CEO Plan. The exercise price of the options was $6.83, which was 105% of the fair market value on the date of grant. The options vest in equal monthly installments over 34 months. In certain change in control circumstances, a surviving or acquiring corporation may either assume all outstanding options under the CEO Plan or substitute other awards for the outstanding options. If the surviving or acquiring corporation does not assume or substitute other awards for the options outstanding under the CEO Plan, then the vesting will accelerate and the options will terminate prior to the change in control if they are not otherwise exercised.

Pharsight applies APB Opinion No. 25 and related interpretations in accounting for its employee stock options. Under APB Opinion No. 25, when 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 three years, in the period ended March 31, 2002, is as follows (in thousands, except per share amounts):

	Number of Options Outstanding		Weighted Average Exercise Price per Share
Balance at March 31, 1999	1,125		$	0.24
Options granted	1,315			1.44
Options exercised	(437	)		0.34
Options canceled	(168	)		0.44

Balance at March 31, 2000	1,835			1.06
Options granted	2,470			5.70
Options exercised	(521	)		0.96
Options canceled	(243	)		3.87

Balance at March 31, 2001	3,541			4.09
Options granted	2,121			1.89
Options exercised	(298	)		0.57
Options canceled	(912	)		3.79

Balance at March 31, 2002	4,452		$	3.34

At March 31, 2002, 2001, and 2000, 3,443,000, 4,061,000, and 299,000 shares were available for future option grants, respectively.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2002 (in thousands, except per share amounts):

	Options Outstanding				Options Exercisable
Range of Exercise Prices per Share	Number Outstanding	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price per Share		Number Exercisable	Weighted Average Exercise Price per Share
$0.10 - $ 0.35	417	6.07	$	0.27	313	$	0.27
$0.70 - $ 3.19	2,389	9.48	$	1.95	272	$	2.04
$3.50 - $ 4.44	380	8.68	$	3.90	179	$	4.01
$ 6.50	687	8.06	$	6.50	431	$	6.50
$6.83 - $10.00	579	8.20	$	7.15	200	$	7.39

$0.10 - $10.00	4,452	8.71	$	3.34	1,395	$	4.04

At March 31, 2001 and 2000, options to purchase 1,141,000 and 1,806,000 shares were exercisable, respectively.

Employee Stock Purchase Plan

In April 2000, the Board of Directors adopted and in May 2000, the stockholders approved, the 2000 Employee Stock Purchase Plan ("Purchase Plan"). The Purchase Plan became effective upon Pharsight's initial public offering in August 2000.

Pharsight has reserved 600,000 shares for issuance under the Purchase Plan. Each January 1, the number of shares reserved will be increased automatically by the least of 1.5% of the number of shares of common stock outstanding on that date, 600,000 shares or a fewer number as determined by the Board of Directors. On January 1, 2002 and 2001, the number of shares reserved under the Purchase Plan increased by 280,000 and 274,000 shares, respectively. Eligible employees may purchase common stock through payroll deductions by electing to have up to 20% of their compensation withheld. Each participant is granted an option to purchase common stock on the first day of each six month offering period and this option is automatically exercised on the last day of the offering period. The purchase price for the common stock under the Purchase Plan is 85% of the lesser of the fair market value of the common stock on the first day and the last day of the offering period. Offering periods begin on February 1 and August 1 of each year. Shares of common stock issued under the Purchase Plan totaled 79,000 in 2001 and 2002. As of March 31, 2002, 996,000 shares remain available for future issuance.

In April 2001, the Board of Directors adopted the 2001 UK Employee Stock Purchase Plan ("UK Purchase Plan"). The UK Purchase Plan became effective immediately. Pharsight has reserved 130,000 shares for issuance under the UK Purchase Plan. Each January 1, the number of shares reserved will be increased automatically by the least of 1.5% of the number of shares of common stock outstanding on that date, 130,000 shares or a fewer number as determined by the Board of Directors. On January 1, 2002, the number of shares reserved under the UK Purchase Plan did not increase. Eligible employees may purchase common stock through payroll deductions by electing to have up to 20% of their compensation withheld. Each participant is granted an option to purchase common stock on the first day of each six-month offering period and this option is automatically exercised on the last day of the offering period. The purchase price for the common stock under the UK Purchase Plan is 85% of the lesser of the fair market value of the common stock on the first day and the last day of the offering period. Offering periods begin on February 1 and August 1 of each year. There were no shares of common stock issued under the UK Purchase Plan in 2002. As of March 31, 2002, 130,000 shares remain available for future issuance.

Pro Forma Information

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 a straight-line method.

	ESPP Years Ended March 31,						Options Years Ended March 31,						Restricted Stock Grants Years Ended March 31,
	2002		2001		2000		2002		2001		2000		2002		2001		2000
Expected life (years)		.50		.50		—		3.9		3.00		4.00		—		—		4.00
Expected stock price volatility		127.0%		80.0%		—		127.0%		80.0%		50.0%		—		—		50.0%
Risk-free interest rate		2.80%		5.60%		—		3.94%		4.25%		6.25%		—		—		6.25%
Dividend yield		0.00%		0.00%		—		0.00%		0.00%		0.00%		—		—		0.00%
Weighted average fair value	$	1.42	$	2.21	$	—	$	1.53	$	3.47	$	0.74	$	—	$	—	$	0.19

If Pharsight had elected to recognize compensation cost based on the fair value of the above awards granted at the grant date as prescribed by FAS 123, net loss and net loss per share would have increased to the pro forma amounts indicated in the table below (in thousands except per share amounts):

		Years Ended March 31,
		2002			2001			2000
Net loss applicable to common stockholders:
	As reported	$	(18,952	)	$	(21,014	)	$	(11,228	)
	Pro forma		(21,205	)		(23,082	)		(11,402	)
Basic and diluted net loss per share:
	As reported	$	(1.03	)	$	(1.62	)	$	(3.48	)
	Pro forma		(1.15	)		(1.85	)		(3.54	)

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.

Deferred Compensation

During the years ended March 31, 2001 and 2000, Pharsight recorded aggregate deferred compensation of $10,070,000 and $5,400,000, respectively, representing the difference between the exercise price of stock options granted and the then deemed fair value of the Pharsight's common stock. The amortization of deferred compensation is charged to operations over the vesting period of the options using the graded method for employee options, and the straight-line method for non-employee options. During the year ended March 31, 2002, Pharsight recorded deferred stock compensation of $114,000 representing the intrinsic value of a certain stock award issued to an officer as a bonus. The amortization of this deferred stock compensation is charged to operations over the vesting period of the stock award using the straight-line method. Pharsight amortized $2,993,000, $7,552,000 and $2,180,000 of deferred compensation for the years ended March 31, 2002, 2001, and 2000.

The amount of deferred stock compensation to be amortized in future periods, ending March 31, is as follows (in thousands):

2003	$	1,402
2004	$	379
2005	$	32

Options Issued to Consultants and Scientific Advisory Board Members

During the year ended March 31, 2002, Pharsight granted options to purchase 30,000 shares of common stock to consultants at an exercise price of $0.99 in exchange for services. The option was fully vested at the date of grant and is exercisable for two years. Pharsight valued these options at $20,000, being their fair value estimated using the Black-Scholes valuation model with the following assumptions: a risk-free interest rate of 6.00%, a volatility factor of 138.0% and lives of 2 years. Pharsight recorded the fair value of these options as a charge to operations for the year ended March 31, 2002.

During fiscal 2001, Pharsight granted additional options to purchase 23,000 shares of common stock to consultants and members of the Scientific Advisory Board at exercise prices ranging from $3.00 to $3.88. 3,000 and 20,000 of these options had vested as of March 31, 2002 and 2001, respectively. Pharsight valued these options at $50,000, being their fair value estimate using the Black-Scholes valuation model assuming fair values of common stock ranging from $3.00 to $4.00 per share, a risk-free interest rate of 6.00%, a volatility factor of 80.0% and lives ranging from 5 to 7 years. Pharsight recorded the fair value of these options as a charge to operations for the year ended March 31, 2001. The fair value assigned to these warrants in fiscal 2002 was immaterial.

As of March 31, 2000, Pharsight had granted options to purchase 32,000 shares of common stock to consultants and members of the Scientific Advisory Board at exercise prices ranging from $0.35 to $4.35 per share. The options were granted in exchange for consulting and advisory services to be rendered and vest over four to five years. Pharsight valued these options at $275,000, being their fair value estimated using the Black-Scholes valuation model assuming fair values of common stock ranging from $2.94 to $10.40 per share, a risk-free interest rate of 6.25%, a volatility factor of 50% and a life of 10 years. The value of these options is being amortized over the vesting period. The fair value assigned to these warrants in fiscal 2002 was immaterial.

Accelerated Vesting of Stock Options

During fiscal year 2002 the company accelerated the vesting of certain stock options and recorded a compensation charge of $35,000 relating to the re-measurement of these options as of the date of the modification.

12. Income Taxes

There was no provision for income taxes in any year presented due to the fact that Pharsight incurred net losses.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):

			March 31,
			2002			2001
Deferred tax assets:
	Net operating loss carryforwards		$	18,100		$	11,600
	Research and development tax credits			900			800
	Capitalized research and development			900			700
	Amortization of intangible assets			100			200
	Other			600			0

	Total deferred tax assets			20,600			13,300

	Valuation allowance			(20,600	)		(13,300	)

		Net deferred tax assets	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance for deferred tax assets increased by approximately, $7,300,000, $4,800,000 and $3,300,000 in the year ended March 31, 2002, 2001, and 2000, respectively.

As of March 31, 2002, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $50,000,000 and $20,000,000 respectively, which begin to expire in the years 2003 through 2022.

The Company had federal and state research and development tax credits of approximately $700,000 and $200,000 respectively. The federal research and development credits begin to expire in 2011 through 2022 and the state credits carryforward indefinitely.

Utilization of the Company's net operating loss and credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and credits before utilization.

13. Segment Information

Pharsight's revenue base is derived from the sale of software licenses and consulting services to pharmaceutical companies on a worldwide basis. Pharsight operates solely in one operating segment, the sale of licenses and consulting services to pharmaceutical companies. Additionally, the chief operating decision maker evaluates resource allocation not on a product or geographic basis, but rather on an enterprise wide basis. Therefore, Pharsight has concluded that it contains only one reportable segment.

Revenues from sales to customers by major geographic area for the years ended March 31 were (in thousands):

	Years Ended March 31,
	2002		2001		2000
United States	$	9,092	$	8,183	$	5,581
Europe		4,574		3,219		2,835
Other		583		546		443

	$	14,249	$	11,948	$	8,859

No foreign country accounted for 10% or more of the Pharsight's total revenues in the years ended March 31, 2002, 2001, and 2000. All of the Pharsight's significant long-lived assets are located within the United States.

14. 401(k) Plan

Pharsight has a 401(k) plan, which covers all employees. Pharsight's contributions to the plan are discretionary. Through March 31, 2002, Pharsight has made no contributions to the plan.

15. Subsequent Events

In June 2002, Pharsight extended its secured revolving credit facility agreement with Silicon Valley Bank for an additional year. Pharsight continues to have $4.0 million available under two accounts receivable facilities. These include $2.5 million of secured revolving credit against 80% of eligible domestic accounts receivable and $1.5 million of secured revolving credit against 90% of eligible foreign accounts receivable. Pharsight continues to have $1.0 million of the accounts receivable facility utilized.

In June 2002, Pharsight closed the sale of 761,920 shares of Preferred Stock and 761,920 warrants to purchase shares of Pharsight's Common Stock for approximately $3,149,000. The Preferred Stock is redeemable at any time after five years from issuance upon the affirmative vote of at least 75% of the Preferred Stock stockholders. The Preferred Stock is redeemable at a price of $4.008 per share plus any unpaid dividends with respect to such share. Each Preferred Stock is convertible into 4 shares of Pharsight's Common Stock at the election of the investor or upon the occurrence of certain other events. The Preferred Stock is entitled to receive a quarterly dividend of 2% payable in cash or stock. These quarterly dividends will commence in September 2002. The warrants are exercisable for a period of five years from issuance with an exercise price of $1.15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning our directors and executive officers will be contained under the caption "Proposal 1—Election of Directors" in our definitive Proxy Statement (our "Proxy Statement") with respect to our Annual Meeting of Stockholders, to be held on September 6, 2002, and is incorporated by reference into this report. Information concerning our Executive Officers is set forth below; under "Executive Officers of the Registrant." Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" contained in our Proxy Statement.

Executive Officers of the Registrant

Executive Officers and Key Employees

The following table provides information concerning our executive officers as of May 31, 2002:

Name	Age	Position
Arthur H. Reidel	51	Chairman of the Board
Michael S. Perry, D.V.M, Ph.D.	43	President and Chief Executive Officer
Leslie E. Wright	48	Interim, Chief Financial Officer
J. Robert Powell, Pharm.D.	54	Senior Vice President, Strategic Services
Daniel L. Weiner, Ph.D.	52	Senior Vice President, Technology Deployment
Charles Faas	42	Vice President, Finance, and Chief Accounting Officer
Mark R. Robillard	45	Vice President, Sales
James Negrette.	44	Vice President, Product Development
John E. Wehrli, J.D	38	Vice President, General Counsel, and Secretary
Michael J. Schwartz	40	Vice President, Marketing

Arthur H. Reidel is a founder of the Company. From 1995 to February 2002, he served as President and Chief Executive Officer. He has been Chairman of the Board since 1995. From December 1992 until September 1994, he was President and Chief Executive Officer of Sunrise Test Systems, a leading developer of electronic design automation software. From 1991 through 1992, he held executive positions with Weitek Corporation, including Vice President and General Manager of its User Interface Products Division. From 1984 through 1991, Mr. Reidel was a General Partner of ABS Ventures Limited Partnerships, a series of venture capital funds affiliated with Alex Brown and Sons. In this capacity, he invested in and was a Director of numerous technology-based companies. From 1973 to 1984, Mr. Reidel held management and executive positions, including Vice President of Engineering and Operations at Interactive Training Systems and Vice President of Technology at Schlumberger Computer-Aided Systems. Mr. Reidel is a graduate of MIT.

Michael S. Perry, D.V.M., Ph.D. joined Pharsight as President and Chief Executive Officer in February 2002. Prior to joining Pharsight, Dr. Perry was Worldwide Head, Research and Development, for Baxter Healthcare's Global BioPharmaceuticals Business, a pharmaceutical company, which he joined in October 2000. From August 1998 to October 2000, he was President and Chief Executive Officer of Genetic Therapy, Inc., and from June 1997 to October 2000, he was President and Chief Executive Officer of Systemix, Inc., both wholly owned subsidiaries of Novartis and biotechnology companies focusing on the areas of cell and gene therapy. Previously, he held a variety of positions in the pharmaceutical industry including Vice President, Drug Registration and Regulatory Affairs, for

Sandoz and for Novartis, following Sandoz's merger with Ciba-Geigy; and Vice President, Human Pharmaceutical Regulatory Affairs, for Syntex Corporation. He has also held scientific and regulatory positions at Schering-Plough Corporation, Bio-Research Laboratories, and Warner-Lambert / Parke Davis Research Institute. Dr. Perry is currently on the Board of Directors of Biotransplant, Inc., where he has served since 1999. He is also on the Board of Directors of Pharsight Corporation, where he has served since April 2002.

Leslie E. Wright has been Pharsight's Interim Chief Financial Officer since October 2001. From April 2000 to October 2001, Mr. Wright was interim Chief Financial Officer at Calico, a provider of interactive configuration and selling software, where he assisted in their filing of Chapter 11 and their subsequent sale to Peoplesoft. From July 1999 to March 2000, Mr. Wright was Chief Executive Officer of Perpetual Inc., a private company. From August 1997 to July 1999, Mr. Wright was Vice President, Finance, and Chief Financial Officer for Infoseek Corporation, an internet portal company. From 1994 to July 1997, he worked with Fractal Design Corporation, a graphics software company, where from May 1995 to July 1997 he served as Chief Operating and Financial Officer. From 1984 to 1994, Mr. Wright was employed with The ASK Group, Inc., a software company, where from 1986 through 1994, he served as Executive Vice President and Chief Financial Officer. Mr. Wright holds a B.S. degree in Business from San Jose State University. He is a Certified Public Accountant in the State of California.

J. Robert Powell, Pharm.D., has served as Senior Vice President, Drug Development Consulting Services, since joining Pharsight in March 2001, after several years as a development executive and Pharsight customer at Parke-Davis (Pfizer) and at Glaxo Wellcome, both large pharmaceutical companies. Most recently Dr. Powell was Vice President, Pharmacokinetics/ Dynamics and Metabolism, at Pfizer's Parke-Davis Research Division, from 1996 to 2001, where he led a department of more than 160 scientists working on a range of projects from discovery to phase IV development. Previously, he held a variety of management positions in clinical pharmacology and pharmacokinetics at Glaxo and Glaxo Wellcome. An author of more than 100 scientific publications, Dr. Powell is also a clinical professor at the University of Michigan School of Pharmacy and at the University of North Carolina at Chapel Hill. He is member of American College of Clinical Pharmacy and the American Association of Pharmaceutical Scientists. He holds degrees in pharmacy from West Virginia University and the Philadelphia College of Pharmacy and Science.

Daniel L. Weiner, Ph.D., joined Pharsight as Vice President and General Manager, Scientific Products, in January 1998, and became Senior Vice President, Technology Deployment, in March 2000. From 1994 to 1998, 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; with Statistical Consulting, Inc., a contract research organization; and with Merrell Dow Pharmaceuticals, a pharmaceutical company. Dr. Weiner received a B.S. and his Ph.D. in Statistics from the University of Kentucky.

Charles Faas joined Pharsight as Vice President of Finance in July 2000 and was named Chief Accounting Officer and Treasurer in October 2001. From December 1999 to July 2000, Mr. Faas was Corporate Controller for ZLand.com, an internet business applications company. From July 1995 to December 1999, Mr. Faas was Controller for Cadence Design Systems' Methodology Services group, an electronic design automation company. From 1982 to 1995, Mr. Faas was with IBM in both financial and accounting management roles. He holds a B.B.A. from Siena College.

Mark R. Robillard has served as Vice President, Global Sales, since October 2001. From March 2000 to October 2001, Mr. Robillard was Vice President Business Development for SciQuest,

Inc. From September 1999 to March 2001, he held several positions, and most recently was Senior Vice President, Sales and Business Development, for EMAX Solutions, a company that provides chemical and compound management and tracking systems for research and development organizations. In this role, he was responsible for driving EMAX's e-commerce solution strategy, business development activities and global sales organization. Prior to joining EMAX, Mr. Robillard spent 20 years at VWR Scientific Products, a $1.4 billion leading distributor of laboratory equipment, chemicals, and supplies to the life sciences market. In his most recent position as Vice President, Electronic Commerce, Mr. Robillard launched VWR's first Internet sales channel, a business-to-business online ordering facility for VWR's customers. He is credited with expanding monthly site traffic to over 100,000 users while increasing Web revenues 500% each quarter for the last two years. During the time period, overall sales through all electronic channels doubled, accounting for 22% of VWR's revenues. Before his appointment in 1996 as Vice President, Electronic Commerce, Mr. Robillard served in a number of key positions in sales and customer supply chain management, including area Vice President and District Manager. He is a well-known speaker at industry events and has served on the board of OBI—the Open Buying on the Internet Consortium.

James Negrette has served as Vice President, Software Development, since October 2001. He joined Pharsight with extensive experience in engineering management and development of a range of leading edge technology products and solutions. Prior to joining Pharsight, he was Senior Engineering Director at Electronics for Imaging, from April 1997 to October 2001, a designer and marketer of high performance printer servers. Prior to that were two years as Senior Engineering Manager for Graphics at Apple Computer, a builder of desktop personal computers. His Apple experience was preceded by five years as Engineering manager at Acuson, a builder of high-end medical ultrasound equipment. Mr. Negrette holds a bachelors degree in computer science from Brigham Young University.

John Wehrli, J.D., M.B.A. joined Pharsight as Vice President, General Counsel, and Secretary in February 2001. Prior to joining Pharsight, Mr. Wehrli was employed by the law firm of Cooley Godward, L.L.P., from May 1996 to February 1999 and from April 2000 to February 2001, where he exclusively represented biotechnology and pharmaceutical companies. From February 2000 to April 2000, Mr. Wehrli was consultant to, and from February 1999 to February 2000, Mr. Wehrli was Corporate Secretary and Senior Director, Legal Affairs, for Trega Biosciences. Mr. Wehrli co-founded and, from October 1996 to February 1999, served as Vice President, Business Development and Intellectual Property, for NaviCyte, Inc., a company that markets pre-clinical simulation products. He co-invented NaviCyte's ADME simulation product (iDEA), which is now sold by Lion Bioscience. Previously, he served as Vice President and Chief Financial Officer for Precision Instrument Design, Inc., from 1989 to 1995, and as Patent and Licensing Associate for Lawrence Berkeley National Laboratory from 1995 to 1996. From 1985 to 1994, Mr. Wehrli served in a number of research positions in chemistry and management positions in scientific computing at Syntex Research, Inc. Mr. Wehrli received his J.D. from the University of California, Hastings College of Law; his M.B.A. from Haas School of Business at the University of California, Berkeley, and also completed graduate work in computational biology at the University of California, Berkeley, with a research focus on pharmacokinetic and physiological modeling.

Michael J. Schwartz has served as Vice President, Marketing since November 2001, and is responsible for corporate strategy, product development marketing, products and services marketing, corporate marketing, and business development. He joined Pharsight in November 2000 as Vice President, Solutions Strategy, in the Marketing Group. For the six years before he joined Pharsight, Mr. Schwartz was a management consultant at CSC Healthcare Group (previously APM, Inc.) from May 1995 to November 2000, a computer and professional services company, where he was most recently vice president and partner. In that role, he led strategy engagements for pharmaceutical companies, providers, health plans, schools of medicine, and investment firms. Prior to that, Mr. Schwartz was a management consultant at Bain & Company, a management consulting firm, from

June 1994 to December 1994. Prior to his consulting career, Mr. Schwartz was co-founder of Galileo Laboratories, a biopharmaceutical company. Mr. Schwartz also served on the staffs of the Office of Science and Technology Policy in Washington, DC, and at the Organization for Economic Cooperation and Development in Paris, France. He was also an associate at ARCH Development Corporation, a venture capital firm. He holds an M.B.A. in Finance and Marketing from the University of Chicago, an M.S. in Biochemistry from UCLA, and a B.A. Magna Cum Laude from Cornell University.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be contained in our Proxy Statement under the caption "Executive Compensation," and is incorporated by reference into this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be contained in our Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" and is incorporated by reference into this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be contained in our Proxy Statement under the caption "Certain Relationships and Related Transactions" and is incorporated by reference into this report.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

Reference is made to page 29 under "Item 8 Financial Statements and Supplementary Data" for a list of all financial statements and schedules filed as a part of this report.

2.: Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts

3.: Exhibits

The exhibits listed under Item 14(c) hereof are filed as part of this Annual Report on Form 10-K.

(b): Reports on Form 8-K.

No reports on Form 8-K were filed during the fourth quarter of the year ended March 31, 2002.

(c): Exhibits

The following exhibits are filed with this report:

Exhibit Number		Description Of Document
3.2		Amended and Restated Certificate of Incorporation of Pharsight.
3.3*		Bylaws of Pharsight.
3.4		Certificate of Designations of Series A and Series B Convertible Preferred Stock of Pharsight Corporation.
4.1		Reference is made to Exhibits 3.2, 3.3, and 3.4.
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.
4.3		Reference is made to Exhibits 10.31 and 10.32.
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 Pharsight 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.
10.8*		Master Loan and Security Agreement, dated as of February 26, 1999, by and between Pharsight and Transamerica Business Credit Corporation.
10.12*(2)		Promissory note, dated as of July 25, 1996 from Robin Kehoe in favor of Pharsight.
10.13*(2)		Promissory note, dated as of June 2, 1998, from Robin Kehoe in favor of Pharsight.
10.14*(2)		Promissory note, dated as of June 15, 1999 from Robin Kehoe in favor of Pharsight.
10.15*(2)		Promissory note, dated as of January 25, 1998, from Daniel Weiner in favor of Pharsight.
10.16*(2)		Form of Indemnity Agreement to be entered into between Pharsight and each of its officers and directors.
10.17*(2)		Pharsight's 1997 Stock Option Plan.
10.18*(2)		Pharsight's 1995 Stock Option Plan.
10.19*(2)		Pharsight's 2000 Equity Incentive Plan and related documents.
10.20*(2)		Pharsight's 2000 Employee Stock Purchase Plan and related documents.
10.21*(2)		2000 CEO Non-Qualified Stock Option Plan.

10.22(2)(4)		Employment Letter, dated September 26, 2001, between the Company and Mark Robillard
10.23(2)(5)		Severance Agreement, Dated November 16, 2001, between the Company and Michael Emley
10.24(2)(5)		Employment Letter, Dated December 14, 2001, between the Company and Robin Kehoe
10.25(2)(5)		Services Agreement, Dated October 4, 2001, between the Company and David Powell, Inc.
10.26(3)		Loan and Security Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.1(3)		Negative Pledge Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.2(3)		Notice of Pledge and Security, dated June 28, 2001, by and among Pharsight, Morgan Stanley & Co. Incorporated and Silicon Valley Bank.
10.27(3)		Export-Import Bank Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.27.1(3)		Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.28		Employment Letter, Dated February 5, 2002, between the Company and Michael Perry
10.29		Loan Modification Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.29.1		Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.30		Loan Modification Agreement, dated as of June 13, 2002, by and between Pharsight and Silicon Valley Bank.
10.31		Preferred Stock and Warrant Purchase Agreement, dated June 25, 2002.
10.32		Form of Warrant for the Purchase of Shares of Common Stock.
10.33		Loan Modification Agreement, dated June 26, 2002 by and between Pharsight and Silicon Valley Bank.
23.1		Consent of Ernst & Young LLP, Independent Auditors
24.1		Power of Attorney (see signature page hereof).

*: Filed as the like-numbered exhibit to our Registration Statement on Form S-1 (Registration No. 333-34896), originally filed on April 17, 2000, as amended, and incorporated herein by reference.
(1): Confidential treatment has been granted for portions of this exhibit.
(2): Management contract or compensatory plan or arrangement.
(3): Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q/A (Commission No. 000-31253) for the three month period ended June 30, 2001.
(4): Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended September 30, 2001.
(5): Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended December 31, 2001.
(d): FINANCIAL STATEMENT SCHEDULES.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
PHARSIGHT CORPORATION
March 31, 2002
(amounts in thousands)

Description			Balance as of Beginning of Year		Additions Charged to Costs and Expenses		Deductions (1)		Balance as of End of Year
Year ended March 31, 2002
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	95	$	—	$	1	$	94
Year ended March 31, 2001
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	27	$	98	$	30	$	95
Year ended March 31, 2000
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	27	$	—	$	—	$	27

(1): represents amounts written-off as uncollectible

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in San Mateo, California, on the 28th day of June 2002.

		PHARSIGHT CORPORATION
		By:	/s/ MICHAEL S. PERRY, D.V.M, PH.D. Michael S. Perry, D.V.M, Ph.D. Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael S. Perry and Charles Faas, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign this Annual Report on Form 10-K filed herewith and any or all amendments to said report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents the full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this report has been signed by the following persons in the capacities and on the dates indicated below.

Signature	Title	Date

/s/ MICHAEL S. PERRY, D.V.M, PH.D. Michael S. Perry, D.V.M, Ph.D.	President, Chief Executive Officer (Principal Executive Officer) & Director	June 27, 2002
/s/ LESLIE E. WRIGHT Leslie E. Wright	Interim Chief Financial Officer	June 27, 2002
/s/ CHARLES FAAS Charles Faas	VP, Finance and Chief Accounting Officer	June 27, 2002
/s/ ARTHUR H. REIDEL Arthur H. Reidel	Chairman of the Board	June 27, 2002
/s/ STEVEN D. BROOKS Steven D. Brooks	Director	June 27, 2002
/s/ PHILIPPE O. CHAMBON, M.D., PH.D. Philippe O. Chambon, M.D., Ph.D.	Director	June 27, 2002
/s/ ROBERT B. CHESS Robert B. Chess	Director	June 27, 2002
/s/ DOUGLAS E. KELLY, M.D. Douglas E. Kelly, M.D.	Director	June 27, 2002
/s/ DEAN O. MORTON Dean O. Morton	Director	June 27, 2002
/s/ W. FERRELL SANDERS W. Ferrell Sanders	Director	June 27, 2002

INDEX TO EXHIBITS

Exhibit Number		Description Of Document
3.2		Amended and Restated Certificate of Incorporation of Pharsight.
3.3*		Bylaws of Pharsight.
3.4		Certificate of Designations of Series A and Series B Convertible Preferred Stock of Pharsight Corporation.
4.1		Reference is made to Exhibits 3.2, 3.3, and 3.4.
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.
4.3		Reference is made to Exhibits 10.31 and 10.32.
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 Pharsight 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.
10.8*		Master Loan and Security Agreement, dated as of February 26, 1999, by and between Pharsight and Transamerica Business Credit Corporation.
10.12*(2)		Promissory note, dated as of July 25, 1996 from Robin Kehoe in favor of Pharsight.
10.13*(2)		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*		Pharsight's 2000 Equity Incentive Plan and related documents.
10.20*		Pharsight's 2000 Employee Stock Purchase Plan and related documents.
10.21*		2000 CEO Non-Qualified Stock Option Plan.
10.22(2)(4)		Employment Letter, dated September 26, 2001, between the Company and Mark Robillard
10.23(2)(5)		Severance Agreement, Dated November 16, 2001, between the Company and Michael Emley
10.24(2)(5)		Employment Letter, Dated December 14, 2001, between the Company and Robin Kehoe
10.25(2)(5)		Services Agreement, Dated October 4, 2001, between the Company and David Powell, Inc.
10.26(3)		Loan and Security Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.1(3)		Negative Pledge Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.2(3)		Notice of Pledge and Security, dated June 28, 2001, by and among Pharsight, Morgan Stanley & Co. Incorporated and Silicon Valley Bank.
10.27(3)		Export-Import Bank Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.27.1(3)		Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.28		Employment Letter, Dated February 5, 2002, between the Company and Michael Perry
10.29		Loan Modification Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.29.1		Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.30		Loan Modification Agreement, dated as of June 13, 2002, by and between Pharsight and Silicon Valley Bank.
10.31		Preferred Stock and Warrant Purchase Agreement, dated June 25, 2002.
10.32		Form of Warrant for the Purchase of Shares of Common Stock.

10.33		Loan Modification Agreement, dated June 26, 2002, by and between Pharsight and Silicon Valley Bank.
23.1		Consent of Ernst & Young LLP, Independent Auditors
24.1		Power of Attorney (see signature page hereof).

*: Filed as the like-numbered exhibit to our Registration Statement on Form S-1 (Registration No. 333-34896), originally filed on April 17, 2000, as amended, and incorporated herein by reference.
(1): Confidential treatment has been granted for portions of this exhibit.
(2): Management contract or compensatory plan or arrangement.
(3): Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q/A (Commission No. 000-31253) for the three month period ended June 30, 2001.
(4): Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended September 30, 2001.
(5): Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended December 31, 2001.

QuickLinks

TABLE OF CONTENTS
PART I
FORWARD-LOOKING STATEMENTS

ITEM 1. BUSINESS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
PHARSIGHT CORPORATION BALANCE SHEETS (In thousands, except share and per share amounts)
PHARSIGHT CORPORATION STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts)
PHARSIGHT CORPORATION STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (In thousands)
PHARSIGHT CORPORATION STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Continued) (In thousands)
PHARSIGHT CORPORATION STATEMENTS OF CASH FLOWS (In thousands)
PHARSIGHT CORPORATION NOTES TO FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS PHARSIGHT CORPORATION March 31, 2002 (amounts in thousands)
SIGNATURES
POWER OF ATTORNEY
INDEX TO EXHIBITS
EX-3.2 3 a2083003zex-3_2.htm EXHIBIT 3.2

Exhibit 3.2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

PHARSIGHT CORPORATION

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 prio r to the adoption of the resolution originally fixing the number of shares of such series.

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:

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 o f 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 a pplicable 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.

< p style="margin:0in 0in .0001pt;text-indent:120.0pt;">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 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, th e 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 Chanc ery 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:

(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 termina te upon that election of a successor.

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.

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.

EX-3.4 4 a2083003zex-3_4.htm EX-3.4

Exhibit 3.4

CERTIFICATE OF DESIGNATIONS

SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK

PHARSIGHT CORPORATION

I, Michael S. Perry, Chief Executive Officer of PHARSIGHT CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), in accordance with the provisions of Section 151 of the Delaware General Corporation Law, DO HEREBY CERTIFY:

That pursuant to the authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the Certificate of Incorporation of the Corporation and by Section 151(g) of the Delaware General Corporation Law, on June 21, 2002, the Board of Directors adopted the following resolutions, creating two series of shares of convertible preferred stock, Series A and Series B, designated as “Series A Convertible Preferred Stock” and “Series B Convertible Preferred Stock”:

“RESOLVED, that pursuant to the authority vested in the Board of Directors (the “Board of Directors”) of PHARSIGHT CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), by the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), the Board of Directors does hereby provide for the authorization and issuance of two series of convertible preferred stock, Series A, par value U.S.$ 0.001 per share, of the Corporation, to be designated “Series A Convertible Preferred Stock,” initially consisting of 2,000,000 shares, and Series B, par value U.S. $0.001 per share, of the Corporation, to be designated “Series B Convertible Preferred Stock initially consisting of 1,200,000 shares, and does hereby fix and herein state and express the designations, powers, preferences, and relative participating, optional, or other special rights, and the qualifications, limitations, and restrictions thereof, as follows:

Section 1. Designation of Series A Preferred and Series B Preferred. Two Million (2,000,000) shares of Preferred Stock are designated Series A Convertible Preferred Stock (the “Series A Preferred”) and One Million Two Hundred Thousand (1,200,000) shares of Preferred Stock designated Series B Convertible Preferred Stock (the “Series B Preferred”) with the rights, preferences, privileges and restrictions specified herein. Series A Preferred and Series B Preferred are sometimes collectively referred to herein as the “Preferred Stock”.

Section 2. Dividend Rights.

a. Dividends. Holders of the Series A Preferred and Series B Preferred shall be entitled to the following dividend rights:

(i) Series A Dividends. Holders of Series A Preferred on the applicable Dividend Record Date (as defined below), in preference to the holders of any other stock of the Corporation ranking junior in right of payment of dividends, including, without limitation, Common Stock (stock of the Corporation being junior to the Series A Preferred with

respect to voting, dividends or liquidation preferences, as the case may be, being referred to herein as “Junior Stock”), shall be entitled to receive, but only out of funds that are legally available therefor, quarterly dividends, payable on the first (1^st) business day of March, June, September and December of each year commencing on September 1, 2002 (each such date being referred to herein as a “Dividend Payment Date”), at the rate of two percent (2%) of the Original Issue Price (as defined below) on each outstanding share of Series A Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), in the form of, at the election of such Holder, (i) shares of Series B Preferred (unless otherwise provided in Section 2(b) below), the value of each share of which shall be equal to the Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), or (ii) cash; provided, however, if a holder of Series A Preferred does not provide the Corporation written notice of its election as to the form of payment of the dividend at least five (5) business days prior to the Dividend Payment Date, the Corporation shall, at its option, pay such dividend in (x) shares of Series B Preferred (unless otherwise provided in Section 2(b) below) or (y) cash. The Corporation shall, in lieu of issuing any fractional shares, pay cash to such holders for such fractional shares. The “Original Issue Price” of the Series A Preferred and of the Series B Preferred shall be $4.008. The “Dividend Record Date” shall mean, with respect to any Dividend Payment Date, the date that is ten (10) business days prior to such Dividend Payment Date.

(ii) Series B Dividends. Holders of the Series B shall not be entitled to receive any quarterly dividends on outstanding shares of Series B Preferred.

b. Cash Dividends. In the event that the payment of dividends in the form of shares of Series B Preferred as provided for in Section 2(a)(i) above would cause a holder of Preferred Stock to beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934) twenty percent (20%) or more of the Corporation’s Common Stock (treating outstanding shares of Series A Preferred and Series B Preferred as if converted) outstanding as of the applicable Dividend Record Date without obtaining stockholder approval (in accordance with the requirements of The Nasdaq Stock Market for purposes of Rule 4350(i)(1)(D) thereof), then the Corporation shall not pay such dividends in the form of shares of Series B Preferred, but rather shall pay such dividends in the form of cash. If the Corporation does not have sufficient funds legally available to pay dividends in cash pursuant to this Section 2(b), such dividends shall accrue and be paid at the earliest time, and from time to time, on which the Corporation is legally able to pay such dividends.

c. Limitations on Dividends. So long as any shares of Series A Preferred are outstanding, the Corporation shall not pay or declare any dividend, whether in cash or property, or make any other distribution, on Junior Stock, or purchase, redeem or otherwise acquire for value any shares of Junior Stock unless and until all accrued or declared and unpaid dividends on the Series A Preferred shall have first been paid or declared and set apart; provided, however, that the foregoing shall not be deemed to prohibit (i) redemptions of Preferred Stock pursuant to Section 7 hereof or (ii) the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal.

d. Common Stock Dividends. In the event dividends are paid on any share of Common Stock, other than in the form of shares of Common Stock pursuant to Section 4(f), the Corporation shall pay an additional dividend on all outstanding shares of Preferred Stock in a per share amount equal (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.

e. Waiver. 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 repurchases of shares of Common Stock upon termination of employment or service as a consultant or director.

Section 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, each holder of Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution, or the consideration received in such transaction, an amount per share of Preferred Stock equal to the greater of (i) the Original Issue Price plus all accrued or declared and unpaid dividends on the Preferred Stock, if any, (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Original Issue Date) for each share of Preferred Stock held by such holder, and (ii) the amount per share such Preferred Stock holder would have received in such liquidation, dissolution or winding up assuming all holders of Preferred Stock had converted all Preferred Stock into Common Stock pursuant to the terms hereof immediately prior to such liquidation, dissolution or winding up. If, upon any such liquidation, dissolution, or winding up, the assets of the Corporation (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Preferred Stock of the liquidation preference set forth in this Section 3(a), then such assets (or consideration) shall be distributed among the holders of the Preferred Stock at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. After payment of the full liquidation preference of the Preferred Stock as aforesaid, the assets of the Corporation legally available for distribution (or the consideration received in such transaction), if any, shall be distributed to the holders of any Junior Stock in accordance with the Certificate of Incorporation and any other Certificate of Designations creating a series of Preferred Stock or any similar stock.

b. An Acquisition (as defined below) or Asset Transfer (as defined below) shall be deemed a liquidation for purposes of this Section 3, and provision shall be made in each merger agreement, acquisition agreement or other agreement entered into by the Company which provides for an Acquisition or Asset Transfer so that the consideration pursuant thereto shall be paid in accordance with the provisions of this Section 3. An “Acquisition” shall mean (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 all of the stockholders of the Corporation immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the voting power of the surviving entity immediately after such consolidation, merger or reorganization in substantially the same relative proportions; or (ii) any transaction or series of related transactions to which the Corporation is a party in which in excess of fifty percent (50%)

of the Corporation’s voting power is transferred; provided that an Acquisition shall not include (x) any consolidation or merger effected exclusively to change the domicile of the Corporation, or (y) any transaction or series of transactions (other than a merger or consolidation) principally for bona fide equity financing purposes in which cash is received by the Corporation or indebtedness of the Corporation is cancelled or converted or a combination thereof; and “Asset Transfer” shall mean a sale, lease or other disposition of all or substantially all of the assets of the Corporation.

Section 4. Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

a. Optional Conversion. Subject to and in compliance with the provisions of this Section 4, any shares of Preferred Stock 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 Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Conversion Rate then in effect (determined as provided in Section 4(b) by the number of shares of Preferred Stock being converted.

b. Conversion Rate. The Conversion Rate for Preferred Stock in effect at any time for conversion of the Preferred Stock (the “Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price by the Conversion Price, calculated as provided in Section 4(c).

c. Conversion Price. The Conversion Price for the Preferred Stock shall initially be $1.002 (the “Conversion Price”). Such initial Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Conversion Price herein shall mean the Conversion Price as so adjusted.

d. Mechanics of Conversion. Each holder of Preferred Stock who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender its certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that it elects to convert the same. Such notice shall state the number of shares of Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder of Preferred Stock a certificate or certificates, registered in such names as are specified by the holder, for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash (at the Common Stock’s fair market value determined by the Board of Directors as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Preferred Stock. 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 Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

e. Adjustment for Stock Splits and Combinations. If at any time or from time to time after the Original Issue Date the Corporation effects a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the Conversion

Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date the Corporation combines the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the 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 at any time or from time to time after the Original Issue Date the Corporation pays a dividend or other distribution in additional shares of Common Stock, the Conversion Price that is then in effect shall be decreased as of the time of such issuance, as provided below:

(i) The Conversion Price shall be adjusted by multiplying the Conversion Price then in effect by a fraction equal to:

(A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and

(B) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution;

(ii) If the Corporation fixes a record date to determine which holders of Common Stock are entitled to receive such dividend or other distribution, the Conversion Price shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and

(iii) 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 Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution.

g. 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 Preferred Stock 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(b) 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 Preferred Stock shall then have the right to convert such stock into 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.

h. Reorganizations, Mergers or Consolidations. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock or the merger or consolidation of the Corporation with or into another corporation or another entity or person (other than an Acquisition or Asset Transfer as defined in Section 3(b) or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4) (a “Capital Reorganization”), as a part of such Capital Reorganization, provision shall be made so that each holder of Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the kind and amount of stock and other securities and property receivable upon such Capital Reorganization 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 Capital Reorganization, all subject to further adjustment as provided herein or with respect to such other securities or property 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 Preferred Stock after the Capital Reorganization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of the Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.

i. Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the 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 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 such adjustment or readjustment is based, including a statement of (i) the Conversion Price at the time in effect and (ii) the type and amount, if any, of other property which at the time would be received upon conversion of the Preferred Stock.

j. 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(b)) 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(b)), 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 ten (10) days prior to the record date specified therein (or such shorter period approved by the holders of at least 75% of the outstanding Preferred Stock) a notice specifying (A) 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, (B) 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 (C) 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. The Corporation shall also use its reasonable efforts to furnish to the holders of Preferred Stock information that is reasonably sufficient to enable such holders to make a determination as to whether it would be to their advantage to convert their shares of Preferred Stock to shares of Common Stock pursuant to this Section 4 prior to any transaction listed in (ii) above.

k. Automatic Conversion.

(i) Each share of Preferred Stock shall automatically be converted into shares of Common Stock, based on the then-effective Conversion Rate, (i) upon receipt by the Corporation of the written consent to such conversion of the holders of at least 75% of the outstanding Preferred Stock or (ii) upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, of shares of Common Stock of the Company for a public offering price of at least $3.006 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the Common Stock) and with gross proceeds to the Company (before underwriting discounts, commission and fees) of not less than Forty Million Dollars ($40,000,000); provided, however, that if this event occurs at a time when insufficient authorized Common Stock is available for issuance of all shares of Common Stock issuable upon such conversion or prior to the effective date of the registration statement to be filed with the Securities and Exchange Commission registering for resale the shares of Common Stock issuable upon such conversion, then automatic conversion of the Preferred Stock shares shall not immediately occur but instead shall occur at such time as sufficient authorized Common Stock is available and such registration has been declared effective.

(ii) Upon a conversion in accordance with Section 4(k)(i) above, the outstanding shares of Preferred Stock 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 Preferred Stock 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 Preferred Stock, the holders 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 Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred.

l. Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. 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 in good faith by the Board of Directors) on the date of conversion.

m. 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 the Preferred Stock, 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 the 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 the Preferred Stock, the Corporation will promptly 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.

n. 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 electronic mail 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 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.

o. 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 Preferred Stock, 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.

p. No Dilution or Impairment. Without the consent of the holders of at least 75% of the then outstanding Preferred Stock, the Corporation shall not amend this Certificate of Designations, its Amended and Restated Certificate of Incorporation or its Bylaws (each as may be amended from time to time in compliance with the provisions hereof) or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take 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 to protect the conversion rights of the holders of the Preferred Stock against dilution or other impairment and to otherwise protect the rights of the Preferred Stock hereunder.

Section 5. Voting Rights. Each holder of shares of Preferred Stock shall have a number of votes equal to the number of shares of Common Stock issuable upon conversion of such holder’s shares of Preferred Stock and shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Preferred Stock shall be entitled to notice of any shareholders’ meeting in accordance with the Amended and Restated Bylaws of the Corporation and shall vote with holders of the Common Stock at any annual or special meeting of the shareholders and not as a separate class, except those matters required by law to be submitted to a class vote.

Section 6. Protective Provisions. Subject to the rights of any series of preferred stock that may from time to time come into existence, so long as 453,666 shares of Preferred Stock are outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such Preferred Stock), the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least 75% of the then-outstanding shares of Preferred Stock, voting separately as a class:

a. amend its Certificate of Incorporation (including this Certificate of Designations or the filing of another Certificate of Designations) or Bylaws so as to affect adversely the shares of Preferred Stock or any holder thereof, including, without limitation, by creating any additional series of preferred stock (or issuing shares under any such series) that is senior to, or pari passu with, the Preferred Stock in liquidation preference, conversion rights or right of payment; or

b. change the rights of the holders of the Preferred Stock in any other respect; or

c. increase or decrease (other than by redemption or conversion) the authorized number of shares of Preferred Stock; or

d. authorize or issue any other equity security, including any other security convertible into or exercisable for any equity security, having a preference over, or being on a parity with, the Preferred Stock with respect to voting, dividends or liquidation preferences; or

e. purchase, redeem or otherwise acquire for value any shares of Junior Stock; provided, however, that the foregoing shall not be deemed to prohibit (i) redemptions of Preferred Stock pursuant to Section 7 hereof or (ii) the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal.

provided, however, that the authorization and issuance of additional shares of Common Stock, and creation of any series of preferred stock (or issuing shares under any such series) that is junior in right of payment upon liquidation, conversion and payment rights to the Preferred Stock shall not be deemed to adversely affect the rights, preferences or privileges of the Preferred Stock or any holder thereof or change the rights of the holders of the Preferred Stock in any other respect.

Section 7. Optional Redemption. The holders of the Preferred Stock shall have the option to require the Corporation to redeem, at any time after the date five (5) years after the first issuance of shares of Preferred Stock (the “Maturity Date”), the outstanding shares of Preferred Stock as follows:

a. The holders of at least 75% of the outstanding shares of Preferred Stock shall deliver to the Corporation a notice (the “Election Notice”) specifying that such holders have elected pursuant to this Section 7 to have the outstanding shares of Preferred Stock redeemed and the date, not earlier than the Maturity Date, upon which such redemption shall occur (the “Redemption Date”); provided, however, that such Election Notice shall not be given less than sixty (60) days, nor more than ninety (90) days, prior to the Redemption Date. The Corporation shall effect such redemption on the Redemption Date by paying in cash in exchange for each share of Preferred Stock a sum equal to the Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the first issuance of shares of Preferred Stock), plus unpaid dividends with respect to such share (the “Redemption Price”). The total amount to be paid for the shares of the Preferred Stock is hereinafter referred to as the “Total Redemption Price.”

b. At least thirty (30) days but no more than sixty (60) days prior to the Redemption Date, the Corporation shall send a notice (a “Redemption Notice”) to all holders of Preferred Stock setting forth (A) the Redemption Price for the shares of Preferred Stock to be redeemed, and (B) the place at which such holders may obtain payment of their respective portions of the Total Redemption Price upon surrender of their share certificates. If the Corporation does not have sufficient funds legally available to redeem all shares to be redeemed at the Redemption Date, then it shall so notify such holders and shall redeem such shares pro rata (based on the portion of the aggregate Total 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. Notwithstanding the above, any holder of Preferred Stock may convert such shares into Common Stock pursuant to Section 4(a) on or prior to the date immediately preceding the Redemption Date.

c. On or prior to the Redemption Date, the Corporation shall deposit the Total Redemption Price of the 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 (an “Eligible Institution”), with irrevocable instructions and authority to the Eligible Institution to pay, on and after the Redemption Date, the Redemption Price of the shares to their respective holders upon the surrender of their share certificates. Any money deposited by the Corporation pursuant to this Section 7(c) for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section 4 hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any funds deposited by the Corporation pursuant to this Section 7(c) remaining unclaimed at the expiration of one (1) year following the Redemption Date shall be returned to the Corporation promptly upon its written request, and each holder of Preferred Stock shall thereafter look only to the Corporation for payment of the Redemption Price.

d. Each holder of shares of Preferred Stock to be redeemed shall surrender such holder’s certificates representing such shares to the Corporation in the manner and at the

10.

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 the Redemption Date, unless there shall have been a default in payment of the Redemption Price or the Corporation is unable to pay the Total Redemption Price due to not having sufficient legally available funds, all rights of the holder of such shares as holder of Preferred Stock (except the right to receive the Redemption Price per share without interest upon surrender of their certificates), shall cease and terminate with respect to such shares; provided that in the event that shares of Preferred Stock 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 Preferred Stock shall remain outstanding and shall be entitled to all of the rights and preferences provided herein until redeemed.

Section 8. Redemption at the Corporation’s Election.

a. At any time after the Maturity Date, the Corporation shall have the right, in its sole discretion, to redeem all (but not less than all) of the outstanding shares of Preferred Stock (the “Corporation’s Redemption Election”) at a price per share equal to the Redemption Price; provided, however, that it shall be a condition precedent to the exercise of the Corporation’s Redemption Election that prior thereto the Corporation shall have deposited the Total Redemption Price with an Eligible Institution, with irrevocable instructions and authority to the Eligible Institution to pay, on and after the Corporation’s Redemption Election Date (as defined below), the Redemption Price of the shares to the holders of the Preferred Stock upon the surrender of their share certificates. The Corporation shall exercise its right to the Corporation’s Redemption Election by providing each holder of Preferred Stock written notice at least 20 days prior to the date of redemption (the “Corporation’s Redemption Election Notice”) setting forth the anticipated date of such redemption (“Corporation’s Redemption Election Date”). All holders of Preferred Stock shall thereupon surrender all outstanding Preferred Stock certificates in the manner and at the place designated in the Corporation’s Redemption Election Notice. The Corporation shall, within twenty (20) days of receipt of such surrendered Preferred Stock certificates, pay the full Redemption Price with respect to such shares of Preferred Stock. Notwithstanding the above, any holder of Preferred Stock may convert such shares into Common Stock pursuant to Section 4(a) on or prior to the date immediately preceding the Corporation’s Redemption Election Date.

b. From and after the Corporation’s Redemption Election Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of such shares as holder of Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificates), and such Preferred Stock in fact, shall cease and terminate; provided that in the event that shares of Preferred Stock are not redeemed due to a default in payment by the Corporation, such shares of Preferred Stock shall remain outstanding and shall be entitled to all of the rights and preferences provided herein until redeemed.

11.

Section 9. No Reissuance of Preferred Stock . No shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued.

[Signature page follows]

12.

IN WITNESS WHEREOF, said PHARSIGHT CORPORATION has caused this Certificate of Designations to be signed by Michael S. Perry, its Chief Executive Officer, as of June 26, 2002.

PHARSIGHT CORPORATION

	By:	/s/ MICHAEL S. PERRY
	Name:	Michael S. Perry
	Title:	Chief Executive Officer

13.

EX-10.28 5 a2083003zex-10_28.htm EXHIBIT 10.28

Exhibit 10.28

February 5, 2002

Dr. Michael Perry

10010 Sundial Lane

Beverly Hills, California 90210

Dear Mike,

On behalf of Pharsight Corporation (“Pharsight” or the “Company”), I am pleased to offer you the position of President and Chief Executive Officer on the terms described below. We are convinced that by combining your outstanding experience in drug development, leadership stature in the pharmaceutical industry, and demonstrated management capability, with our current organizational strengths, proven technology, and established customer base, you will catalyze tremendous value for yourself and all Pharsight shareholders. Further, we believe that the support of our world-class board of directors will significantly enhance your success in this significant career step—your first assignment as CEO of a publicly traded company.

Reporting Relationship, Salary, Annual Bonus and Benefits:

In this position you will report to the Company’s Board of Directors (the “Board”). Your annual base salary will be $320,000, and will be paid semi-monthly on the Company’s normal payroll schedule. In FY2002 (begins April 1, 2002) you are eligible to participate in an incentive annual bonus program targeted at 65 percent of your annual base salary, with a total compensation potential (if you earn the target bonus of 65 percent) of $528,000. Your annual bonus will be governed by the terms and conditions of the Company’s management incentive plan, as administered by the Company’s Compensation Committee, including a cap on bonus payments at 160 percent of target in the event of overachievement of plan. In addition, you will be eligible for Pharsight’s regular employee benefits programs, including health, dental, life and disability insurance, 401(k) plan and an annual accrual of 20 paid personal time-off days.

Sign-On and Retention Bonus

In order to ensure your ability to join us at the earliest possible date, and provided you commence full time employment no later than February 25, 2002, you will be eligible for a one time sign-on and retention bonus of cash and stock valued at a total of approximately $340,000 which will be paid as follows: 1/3 of the bonus will be paid as a cash bonus of $113,000 (subject to taxes and withholdings) during the first pay period following your first day of employment; another 1/3 of the bonus will be paid as a cash bonus of $113,000 (subject to taxes and withholdings) on the first anniversary of your hire date; and the remaining 1/3 of the sign-on bonus will be provided in the form of a stock grant of Pharsight Common Stock valued at approximately $114,000 (valuation is based on the fair market value of the stock on the date of grant). The stock grant will be issued promptly by the Compensation Committee after your hire date, and the grant will placed into and

held in escrow for a period of 18 months. In addition, if you voluntarily terminate your employment prior to 12 months following your hire date, you will forfeit the pro-rated shares of the stock grant which will be released to the Company (pro-rated based on your termination date), and the cash portion of the bonus previously paid to you will be immediately due and payable to Pharsight Corporation according to the following schedule (which the Company can deduct from any amounts owed to you):

	Termination date:		Portion of Cash Bonus and Stock Grant Owed to Company:

	1-90 days after hire		100%
	91-180 days after hire		70%
	181-365 days after hire		40%
	After 1 year		0%

Stock Option Grant

In addition, I will recommend to the Board that you be granted an option to purchase 700,000 shares of Pharsight Common Stock (the “Option”). The Option will vest over four years during your continued employment (25 percent of the shares vesting after one year of employment, with the remaining 75 percent of shares vesting in equal installments on a monthly basis thereafter over the following three years), and will be subject to the terms and conditions of the Company’s 2000 Equity Incentive Plan (the “Plan”) and your grant agreement. The exercise price of the Option will be the fair market value of the stock as determined by the closing price on the business day immediately preceding the day you start work as an employee of Pharsight. In the event of a change of control (as defined in the Plan), 50 percent of your remaining unvested Option shares will vest immediately. In the event that your employment is terminated without Cause (as defined below) as a direct result of and within twelve (12) months following such a change of control, the remainder of your unvested Option shares will vest. Your performance and compensation will be reviewed annually, after the completion of each fiscal year. Based on your performance and other factors considered by the Compensation Committee, you will be eligible to receive further stock option grants at the sole discretion of the Compensation Committee.

Relocation To Bay Area and Living Expenses

As we discussed, we expect that you will relocate to the San Francisco Bay Area within six (6) months after your hire. To assist in your relocation, upon your submission of appropriate documentation (including receipts) and in accordance with the Company’s expense reimbursement policies and practices, Pharsight will reimburse you for your reasonable relocation expenses, up to a maximum reimbursement aggregate amount of $200,000.

Prior to your relocation to the Bay Area, Pharsight will reimburse you for your reasonable and necessary living expenses while in the Bay Area, upon your submission of appropriate documentation (including receipts) and in accordance with the Company’s expense reimbursement policies and practices. For example, at its election, the Company will either provide you with

corporate rental housing for your use in the Bay Area, or will reimburse you for your reasonable local rental housing costs. In addition, prior to your relocation to the Bay Area, the Company will reimburse you for your out-of-pocket costs to fly (coach or business class) between the Bay Area and Southern California as required, upon your submission of appropriate documentation (including receipts). You agree to book such flights as far in advance as possible in order to obtain the lowest available fares.

Severance Payments

In the event that your employment is involuntarily terminated without Cause (as defined below), the Company will continue to pay your base salary in effect on the termination date for one (1) year following the termination date as your sole severance benefits (the “Severance Payments”). As a condition of your receipt of the Severance Payments, you must first enter into a separation agreement with the Company that includes your general release of claims, in a form acceptable to the Company. The Severance Payments will be paid on the Company’s normal payroll schedule and will be subject to standard deductions and withholdings.

For the purposes of this letter, “Cause” for your termination shall mean: (a) your conviction of any felony or of any crime involving dishonesty; (b) your participation in any fraud or act of dishonesty against the Company; (c) the material breach of your duties to the Company, including persistent unsatisfactory performance of job duties; (d) your intentional damage to, or willful misappropriation of, any property of the Company; (e) your material breach of any written agreement with the Company (including this letter agreement); or (f) conduct that in the good faith and reasonable determination of the Company’s Board demonstrates gross unfitness to serve.

Company Policies and Procedures; Proprietary Information and Inventions Agreement

As a Pharsight employee, you will be expected to abide by Pharsight’s policies and procedures, as may be in effect from time to time, and to acknowledge in writing that you have read Pharsight’s Employee Handbook. As a condition of your employment with Pharsight, you will be required to sign and abide by the Company’s Proprietary Information and Inventions Agreement, two originals of which are enclosed. Please sign both originals and return one to me with your acceptance of this offer.

At-Will Employment Relationship

Your employment relationship with Pharsight will be at-will. This offer does not constitute a guarantee of employment for any specific period of time, and either you or Pharsight may terminate the employment relationship at any time, with or without cause or advance notice.

Miscellaneous

This letter, together with your Proprietary Information and Inventions Agreement, forms the complete and exclusive statement of your employment agreement with Pharsight. It supersedes any other agreements or promises made to you by anyone, whether oral or written, and it cannot be

modified except in a written agreement signed by you and a duly authorized officer of Pharsight. As required by law, this offer is subject to satisfactory proof of your right to work in the United States.

I am personally excited by the opportunity to work with you to build a great business while implementing our shared vision for the pharmaceutical industry. We look forward to having you join us and expect your employment with Pharsight to begin on or before February 25, 2002. Please sign the enclosed copy of this offer letter to indicate your acceptance of the Company’s offer under the above terms and return it to me by Friday, February 8, 2002.

Sincerely,

Arthur Reidel

Chairman of the Board

AGREED AND ACCEPTED:


Dr. Michael Perry


Date

Enclosure: Proprietary Information and Inventions Agreement

EX-10.29 6 a2083003zex-10_29.htm EXHIBIT 10.29

Exhibit 10.29

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement is entered into as of June 18, 2002 by and between PHARSIGHT, INC. (the “Borrower”) and Silicon Valley Bank (“Bank”).

1. DESCRIPTION OF EXISTING OBLIGATIONS: Among other Obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated June 13, 2001, as may be amended from time to time, (the “Domestic Loan Agreement”). The Domestic Loan Agreement provides for, among other things, a Committed Revolving Line in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) and a Committed Term Loan in the original principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000). Furthermore, Borrower is indebted to Bank pursuant to, among other documents, an Export-Import Bank Loan and Security Agreement, dated June 13, 2001, as may be amended from time to time (the “EXIM Loan Agreement”). The EXIM Loan Agreement provided for, among other things, an EXIM Committed Line in the original principal amount of One Million Five Hundred Thousand Dollars ($1,500,000). The Domestic Loan Agreement and the EXIM Loan Agreement are collectively defined as the Loan Agreements. Defined terms used but not otherwise defined herein shall have the same meanings as set forth in the Loan Agreements.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the “Obligations.”

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreements. Additionally, repayment of the EXIM Committed Line is guaranteed by the Export-Import Bank of the United States “EXIM Bank” pursuant to a Master Guarantee Agreement between EXIM Bank and Bank.

Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Obligations shall be referred to as the “Security Documents”. Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modification(s) to Domestic Loan Agreement.

1. Sub letter (e) under Section 6.2 entitled “Financial Statements, Reports, Certificates” is hereby incorporated to read as follows:

(e) Within 20 days after the last day of each month, Borrower will deliver to Bank its deferred revenue schedules.

2. Sub letter (e) under Section 6.7 entitled “Maximum Losses” is hereby amended to read as follows:

(e) Maximum Losses. Borrower may suffer losses not to exceed the following: $3,800,000 for the quarter ending June 30, 2002; $3,100,000 for quarter ending September 30, 2002; $2,000,000 for quarter ending December 31, 2002 and $1,100,000 for quarter ending March 31, 2003. Commencing June 30, 2003, Borrower will have net losses no more than 20% greater than the projected accounts in the “street” projections approved by Borrower’s board of directors. If Borrower’s projects profitability for any given quarter ended June 30, 2003 or beyond, net income will be at least 80% of the projected amount in the “street” projections approved by Borrower’s board of directors.

3. The following defined term under Section 13.1 entitled “Definitions” is hereby amended to read as follows:

“Revolving Maturity Date” is June 13, 2003.

B. Modification of EXIM Loan Agreement.

1. The following defined term under Section 13.1 entitled “Definitions” is hereby amended to read as follows:

“EXIM Maturity Date” is June 13, 2003.

4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

5. NO DEFENSES OF BORROWER. Borrower agrees that, as of the date hereof, it has no defenses against paying any of the Obligations.

6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Bank in writing. Unless expressly released herein, no maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements.

This Loan Modification Agreement is executed as of the date first written above.

BORROWER:			BANK:

PHARSIGHT, INC.			SILICON VALLEY BANK

By:			By:
Name:			Name:
Title:			Title:

SILICON VALLEY BANK

PRO FORMA INVOICE FOR LOAN CHARGES

BORROWER:	PHARSIGHT, INC.

LOAN OFFICER:	Ron Kundich

DATE:	June 18, 2002

	Domestic Loan Fee	$12,500.00
	Exim Loan Fee	22,500.00
	Documentation Fee	250.00
	Exim Application Fee	100.00

	TOTAL FEE DUE	$35,350.00

Please indicate the method of payment:

( ) A check for the total amount is attached.

( ) Debit DDA# _____________ for the total amount.

( ) Loan proceeds.


Borrower	(Date)


Silicon Valley Bank	(Date)
Account Officer’s Signature

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.

Reporting Covenant	Required	Complies

Monthly financial statements + CC*	Monthly within 30 days	Yes	No
Annual (Audited)	FYE within 120 days	Yes	No
10-Q, 10-K and 8-K	Within 5 days after filing with SEC	Yes	No
A/R & A/P Agings	Monthly within 20 days	Yes	No
Borrowing Base Certificate	Monthly within 20 days	Yes	No
Deferred Revenue Schedules	Monthly within 20 days	Yes	No
Board Approved Projections	Annually within 30 days of fiscal year end	Yes	No

* at any time (a) Liquidity is less than the product of 2.5 times the then aggregate outstanding balance of the Term Loan Advances or (b) Remaining Month’s Liquidity is less than 9

Financial Covenant	Required		Actual	Complies

Maintain on a quarterly basis (unless otherwise noted):

Minimum Liquidity (Monthly)	2X Term Loan		$_________	Yes	No
Minimum Remaining Months
Liquidity	Six (6	)	__________	Yes	No

Minimum Quick Ratio (Adjusted)	1.00:1.00		_____:1.00	Yes	No

Quarterly Loss*
$3,800,000 @ 6/30/02	___________			Yes	No
$3,100,000 @ 9/30/02
$2,000,000 @ 12/31/02
$1,100,000 @ 3/31/03

*Commencing 6/30/03, Borrower will have net losses no more than 20% greater than the projected amounts in the “street” projections approved by Borrower’s board of directors. If Borrower projects profitability for any given quarter ended 6/30/03 or beyond, net income will be at least 80% of the projected amount in the “street” projections approved by Borrower’s board of directors.

BANK USE ONLY

Received By: ____________________

Date: ________________

Reviewed By: ____________________

Compliance Status: Yes / No

Comments Regarding Exceptions: See Attached.

Sincerely,

Pharsight Corporation

Signature

Title

Date

EX-10.29-1 7 a2083003zex-10_291.htm EXHIBIT 10.29.1

Exhibit 10.29.1

ANNEX B

Export-Import Bank of the United States

Working Capital Guarantee Program

Borrower Agreement

THIS BORROWER AGREEMENT (this “Agreement”) is made and entered into by the entity identified as Borrower on the signature page hereof (“Borrower”) in favor of the Export-Import Bank of the United States (“Ex-Im Bank”) and the institution identified as Lender on the signature page hereof (“Lender”).

RECITALS

Borrower has requested that Lender establish a Loan Facility in favor of Borrower for the purposes of providing Borrower with pre-export working capital to finance the manufacture, production or purchase and subsequent export sale of Items.

It is a condition to the establishment of such Loan Facility that Ex-Im Bank guarantee the payment of ninety percent (90%) of certain credit accommodations subject to the terms and conditions of a Master Guarantee Agreement, the Loan Authorization Agreement, and to the extent applicable, the Delegated Authority Letter Agreement.

Borrower is executing this Agreement for the benefit of Lender and Ex-Im Bank in consideration for and as a condition to Lender’s establishing the Loan Facility and Ex-Im Bank’s agreement to guarantee such Loan Facility pursuant to the Master Guarantee Agreement.

NOW, THEREFORE, Borrower hereby agrees as follows:

ARTICLE I
DEFINITIONS

1.01 Definition of Terms. As used in this Agreement, including the Recitals to this Agreement and the Loan Authorization Agreement, the following terms shall have the following meanings:

“Accounts Receivable” shall mean all of Borrower’s now owned or hereafter acquired (a) “accounts” (as such term is defined in the UCC), other receivables, book debts and other forms of obligations, whether arising out of goods sold or services rendered or from any other transaction; (b) rights in, to and under all purchase orders or receipts for goods or services; (c) rights to any goods represented or purported to be represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) moneys due or to become due to such Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by

Borrower (whether or not yet earned by performance on the part of Borrower), including the proceeds of the foregoing; (e) any notes, drafts, letters of credit, insurance proceeds or other instruments, documents and writings evidencing or supporting the foregoing; and (f) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing.

“Advance Rate” shall mean the rate specified in Section 5(C) of the Loan Authorization Agreement for each category of Collateral.

“Business Day” shall mean any day on which the Federal Reserve Bank of New York is open for business.

“Buyer” shall mean a Person that has entered into one or more Export Orders with Borrower.

“Collateral” shall mean all property and interest in property in or upon which Lender has been granted a Lien as security for the payment of all the Loan Facility Obligations including the Collateral identified in Section 6 of the Loan Authorization Agreement and all products and proceeds (cash and non–cash) thereof.

“Commercial Letters of Credit” shall mean those letters of credit subject to the UCP payable in Dollars and issued or caused to be issued by Lender on behalf of Borrower under a Loan Facility for the benefit of a supplier(s) of Borrower in connection with Borrower’s purchase of goods or services from the supplier in support of the export of the Items.

“Country Limitation Schedule” shall mean the schedule published from time to time by Ex-Im Bank and provided to Borrower by Lender which sets forth on a country by country basis whether and under what conditions Ex-Im Bank will provide coverage for the financing of export transactions to countries listed therein.

“Credit Accommodation Amount” shall mean, the sum of (a) the aggregate outstanding amount of Disbursements and (b) the aggregate outstanding face amount of Letter of Credit Obligations.

“Credit Accommodations” shall mean, collectively, Disbursements and Letter of Credit Obligations.

“Debarment Regulations” shall mean, collectively, (a) the Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (c) the revised Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037 (June 26, 1995).

“Delegated Authority Letter Agreement” shall mean the Delegated Authority Letter Agreement, if any, between Ex-Im Bank and Lender.

“Disbursement” shall mean, collectively, (a) an advance of a working capital loan from Lender to Borrower under the Loan Facility, and (b) an advance to fund a drawing under a Letter

of Credit issued or caused to be issued by Lender for the account of Borrower under the Loan Facility.

“Dollars” or “$” shall mean the lawful currency of the United States.

“Effective Date” shall mean the date on which (a) the Loan Documents are executed by Lender and Borrower or the date, if later, on which agreements are executed by Lender and Borrower adding the Loan Facility to an existing working capital loan arrangement between Lender and Borrower and (b) all of the conditions to the making of the initial Credit Accommodations under the Loan Documents or any amendments thereto have been satisfied.

“Eligible Export-Related Accounts Receivable” shall mean an Export-Related Account Receivable which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Accounts Receivable include any Account Receivable:

(a) that does not arise from the sale of Items in the ordinary course of Borrower’s business;

(b) that is not subject to a valid, perfected first priority Lien in favor of Lender;

(c) as to which any covenant, representation or warranty contained in the Loan Documents with respect to such Account Receivable has been breached;

(d) that is not owned by Borrower or is subject to any right, claim or interest of another Person other than the Lien in favor of Lender;

(e) with respect to which an invoice has not been sent;

(f) that arises from the sale of defense articles or defense services;

(g) that is due and payable from a Buyer located in a country with which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;

(h) that does not comply with the requirements of the Country Limitation Schedule;

(i) that is due and payable more than one hundred eighty (180) days from the date of the invoice;

(j) that is not paid within sixty (60) calendar days from its original due date, unless it is insured through Ex-Im Bank export credit insurance for comprehensive commercial and political risk, or through Ex-Im Bank approved private insurers for comparable coverage, in which case it is not paid within ninety (90) calendar days from its due date;

(k) that arises from a sale of goods to or performance of services for an employee of Borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a controlling interest in Borrower or a Person which shares common controlling ownership with Borrower;

(l) that is backed by a letter of credit unless the Items covered by the subject letter of credit have been shipped;

(m) that Lender or Ex-Im Bank, in its reasonable judgment, deems uncollectible for any reason;

(n) that is due and payable in a currency other than Dollars, except as may be approved in writing by Ex-Im Bank;

(o) that is due and payable from a military Buyer, except as may be approved in writing by Ex-Im Bank;

(p) that does not comply with the terms of sale set forth in Section 7 of the Loan Authorization Agreement;

(q) that is due and payable from a Buyer who (i) applies for, suffers, or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) takes any action for the purpose of effecting any of the foregoing;

(r) that arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;

(s) for which the Items giving rise to such Account Receivable have not been shipped and delivered to and accepted by the Buyer or the services giving rise to such Account Receivable have not been performed by Borrower and accepted by the Buyer or the Account Receivable otherwise does not represent a final sale;

(t) that is subject to any offset, deduction, defense, dispute, or counterclaim or the Buyer is also a creditor or supplier of Borrower or the Account Receivable is contingent in any respect or for any reason;

(u) for which Borrower has made any agreement with the Buyer for any deduction therefrom, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto; or

(v) for which any of the Items giving rise to such Account Receivable have been returned, rejected or repossessed.

“Eligible Export-Related Inventory” shall mean Export-Related Inventory which is acceptable to Lender and which is deemed to be eligible pursuant to the Loan Documents, but in no event shall Eligible Export-Related Inventory include any Inventory:

(a) that is not subject to a valid, perfected first priority Lien in favor of Lender;

(b) that is located at an address that has not been disclosed to Lender in writing;

(d) that is in the possession of a processor or bailee, or located on premises leased or subleased to Borrower, or on premises subject to a mortgage in favor of a Person other than Lender, unless such processor or bailee or mortgagee or the lessor or sublessor of such premises, as the case may be, has executed and delivered all documentation which Lender shall require to evidence the subordination or other limitation or extinguishment of such Person’s rights with respect to such Inventory and Lender’s right to gain access thereto;

(e) that is produced in violation of the Fair Labor Standards Act or subject to the “hot goods” provisions contained in 29 US.C.§215 or any successor statute or section;

(f) as to which any covenant, representation or warranty with respect to such Inventory contained in the Loan Documents has been breached;

(g) that is not located in the United States;

(h) that is demonstration Inventory;

(i) that consists of proprietary software (i.e. software designed solely for Borrower’s internal use and not intended for resale);

(j) that is damaged, obsolete, returned, defective, recalled or unfit for further processing;

(k) that has been previously exported from the United States;

(l) that constitutes defense articles or defense services;

(m) that is to be incorporated into Items destined for shipment to a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;

(n) that is to be incorporated into Items destined for shipment to a Buyer located in a country in which Ex-Im Bank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, unless and only to the extent that such Items are to be sold to such country on terms of a letter of credit confirmed by a bank acceptable to Ex-Im Bank; or

(o) that is to be incorporated into Items whose sale would result in an Account Receivable which would not be an Eligible Export-Related Account Receivable.

“Eligible Person” shall mean a sole proprietorship, partnership, limited liability partnership, corporation or limited liability company which (a) is domiciled, organized, or formed, as the case may be, in the United States; (b) is in good standing in the state of its formation or otherwise authorized to conduct business in the United States; (c) is not currently suspended or debarred from doing business with the United States government or any instrumentality, division, agency or department thereof; (d) exports or plans to export Items; (e) operates and has operated as a going concern for at least one (1) year; (f) has a positive tangible net worth determined in accordance with GAAP; and (g) has revenue generating operations relating to its core business activities for at least one year.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 and the rules and regulations promulgated thereunder.

“Export Order” shall mean a written export order or contract for the purchase by the Buyer from Borrower of any of the Items.

“Export-Related Accounts Receivable” shall mean those Accounts Receivable arising from the sale of Items which are due and payable to Borrower in the United States.

“Export-Related Accounts Receivable Value” shall mean, at the date of determination thereof, the aggregate face amount of Eligible Export-Related Accounts Receivable less taxes, discounts, credits, allowances and Retainages, except to the extent otherwise permitted by Ex-Im Bank in writing.

“Export-Related Borrowing Base” shall mean, at the date of determination thereof, the sum of (a) the Export-Related Inventory Value multiplied by the Advance Rate applicable to Export-Related Inventory set forth in Section 5(C)(1) of the Loan Authorization Agreement, (b) the Export-Related Accounts Receivable Value multiplied by the Advance Rate applicable to Export-Related Accounts Receivable set forth in Section 5(C)(2) of the Loan Authorization Agreement, (c) if permitted by Ex-Im Bank in writing, the Retainage Value multiplied by the Retainage Advance Rate set forth in Section 5(C)(3) of the Loan Authorization Agreement and (d) the Other Assets Value multiplied by the Advance Rate applicable to Other Assets set forth in Section 5(C)(4) of the Loan Authorization Agreement.

“Export-Related Borrowing Base Certificate” shall mean a certificate in the form provided or approved by Lender, executed by Borrower and delivered to Lender pursuant to the Loan Documents detailing the Export-Related Borrowing Base supporting the Credit Accommodations which reflects, to the extent included in the Export-Related Borrowing Base, Export-Related Accounts Receivable, Eligible Export-Related Accounts Receivable, Export-Related Inventory and Eligible Export-Related Inventory balances that have been reconciled with Borrower’s general ledger, Accounts Receivable aging report and Inventory schedule.

“Export-Related General Intangibles” shall mean those General Intangibles necessary or desirable to or for the disposition of Export-Related Inventory.

“Export-Related Inventory” shall mean the Inventory of Borrower located in the United States that has been purchased, manufactured or otherwise acquired by Borrower for resale pursuant to Export Orders.

“Export-Related Inventory Value” shall mean, at the date of determination thereof, the lower of cost or market value of Eligible Export-Related Inventory of Borrower as determined in accordance with GAAP.

“Final Disbursement Date” shall mean, unless subject to an extension of such date agreed to by Ex-Im Bank, the last date on which Lender may make a Disbursement set forth in Section 10 of the Loan Authorization Agreement or, if such date is not a Business Day, the next succeeding Business Day; provided, however, to the extent that Lender has not received cash collateral or an indemnity with respect to Letter of Credit Obligations outstanding on the Final Disbursement Date, the Final Disbursement Date with respect to an advance to fund a drawing under a Letter of Credit shall be no later than thirty (30) Business Days after the expiry date of the Letter of Credit related thereto.

“GAAP” shall mean the generally accepted accounting principles issued by the American Institute of Certified Public Accountants as in effect from time to time.

“General Intangibles” shall mean all intellectual property and other “general intangibles” (as such term is defined in the UCC) necessary or desirable to or for the disposition of Inventory.

“Guarantor” shall mean each Person, if any, identified in Section 3 of the Loan Authorization Agreement who shall guarantee (jointly and severally if more than one) the payment and performance of all or a portion of the Loan Facility Obligations.

“Guaranty Agreement” shall mean a valid and enforceable agreement of guaranty executed by each Guarantor in favor of Lender.

“Inventory” shall mean all “inventory” (as such term is defined in the UCC), now or hereafter owned or acquired by Borrower, wherever located, including all inventory, merchandise, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies.

“ISP” shall mean the International Standby Practices-ISP98, International Chamber of Commerce Publication No. 590 and any amendments and revisions thereof.

“Issuing Bank” shall mean the bank that issues a Letter of Credit, which bank is Lender itself or a bank that Lender has caused to issue a Letter of Credit by way of guarantee.

“Items” shall mean the finished goods or services which are intended for export from the United States, as specified in Section 4(A) of the Loan Authorization Agreement.

“Letter of Credit” shall mean a Commercial Letter of Credit or a Standby Letter of Credit.

“Letter of Credit Obligations” shall mean all outstanding obligations incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee by Lender or the Issuing Bank of Letters of Credit.

“Lien” shall mean any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction) by which property is encumbered or otherwise charged.

“Loan Agreement” shall mean a valid and enforceable agreement between Lender and Borrower setting forth the terms and conditions of the Loan Facility.

“Loan Authorization Agreement” shall mean the Loan Authorization Agreement entered into between Lender and Ex-Im Bank or the Loan Authorization Notice setting forth certain terms and conditions of the Loan Facility, a copy of which is attached hereto as Annex A.

“Loan Authorization Notice” shall mean the Loan Authorization Notice executed by Lender and delivered to Ex-Im Bank in accordance with the Delegated Authority Letter Agreement setting forth the terms and conditions of each Loan Facility.

“Loan Documents” shall mean the Loan Authorization Agreement, the Loan Agreement, this Agreement, each promissory note (if applicable), each Guaranty Agreement, and all other instruments, agreements and documents now or hereafter executed by Borrower or any Guarantor evidencing, securing, guaranteeing or otherwise relating to the Loan Facility or any Credit Accommodations made thereunder.

“Loan Facility” shall mean the Revolving Loan Facility, the Transaction Specific Loan Facility or the Transaction Specific Revolving Loan Facility established by Lender in favor of Borrower under the Loan Documents.

“Loan Facility Obligations” shall mean all loans, advances, debts, expenses, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower to Lender, of any kind or nature, present or future, arising in connection with the Loan Facility.

“Loan Facility Term” shall mean the number of months from the Effective Date to the Final Disbursement Date as originally set forth in the Loan Authorization Agreement.

“Master Guarantee Agreement” shall mean the Master Guarantee Agreement between Ex-Im Bank and Lender, as amended, modified, supplemented and restated from time to time.

“Material Adverse Effect” shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of Borrower or any Guarantor, (b) Borrower’s ability to pay or perform the Loan Facility Obligations in accordance with the terms thereof, (c) the Collateral or Lender’s Liens on the Collateral or the priority of such Lien or (d) Lender’s rights and remedies under the Loan Documents.

“Maximum Amount” shall mean the maximum principal balance of Credit Accommodations that may be outstanding at any time under the Loan Facility specified in Section 5(A) of the Loan Authorization Agreement.

“Other Assets” shall mean the Collateral, if any, described in Section 5(C)(4) of the Loan Authorization Agreement.

“Other Assets Value” shall mean, at the date of determination thereof, the value of the Other Assets as determined in accordance with GAAP.

“Permitted Liens” shall mean (a) Liens for taxes, assessments or other governmental charges or levies not delinquent, or, being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by Borrower; provided, that, the Lien shall have no effect on the priority of the Liens in favor of Lender or the value of the assets in which Lender has such a Lien and a stay of enforcement of any such Lien shall be in effect; (b) deposits or pledges securing obligations under worker’s compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) deposits or pledges securing bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of Borrower’s business; (d) judgment Liens that have been stayed or bonded; (e) mechanics’, workers’, materialmen’s or other like Liens arising in the ordinary course of Borrower’s business with respect to obligations which are not due; (f) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided, that, any such Lien shall not encumber any other property of Borrower; (g) security interests being terminated concurrently with the execution of the Loan Documents; (h) Liens in favor of Lender securing the Loan Facility Obligations; and (i) Liens disclosed in Section 6(D) of the Loan Authorization Agreement.

“Person” shall mean any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether national, federal, provincial, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person’s successors and assigns.

“Principals” shall mean any officer, director, owner, partner, key employee, or other Person with primary management or supervisory responsibilities with respect to Borrower or any other Person (whether or not an employee) who has critical influence on or substantive control over the transactions covered by this Agreement.

“Retainage” shall mean that portion of the purchase price of an Export Order that a Buyer is not obligated to pay until the end of a specified period of time following the satisfactory performance under such Export Order.

“Retainage Accounts Receivable” shall mean those portions of Eligible Export-Related Accounts Receivable arising out of a Retainage.

“Retainage Advance Rate” shall mean the percentage rate specified in Section 5(C)(3) of the Loan Authorization Agreement as the Advance Rate for the Retainage Accounts Receivable of Borrower.

“Retainage Value” shall mean, at the date of determination thereof, the aggregate face amount of Retainage Accounts Receivable, less taxes, discounts, credits and allowances, except to the extent otherwise permitted by Ex-Im Bank in writing.

“Revolving Loan Facility” shall mean the credit facility or portion thereof established by Lender in favor of Borrower for the purpose of providing pre-export working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations may be made and repaid on a continuous basis based solely on the Export-Related Borrowing Base during the term of such credit facility.

“Special Conditions” shall mean those conditions, if any, set forth in Section 13 of the Loan Authorization Agreement.

“Specific Export Orders” shall mean those Export Orders specified in Section 5(D) of the Loan Authorization Agreement.

“Standby Letter of Credit” shall mean those letters of credit subject to the ISP or UCP issued or caused to be issued by Lender for Borrower’s account that can be drawn upon by a Buyer only if Borrower fails to perform all of its obligations with respect to an Export Order.

“Transaction Specific Loan Facility” shall mean a credit facility or a portion thereof established by Lender in favor of Borrower for the purpose of providing pre-export working capital in the form of loans and/or Letters of Credit to finance the manufacture, production or purchase and subsequent export sale of Items pursuant to Loan Documents under which Credit Accommodations are made based solely on the Export-Related Borrowing Base relating to Specific Export Orders and once such Credit Accommodations are repaid they may not be reborrowed.

“Transaction Specific Revolving Loan Facility” shall mean a Revolving Credit Facility established to provide financing of Specific Export Orders.

“UCC” shall mean the Uniform Commercial Code as the same may be in effect from time to time in the jurisdiction in which Borrower or Collateral is located.

“UCP” shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 and any amendments and revisions thereof.

“U.S.” or “United States” shall mean the United States of America and its territorial possessions.

“U.S. Content” shall mean with respect to any Item all the labor, materials and services which are of U.S. origin or manufacture, and which are incorporated into an Item in the United States.

“Warranty” shall mean Borrower’s guarantee to Buyer that the Items will function as intended during the warranty period set forth in the applicable Export Order.

“Warranty Letter of Credit” shall mean a Standby Letter of Credit which is issued or caused to be issued by Lender to support the obligations of Borrower with respect to a Warranty or a Standby Letter of Credit which by its terms becomes a Warranty Letter of Credit.

1.02 Rules of Construction. For purposes of this Agreement, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term “or” is not exclusive; (c) the term “including” (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) the words “this Agreement”, “herein”, “hereof”, “hereunder” or other words of similar import refer to this Agreement as a whole including the schedules, exhibits, and annexes hereto as the same may be amended, modified or supplemented; (f) all references in this Agreement to sections, schedules, exhibits, and annexes shall refer to the corresponding sections, schedules, exhibits, and annexes of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, or the Delegated Authority Letter Agreement shall include any and all modifications, amendments and supplements thereto and any and all extensions or renewals thereof to the extent permitted under this Agreement.

1.03 Incorporation of Recitals. The Recitals to this Agreement are incorporated into and shall constitute a part of this Agreement.

ARTICLE II
OBLIGATIONS OF BORROWER

Until payment in full of all Loan Facility Obligations and termination of the Loan Documents, Borrower agrees as follows:

2.01 Use of Credit Accommodations. (a) Borrower shall use Credit Accommodations only for the purpose of enabling Borrower to finance the cost of manufacturing, producing, purchasing or selling the Items. Borrower may not use any of the Credit Accommodations for the purpose of: (i) servicing or repaying any of Borrower’s pre-existing or future indebtedness unrelated to the Loan Facility (unless approved by Ex-Im Bank in writing); (ii) acquiring fixed assets or capital goods for use in Borrower’s business; (iii) acquiring, equipping or renting commercial space outside of the United States; (iv) paying the salaries of non U.S. citizens or non-U.S. permanent residents who are located in offices outside of the United States; or (v) in connection with a Retainage or Warranty (unless approved by Ex-Im Bank in writing).

(b) In addition, no Credit Accommodation may be used to finance the manufacture, purchase or sale of any of the following:

(i) Items to be sold or resold to a Buyer located in a country as to which Ex-Im Bank is prohibited from doing business as designated in the Country Limitation Schedule;

(ii) that part of the cost of the Items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the Items and is incorporated into the Items in the United States;

(iii) defense articles or defense services; or

(iv) without Ex-Im Bank’s prior written consent, any Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities.

2.02 Loan Documents and Loan Authorization Agreement. (a) Each Loan Document and this Agreement have been duly executed and delivered on behalf of Borrower, and each such Loan Document and this Agreement are and will continue to be a legal and valid obligation of Borrower, enforceable against it in accordance with its terms.

(b) Borrower shall comply with all of the terms and conditions of the Loan Documents, this Agreement and the Loan Authorization Agreement.

2.03 Export-Related Borrowing Base Certificates and Export Orders. In order to receive Credit Accommodations under the Loan Facility, Borrower shall have delivered to Lender an Export-Related Borrowing Base Certificate as frequently as required by Lender but at least within the past thirty (30) calendar days and a copy of the Export Order(s) (or, for Revolving Loan Facilities, if permitted by Lender, a written summary of the Export Orders) against which Borrower is requesting Credit Accommodations. If Lender permits summaries of Export Orders, Borrower shall also deliver promptly to Lender copies of any Export Orders requested by Lender. In addition, so long as there are any Credit Accommodations outstanding under the Loan Facility, Borrower shall deliver to Lender at least once each month no later than the twentieth (20th) day of such month or more frequently as required by the Loan Documents, an Export-Related Borrowing Base Certificate.

2.04 Exclusions from the Export-Related Borrowing Base. In determining the Export-Related Borrowing Base, Borrower shall exclude therefrom Inventory which is not Eligible Export-Related Inventory and Accounts Receivable which are not Eligible Export-Related Accounts Receivable. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender (a) if any then existing Export-Related Inventory no longer constitutes Eligible Export-Related Inventory or (b) of any event or circumstance which to Borrower’s knowledge would cause Lender to consider any then existing Export-Related Accounts Receivable as no longer constituting an Eligible Export-Related Accounts Receivable.

2.05 Financial Statements. Borrower shall deliver to Lender the financial statements required to be delivered by Borrower in accordance with Section 11 of the Loan Authorization Agreement.

2.06 Schedules, Reports and Other Statements. Borrower shall submit to Lender in writing each month (a) an Inventory schedule for the preceding month and (b) an Accounts Receivable aging report for the preceding month detailing the terms of the amounts due from each Buyer. Borrower shall also furnish to Lender promptly upon request such information, reports, contracts, invoices and other data concerning the Collateral as Lender may from time to time specify.

2.07 Additional Security or Payment. (a) Borrower shall at all times ensure that the Export-Related Borrowing Base equals or exceeds the Credit Accommodation Amount. If informed by Lender or if Borrower otherwise has actual knowledge that the Export-Related Borrowing Base is at any time less than the Credit Accommodation Amount, Borrower shall, within five (5) Business Days, either (i) furnish additional Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank or (ii) pay to Lender an amount equal to the difference between the Credit Accommodation Amount and the Export-Related Borrowing Base.

(b) For purposes of this Agreement, in determining the Export-Related Borrowing Base there shall be deducted from the Export-Related Borrowing Base (i) an amount equal to twenty-five percent (25%) of the outstanding face amount of Commercial Letters of Credit and Standby Letters of Credit and (ii) one hundred percent (100%) of the face amount of Warranty Letters of Credit less the amount of cash collateral held by Lender to secure Warranty Letters of Credit.

(c) Unless otherwise approved in writing by Ex-Im Bank, for Revolving Loan Facilities (other than Transaction Specific Revolving Loan Facilities), Borrower shall at all times ensure that the outstanding principal balance of the Credit Accommodations that is supported by Export-Related Inventory does not exceed sixty percent (60%) of the sum of the total outstanding principal balance of the Disbursements and the undrawn face amount of all outstanding Commercial Letters of Credit. If informed by Lender or if Borrower otherwise has actual knowledge that the outstanding principal balance of the Credit Accommodations that is supported by Inventory exceeds sixty percent (60%) of the sum of the total outstanding principal balance of the Disbursements and the undrawn face amount of all outstanding Commercial Letters of Credit, Borrower shall, within five (5) Business Days, either (i) furnish additional non-Inventory Collateral to Lender, in form and amount satisfactory to Lender and Ex-Im Bank, or (ii) pay down the applicable portion of the Credit Accommodations so that the above described ratio is not exceeded.

2.08 Continued Security Interest. Borrower shall not change (a) its name or identity in any manner, (b) the location of its principal place of business, (c) the location of any of the Collateral or (d) the location of any of the books or records related to the Collateral, in each instance without giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender’s Liens upon the Collateral.

2.09 Inspection of Collateral. Borrower shall permit the representatives of Lender and Ex-Im Bank to make at any time during normal business hours inspections of the Collateral and of Borrower’s facilities, activities, and books and records, and shall cause its officers and employees to give full cooperation and assistance in connection therewith.

2.10 General Intangibles. Borrower represents and warrants that it owns, or is licensed to use, all General Intangibles necessary to conduct its business as currently conducted except where the failure of Borrower to own or license such General Intangibles could not reasonably be expected to have a Material Adverse Effect.

2.11 Notice of Certain Events. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender in writing of the occurrence of any of the following:

(a) Borrower or any Guarantor (i) applies for, consents to or suffers the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property or calls a meeting of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed within thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) takes any action for the purpose of effecting any of the foregoing;

(b) any Lien in any of the Collateral, granted or intended by the Loan Documents to be granted to Lender, ceases to be a valid, enforceable, perfected, first priority Lien (or a lesser priority if expressly permitted pursuant to Section 6 of the Loan Authorization Agreement) subject only to Permitted Liens;

(c) the issuance of any levy, assessment, attachment, seizure or Lien, other than a Permitted Lien, against any of the Collateral which is not stayed or lifted within thirty (30) calendar days;

(d) any proceeding is commenced by or against Borrower or any Guarantor for the liquidation of its assets or dissolution;

(e) any litigation is filed against Borrower or any Guarantor which has had or could reasonably be expected to have a Material Adverse Effect and such litigation is not withdrawn or dismissed within thirty (30) calendar days of the filing thereof;

(f) any default or event of default under the Loan Documents;

(g) any failure to comply with any terms of the Loan Authorization Agreement;

(h) any material provision of any Loan Document or this Agreement for any reason ceases to be valid, binding and enforceable in accordance with its terms;

(i) any event which has had or could reasonably be expected to have a Material Adverse Effect; or

(j) the Credit Accommodation Amount exceeds the applicable Export-Related Borrowing Base.

2.12 Insurance. Borrower will at all times carry property, liability and other insurance, with insurers acceptable to Lender, in such form and amounts, and with such deductibles and other provisions, as Lender shall require, and Borrower will provide evidence of such insurance to Lender, so that Lender is satisfied that such insurance is, at all times, in full force and effect. Each property insurance policy shall name Lender as loss payee and shall contain a lender’s loss payable endorsement in form acceptable to Lender and each liability insurance policy shall name Lender as an additional insured. All policies of insurance shall provide that they may not be cancelled or changed without at least ten (10) days’ prior written notice to Lender and shall otherwise be in form and substance satisfactory to Lender. Borrower will promptly deliver to Lender copies of all reports made to insurance companies.

2.13 Taxes. Borrower has timely filed all tax returns and reports required by applicable law, has timely paid all applicable taxes, assessments, deposits and contributions owing by Borrower and will timely pay all such items in the future as they became due and payable. Borrower may, however, defer payment of any contested taxes; provided, that Borrower (a) in good faith contests Borrower’s obligation to pay such taxes by appropriate proceedings promptly and diligently instituted and conducted; (b) notifies Lender in writing of the commencement of, and any material development in, the proceedings; (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a Lien upon any of the Collateral; and (d) maintains adequate reserves therefor in conformity with GAAP.

2.14 Compliance with Laws. Borrower represents and warrants that it has complied in all material respects with all provisions of all applicable laws and regulations, including those relating to Borrower’s ownership of real or personal property, the conduct and licensing of Borrower’s business, the payment and withholding of taxes, ERISA and other employee matters, safety and environmental matters.

2.15 Negative Covenants. Without the prior written consent of Ex-Im Bank and Lender, Borrower shall not (a) merge, consolidate or otherwise combine with any other Person; (b) acquire all or substantially all of the assets or capital stock of any other Person; (c) sell, lease, transfer, convey, assign or otherwise dispose of any of its assets, except for the sale of Inventory in the ordinary course of business and the disposition of obsolete equipment in the ordinary course of business; (d) create any Lien on the Collateral except for Permitted Liens; (e) make any material changes in its organizational structure or identity; or (f) enter into any agreement to do any of the foregoing.

2.16 Reborrowings and Repayment Terms. (a) If the Loan Facility is a Revolving Loan Facility, provided that Borrower is not in default under any of the Loan Documents, Borrower may borrow, repay and reborrow amounts under the Loan Facility until the close of business on the Final Disbursement Date. Unless the Revolving Loan Facility is renewed or extended by Lender with the consent of Ex-Im Bank, Borrower shall pay in full the outstanding Loan Facility Obligations and all accrued and unpaid interest thereon no later than the first Business Day after the Final Disbursement Date.

(b) If the Loan Facility is a Transaction Specific Loan Facility, Borrower shall, within two (2) Business Days of the receipt thereof, pay to Lender (for application against the outstanding Loan Facility Obligations and accrued and unpaid interest thereon) all checks, drafts, cash and

other remittances it may receive in payment or on account of the Export-Related Accounts Receivable or any other Collateral, in precisely the form received (except for the endorsement of Borrower where necessary). Pending such deposit, Borrower shall hold such amounts in trust for Lender separate and apart and shall not commingle any such items of payment with any of its other funds or property.

2.17 Cross Default. Borrower shall be deemed in default under the Loan Facility if Borrower fails to pay when due any amount payable to Lender under any loan or other credit accommodations to Borrower whether or not guaranteed by Ex-Im Bank.

2.18 Munitions List. If any of the Items are articles, services, or related technical data that are listed on the United States Munitions List (part 121 of title 22 of the Code of Federal Regulations), Borrower shall send a written notice promptly, but in any event within five (5) Business Days, of Borrower learning thereof to Lender describing the Items(s) and the corresponding invoice amount.

2.19 Suspension and Debarment, etc. On the date of this Agreement neither Borrower nor its Principals are (a) debarred, suspended, proposed for debarment with a final determination still pending, declared ineligible or voluntarily excluded (as such terms are defined under any of the Debarment Regulations referred to below) from participating in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations or (b) indicted, convicted or had a civil judgment rendered against Borrower or any of its Principals for any of the offenses listed in any of the Debarment Regulations. Unless authorized by Ex-Im Bank, Borrower will not knowingly enter into any transactions in connection with the Items with any person who is debarred, suspended, declared ineligible or voluntarily excluded from participation in procurement or nonprocurement transactions with any United States federal government department or agency pursuant to any of the Debarment Regulations. Borrower will provide immediate written notice to Lender if at any time it learns that the certification set forth in this Section 2.19 was erroneous when made or has become erroneous by reason of changed circumstances.

ARTICLE III
RIGHTS AND REMEDIES

3.01 Indemnification. Upon Ex-Im Bank’s payment of a Claim to Lender in connection with the Loan Facility pursuant to the Master Guarantee Agreement, Ex-Im Bank may assume all rights and remedies of Lender under the Loan Documents and may enforce any such rights or remedies against Borrower, the Collateral and any Guarantors. Borrower shall hold Ex-Im Bank and Lender harmless from and indemnify them against any and all liabilities, damages, claims, costs and losses incurred or suffered by either of them resulting from (a) any materially incorrect certification or statement knowingly made by Borrower or its agent to Ex-Im Bank or Lender in connection with the Loan Facility, this Agreement, the Loan Authorization Agreement or any other Loan Documents or (b) any material breach by Borrower of the terms and conditions of this Agreement, the Loan Authorization Agreement or any of the other Loan Documents. Borrower also acknowledges that any statement, certification or representation made by Borrower in connection with the Loan Facility is subject to the penalties provided in Article 18 U.S.C. Section 1001.

3.02 Liens. Borrower agrees that any and all Liens granted by it to Lender are also hereby granted to Ex-Im Bank to secure Borrower’s obligation, however arising, to reimburse Ex-Im Bank for any payments made by Ex-Im Bank pursuant to the Master Guarantee Agreement. Lender is authorized to apply the proceeds of, and recoveries from, any property subject to such Liens to the satisfaction of Loan Facility Obligations in accordance with the terms of any agreement between Lender and Ex-Im Bank.

ARTICLE IV
MISCELLANEOUS

4.01 Governing Law. This Agreement and the Loan Authorization Agreement and the obligations arising under this Agreement and the Loan Authorization Agreement shall be governed by, and construed in accordance with, the law of the state governing the Loan Documents.

4.02 Notification. All notices required by this Agreement shall be given in the manner and to the parties provided for in the Loan Agreement.

4.03 Partial Invalidity. If at any time any of the provisions of this Agreement becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, the validity nor the enforceability of the remaining provisions hereof shall in any way be affected or impaired.

4.04 Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMMISSIONS OF LENDER, EX-IM BANK, OR ANY OTHER PERSON, RELATING TO THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT OR ANY OTHER LOAN DOCUMENT.

IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly executed as of the 18th day of June, 2002.

PHARSIGHT, INC.

By:
	(Signature)

Name:
	(Print or Type)

Title:
	(Print or Type)

ACKNOWLEDGED:

SILICON VALLEY BANK


By:
	(Signature)

Name:
	(Print or Type)

Title:
	(Print or Type)

ANNEXES:

Annex A - Loan Authorization Agreement or Loan Authorization Notice

CONSENT OF GUARANTORS

Each of the undersigned as a Guarantor of the obligations of Borrower to the Lender executing the foregoing Agreement hereby agrees that the foregoing Agreement, each of their respective Guaranty Agreements and each other Loan Documents may be assigned to the Export-Import Bank of the United States.


	[INDIVIDUAL GUARANTOR]


	[CORPORATE GUARANTOR]

	By:

	Name:

	Title:

EX-10.30 8 a2083003zex-10_30.htm EXHIBIT 10.30

Exhibit 10.30

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement is entered into as of June 13, 2002, by and between PHARSIGHT, INC. (the “Borrower”) and Silicon Valley Bank (“Bank”).

1. DESCRIPTION OF EXISTING OBLIGATIONS: Among other Obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated June 13, 2001, as may be amended from time to time, (the “Domestic Loan Agreement”). The Loan Agreement provides for, among other things, a Committed Revolving Line in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) and a Committed Term Loan in the original principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000). Furthermore, Borrower is indebted to Bank pursuant to, among other documents, an Export-Import Bank Loan and Security Agreement, dated June 13, 2001, as may be amended from time to time (the “EXIM Loan Agreement”). The EXIM Loan Agreement provided for, among other things, an EXIM Committed Line in the original principal amount of One Million Five Hundred Thousand Dollars ($1,500,000). The Domestic Loan Agreement and the EXIM Loan Agreement are collectively defined as the Loan Agreements. Defined terms used but not otherwise defined herein shall have the same meanings as set forth in the Loan Agreements.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the “Obligations.”

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modification(s) to Domestic Loan Agreement.

1. The following defined term under Section 13.1 entitled “Definitions” is hereby amended to read as follows:

“Revolving Maturity Date” is July 13, 2002.

B. Modification of EXIM Loan Agreement.

1. The following defined term under Section 13.1 entitled “Definitions” is hereby amended to read as follows:

“EXIM Maturity Date” is July 13, 2002.

4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

5. NO DEFENSES OF BORROWER. Borrower agrees that, as of the date hereof, it has no defenses against paying any of the Obligations.

6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the

Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Bank in writing. Unless expressly released herein, no maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements.

7. CONDITIONS. The effectiveness of this Loan Modification Agreement is conditioned upon payment of the Loan Fee.

This Loan Modification Agreement is executed as of the date first written above.

BORROWER:			BANK:

PHARSIGHT, INC.			SILICON VALLEY BANK


By:			By:

Name:			Name:

Title:			Title:

[GRAPHIC LOGO]

SILICON VALLEY BANK

PRO FORMA INVOICE FOR LOAN CHARGES

BORROWER:	PHARSIGHT, INC.

LOAN OFFICER:	Ron Kundich

DATE:	June 13, 2002

	Documentation Fee	$	250.00

	TOTAL FEE DUE	$	250.00

Please indicate the method of payment:

{ } A check for the total amount is attached.

{ } Debit DDA # for the total amount.

{ } Loan proceeds


Borrower		(Date)


Silicon Valley Bank		(Date)
Account Officer’s Signature

EX-10.31 9 a2083003zex-10_31.htm EXHIBIT 10.31

Exhibit 10.31

EXECUTION COPY

IN MAKING AN INVESTMENT DECISION PURCHASERS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

PHARSIGHT CORPORATION

PREFERRED STOCK AND WARRANT

PURCHASE AGREEMENT

June 25, 2002

TABLE OF CONTENTS

SECTION 1.		AUTHORIZATION OF SALE OF THE SECURITIES

SECTION 2.		AGREEMENT TO SELL AND PURCHASE THE SECURITIES

2.1		Sale of Units

2.2		Separate Agreement

SECTION 3.		CLOSING AND DELIVERY

3.1		Closing

3.2		Delivery of the Units at the Closing

3.3		Subsequent Sales of Shares

SECTION 4.		REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

4.1		Organization and Qualification

4.2		Capitalization

4.3		Authorization of Securities

4.4		Governmental Consents

4.5		Due Authorization, Execution and Delivery of Agreement

4.6		No Conflicts

4.7		Title to Assets

4.8		Permits

4.9		Legal Actions

4.10		Labor

4.11		No Violations

4.12		Insurance

4.13		Company Contracts

4.14		SEC Documents

4.15		Related Party Transactions

4.16		Financial Statements

4.17		Intellectual Property

4.18		Regulation

4.19		Nasdaq Listing

4.20		Taxes

4.21		No Integration or General Solicitation

4.22		No Registration

4.23		No Material Changes

4.24		Accounting Controls

4.25		Form S-3 Qualification

4.26		No Anti-Dilution Event

4.27		Registration Rights

4.28		Complete Disclosure

SECTION 5.		REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS

SECTION 6.		SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS

SECTION 7.		CONDITIONS TO COMPANY’S OBLIGATIONS AT THE CLOSING

7.1		Receipt of Payment

7.2		Representations and Warranties Correct

7.3		Covenants Performed

7.4		Nasdaq Notice Periods

7.5		Nasdaq or Stockholder Approval

SECTION 8.		CONDITIONS TO PURCHASERS’ OBLIGATIONS AT THE CLOSING

8.1		Representations and Warranties Correct

8.2		Covenants Performed

8.3		Reservation of Conversion Shares and Warrant Shares

8.4		Legal Opinion

8.5		Officer’s Certificate

8.6		Secretary’s Certificate

8.7		Nasdaq or Stockholder Approval

SECTION 9.		REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT

9.1		Registration Procedures

9.2		Transfer of Shares After Registration; Suspension; Damages

9.3		Expenses of Registration

9.4		Delay of Registration; Furnishing Information

9.5		Indemnification

9.6		Agreement to Furnish Information

9.7		Assignment of Registration Rights

9.8		Rule 144 Reporting

9.9		S-3 Eligibility

9.10		Termination of Registration Rights

9.11		Amendment of Registration Rights

9.12		Legends

SECTION 10.		BROKER’S FEE

SECTION 11.		NOTICES

SECTION 12.		MISCELLAEOUS

12.1		Waivers and Amendments

12.2		Agreement to Vote for Issuance of Subsequent Units

12.3		Headings

12.4		Severability

12.5		Governing Law

12.6		Counterparts

12.7		Successors and Assigns

12.8		Entire Agreement

12.9		Payment of Fees and Expenses

12.10		Waiver of Conflicts

ATTACHMENTS:

Exhibit A	—	Schedule of Purchasers
Exhibit B	—	Form of Warrant
Exhibit C	—	Certificate of Designations of Series A Convertible Preferred Stock
Exhibit D	—	Opinion of Cooley Godward LLP
Exhibit E	—	Plan of Distribution
Appendix I	—	Stock Certificate and Warrant Questionnaire
Appendix II	—	Registration Statement Questionnaire
Appendix III	—	Seller’s Certificate of Sale

iii

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PREFERRED STOCK AND WARRANT

PURCHASE AGREEMENT

THIS AGREEMENT (“Agreement”) is made as of the 25th day of June, 2002 (the “Effective Date”), by and among PHARSIGHT CORPORATION, a Delaware corporation with its principal place of business at 800 West El Camino Real, Suite 200, Mountain View, California 94040, (the “Company”) and each of those persons and entities, severally and not jointly, listed as a Purchaser on the Schedule of Purchasers attached as Exhibit A hereto (each, a “Purchaser” and collectively, the “Purchasers”).

AGREEMENT

In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and each Purchaser (severally and not jointly) hereby agree as follows:

SECTION 1. AUTHORIZATION OF SALE OF THE SECURITIES. Subject to the terms and conditions of this Agreement, the Company has or before the Initial Closing Date (as defined in Section 3) will have authorized (a) the sale and issuance of up to one million eight hundred fourteen thousand six hundred sixty two (1,814,662) shares of its Series A Convertible Preferred Stock (the “Preferred Stock”), (b) the issuance of the shares of its Common Stock (the “Common Stock”) to be issued upon conversion of the Preferred Stock (the “Conversion Shares”), and (c) the sale and issuance of Warrants, each in substantially the form attached hereto as Exhibit B (each a “Warrant” and collectively the “Warrants”), to purchase up to one million eight hundred fourteen thousand six hundred sixty two (1,814,662) shares (the “Warrant Shares”) of Common Stock, and the issuance of the Warrant Shares upon exercise of the Warrants. The shares of Preferred Stock sold hereunder, the Conversion Shares and the Warrant Shares shall be referred to herein as the “Shares.” The Shares and the Warrants shall be referred to herein as the “Securities.”

SECTION 2. AGREEMENT TO SELL AND PURCHASE THE SECURITIES.

2.1 Sale of Units. At each Closing (as defined in Section 3), the Company will sell to each Purchaser, and each Purchaser will purchase from the Company, at a purchase price equal to $4.133 per “Unit,” the number of Units set forth next to such Purchaser’s name on the Schedule of Purchasers attached hereto as Exhibit A (the “Schedule of Purchasers”) with respect to such Closing. As used herein, a Unit is comprised of (i) one (1) share of Preferred Stock, and (ii) one warrant to purchase one share of Common Stock.

2.2 Separate Agreement. Each Purchaser shall severally, and not jointly, be liable for only the purchase of the Units that appear on Exhibit A hereto and that relate to such Purchaser. The Company’s agreement with each of the Purchasers is a separate agreement, and the sale of Units to each of the Purchasers is a separate sale.

SECTION 3. CLOSING AND DELIVERY.

3.1 Closing. The closing of the purchase and sale of the first Units to be sold pursuant to this Agreement (the “Initial Units”) shall be held on June 26, 2002, at the offices of Cooley Godward LLP, 3715 Hanover Street, Palo Alto, California, or on such other date and place as may be agreed to by the Company and the Purchasers. The date of the closing of the purchase and sale of the Initial Units is referred to herein as the “Initial Closing Date”, the closing of the purchase and sale of the purchase and sale of the remaining Units (the “Subsequent Units”) pursuant to Section 3.3 is referred herein as the “Subsequent Closing Date”, and each such closing is referred to as a “Closing.”

3.2 Delivery of the Units at the Closing. At each Closing, the Company shall deliver to each Purchaser stock certificates and Warrants registered in the name of such Purchaser, or in such nominee name(s) as designated by such Purchaser, representing the number of shares of Preferred Stock and Warrants to be purchased by such Purchaser at the respective Closing as set forth in the Schedule of Purchasers. The name(s) in which the stock certificates and Warrants are to be issued to each Purchaser are set forth in the Stock Certificate and Warrant Questionnaire in the form attached hereto as Appendix I, as completed by each Purchaser.

3.3 Subsequent Sales of Shares. On the third business day following the earlier to occur of (a) approval by The Nasdaq Stock Market of the sale of the Subsequent Units or (b) approval by the stockholders of the Company in accordance with the requirements of The Nasdaq Stock Market of the sale of the Subsequent Units, the Purchasers shall purchase, and the Company shall sell, the Subsequent Units as set forth on Exhibit A. All such sales shall be made on the terms and conditions set forth in this Agreement. The Company covenants and agrees to use it best efforts to cause such approval of the stockholders of the Company for the issuance and sale of the Subsequent Units to occur on or before September 15, 2002, and, if such approval is not obtained by such date, the Company shall use its best efforts to cause such approval to occur as soon thereafter as practicable.

SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

Except as set forth in the Schedule of Exceptions dated as of even date herewith and provided to the Purchasers separately from this Agreement, the Company hereby represents and warrants to, and covenants with, the Purchasers as follows:

4.1 Organization and Qualification. Each of the Company and the Subsidiary (as defined below) has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware, with requisite corporate power and authority to own its properties and conduct its business as presently conducted. The Company and the Subsidiary are duly qualified to do business as foreign corporations in good standing in each jurisdiction in which their ownership or lease of property or the conduct of their businesses require such qualification, except where the failure to be so qualified would not have a material adverse effect on transactions contemplated by this Agreement or the condition (financial or other), business, properties or results of operations of the Company (hereinafter, a “Material Adverse Effect”). The Company has furnished representatives of the Purchasers with correct and complete copies of the charter and by-laws of the Company, both as amended and currently in effect. Except as

set forth in the Schedule of Exceptions, the Company does not presently own, directly or indirectly, any of the stock or other equity interests in any entity The “Subsidiary” shall mean Pharsight International Co., a Delaware corporation.

4.2 Capitalization. (a) The authorized capital stock of the Company consists of: (i) one hundred twenty million (120,000,000) shares of common stock, par value $0.001 per share (“Common Stock”) and (ii) five million (5,000,000) shares of preferred stock. As of May 31, 2002, 18,779,442 shares of Common Stock have been issued and are outstanding and no shares of Preferred Stock are issued and outstanding. There are no other outstanding shares of capital stock or voting securities of the Company other than shares of Common Stock issued after May 31, 2002 under the Company’s 2000 Employee Stock Purchase Plan and 2001 UK Employee Stock Purchase Plan (the “ESPPs”) or upon the exercise of options issued under the Company’s 2000 Equity Incentive Plan, 1997 Stock Option Plan, 1995 Stock Option Plan, the UK Company Share Option Plan or 2000 CEO Non-Qualified Stock Option Plans (the “Plans”). All outstanding shares of the Company have been duly authorized, validly issued, fully paid and are non-assessable and free of any liens or encumbrances created by the Company and are not subject to preemptive rights. As of the close of business on May 31, 2002, the Company has reserved an aggregate of 4,354,423 shares of Common Stock for issuance to employees, directors and independent contractors upon exercise of outstanding options to acquire shares of Common Stock issued under the Company’s Plans, 3,472,995 shares of Common Stock available for future grants of options under the Company’s Plans, and an aggregate of 275,652 shares of Common Stock for issuance upon exercise of outstanding warrants. Other than as contemplated by this Agreement or under the ESPPs, and except as described in this Section 2.2, there are no other options, warrants, calls, rights, commitments, preemptive rights, rights of first refusal or other rights or agreements to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the Company to grant, extend or enter into any such option, warrant, call, right, commitment or agreement.

(b) All of the issued and outstanding capital stock of the Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable and is owned of record by the Company, free and clear of any lien, charge, security interest, encumbrance or claim.

4.3 Authorization of Securities. The Securities, and all outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Securities have been delivered and paid for in accordance with this Agreement on the applicable Closing Date, will have been validly issued, fully paid and non-assessable. None of the Securities are or will be subject to any preemptive right or any right of refusal.

4.4 Governmental Consents. No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except for the filing of a Form D with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), and such as may be required under state securities laws and except for the

approval of the Company’s stockholders to the issuance of the Subsequent Units pursuant to NASD Rule 4350(i).

4.5 Due Authorization, Execution and Delivery of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. All corporate action on the part of the Company and its stockholders, directors and officers necessary for the authorization, execution and delivery of this Agreement, the performance of all the Company’s obligations hereunder and for the authorization, issuance or reservation for issuance, sale and delivery of the Securities has been taken, other than the filing of the Certificate of Designations, the form of which is attached hereto as Exhibit C (which will be filed prior to the sale of the Initial Units), and except for the approval of the Company’s stockholders to the issuance of the Subsequent Units pursuant to NASD Rule 4350(i). This Agreement and the transactions hereunder have also been approved by a majority of the disinterested directors of the Company, within the meaning of Section 144 of the Delaware General Corporation Law. This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, (ii) rules of law governing specific performance, injunctive relief and other equitable remedies, and (iii) the limitations imposed by applicable federal or state securities laws on the indemnification provisions contained in this Agreement.

4.6 No Conflicts. The execution, delivery and performance of this Agreement, and the issuance and sale of the Securities, will not conflict with, or result in a breach or violation of (i) any of the terms and provisions of the charter or bylaws of the Company or the Subsidiary, (ii) any statute, rule, regulation or order of any governmental agency or body, any court, domestic or foreign, or any self-regulatory organization having jurisdiction over the Company or the Subsidiary or any of their respective properties, or (iii) any of the terms and provisions of, or constitute a default (with or without notice or lapse of time) under, or give to any third party a right of termination, amendment, acceleration or cancellation (with or without notice or lapse of time) of, any agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary is bound or to which any of the properties of the Company or the Subsidiary is subject. The Company has full power and authority to authorize, issue and sell the Securities as contemplated by this Agreement.

4.7 Title to Assets. The Company and the Subsidiary have good and marketable title to all real properties and all other properties and assets owned by it that are material to the operation of the business of the Company or the Subsidiary, in each case free from liens and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and the Company and the Subsidiary hold all leased real and personal property that are material to the operation of their respective businesses under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them.

4.8 Permits. The Company and the Subsidiary possess all certificates, authorizations and permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and to own, lease, license and use their respective properties in the manner so owned, leased, licensed and used, except to the extent that the failure to so possess

would not individually or in the aggregate have a Material Adverse Effect. Neither the Company nor the Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit that, if determined adversely to the Company or the Subsidiary would individually or in the aggregate have a Material Adverse Effect.

4.9 Legal Actions. There are no pending legal, governmental or administrative actions, suits or proceedings against or affecting the Company or the Subsidiary or any of their respective properties or any director, officer or employee (related to any such person’s services as a director, officer or employee of the Company or the Subsidiary) that, if determined adversely to the Company or the Subsidiary would individually or in the aggregate have a Material Adverse Effect, or could materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Securities and, to the actual knowledge of the Company’s executive officers, no such actions, suits or proceedings are threatened or contemplated. Neither the Company nor the Subsidiary has initiated and neither has any plan to initiate any action, suit or proceeding that, if decided adversely to the Company or the Subsidiary, could, individually or in the aggregate, result in a Material Adverse Effect.

4.10 Labor. No material labor dispute exists or, to the actual knowledge of the Company’s executive officers, is imminent with respect to any of the employees of the Company or the Subsidiary.

4.11 No Violations. Neither the Company nor the Subsidiary is (i) in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time could reasonably be expected to result in a default by the Company or the Subsidiary under), nor has the Company or the Subsidiary received notice of a claim that it is in default under or that it is in violation of, any agreement or instrument to which it is a party or by which it or any of its properties is bound, (ii) in violation of any order of any court, arbitrator, governmental body or self-regulatory organization, or (iii) in violation of any statute, rule or regulation of any governmental authority or self-regulatory organization, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as would not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect.

4.12 Insurance. The Company maintains insurance and in such coverage amounts as is customary in the business in which the Company is engaged. The Company has no reason to believe that such insurance is not sufficient against such losses and risks and not in such amounts as are reasonably customary in the business in which the Company is engaged.

4.13 Company Contracts. Except as filed under the SEC Documents (defined below), neither the Company nor the Subsidiary is a party to any material contract, as such contracts are defined in Reg. § 601(a)(10) of Regulation S-K under the Securities Act (each such contract, a “Company Contract”). To the actual knowledge of the executive officers of the Company, each Company Contract is valid, binding and in full force and effect and is enforceable by the Company or the Subsidiary in accordance with its terms subject to applicable

bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws affecting creditors’ rights generally and to general equitable principles and except to the extent that the failure of a Company Contract to be valid, binding and in full force and effect would not be reasonably likely to have a Material Adverse Effect. As of the date hereof, no party to any such Company Contract has notified the Company or the Subsidiary that it intends to terminate such Company Contract. The Company and the Subsidiary have performed, in all respects, all obligations required to be performed by it to date under the Company Contracts, as amended, and neither the Company nor the Subsidiary is (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder and, to the actual knowledge of the executive officers of the Company, no other party to any of the Company Contracts, as of the date hereof, is (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, except in each case to the extent that such breach or default would not be reasonably likely to have a Material Adverse Effect.

4.14 SEC Documents. The Company has made available to representatives of the Purchasers all registration statements, proxy statements and other statements, reports, schedules, forms and other documents filed by the Company with the SEC since June 26, 2001, including copies of all the exhibits referenced therein (the “SEC Documents”). All statements, reports, schedules, forms and other documents required to have been filed by the Company with the SEC since June 26, 2001 have been so timely filed. As of their respective dates (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amendment or superseding filing): (i) each of the SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as the case may be, and the rules and regulations thereunder; and (ii) none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

4.15 Related Party Transactions. Except as set forth in the SEC Documents, none of the officers or directors of the Company and, to the actual knowledge of the executive officers of the Company, none of the employees of the Company is presently a party to any transaction with the Company (other than customary transactions involving reasonable amounts for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the actual knowledge of the executive officers of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

4.16 Financial Statements. The financial statements included in the SEC Documents present fairly the financial position of the Company as of the dates shown and its results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis (except as may be indicated in the audit report or notes to such financial statements or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not have contained footnotes and were subject to normal and recurring year-end adjustments which were not, or are not reasonably

expected to be, individually or in the aggregate, material in amount), and complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto at the time of filing.

4.17 Intellectual Property. The Company and the Subsidiary own or possess, or can acquire on reasonable terms that would not individually or in the aggregate have a Material Adverse Effect, sufficient legal rights to all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable propriety or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, “Intellectual Property Rights”) necessary to conduct its business as now operated by it and as currently proposed to be operated by it. To the actual knowledge of the executive officers of the Company, the methods, products, services, works, technologies, systems and processes employed by the Company to conduct its business do not infringe upon or misappropriate any Intellectual Property Rights of any person or entity anywhere in the world, except for Intellectual Property Rights which the Company can acquire on reasonable terms that would not individually or in the aggregate have a Material Adverse Effect. To the actual knowledge of the executive officers of the Company, no claims or written notice (i) challenging the validity, effectiveness or ownership by the Company or the Subsidiary of any of the Intellectual Property Rights of the Company or the Subsidiary, or (ii) to the effect that the use, distribution, licensing, sublicensing, sale or any other exercise of rights in any product, service, work, technology or process as now used or offered or proposed for use, licensing, sublicensing, sale or other manner of commercial exploitation by the Company or the Subsidiary infringes or will infringe on any Intellectual Property Rights of any person or entity have been asserted or, to the actual knowledge of the executive officers of the Company, are threatened by any person or entity, nor are there, to the actual knowledge of the executive officers of the Company, any valid grounds for any bona fide claim of any such kind except as can be cured by the Company by procurement of Intellectual Property Rights which the Company can acquire on reasonable terms that would not individually or in the aggregate have a Material Adverse Effect. There has been no material default (nor does any set of circumstances exist that will cause such a default) with respect to any license granting Intellectual Property Rights to the Company or the Subsidiary. To the actual knowledge of the executive officers of the Company, no employee or third party is or has been infringing or using without authorization any Intellectual Property Rights of the Company or the Subsidiary. The Company and the Subsidiary use and have used, commercially reasonable efforts to maintain the confidentiality of its trade secrets.

4.18 Regulation. Neither the Company nor the Subsidiary is subject to regulation by the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act and the Regulations thereunder (“FDCA”). Neither the Company nor the Subsidiary has received any written notices or correspondence from the FDA or any other governmental authority requiring the termination, suspension or material modification of any tests or evaluations conducted on behalf of the Company or the Subsidiary.

4.19 Nasdaq Listing. The Company has not, in the 12 months preceding the date hereof, received notice from The Nasdaq Stock Market to the effect that the Company is not in compliance with the listing or maintenance requirements thereof. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all

such listing and maintenance requirements. The issuance and sale of the securities hereunder does not contravene the rules and regulations of The Nasdaq Stock Market.

4.20 Taxes. The Company and the Subsidiary have timely made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and the Subsidiary have set aside on their books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and have timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. To the actual knowledge of the executive officers of the Company, there are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s or the Subsidiary’s tax returns is presently being audited by any taxing authority.

4.21 No Integration or General Solicitation. Neither the Company nor, to the actual knowledge of the executive officers of the Company, any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act) (an “Affiliate”) of the Company has, directly, or through any agent, (a) sold, offered for sale, solicited any offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sales of the Securities in a manner that would require the registration under the Securities Act of the Securities; or (b) offered, solicited offers to buy or sold the Securities in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and the Company will not engage in any of the actions described in subsections (a) and (b) of this paragraph.

4.22 No Registration. Subject to the accuracy of each of the Purchaser’s representations herein, it is not necessary in connection with the offer, sale and delivery of the Securities to the several Purchasers in the manner contemplated by this Agreement to register the Securities under the Securities Act.

4.23 No Material Changes. Except as disclosed in the SEC Documents, since March 31, 2001, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the SEC, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option and stock purchase plans. Except as disclosed in the SEC

Documents, since March 31, 2001 no material off-balance sheet liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the SEC which would individually or in the aggregate have a Material Adverse Effect have been incurred. No material default exists with respect to or under any obligations of the Company or any Subsidiary to repay money borrowed (including, without limitation, all notes payable and drafts accepted representing extensions of credit, all obligations under letters of credit, all obligations evidenced by bonds, debentures, notes or other similar instruments and all obligations upon which interest charges are customarily paid) and all contractual obligations (whether absolute or contingent) of such entity to repurchase goods sold and distributed or any instrument or agreement relating thereto and no event or circumstance exists with respect thereto that (with notice or the lapse of time or both) could give rise to such a default.

4.24 Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

4.25 Form S-3 Qualification. The Company satisfies the requirements for use of Form S-3 for registration of the resale of the Securities as contemplated herein. To the actual knowledge of the executive officers of the Company, there exist no facts or circumstances that could reasonably be expected to prohibit or delay the preparation or initial filing of the Registration Statement.

4.26 No Anti-Dilution Event. The issuance of the Securities does not constitute an anti-dilution event for any existing security holders of the Company, pursuant to which such security holders would be entitled to additional securities or a reduction in the applicable conversion price or exercise price of any securities due to any issuance proposed to be conducted hereunder.

4.27 Registration Rights. The Company has not granted or agreed to grant any person or entity any rights (including “piggy-back” registration rights) to require the Company to file a registration statement under the Securities Act with respect to any securities, or to include such securities with the Securities in any registration statement, except for such as have been satisfied or waived.

4.28 Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom will not be an “investment company” as such term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, in the event that the SEC shall inform the Company that the SEC believes that the Company is an “investment company” as such term is defined in the 1940 Act, the Company shall manage its investments and promptly take such other

actions as is reasonably necessary in order that the SEC shall no longer consider the Company to be an “investment company” as such term is defined in the 1940 Act.

4.29 Complete Disclosure. All information provided to the Purchasers in connection with the transactions contemplated hereby, or contained in this Agreement and the SEC Documents with respect to the business, operations, assets, results of operations and financial condition of the Company, and the transactions contemplated by this Agreement, are true and complete in all material respects and do not omit to state any material fact or facts necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS.

Each Purchaser, severally and not jointly, represents and warrants to and covenants with the Company that:

(a) Purchaser, taking into account the personnel and resources it can practically bring to bear on the purchase of the Securities contemplated hereby, either alone or together with the advice of such Purchaser’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 purchase of the Securities, including investments in securities issued by the Company, and has requested, received, reviewed and considered, either alone or with such Purchaser’s purchaser representative, all information Purchaser deems relevant in making an informed decision to purchase the Securities.

(b) Purchaser is acquiring the Securities being acquired by Purchaser pursuant to this Agreement in the ordinary course of its business and for its 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 5(c).

(c) Purchaser 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 the Securities purchased 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.

(d) Purchaser has completed or caused to be completed the Stock Certificate and Warrant Questionnaire and the Registration Questionnaire, attached hereto as Appendix I and Appendix II, respectively, for use in preparation of the Registration Statements to be filed by the Company, and the answers thereto are true and correct to the best knowledge of Purchaser as of the date hereof and will be true and correct as of the effective date of the applicable Registration Statement (provided that Purchaser shall be entitled to update such information by providing notice thereof to the Company prior to the effective date of such Registration Statement).

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(e) Purchaser has, in connection with its decision to purchase the Securities, relied with respect to the Company and its affairs solely upon the information delivered to Purchaser as described in Sections 4.4 and 5(a) above and the representations and warranties of the Company contained herein.

(f) is an “accredited Purchaser” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act or a Qualified Institutional Buyer within the meaning of Rule 144A promulgated under the Securities Act.

(g) Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement. Upon the execution and delivery of this Agreement by Purchaser, this Agreement shall constitute a valid and binding obligation of Purchaser, enforceable in accordance with its terms, except (i) as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally, (ii) as limited by equitable principles generally, including any specific performance, and (iii) as to those provisions of Section 9.5 relating to indemnity or contribution.

(h) The Alloy Entities (as defined below), and only the Alloy Entities, represent and warrant that they, together with their Affiliates, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), prior to the issuance of the Units, an aggregate of 3,216,242 shares of the Company’s Common Stock (including 91,646 shares issuable upon the exercise of outstanding warrants). The Sprout Entities (as defined below), and only the Sprout Entities, represent and warrant that they, together with their Affiliates, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), prior to the issuance of the Units, an aggregate of 1,804,350 shares of the Company’s Common Stock. The parties hereto understand and agree that “beneficial ownership”, for the purposes of the representations in this Section 5(h), shall not be deemed to include stock options held by any director on the Board of Directors of the Company that is affiliated with any of the Purchasers. The “Alloy Entities” shall mean: Alloy Partners 2000, L.P., Alloy Ventures 2000, L.P., Alloy Corporate 2000, L.P., and Alloy Investors 2000, L.P. The “Sprout Entities” shall mean: Donaldson, Lufkin & Jenrette Securities Corporation (as nominee for DLJ First ESC L.P., EMA 2001 Plan, L.P., CSFB 2001 Investors, L.P., Credit Suisse First Boston Private Equity, Inc., Docklands 2001 Plan, L.P. and Paradeplatz 2001 Plan, L.P.), Sprout Entrepreneurs Fund, L.P., Sprout Capital IX, L.P., Sprout Capital VII, L.P., Sprout CEO Fund, L.P., DLJ Capital Corp., and DLJ First ESC L.P.

SECTION 6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and each Purchaser herein and in the certificates for the Securities delivered pursuant hereto shall survive the execution of this Agreement, the delivery to the Purchasers of the Securities being purchased and the payment therefor.

SECTION 7. CONDITIONS TO COMPANY’S OBLIGATIONS AT THE CLOSING. The Company’s obligation to complete the sale and issuance of the Units and deliver shares of Preferred Stock and Warrants to each Purchaser, individually, as set forth in the Schedule of

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Purchasers, at each Closing shall be subject to the following conditions to the extent not waived by the Company:

7.1 Receipt of Payment. The Company shall have received payment, by check or wire transfer of immediately available funds, in the full amount of the purchase price for the number of Units being purchased by such Purchaser at the applicable Closing as set forth in the Schedule of Purchasers.

7.2 Representations and Warranties Correct. The representations and warranties made by such Purchaser in Section 5 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the date of the Closing.

7.3 Covenants Performed. All covenants, agreements and conditions contained herein to be performed by such Purchaser on or prior to the Closing shall have been performed or complied with in all material respects.

7.4 Nasdaq Notice Periods. Satisfaction of any notice period required by Nasdaq and receipt of any necessary waivers from Nasdaq.

7.5 Nasdaq or Stockholder Approval. With respect to the sale of the Subsequent Units only, the Company shall have obtained either (a) approval by The Nasdaq Stock Market of the sale of the Subsequent Units or (b) approval by the stockholders of the Company in accordance with the requirements of The Nasdaq Stock Market of the sale of the Subsequent Units.

SECTION 8. CONDITIONS TO PURCHASERS’ OBLIGATIONS AT THE CLOSING. Each Purchaser’s obligation to accept delivery of the Units and to pay for the Securities evidenced thereby at each Closing shall be subject to the following conditions to the extent not waived by such Purchaser:

8.1 Representations and Warranties Correct. The representations and warranties made by the Company in Section 4 hereof shall be true and correct when made and shall be true and correct on the Initial Closing Date and as of the date of this Agreement.

8.2 Covenants Performed. All covenants, agreements and conditions contained herein to be performed by the Company shall have been performed or complied with in all material respects.

8.3 Reservation of Conversion Shares and Warrant Shares. The Conversion Shares and the Warrant Shares shall have been duly authorized and reserved for issuance upon such conversion.

8.4 Legal Opinion. With respect to the sale of the Initial Units, each Purchaser must have received a customary opinion, dated the Initial Closing Date, from Cooley Godward LLP, counsel for the Company, substantially in the form attached hereto as Exhibit D.

8.5 Officer’s Certificate. With respect to the sale of the Initial Units, each Purchaser must have received a certificate, dated the Initial Closing Date, of an officer of the

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Company in which such officer shall state that: the representations and warranties of the Company in Section 4 of this Agreement are correct as of such date; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; and there has been no event constituting a Material Adverse Effect since the date of this Agreement.

8.6 Secretary’s Certificate. With respect to the sale of the Initial Units, each Purchaser must have received a certificate, dated the Initial Closing Date, of the Secretary of the Company in customary form certifying as to (i) the bylaws of the Company, (ii) the certificate of incorporation of the Company, (iii) the resolutions of the Board of Directors of the Company and any committee of the Board of Directors approving the transactions contemplated by this Agreement.

8.7 Nasdaq or Stockholder Approval. With respect to the sale of the Subsequent Units only, the Company shall have obtained either (a) approval by The Nasdaq Stock Market of the sale of the Subsequent Units or (b) approval by the stockholders of the Company in accordance with the requirements of The Nasdaq Stock Market of the sale of the Subsequent Units, and each Purchaser shall have received a certificate, dated the Subsequent Closing Date, of an officer of the Company in which such officer shall confirm receipt of such approval.

SECTION 9. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT.

9.1 Registration Procedures. The Company is obligated to do the following:

(a) No later than 55 calendar days after the Initial Closing Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one or more registration statements (collectively, the “Registration Statement”) on Form S-3 (unless the Company is not then eligible to register for resale on Form S-3, in which case on another appropriate form) in order to register with the SEC the resale by the Purchasers, from time to time, of the Conversion Shares and the Warrant Shares and a reasonable estimate of any Common Stock to be issued as (or issuable upon the conversion or exercise of any convertible preferred stock, warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Conversion Shares or the Warrant Shares (collectively, the “Registrable Securities”) through Nasdaq or the facilities of any national securities exchange on which the Companys Common Stock is then traded, or in privately negotiated transactions. Unless otherwise directed by the Purchasers or as required by the SEC or the rules and regulations of the SEC as then in effect, the Registration Statement shall contain the Plan of Distribution attached hereto as Exhibit E. The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective as soon thereafter as possible, but in any event prior to 105 days after Initial Closing Date (the “Effectiveness Deadline”). Notwithstanding anything to the contrary set forth above, if the Company is eligible to use Form S-3 for the Conversion Shares and Warrant Shares issuable as a result of the issuance of the Initial Units, but the SEC determines that the Company is not eligible to use Form S-3 for the Conversion Shares and Warrant Shares issuable as a result of

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the issuance of the Subsequent Units until the Subsequent Units have been issued, then the Company shall not be required to file a registration statement with respect to the the Conversion Shares and Warrant Shares issuable as a result of the issuance of the Subsequent Units until 45 days after the Subsequent Closing Date, nor cause such registration statement to become effective until 105 days after Subsequent Closing Date, and the terms “Filing Date” and “Effectiveness Deadline,” and all calculations set forth in this Section 9 based upon the late filing or effectiveness of the Registration Statement shall, with respect to the registration statement relating to the Subsequent Units under these circumstances refer to the dates set forth in this sentence.

(b) Not less than five trading days prior to the filing of a Registration Statement or any prospectus contained in a Registration Statement (a “Prospectus”) or any amendment or supplement thereto, the Company shall, (i) furnish to the Purchasers for their review copies of all such documents proposed to be filed (including documents incorporated or deemed incorporated by reference), and (ii) notify each Purchaser in writing of the information the Company requires from each such Purchaser to be included in such Registration Statement. The Company will cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as the Purchasers shall deem reasonably necessary as soon as practicable after having received such inquiries.

(c) The Company shall (i) prepare and file with the SEC (x) such amendments and supplements to each Registration Statement and the Prospectus used in connection therewith, and (y) such other filings required by the SEC, and (ii) take such other actions, in each case as may be necessary to keep the Registration Statement continuously effective and so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, until the earlier of (A) the date that the Purchasers have completed the distribution related to the Registrable Securities, (B) such time that all Registrable Securities then held by the Purchasers can be sold without compliance with the registration requirements of the Securities Act pursuant to Rule 144(k) under the Securities Act, or (C) such time as all Purchasers shall hold less than one percent of the Common Stock then outstanding as set forth under Rule 144(e)(1) under the Securities Act (the “Effectiveness Period”). The Company shall not, during such period, voluntarily take any action that would result in the Purchasers not being able to offer and sell Registrable Securities during that period, unless such action is taken by the Company in good faith in compliance with Section 9.2(e) below.

(d) (i) Furnish to the Purchasers with respect to the Registrable Securities registered under the Registration Statement such number of copies of the Registration Statement (including pre-effective and post-effecive amendments), Prospectuses (including supplemental prospectuses) and preliminary versions of the Prospectus filed with the SEC (“Preliminary Prospectuses”) in conformity with the requirements of the Securities Act and such other documents as the Purchasers may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Securities by the Purchasers; and (ii) upon request, inform each Purchaser who so requests that the Company has complied with its obligations in Section 9.1(d)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Purchaser to that effect, will use its reasonable efforts to secure the effectiveness of such post-

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effective amendment as promptly as reasonably possible and will promptly notify the Purchaser pursuant to Section 9.1(d)(i) hereof when the amendment has become effective).

(e) Notify the Purchasers as promptly as reasonably possible and (if requested by any such Person) confirm such notice in writing no later than one trading day following the day (i) (A) when the SEC notifies the Company whether there will be a review of a Registration Statement and whenever the SEC comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Purchasers); and (B) with respect to a Registration Statement or any posteffective amendment, when the same has become effective; (ii) of any request by the SEC for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement, such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(f) File documents required of the Company for normal blue sky clearance in states reasonably specified in writing by the Purchasers prior to the effectiveness of the Registration Statement; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented.

(g) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption therefrom) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(h) Cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to any transferee pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Purchasers may reasonably request.

(i) 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

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underwriter(s) of such offering. Each Purchaser participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(j) In the event of any underwritten public offering, use its commercially reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (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, addressed to the underwriters, if any, 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 addressed to the underwriters.

(k) Cause all such Registrable Securities registered pursuant hereto to be listed on Nasdaq, if the Common Stock is then listed on Nasdaq, and each other securities exchange on which similar securities issued by the Company are then listed.

(l) The Company understands that each of the Purchasers disclaims being an underwriter, but any Purchasers being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder.

9.2 Transfer of Shares After Registration; Suspension; Damages.

(a) Each Purchaser, severally and not jointly, agrees (i) that it will not sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to the Registrable Securities or otherwise take an action that would constitute a sale within the meaning of the Securities Act, other than transactions exempt from the registration requirements of the Securities Act, except as contemplated in the Registration Statement referred to in Section 9.1 and as described below, (ii) that it shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Purchaser that such Purchaser shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be required to effect the registration of such Registrable Securities, (iii) that it shall execute such documents in connection with such registration, that are customary for resale registration statements, as the Company may reasonably request, (iv) to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Purchaser has notified the Company in writing of such Purchasers election to exclude all of such Purchasers Registrable Securities from such Registration Statement and (v) that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution. Any delay of a Purchaser in taking the actions set forth in clauses (ii), (iii), (iv) and (v) of this Section 9.2(a), or caused solely as a result of the use of the Plan of Distribution filed as Exhibit E hereto, shall be deemed a “Purchaser Delay” for purposes of this Agreement.

(b) Subject to paragraph (c) below, in the event: (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the

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Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall promptly deliver a certificate in writing to each Purchaser (a “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Purchaser will refrain from selling any Registrable Securities pursuant to the Registration Statement (a “Suspension”) until the Purchasers receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus.

(c) In the event of any Suspension, the Company will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable but in any event within forty-five (45) days after delivery of a Suspension Notice to Purchasers; provided, however, that Purchasers shall not be prohibited from selling Registrable Securities under the Registration Statement as a result of Suspensions on more than three occasions of not more than forty-five (45) days each and not more than ninety (90) days in the aggregate in any twelve month period. Notwithstanding the foregoing, if the Company ceases to be eligible to register the Registrable Securities on Form S-3 and resolution of any Suspension requires the Company to file a post-effective amendment on Form S-1, (i) the Company will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable but in any event within ninety (90) days after delivery of a Suspension Notice to Purchasers, and (ii) the Purchasers shall not be prohibited from selling Registrable Securities under the Registration Statement as a result of Suspensions on or after the date that the Company ceases to be eligible to register the Registrable Securities on Form S-3 on more than three occasions of not more than sixty (60) days each in any twelve month period. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Purchaser, the Purchaser shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 9.2(c).

(d) Provided that a Suspension in accordance with paragraphs (b) and (c) of this Section 9.2 is not then in effect a Purchaser may sell Registrable Securities under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such Registrable Securities. Upon receipt of a request therefor, the Company will

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provide an adequate number of current Prospectuses to the Purchaser and to any other parties requiring such Prospectuses.

(e) In the event of a sale of Registrable Securities by a Purchaser, unless such requirement is waived by the Company in writing, such Purchaser shall deliver to the Company’s transfer agent, with a copy to the Company, of a Seller’s Certificate of Sale substantially in the form attached hereto as Appendix III.

(f) If (i) a Registration Statement covering all of the Registrable Securities (a) is not filed with the SEC on or prior to the Filing Deadline or (b) has not been declared effective by the SEC on or prior to the Effectiveness Deadline, or (ii) a Registration Statement ceases to be effective as to, or ceases to be available to the Purchasers with respect to, all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period other than during the continuance and for the enumerated time periods of any Suspension in accordance with paragraphs (c) and (d) of this Section 9.2 (any such event, a “Registration Default”), then the Company shall pay each Purchaser liquidated damages in an amount equal to one percent (1.0%) of the aggregate purchase price paid by such Purchaser for the Registrable Securities available for sale under the Registration Statement at the time of the Registration Default per calendar month, including a pro rata portion thereof for any partial calendar month, that such Registration Default continues (Liquidated Damages); provided, however, that no Purchaser shall be entitled to Liquidated Damages with respect to any Registrable Securities previously sold or then eligible to be sold within a three (3) month period without compliance with the registration requirements of the Securities Act under Rule 144 of the Securities Act. The Company shall not in any event be required to pay Liquidated Damages for more than one Registration Default at any given time, and upon cure of a Registration Default (by the filing or the declaration of effectiveness of the Registration Statement, as applicable) such Liquidated Damages shall cease to accrue. All accrued Liquidated Damages shall be paid in cash to the Purchasers entitled thereto, in proportion to the aggregate number of Registrable Securities beneficially owned by each such Purchaser. Notwithstanding anything in the foregoing to the contrary, all periods in clauses (i) and (ii) shall be tolled to the extent of any delays caused solely by any Purchaser Delay.

9.3 Expenses of Registration. Except as specifically provided herein, all expenses incurred by the Company in complying with Section 9 hereof, including, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and expenses of one counsel to the Purchasers (which shall be in addition to any fees pursuant to Sections 12.9 but which shall not exceed, in the aggregate, $10,000), blue sky fees and expenses, fees 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) (collectively, the “Registration Expenses”) shall be borne by the Company. All underwriting discounts and selling commissions applicable to a sale 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 sold.

9.4 Delay of Registration; Furnishing Information. The Purchasers 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

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registration of their Registrable Securities. Furthermore, each Purchaser, severally and not jointly, agrees to promptly notify the Company of any changes in the information set forth in a registration statement regarding such Purchaser or its plan of distribution set forth in such registration statement.

9.5 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 9.

(a) The Company will indemnify and hold harmless each Purchaser, the partners, officers and directors of each Purchaser, any underwriter (as defined in the Securities Act) for such Purchaser and each person, if any, who controls such Purchaser 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 otherwise, 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”): (i) any untrue statement or alleged untrue statement of a material fact contained in a 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, 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 pay as incurred to each such Purchaser, partner, officer, 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; provided, however, that the indemnity agreement contained in this Section 9.5 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, unless such settlement (x) includes an unconditional release of the Company from all liability on any claims that are the subject matter of such action, and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of the Company; provided, further, that the Company shall not 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 (i) occurs in reliance upon and in conformity with written information furnished expressly for inclusion in such Registration Statement, prospectus, amendment or supplement by such Purchaser, partner, officer, director, underwriter or controlling person of such Purchaser or (ii) based upon a claim that a Preliminary Prospectus contained an untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such person was not sent or given a copy of the Prospectus (or the Prospectus as amended or supplemented) at or prior to the written confirmation of the sale of such Registrable Securities to such person and the untrue statement contained in or omission from such Preliminary Prospectus was corrected in the final Prospectus (or the Prospectus as amended or supplemented) unless such failure is the result of noncompliance by the Company of Section 9.1(b) or (d) hereof; provided, further, that this indemnification agreement will be in addition to any liability which the Company may otherwise have to the Purchasers.

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(b) Each Purchaser will, if Registrable Securities held by such Purchaser are included in the securities as to which such Registration Statement, prospectus, amendment or supplement is being filed, severally and not jointly, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act or Exchange Act, any underwriter and any other Purchaser selling securities under such registration statement or any of such other Purchasers partners, directors or officers or any person who controls such Purchaser, 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 Purchaser, or partner, director, officer or controlling person of such other Purchaser may become subject under the Securities Act, the Exchange Act or otherwise, 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 Purchaser specifically for use in connection with such Registration Statement, prospectus, amendment or supplement; and each such Purchaser will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other person registering shares under such registration, or partner, officer, director or controlling person of such other person registering shares under such Registration Statement 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 9.5 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 Purchaser, which consent shall not be unreasonably withheld, unless such settlement (x) includes an unconditional release of such Purchaser from all liability on any claims that are the subject matter of such action, and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of such Purchaser; provided, further, that in no event shall any indemnity under this Section 9.5 exceed the dollar amount of the proceeds to be received by such Purchaser from the sale of such Purchasers Registrable Securities pursuant to the Registration Statement.

(c) Promptly after receipt by an indemnified party under this Section 9.5 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 9.5, 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 reasonably satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with 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 shall not relieve such indemnifying party of any liability to the indemnified party under this Section 9.5, unless and to the extent that such failure is materially prejudicial to the indemnifying party’s ability to defend such action, 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 9.5.

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(d) If the indemnification provided for in this Section 9.5 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 (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the sale of the Registrable Securities pursuant to the Registration Statement, or (ii) if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the indemnifying party or parties on the one hand and 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 Purchaser hereunder exceed the dollar amount of the proceeds to be received by such Purchaser from the sale of such Purchasers Registrable Securities pursuant to the Registration Statement.

(e) The obligations of the Company and the Purchasers under this Section 9.5 shall survive completion of any offering of Registrable Securities in a Registration Statement and the termination of this Agreement.

9.6 Agreement to Furnish Information. In connection with an underwritten registration in which such Purchaser is participating, each Purchaser agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Purchaser shall provide such information related to such Purchaser as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Securities Act.

9.7 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 9 may be assigned (but only with the related obligations) by a Purchaser, provided (i) each transfer to each transferee or designee involves either (X) all Registrable Securities held by such Purchaser, (Y) not less than twenty-five thousand (25,000) shares of Preferred Stock, or (Z) an affiliate, partner or former partner of such Purchaser, (ii) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee, (iii) such transferee or assignee agrees in writing to assume the obligations of this Section 9 and (iv) such assignment shall be effective only if immediately following such transfer the further disposition of such shares by the transferee or assignee is restricted under the Securities Act (for purposes of this statement, if the transferee (x) is able to sell all of the Restricted Securities held by such transferee pursuant to Rule 144(k) or (y) holds less than 1% of the Company’s Common Stock following such transfer and has the ability to sell all of such Common Stock under Rule 144

21.

within a three month period, then further disposition will not be deemed to be restricted under the Securities Act).

9.8 Rule 144 Reporting. With a view to making available to the Purchasers 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 commercially reasonable 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;

(b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

(c) So long as a Purchaser owns any Registrable Securities, furnish to such Purchaser 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 Purchaser may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

9.9 S-3 Eligibility. The Company will use its commercially reasonable efforts to meet the requirements for the use of Form S-3 for registration of the resale by the Purchasers of the Registrable Securities. The Company will use its commercially reasonable efforts to file all reports required to be filed by the Company with the SEC in a timely manner and take all other necessary action so as to maintain such eligibility for the use of Form S-3.

9.10 Termination of Registration Rights. Subject to the rights of transferees under Section 9.7 hereof, the Company’s obligations pursuant to this Section 9 shall terminate with respect to each Purchaser severally upon the earlier of (A) the date that such Purchaser has completed the distribution related to such Purchaser’s Registrable Securities, (B) such time that all Registrable Securities then held by such Purchaser can be sold without compliance with the registration requirements of the Securities Act pursuant to Rule 144(k) under the Securities Act, or (C) such time as such Purchaser shall hold less than one percent of the Common Stock then outstanding as set forth under Rule 144(e)(1) under the Securities Act and has the ability to sell all of such Purchaser’s Registrable Securities under Rule 144 within a three month period. Following a termination of the Companys obligations pursuant to the preceding sentence with respect to a Purchaser, any Securities held by such Purchaser shall not be deemed to be Registrable Securities thereafter, and the obligations of such Purchaser pursuant to this Section 9 shall also terminate.

9.11 Amendment of Registration Rights. Provisions of this Section 9 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 Purchasers who then hold not less than 75% of the Registrable Securities. Any amendment or

22.

waiver effected in accordance with this Section 9.11 shall be binding upon each Purchaser and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities.

9.12 Legends. Each certificate representing Shares shall (unless such Shares are then eligible for transfer pursuant to Rule 144(k) under the Securities Act or as otherwise permitted under applicable law or 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 or as provided elsewhere in this Agreement):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN THE FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

Nothing in this Section 9.12 or elsewhere in this Agreement shall be deemed to restrict the ability of the holder of any Securities to transfer any such Securities to an affiliate, partner or former partner of such holder in compliance with the Securities Act, nor shall any legal opinion be required in connection therewith.

SECTION 10. BROKER’S FEE. The Company and each Purchaser (severally and not jointly) hereby represent that there are no brokers or finders entitled to compensation in connection with the sale of the Units, and shall indemnify each other for any such fees for which they are responsible.

SECTION 11. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be sent by email, confirmed facsimile or mailed by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, and shall be deemed given when so sent in the case of email or facsimile transmission, or when so received in the case of mail or courier, and addressed as follows:

(a) if to the Company, to:

Pharsight Corporation

800 West El Camino Real, Suite 200

Mountain View, California 94040

Attention: General Counsel

Facsimile: (650) 314-3731

Email: lwright@pharsight.com

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with a copy so mailed to:

Cooley Godward LLP

Five Palo Alto Square, 4th Floor

Palo Alto, California 94306

Attention: Brett D. White

Facsimile: (650) 849-7400

or to such other person at such other place as the Company shall designate to the Purchasers in writing; and

(b) if to the Purchasers, at the address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing.

SECTION 12. MISCELLANEOUS.

12.1 Waivers and Amendments. Neither this Agreement nor any provision hereof may be changed, waived, discharged, terminated, modified or amended except upon the written consent of the Company and holders of at least 75% of the Shares (not taking into account any Shares that have been sold and no longer bear the restrictive legend referred to in Section 9.12).

12.2 Agreement to Vote for Issuance of Subsequent Units. Each Purchaser agrees to vote all shares of voting capital stock the Company, registered in its respective name or for which it is otherwise entitled to vote, in favor of the sale of the Subsequent Units to be issued pursuant to Section 3.3 of this Agreement

12.3 Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

12.4 Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

12.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California as applied to contracts entered into and performed entirely in California by California residents, without regard to conflicts of law principles.

12.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

12.7 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.

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12.8 Entire Agreement. This Agreement and other documents delivered pursuant hereto, including the exhibits, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.

12.9 Payment of Fees and Expenses. Each of the Company and the Purchasers shall bear its own expenses and legal fees incurred on its behalf with respect to this Agreement and the transactions contemplated hereby; provided, however, that the Company shall reimburse the reasonable fees of and expenses of one special counsel for Purchasers, not to exceed $25,000; provided, further, that the Company shall also reimburse the reasonable fees of and expenses of one further special counsel for Purchasers in the preparation of such filings as Purchasers may be required to make as a result of the transactions contemplated hereby pursuant to Sections 13 and 16 of the Exchange Act, not to exceed $7,500 in the aggregate. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

12.10 Waiver of Conflicts. Each party to this Agreement acknowledges that Cooley Godward LLP (“Cooley Godward”), outside general counsel to the Company, has in the past performed and is or may now or in the future represent one or more Purchasers or their affiliates in matters unrelated to the transactions contemplated by this Agreement (the “Investment”), including representation of such Purchasers or their affiliates in matters of a similar nature to the Investment. The applicable rules of professional conduct require that Cooley Godward inform the parties hereunder of this representation and obtain their consent. Cooley has served as outside general counsel to the Company and has negotiated the terms of the Investment solely on behalf of the Company. It is the belief of Cooley Godward that these terms and conditions represent an arm’s length transaction between the Company and Purchasers. Purchasers have been represented by independent legal counsel regarding the terms of the Financing. The Company and each Purchaser hereby (a) acknowledge that they have had an opportunity to ask for and have obtained information relevant to such representation, including disclosure of the reasonably foreseeable adverse consequences of such representation; (b) acknowledge that with respect to the Investment, Cooley Godward has represented solely the Company, and not any Purchaser or any stockholder, director or employee of the Company or any Purchaser; and (c) gives its informed consent to Cooley Godward’s representation of the Company in the Investment.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.

COMPANY:

PHARSIGHT CORPORATION

By:		/s/ Michael Perry
		Michael Perry
		President and Chief Executive Officer

ALLOY PARTNERS 2000, L.P.

ALLOY VENTURES 2000, L.P.

ALLOY CORPORATE 2000, L.P.

ALLOY INVESTORS 2000, L.P.

By: Alloy Ventures 2000, LLC, its General Partner

By:		/s/ Tony DiBona
		Managing Member

Address:		480 Cowper Street
		Second Floor
		Palo Alto, California
		Attn: Tony Di Bona
Email:		cfo@alloyventures.com
Facsimile:		(650) 687-5010

26.

DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as nominee for DLJ First ESC, L.P., EMA 2001 Plan, L.P., CSFB 2001 Investors, L.P., Credit Suisse First Boston Private Equity, Inc., Docklands 2001 Plan, L.P., and Paradeplatz 2001 Plan, L.P.

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Attorney-in-Fact

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

SPROUT ENTREPRENEURS FUND, L.P.

By: DLJ Capital Corp., its General Partner

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Managing Director

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

27.

SPROUT CAPITAL IX, L.P.

By: DLJ Capital Corp., its Managing General Partner

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Managing Director

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

SPROUT CAPITAL VII, L.P.

By: DLJ Capital Corp., its Managing General Partner

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Managing Director

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

28.

SPROUT CEO FUND, L.P.

By: DLJ Capital Corp., its Managing General Partner

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Managing Director

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

DLJ CAPITAL CORP.

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Managing Director

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

DLJ FIRST ESC L.P.

By: DLJ LBO Plans Management Corporation, its General Partner

By:		/s/ Kathleen D. LaPorte
		Name: Kathleen D. La Porte
		Its: Managing Director

Address:	Sprout Group
	11 Madison Avenue
	13^th Floor
	New York, NY 10010
Email:	kathleen.laporte@sproutgroup.com
Facsimile:	(646) 935-7094

29.

EXHIBIT A

SCHEDULE OF PURCHASERS

Name	No. of Initial Units	No. of Subsequent Units
Alloy Partners 2000, L.P.	8,644	25,113
Alloy Ventures 2000, L.P.	168,644	489,974
Alloy Corporate 2000, L.P.	20,268	58,887
Alloy Investors 2000, L.P.	34,772	101,027
Donaldson, Lufkin & Jenrette Securities Corporation¹	19,404	13,841
Sprout Entrepreneurs Fund, L.P.	1,519	1,084
Sprout Capital IX, L.P.	385,495	274,959
Sprout Capital VII, L.P.	107,149	76,426
Sprout CEO Fund, L.P.	1,244	888
DLJ Capital Corp.	2,464	1,757
DLJ First ESC L.P.	12,317	8,786
Total	761,920	1,052,742

¹As nominee for: DLJ First ESC, L.P., EMA 2001 Plan, L.P., CSFB 2001 Investors, L.P., Credit Suisse First Boston Private Equity, Inc., Docklands 2001 Plan, L.P. and Paradeplatz 2001 Plan, L.P.

A-1.

EXHIBIT B

FORM OF WARRANT

*** The form of warrant has been separately filed as Exhibit 10.32 to Pharsight’s Form 10-K for the fiscal year ended March 31, 2002.

EXHIBIT C

FORM OF CERTIFICATE OF DESIGNATIONS OF

SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK

*** The form of Certificate of Designations has been separately filed as Exhibit 3.4 to Pharsight’s Form 10-K for the fiscal year ended March 31, 2002.

C-1

EXHIBIT D

FORM OF COOLEY GODWARD OPINION

June 26, 2002

VIA FEDERAL EXPRESS

TO THE PURCHASERS LISTED

ON EXHIBIT A HERETO

Ladies and Gentlemen:

We have acted as counsel for Pharsight Corporation, a Delaware corporation (the “Company”), in connection with the issuance and sale pursuant to the terms of the Preferred Stock and Warrant Purchase Agreement dated as of June 25, 2002 (the “Agreement”), by and among the Company and the purchasers named therein (each, a “Purchaser” and collectively, the “Purchasers”), of an aggregate of 1,814,662 shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Shares”) and warrants to purchase an aggregate of up to 1,814,662 shares of the Company’s Common Stock (the “Warrants”). We are rendering this opinion pursuant to Section 8.4 of the Agreement. Except as otherwise defined herein, capitalized terms used but not defined herein have the respective meanings given to them in the Agreement.

In connection with this opinion, we have examined and relied upon the representations and warranties as to factual matters contained in and made pursuant to the Agreement by the various parties and originals or copies certified to our satisfaction, of such records, documents, certificates, opinions, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinions expressed below. As to certain factual matters, we have relied upon certificates of officers of the Company and have not independently sought to verify such matters. Where we render an opinion “to the best of our knowledge” or concerning an item “known to us” or our opinion otherwise refers to our knowledge, it is based solely upon (i) an inquiry of attorneys within this firm who perform legal services for the Company, (ii) receipt of a certificate executed by an officer of the Company covering such matters, and (iii) such other investigation, if any, that we specifically set forth herein.

In rendering this opinion, we have assumed: the genuineness and authenticity of all signatures on original documents; the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; and the due authorization, execution and delivery of all documents (except the due authorization, execution and delivery by the Company of the Agreement and the Warrants (collectively, the “Transaction Documents”)), where authorization, execution and delivery are prerequisites to the effectiveness of such documents. We have also assumed: that all individuals executing and delivering documents in their

D-1.

individual legal capacities had the legal capacity to so execute and deliver; that you have received all documents you were to receive under the Transaction Documents; that the Transaction Documents are obligations binding upon the parties thereto other than the Company; if you or any Purchasers are a corporation or other entity, that such entities have filed any required California franchise or income tax returns and have paid any required California franchise or income taxes; and that there are no extrinsic agreements or understandings among the parties to the Transaction Documents that would modify or interpret the terms of the Transaction Documents or the respective rights or obligations of the parties thereunder.

Our opinion is expressed only with respect to the federal laws of the United States of America and the laws of the State of California and the General Corporation Law of Delaware. We express no opinion as to whether the laws of any particular jurisdiction apply, and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the subject matter hereof. We are not rendering any opinion as to compliance with any antifraud law, rule or regulation relating to securities, or to the sale or issuance thereof.

With respect to the Company’s qualification to do business in various states identified in paragraph 1 below, we have relied exclusively on certificates of public officials; we have made no further investigation.

With respect to our opinions in paragraphs 7, 8 and 9, we have assumed: (a) that with respect to the issuance of the Preferred Shares and the Warrants to be issued as part of the Subsequent Units, that the requisite vote of stockholders will be obtained under the rules of the National Association of Securities Dealers, Inc.; (b) that except with respect to the issuance of the Preferred Shares and the Warrants to be issued as part of the Initial Units, there shall have been no change in law, facts or circumstances from the date of the sale of the Initial Units; (c) that all Preferred Shares, Warrants and other shares referred to in such opinions shall have been issued in compliance with the terms of the Agreement; and (d) that the Preferred Shares will convert or be redeemed within seven years of the date hereof.

On the basis of the foregoing, in reliance thereon and with the foregoing qualifications, we are of the opinion that:

1. The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware. The Company is qualified to do business as a foreign corporation in the following states: Massachusetts, North Carolina, Michigan, New Jersey, Pennsylvania, California and Connecticut.

2. The Company has full corporate power and corporate authority to execute and deliver the Agreement and perform its obligations thereunder.

3. The Transaction Documents have been duly and validly authorized, executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as rights to indemnity under Section 9 of the Agreement may be limited by applicable laws

D-2.

and except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting creditors’ rights, and subject to general equity principles and to limitations on availability of equitable relief, including specific performance.

4. The execution, delivery and performance of the Transaction Documents by the Company and performance by the Company of its obligations thereunder do not conflict with or violate any provision of the certificate of incorporation or bylaws of the Company, do not result in a material breach of or a material default under any of the agreements set forth on Exhibit B hereto, except as have been waived in writing or disclosed on the Schedule of Exceptions to the Agreement, and do not violate or contravene any governmental statute, rule or regulation applicable to the Company or any order, writ, judgment, injunction, decree, determination or award which has been entered against the Company and of which we are aware.

5. The execution, delivery and performance of the Agreement by the Company and performance by the Company of its obligations thereunder do not and will not require the Company to obtain any consent, approval, authorization, license, waiver, qualification, order or permit of, or require the Company to make any filing with or notification to, any governmental authority, domestic or foreign, except (a) for compliance with applicable requirements, if any, of the Securities Act, the Exchange Act, applicable state securities laws and (b) any filings, registrations and qualifications which if not made, would not be expected to have a material adverse effect on the assets, financial condition or operations of the Company.

6. To our knowledge, there is no action, proceeding or investigation pending before any court or governmental agency, nor has any such action been threatened in writing, against the Company that questions the validity of the Agreement.

7. The Preferred Shares and the Warrants (collectively, the “Securities”) to be issued at each Closing have been duly authorized by all necessary corporate proceedings on the part of the Company and will be, when issued and delivered against payment therefor in accordance with the terms of the Agreement, validly issued, fully paid and nonassessable. To our knowledge, the issuance of the Securities, and the issuance of the shares of Common Stock issuable upon conversion of the Preferred Shares (the “Conversion Shares”), and the issuance of the shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”), is not subject to any preemptive or similar rights, or any rights of first refusal, options, warrants, conversion rights, agreements or other rights for the purchase or acquisition from the Company of any authorized but unissued shares of capital stock of the Company.

8. The Conversion Shares have been duly reserved and, when duly issued in accordance with the terms of the Certificate of Designations, will be, validly issued, fully paid and nonassessable. The Warrant Shares have been duly reserved, and when duly issued and delivered against payment therefore in accordance with the terms of the respective Warrant, will be validly issued, fully paid and nonassessable.

D-3.

9. Based in part upon the representations of the Purchasers contained in the Agreement, the offer, sale and issuance of the Securities, the Conversion Shares and the Warrant Shares to be issued in accordance with the Agreement are or will be exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, subject to the timely filing of a Form D pursuant to Securities and Exchange Commission Regulation D and from the qualification requirements of the California Securities Law of 1968, as amended.

This opinion is intended solely for your benefit and is not to be made available to or be relied upon by any other person, firm, or entity without our prior written consent; except that each Purchaser may rely on this opinion as if it were addressed and delivered to such Purchaser on the date hereof.

Very truly yours,

Cooley Godward llp

By:	/s/ Brett D. White
	BRETT D. WHITE

D-4.

EXHIBIT A

SCHEDULE OF PURCHASERS

Name

Alloy Partners 2000, L.P.

Alloy Ventures 2000, L.P.

Alloy Corporate 2000, L.P.

Alloy Investors 2000, L.P.

Donaldson, Lufkin & Jenrette Securities Corporation¹

Sprout Entrepreneurs Funds, L.P.

Sprout Capital IX, L.P.

Sprout Capital VII, L.P.

Sprout CEO Fund, L.P.

DLJ Capital Corp.

DLJ First ESC L.P.

¹ As nominee for: DLJ First ESC, L.P., EMA 2001 Plan, L.P., CSFB 2001 Investors, L.P., Credit Suisse First Boston Private Equity, Inc., Docklands 2001 Plan, L.P. and Paradeplatz 2001 Plan, L.P.

EXHIBIT B

MATERIAL AGREEMENTS

1. The agreements filed pursuant to Regulation S-K 601(b)(10) of the Securities Act of 1933, as amended, referred to in the Company’s Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q (other than (a) the Loan and Security Agreements to which MMC/GATX Partnership No. 1 is party, and (b) the Loan and Security Agreement, dated as of January 18, 2000, between the Company and Silicon Valley Bank, in each case which we have been informed by the Company that such agreements are no longer operative and therefore no longer material).

2. Loan and Security Agreement, dated June 13, 2001, by and between Pharsight Corporation and Silicon Valley Bank.

3. Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight Corporation and Silicon Valley Bank.

4. Negative Pledge Agreement, dated June 13, 2001, by and between Pharsight Corporation and Silicon Valley Bank.

EXHIBIT E

FORM OF PLAN OF DISTRIBUTION

PLAN OF DISTRIBUTION

The selling stockholders may sell the shares of common stock from time to time. When we use the term “selling stockholders” in this prospectus, it includes donees, distributees, pledgees and other transferees (including without limitation pursuant to non-sale related transfers) who are selling shares received after the date of this prospectus from a selling stockholder whose name appears in “Selling Stockholders”. If we are notified by a selling stockholder that a donee, distributee, pledgee or other transferee intends to sell more than 500 shares, we may file a supplement to the prospectus naming the successor-in-interest. The selling stockholders will act independently of us in making decisions regarding the timing, manner and size of each sale. The selling stockholders may make these sales on the Nasdaq National Market or otherwise, at prices and terms that are then-prevailing or at prices related to the then-current market price, at fixed prices or in privately negotiated transactions. The selling stockholders may use one or more of the following methods to sell the shares of common stock:

• a block trade in which a selling stockholder’s broker or dealer will attempt to sell the shares as agent, but may position and resell all or a portion of the block as a principal to facilitate the transaction;

• a broker or dealer may purchase the common stock as a principal and then resell the common stock for its own account pursuant to this prospectus;

• an exchange or over-the-counter distribution in accordance with the rules of the applicable exchange or Nasdaq;

• a pledge to secure debt and other obligations; and

• ordinary brokerage transactions and transactions in which the broker solicits purchasers.

The selling stockholders may enter into hedging transactions with broker-dealers in connection with distributions of the shares or otherwise. In these transactions, broker-dealers may engage in short sales of the shares in the course of hedging the positions they assume with the selling stockholders. The selling stockholders also may sell shares short and redeliver the shares to close out short positions. The selling stockholders may enter into option or other transactions with broker-dealers that require the delivery to the broker-dealer of the shares. The broker-dealer may then resell or otherwise transfer the shares under this prospectus. The selling stockholders also may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the loaned shares, or upon a default the broker-dealer may sell the pledged shares under this prospectus.

In effecting sales, broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in the resales. To the extent required, this Prospectus will be amended and supplemented from time to time to describe a specific plan of distribution.

Broker-dealers or agents may receive compensation in the form of commissions, discounts or concessions from selling stockholders. Broker-dealers or agents may also receive compensation from the purchasers of the shares for whom they act as agents or to whom they sell

as principal, or both. Compensation as to a particular broker-dealer might be in excess of customary commissions and will be in amounts to be negotiated in connection with the sale. Broker-dealers or agents and any other participating broker-dealers or the selling stockholders may be deemed to be “underwriters” within the meaning of section 2(a)(11) of the Securities Act in connection with sales of the shares. Accordingly, any such commission, discount or concession received by them and any profit on the resale of the shares purchased by them may be deemed to be underwriting discounts or concessions under the Securities Act. Because selling stockholders may be deemed “underwriters” within the meaning of section 2(a)(11) of the Securities Act, the selling stockholders will be subject to the prospectus delivery requirements of the Securities Act.

Any shares covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.

The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states the shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

We will bear all costs, expenses and fees in connection with the registration of the shares. The selling stockholders will bear all commissions and discounts, if any, attributable to the sale of the shares. The selling stockholders may agree to indemnify any broker-dealer or agent that participates in transactions involving sales of the shares against certain liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify the selling stockholders against certain liabilities in connection with their offering of the shares, including liabilities arising under the Securities Act.

APPENDIX I

PHARSIGHT CORPORATION

STOCK CERTIFICATE AND WARRANT QUESTIONNAIRE

Pursuant to Section 3 of the Agreement, please provide us with the following information:

1.	The exact name that your Shares and Warrants are to be registered in (this is the name that will appear on your stock certificate(s) and warrant(s)). You may use a nominee name if appropriate:


2.	The relationship between the Purchaser of the Securities and the Registered Holder listed in response to item 1 above:


3.	The mailing address of the Registered Holder listed in response to item 1 above:


4.	The Social Security Number or Tax Identification Number of the Registered Holder listed in the response to item 1 above:

APPENDIX II

PHARSIGHT CORPORATION

REGISTRATION STATEMENT QUESTIONNAIRE

In connection with the preparation of the Registration Statement, please provide us with the following information:

1. Please state your or your organization’s name exactly as it should appear in the Registration Statement:

2. Please provide the following information, as of [ ], 2002:

(1)		(2)

Number (or Percentage) of shares acquired which are being included in the Registration Statement		Number of shares, if any, which will be owned after completion of sale of Shares included in the Registration Statement

3. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates other than as disclosed in the Proxy Statement in connection with the Company’s 2001 Annual Meeting of Stockholders?

Yes____ No____

If yes, please indicate the nature of any such relationships:

APPENDIX III

SELLER’S CERTIFICATE OF SALE

The undersigned, an officer of, or other person duly authorized by

&# 160;

[fill in official name of

__________________________________________hereby certifies that he/she [said institution] is the purchaser

individual or institution]

of the Shares evidenced by the attached stock certificate(s) and as such, sold such Shares on
_____________________ in accordance with registration statement

[date]

number and the

[fill in the number of or otherwise identify registration statement]

requirement of delivering a current prospectus has been complied with in connection with such sale.

Print or Type:

Name of Seller (Individual or Institution):

Name of Individual representing Seller

(if an Institution):

Title of Individual representing Seller

(if an Institution):

Signature by:

Individual Seller or Individual

representing Seller:

EX-10.32 10 a2083003zex-10_32.htm EXHIBIT 10.32

Exhibit 10.32

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

PHARSIGHT CORPORATION

WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK

No.

FOR VALUE RECEIVED, PHARSIGHT CORPORATION, a Delaware corporation (the “Company”), with its principal office at 800 West El Camino Real, Suite 200, Mountain View, California 94040, hereby certifies that __________ (“Holder”), or its assigns, is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time before 5:00 p.m. (Pacific Time) on the expiration date of [five years from closing date]; provided, however, that the expiration date shall be extended by one day for each day since the issuance of this Warrant on which there has been effective a Suspension Period, as that term is defined in the Preferred Stock and Warrant Purchase Agreement dated June [ ], 2002, pursuant to which this Warrant was issued (the “Expiration Date”), the number of fully paid and nonassessable shares of Common Stock of the Company set forth above, subject to adjustment as hereinafter provided.

Holder may purchase such number of shares of Common Stock at a purchase price per share (as appropriately adjusted pursuant to Section 6 hereof) of _____ Dollars and _____ Cents ($____) [115% premium] (the “Exercise Price”). The term “Common Stock” shall mean the aforementioned Common Stock of the Company, together with any other equity securities that may be issued by the Company in addition thereto or in substitution therefor as provided herein.

Section 1. EXERCISE OF WARRANT.

(a) This Warrant may be exercised in whole or in part on any business day prior to the Expiration Date by presentation and surrender hereof to the Company at its principal office at the address set forth in the initial paragraph hereof (or at such other address as the Company may hereafter notify Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the Exercise Price in lawful money of the United States of America in the form of cash, by wire transfer or by check, subject to collection, for the number of Warrant Shares specified in the Purchase Form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with proper payment of the Exercise Price, at such office, Holder shall be deemed

to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares.

(b) In lieu of exercising this Warrant by paying the purchase price of the shares to be purchased in cash, by wire transfer or by check pursuant to in Section 1(a) above, the Holder of this Warrant may elect to receive shares of Common Stock equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant and the attached Notice of Exercise, duly completed and executed on behalf of the Holder, at the principal office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), in which event the Company shall issue to the Holder hereof a number of shares of Common Stock computed using the following formula:

		Y (A - B)
X =		A

Where:	X	=	The number of shares of Common Stock to be issued to the Holder of this Warrant pursuant to this Section 1(b)

	Y	=	The number of shares of Common Stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being exercised.

	A	=	The Fair Market Value of one share of Common Stock; and

	B	=	The Exercise Price per share (as adjusted to the date of such calculations).

For purposes of this Section 1(b), the “Fair Market Value” of a share of Common Stock as of a particular date shall mean:

(i) If the Common Stock is traded on a securities exchange or The Nasdaq National Market, the Fair Market Value shall be deemed to be the average of the closing prices of the Common Stock of the Company on such exchange or market over the five (5) business days ending immediately prior to the applicable date of valuation;

(ii) If the Common Stock is traded over-the-counter, but not on The Nasdaq National Market, the Fair Market Value shall be deemed to be the average of the closing bid prices over the 30-day period ending immediately prior to the applicable date of valuation; and

(iii) If there is no active public market for the Common Stock, the Fair Market Value shall be the value thereof, as determined in good faith by the Board of Directors of the Company, upon due consideration of the proposed determination thereof of the Holder.

Section 2. RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than as provided in the Company’s certificate of incorporation and any restrictions on sale set forth herein or pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 3. FRACTIONAL INTEREST. The Company will not issue a fractional share of Common Stock upon exercise of a Warrant. Instead, the Company will deliver its check for the current market value of the fractional share. The current market value of a fraction of a share is determined as follows: multiply the current market price of a full share by the fraction of a share and round the result to the nearest cent.

The current market price of a share of Common Stock for purposes of this Section is the last reported sales price of the Common Stock as reported by the Nasdaq National Market, or the primary national securities exchange on which the Common Stock is then quoted, on the last trading day prior to the exercise date; provided, however, that if the Common Stock is neither traded on the Nasdaq National Market nor on a national securities exchange, the price referred to above shall be the price reflected in the over-the counter market as reported by the National Quotation Bureau, Inc. or any organization performing a similar function.

Section 4. ASSIGNMENT OR LOSS OF WARRANT.

(a) Except as provided in Section 9, Holder shall be entitled, without obtaining the consent of the Company, to assign its interest in this Warrant in whole or in part to any person or persons. Subject to the provisions of Section 9, upon surrender of this Warrant to the Company or at the office of its stock transfer agent or warrant agent, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such instrument of assignment (any such assignee will then be a “Holder” for purposes of this Warrant) and, if Holder’s entire interest is not being assigned, in the name of Holder, and this Warrant shall promptly be canceled.

(b) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnification satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

Section 5. RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of Holder are limited to those expressed in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company on any matters or with respect to any rights whatsoever as a

stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms.

Section 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the beginning of certain events, as follows:

(a) Adjustment for Change in Capital Stock. If at any time after the date hereof the Company:

(A) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock;

(B) subdivides its outstanding shares of Common Stock into a greater number of shares;

(C) combines its outstanding shares of Common Stock into a smaller number of shares;

(D) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or

(E) issues by reclassification of its Common Stock any shares of its capital stock;

then the number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price in effect immediately prior to such action shall be adjusted so that Holder may receive upon exercise of this Warrant and payment of the same aggregate consideration the number of shares of capital stock of the Company which Holder would have owned immediately following such action if Holder had exercised this Warrant immediately prior to such action.

The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.

(b) Minimum Adjustment. No adjustment in the Exercise Price of this Section 6 shall be required unless such adjustment would require an increase or decrease of at least one cent ($.01) in such Exercise Price; provided, however, that any adjustments which by reason of this subsection are not required to be made, shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest cent or to the nearest share, as the case may be.

(c) Deferral of Issuance or Payment. In any case in which an event covered by this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a

record date, the Company may elect to defer until the occurrence of such event (i) issuing to Holder, if this Warrant is exercised after such record date, the shares of Common Stock and other capital stock of the Company, if any, issuable upon such exercise over and above the shares of Common Stock or other capital stock of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment, and (ii) paying to Holder by check any amount in lieu of the issuance of fractional shares pursuant to Section 3.

(d) When No Adjustment Required. No adjustment need be made for a change in the par value of the Common Stock. To the extent this Warrant becomes exercisable into cash, no adjustment need be made thereafter as to the cash, and interest will not accrue on the cash.

(e) Notice of Certain Actions. In the event that:

(A) the Company shall authorize the issuance to all holders of its Common Stock of rights, warrants, options or convertible securities to subscribe for or purchase shares of its Common Stock or of any other subscription rights, warrants, options or convertible securities; or

(B) the Company shall authorize the distribution to all holders of its Common Stock of evidences of its indebtedness or assets (other than dividends paid in or distributions of the Company’s capital stock for which the Exercise Price shall have been adjusted pursuant to subsection (a) of this Section 6 or cash dividends or cash distributions payable out of consolidated current or retained earnings as shown on the books of the Company and paid in the ordinary course of business); or

(C) the Company shall authorize any capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in par value of the Common Stock) or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or change of the Common Stock outstanding), or of the conveyance or transfer of the properties and assets of the Company as an entirety or substantially as an entirety; or

(D) the Company is the subject of a voluntary or involuntary dissolution, liquidation or winding-up procedure; or

(E) the Company proposes to take any action that would require an adjustment of the Exercise Price pursuant to this Section 6;

then the Company shall cause to be mailed by first-class mail to Holder, at least twenty (20) days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date as of which the holders of Common Stock of record to be entitled to receive any such rights, warrants or distributions are to be determined, or (y) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any,

deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up.

Section 7. OFFICERS’ CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office an officers’ certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers’ certificate shall be signed by the chairperson, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officers’ certificate shall be made available at all reasonable times for inspection by Holder.

Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger (excluding a reverse triangular merger or similar transaction) in which the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that Holder shall have the right thereafter, by exercising this Warrant at any time prior to the Expiration Date, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale or conveyance. Any such provision shall include provisions for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. The issuer of any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant shall be responsible for all of the agreements and obligations of the Company hereunder.

Section 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant may not be exercised and neither this Warrant nor any of the Warrant Shares, nor any interest in either, may be offered, sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are acquired pursuant to a registration statement that has been declared effective under the Act or are eligible

for transfer pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the “Securities Act”), and applicable blue sky laws shall bear a legend substantially in the following form:

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares (i) issued after the acquisition of such Warrant Shares pursuant to a registration statement that has been declared effective under the Act or in a transaction in compliance with Rule 144 under the Securities Act, or (ii) that are then eligible for transfer pursuant to Rule 144(k) under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provision of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent holders of this Warrant, if any. Nothing in this Section 9 or elsewhere in this Warrant shall be deemed to restrict the ability of the holder hereof to transfer Warrant Shares to an affiliate, partner or former partner of such holder in compliance with the Securities Act, nor shall any legal opinion be required in respect thereof.

Section 10. MODIFICATION AND WAIVER. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated other than by an instrument in writing signed by the Company and by Holder.

Section 11. NO DILUTION OR IMPAIRMENT. Without the consent of the holders of at least 75% of the then outstanding Warrants issued in connection with the Company’s Series A Preferred Stock, the Company shall not participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or take 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 Company, 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 exercise rights of the holder of this Warrant against dilution or other impairment.

Section 12. NOTICES. Any notice, request or other document required or permitted to be given or delivered to Holder or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.

Section 13. PAYMENT OF TAXES. The Company 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 Warrant Shares upon exercise of this Warrant, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Warrant Shares in a name other than that in which the Warrant so exercised was registered.

Section 14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California, without regard to its conflicts of laws principles.

IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its duly authorized officer and to be dated as of [____________], 2002.

PHARSIGHT CORPORATION

	By:
			Michael Perry
			President and Chief Executive Officer

PURCHASE FORM

Dated ___________, 200____

The undersigned hereby elects:

o to purchase ________ shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any;

o to purchase the number of shares of Common Stock pursuant to the terms of the net exercise provisions set forth in Section 1(b) of the attached Warrant as shall be issuable upon net exercise of the portion of the attached Warrant relating to ________ shares, and shall tender payment of all applicable transfer taxes, if any;

The undersigned represents and warrants to Pharsight Corporation as of the date hereof the same statements with respect to the shares being acquired upon exercise of this warrant as are set forth in Section 5 of the in the Preferred Stock and Warrant Purchase Agreement dated June [___], 2002, pursuant to which the above-referenced warrant was sold, regarding the securities purchased thereby.

Holder

By:

Print Name:

Title:

A-1.

ASSIGNMENT FORM

Dated _________, 200____

FOR VALUE RECEIVED, _______________________________________ hereby sells, assigns and transfers unto

_______________________________________ (the “Assignee”),

(please type or print in block letters)

____________________________________________________________________________________________________________

(insert address)

its right to purchase up to _______ shares of Common Stock represented by this Warrant No. _________ and does hereby irrevocably constitute and appoint ____________________________ attorney, to transfer the same on the books of the Company, with full power of substitution in the premises.

Holder

By:

Print Name:

Title:

EX-10.33 11 a2083003zex-10_33.htm EXHIBIT 10.33

EXHIBIT 10.33

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement is entered into as of June 26, 2002 by and between PHARSIGHT CORPORATION (the “Borrower”) and Silicon Valley Bank (“Bank”).

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the “Obligations.”

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modification(s) to Domestic Loan Agreement.

1.		Section 7.6 entitled “Distributions, Investments” is hereby amended in part to allow Borrower to pay any dividends (provided that cash dividends shall not exceed $600,000 per year) and payments in connection with redemptions as permitted or required pursuant to the terms of the Series A Preferred Stock and/or the Series B Preferred Stock.

2.		Section 7.4 entitled “Indebtedness” is hereby amended in part to allow Borrower to create a Series A and Series B Preferred Stock as described in its Certificate of Designation for such series and as contemplated by the Preferred Stock and Warrant Purchase Agreement, dated as of June 25, 2002, by and among Borrower and the purchasers named therein (the “Purchase Agreement”).

3.		Section 7.7 entitled “Transactions with Affiliates” is hereby amended in part to allow Borrower to issue Series A and Series B Preferred Stock to certain of its affiliates in accordance with the terms and conditions of the Purchase Agreement.

4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

5. NO DEFENSES OF BORROWER. Borrower agrees that, as of the date hereof, it has no defenses against paying any of the Obligations.

This Loan Modification Agreement is executed as of the date first written above.

BORROWER:		BANK:

PHARSIGHT CORPORATION		SILICON VALLEY BANK

By:			By:
Name:			Name:
Title:			Title:

SILICON VALLEY BANK

PRO FORMA INVOICE FOR LOAN CHARGES

BORROWER:	PHARSIGHT CORPORATION

LOAN OFFICER:	Ron Kundich

DATE:	June 26, 2002

	Documentation Fee	$250.00

	TOTAL FEE DUE	$250.00

Please indicate the method of payment:

o A check for the total amount is attached.

o Debit DDA # __________________ for the total amount.

o Loan proceeds


Borrower		(Date)


Silicon Valley Bank		(Date)
Account Officer’s Signature

EX-23.1 12 a2083003zex-23_1.htm EXHIBIT 23.1

Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form S-8 Nos. 333-44462, 333-44756, 333-60138 and 333-60136) pertaining to the 2000 Employee Stock Purchase Plan, 1995 Stock Option Plan, 1997 Stock Option Plan, 2000 CEO Non-Qualified Stock Option Plan, 2000 Equity Incentive Plan, 2001 UK Employee Stock Purchase Plan and the UK Company Share Option Plan of Pharsight Corporation of our report dated April 24, 2002 (except for Note 15, as to which the date is June 26, 2002), with respect to the financial statements and schedule of Pharsight Corporation included in the Annual Report (Form 10-K) for the year ended March 31, 2002.

/s/ Ernst & Young LLP

San Jose, California

June 27, 2002

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10010 Sundial Lane

ARTICLE I DEFINITIONS

1.01 Definition of Terms. As used in this Agreement, including the Recitals to this Agreement and the Loan Authorization Agreement, the following terms shall have the following meanings:

1.03 Incorporation of Recitals. The Recitals to this Agreement are incorporated into and shall constitute a part of this Agreement.

ARTICLE II OBLIGATIONS OF BORROWER

(b) In addition, no Credit Accommodation may be used to finance the manufacture, purchase or sale of any of the following:

(b) Borrower shall comply with all of the terms and conditions of the Loan Documents, this Agreement and the Loan Authorization Agreement.

2.05 Financial Statements. Borrower shall deliver to Lender the financial statements required to be delivered by Borrower in accordance with Section 11 of the Loan Authorization Agreement.

2.11 Notice of Certain Events. Borrower shall promptly, but in any event within five (5) Business Days, notify Lender in writing of the occurrence of any of the following:

(c) the issuance of any levy, assessment, attachment, seizure or Lien, other than a Permitted Lien, against any of the Collateral which is not stayed or lifted within thirty (30) calendar days;

(d) any proceeding is commenced by or against Borrower or any Guarantor for the liquidation of its assets or dissolution;

(e) any litigation is filed against Borrower or any Guarantor which has had or could reasonably be expected to have a Material Adverse Effect and such litigation is not withdrawn or dismissed within thirty (30) calendar days of the filing thereof;

(f) any default or event of default under the Loan Documents;

(g) any failure to comply with any terms of the Loan Authorization Agreement;

(h) any material provision of any Loan Document or this Agreement for any reason ceases to be valid, binding and enforceable in accordance with its terms;

(i) any event which has had or could reasonably be expected to have a Material Adverse Effect; or

(j) the Credit Accommodation Amount exceeds the applicable Export-Related Borrowing Base.

(b) If the Loan Facility is a Transaction Specific Loan Facility, Borrower shall, within two (2) Business Days of the receipt thereof, pay to Lender (for application against the outstanding Loan Facility Obligations and accrued and unpaid interest thereon) all checks, drafts, cash and

2.17 Cross Default. Borrower shall be deemed in default under the Loan Facility if Borrower fails to pay when due any amount payable to Lender under any loan or other credit accommodations to Borrower whether or not guaranteed by Ex-Im Bank.

ARTICLE III RIGHTS AND REMEDIES

ARTICLE IV MISCELLANEOUS

4.01 Governing Law. This Agreement and the Loan Authorization Agreement and the obligations arising under this Agreement and the Loan Authorization Agreement shall be governed by, and construed in accordance with, the law of the state governing the Loan Documents.

4.02 Notification. All notices required by this Agreement shall be given in the manner and to the parties provided for in the Loan Agreement.

ARTICLE I
DEFINITIONS

ARTICLE II
OBLIGATIONS OF BORROWER

ARTICLE III
RIGHTS AND REMEDIES

ARTICLE IV
MISCELLANEOUS