0001047469-02-002964.txt : 20021114 0001047469-02-002964.hdr.sgml : 20021114 20021113194546 ACCESSION NUMBER: 0001047469-02-002964 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31253 FILM NUMBER: 02821599 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-Q 1 a2093150z10-q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to .

Commission file number 000-31253

PHARSIGHT CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization)

77-0401273
(I.R.S. Employer
Identification Number)

800 WEST EL CAMINO REAL, MOUNTAIN VIEW, CA 94040
(Address of principal executive offices, including zip code)

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

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 ý NO o

As of October 31, 2002, there were 18,836,804 outstanding shares of the Registrant's common stock, $0.001 par value.

PHARSIGHT CORPORATION

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements		3
		Condensed Balance Sheets as of September 30, 2002 and March 31, 2002	3
		Condensed Statements of Operations for the Three and Six Months Ended September 30, 2002 and 2001	4
		Condensed Statements of Cash Flows for the Six Months Ended September 30, 2002 and 2001	5
		Notes to Condensed Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		13
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		26
	Item 4. Controls and Procedures		26
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		27
	Item 2. Changes in Securities and Use of Proceeds		27
	Item 3. Default Upon Senior Securities		28
	Item 4. Submission of Matters to a Vote of Security Holders		28
	Item 5. Other Information		28
	Item 6. Exhibits and Report on Form 8-K		29
Signatures			30
Exhibit Index			33

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PHARSIGHT CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except par value amounts)

		September 30, 2002			March 31, 2002
		(unaudited)			(1)
Assets
Current assets:
	Cash and cash equivalents	$	13,421		$	10,498
	Short-term investments		—			2,994
	Accounts receivable, net		3,993			2,629
	Recognized income not yet billed		70			160
	Prepaids and other current assets		957			616

Total current assets			18,441			16,897
Property and equipment, net			2,027			2,708
Other assets			362			349

Total assets		$	20,830		$	19,954

Liabilities, redeemable convertible preferred stock, and stockholders' equity
Current liabilities:
	Accounts payable	$	514		$	664
	Accrued expenses		1,590			1,854
	Accrued compensation		795			1,830
	Deferred revenue		4,693			3,412
	Current portion of notes payable		1,875			1,656
	Current obligations under capital leases		597			660

Total current liabilities			10,064			10,076
Obligations under capital leases			90			350
Notes payable			2,406			2,844
Redeemable convertible preferred stock, $0.001 par value:
	Authorized shares—3,200 (2,000 designated as Series A and 1,200 designated as Series B) at September 30, and none at March 31, 2002;
	Issued and outstanding shares—1,815 (all designated as Series A) at September 30, and none at March 31, 2002		5,450			—
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $0.001 par value Authorized shares—1,800 at September 30, and 5,000 at March 31, 2002; Issued and outstanding shares—none at September 30, and March 31, 2002		—			—
	Common stock, $0.001 par value Authorized shares—120,000 at September 30, and March 31, 2002; Issued and outstanding shares—18,834 at September 30, and 18,759 at March 31, 2002		19			19
	Additional paid-in capital		76,464			74,754
	Deferred stock compensation		(920	)		(1,813	)
	Accumulated other comprehensive loss		—			(1	)
	Notes receivable from stockholders		(98	)		(96	)
	Accumulated deficit		(72,645	)		(66,179	)

Total stockholders' equity			2,820			6,684

Total liabilities, redeemable convertible preferred stock, and stockholders' equity		$	20,830		$	19,954

(1): Derived from the Company's audited financial statements as of March 31, 2002.

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

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

		Three Months Ended September 30,						Six Months Ended September 30,
		2002			2001			2002			2001
Revenues:
	License and renewal	$	1,502		$	1,293		$	3,002		$	2,300
	Services		1,817			2,423			3,772			4,160

Total revenues			3,319			3,716			6,774			6,460
Costs and expenses:
	License and renewal (1)		173			621			352			1,361
	Services (2)		1,303			1,624			2,836			3,326
	Research and development (3)		900			1,746			2,365			3,740
	Sales and marketing (4)		1,736			2,149			3,372			4,546
	General and administrative (5)		1,424			1,452			2,995			2,905
	Amortization of deferred stock compensation		371			793			828			1,801
	Restructuring costs		324			—			324
	Amortization of intangible assets		—			29			—			96

Total costs and expenses			6,231			8,414			13,072			17,775

Loss from operations			(2,912	)		(4,698	)		(6,298	)		(11,315	)
Other income (expense):
	Interest expense		(92	)		(48	)		(186	)		(93	)
	Interest income and other, net		3			117			18			329

Net loss			(3,001	)		(4,629	)		(6,466	)		(11,079	)
	Preferred stock dividend		(81	)		—			(84	)		—
	Deemed dividend to preferred stockholders		(55	)		—			(58	)		—

Net loss attributable to common stockholders		$	(3,137	)	$	(4,629	)	$	(6,608	)	$	(11,079	)

Basic and diluted net loss per share attributable to common stockholders		$	(0.17	)	$	(0.25	)	$	(0.35	)	$	(0.61	)

Shares used to compute basic and diluted net loss per share attributable to common stockholders			18,760			18,339			18,730			18,276

The following table shows amortization of deferred stock compensation excluded from certain costs and expenses on the Condensed Statements of Operations:

		Three Months Ended September 30,				Six Months Ended September 30,
		2002		2001		2002		2001
	(1)License and renewal	$	23	$	52	$	52	$	113
	(2)Services		1		59		8		163
	(3)Research and development		23		74		55		188
	(4)Sales and marketing		81		185		180		406
	(5)General and administrative		243		423		533		931

Total		$	371	$	793	$	828	$	1,801

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

PHARSIGHT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

			Six Months Ended September 30,
			2002			2001
Operating activities
Net loss			$	(6,466	)	$	(11,079	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Amortization of deferred stock compensation			828			1,801
	Depreciation			777			758
	Amortization			—			96
	Issuance of options in exchange of services			8			—
	Changes in operating assets and liabilities:
		Accounts receivable		(1,364	)		(890	)
		Recognized income not yet billed		90			102
		Prepaids and other assets		(354	)		524
		Accounts payable		(150	)		105
		Accrued expenses		(303	)		577
		Accrued compensation		(1,035	)		165
		Deferred revenue		1,281			733
		Accrued interest and other		(2	)		(6	)

Net cash used in operating activities				(6,690	)		(7,114	)
Investing activities
Purchases of property and equipment				(96	)		(1,146	)
Purchases of short-term investments				—			(3,993	)
Maturities of short-term investments				2,995			5,957

Net cash provided by investing activities				2,899			818
Financing activities
Proceeds from notes payable				750			2,000
Principal payments on notes payable				(969	)		(75	)
Principal payments on capital lease obligations				(323	)		(282	)
Proceeds from the issuance of common stock				40			197
Net proceeds from the issuance of redeemable convertible preferred stock				7,261			—
Dividend paid to preferred stockholders				(45	)		—

Net cash provided by financing activities				6,714			1,840
Net increase (decrease) in cash and cash equivalents				2,923			(4,456	)
Cash and cash equivalents at the beginning of the period				10,498			15,414

Cash and cash equivalents at the end of the period			$	13,421		$	10,958

Supplemental disclosures of non cash activities
Discount on redeemable convertible preferred stock			$	(1,869	)	$	—

Deemed dividend to preferred stockholders			$	58		$	—

Preferred stock dividend			$	39		$	—

Reversal of deferred stock compensation upon cancellation of unvested options			$	(65	)	$	(205	)

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

PHARSIGHT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

Pharsight Corporation (the "Company") develops and markets products and services that help pharmaceutical and biotechnology companies improve their decision-making in drug development and commercialization. By integrating scientific, clinical and business decision criteria into a dynamic, model-based methodology, the Company helps its customers optimize the value of their drug development programs and portfolios from discovery to post-launch marketing and any point in between. The Company uses computer-based drug-disease models, dynamic predictive market models, clinical trial simulation and advanced valuation models to create a continuously evolving view of its customers' development efforts and product portfolios. The Company was incorporated in California in April 1995 and was reincorporated in Delaware in June 2000.

The accompanying condensed financial statements of the Company have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with these rules and regulations. The information included in this report should be read in conjunction with the Company's financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2002.

In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and six months ended September 30, 2002, are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2003, or for any other future period.

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.

NOTE 2. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

Basic net loss per share is computed using the weighted-average number of vested (i.e. not subject to a right of repurchase) 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, weighted average number of unvested common stock outstanding, potential common shares from options and warrants to purchase common stock using the treasury stock method and from convertible preferred stock using the as-if-converted basis. All potential common shares including preferred stock 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 net loss in each period presented.

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

	Three Months Ended September 30,						Six Months Ended September 30,
	2002			2001			2002			2001
Net loss attributable to common stockholders	$	(3,137	)	$	(4,629	)	$	(6,608	)	$	(11,079	)

Weighted average common shares outstanding		18,810			18,494			18,788			18,455
Less weighted average common shares subject to repurchase		(50	)		(155	)		(58	)		(179	)

Shares used to compute basic and diluted net loss per share		18,760			18,339			18,730			18,276
Basic and diluted net loss per common share	$	(0.17	)	$	(0.25	)	$	(0.35	)	$	(0.61	)

NOTE 3. COMPREHENSIVE INCOME (LOSS)

The Company's component of comprehensive income (loss) consists solely of unrealized gain and losses on available for sale investments. The unrealized gains and losses have been insignificant for the three and six months ended September 30, 2002 and 2001, and consequently, net loss approximates total comprehensive net loss.

NOTE 4. RESTRUCTURING CHARGE

During the three months ended December 31, 2001, the Company implemented a restructuring program to better align operating expenses with anticipated revenues ("December 2001 Restructuring Plan"). The December 2001 Restructuring Plan reduced resources in non-core areas, such as the Company's Information Products, resulting in a reduction of force across all company functions of approximately 14%, or 20 employees. The Company recorded a $676,000 restructuring charge, which consists of $402,000 in facility exit costs, $253,000 in personnel severance costs and $21,000 in other exit costs. As of December 31, 2001, all 20 employees had been terminated as a result of the program. At September 30, 2002, the Company had $120,000 of accrued restructuring costs primarily related to monthly lease expenses for two facilities that were exited in fiscal year 2002.

During the three months ended September 30, 2002, the Company announced that it was taking additional actions intended to help further reduce operating expenses across all non-core functional areas ("July 2002 Restructuring Plan"). The July 2002 Restructuring Plan included a total reduction of 18 staff. As of September 30, 2002, all restructured staff have been notified of termination and all but three of these staff have been terminated. The three remaining staff are scheduled for termination in December of 2002 and March of 2003. The Company has recorded $324,000 in restructuring charges during the quarter ended September 30, 2002 representing employee severance costs. At September 30, 2002, the Company had $157,000 of remaining accrued restructuring costs related to employee severance costs to be paid out in the third and fourth quarter of fiscal 2003.

The restructuring actions taken in December 2001 and July 2002 did not impact the resources assigned to develop and support current and future Pharsight® Knowledgebase Server™, WinNonlin®, WinNonMix® and Trial Simulator™ product families.

The following tables depict the restructuring charges during the six months ended September 30, 2002 (in thousands):

					Expenditures
Category	Balance at March 31, 2002		Additions		Cash			Non Cash			Balance at September 30, 2002
December 2001 Restructuring
Vacated facilities	$	243	$	—	$	(127	)	$	—		$	116
Other costs		6							(2	)		4
July 2002 Restructuring
Employment Related		—		324		(167	)					157

Total	$	249	$	324	$	(294	)	$	(2	)	$	277

NOTE 5. NOTES PAYABLE

In June 2002, the Company extended its secured revolving credit facility agreement with Silicon Valley Bank for an additional year. As of September 30, 2002, the Company had up to $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 secured term loan. The revolving credit facilities expire in June 2003. The secured term loan principal is payable over forty-eight months, beginning in July 2002. As of September 30, 2002, the Company had $1.0 million and $3.3 million borrowed from its revolving credit facilities and its secured term loan, respectively. All three facilities are secured by certain of the Company's assets, excluding intellectual property.

The Company is required to meet certain financial covenants on a quarterly basis including: quick ratio greater than 1.0, remaining months liquidity of at least 6 months, liquidity of at least two times the secured term loan advance, and annual net losses within 20% of the Company's plan, measured at specific quarterly amounts. The Company is in compliance with each of these covenants as of September 30, 2002.

NOTE 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK

Redeemable Convertible Preferred Stock and Common Stock Warrants

On June 26, 2002 and September 11, 2002, the Company completed a private placement of 1,814,662 units (each a "Unit," and, collectively, the "Units") for an aggregate purchase price of $7.5 million. The sale and issuance of the Units under the Purchase Agreement closed in two phases. The first phase was completed on June 26, 2002, pursuant to which the Company sold an aggregate of 761,920 Units for an aggregate purchase price of $3.15 million. The second phase was completed on September 11, 2002, pursuant to which the Company sold an aggregate of 1,052,742 Units for an aggregate purchase price of $4.35 million. Each Unit consists of one share of the Company's Series A redeemable convertible preferred stock (the "Series A Preferred") and a warrant to purchase one share of Common Stock (each a "Warrant," and, collectively, the "Warrants").

Dividends

The holders of the Series A Preferred shall be entitled to receive cumulative dividends in preference to any dividend on the Common Stock, payable quarterly at the rate of 8% per annum, at the election of the holder either in cash or in shares of Series B redeemable convertible preferred stock (the "Series B Preferred" and, together with the Series A Preferred, the "Preferred Stock"). The Series B Preferred has identical rights, preferences and privileges as the Series A Preferred, except that the Series B Preferred is not entitled to the dividend payment right.

Conversion

The holders of the Preferred Stock shall have the right to convert the Preferred Stock, at any time, into shares of Common Stock. The initial conversion rate shall be four to one, subject to proportional adjustments for stock splits, stock dividends, recapitalizations and the like.

The Preferred Stock shall be automatically converted into Common Stock, at the then applicable conversion price, (i) in the event that the holders of at least 75% of the outstanding Preferred Stock consent to such conversion or (ii) upon the closing of a firmly underwritten public offering of shares of Common Stock of the Company for a public offering price of at least $3.006 per share and with gross proceeds to the Company of not less than $40,000,000 (before deduction of underwriters commissions and expenses).

Liquidation Preference

In the event of any liquidation or winding up of the Company, the holders of the Preferred Stock shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to the greater of (a) the original issue price, plus any accrued but unpaid dividends and (b) the amount that such shares would receive if converted to Common Stock immediately prior thereto (the "Liquidation Preference"). After the payment of the Liquidation Preference to the holders of the Preferred Stock, the remaining assets shall be distributed ratably to the holders of the Common Stock. A merger, acquisition, sale of voting control or sale of substantially all of the assets of the Company in which the stockholders of the Company do not own a majority of the outstanding shares of the surviving corporation shall be deemed to be a liquidation.

Voting Rights

The holders of Preferred Stock are entitled to vote together with the Common Stock. Each share of Preferred Stock shall have a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Preferred Stock. In addition, consent of the holders of at least 75% of the then outstanding Preferred Stock shall be required for certain actions, including any action that amends the Company's charter documents so as to adversely affect the Preferred Stock.

Redemption

At the election of the holders of at least 75% of the Preferred Stock, to the extent that the Company may legally do so, the Company shall redeem the outstanding Preferred Stock after the fifth anniversary of the initial issuance of Preferred Stock. Such redemption shall be at a price of $4.008 per share plus accrued and unpaid dividends. If the holders of Preferred Stock shall not have elected to have the Company redeem the Preferred Stock at or after the fifth anniversary of the date of issuance, the Company shall have the option to redeem the Preferred Stock on the same terms as the optional redemption by the holders of Preferred Stock.

Registration Rights

Pursuant to the purchase agreement, within 55 days following the Initial Closing, the Company will use its best efforts to prepare and file a registration statement on Form S-3 (the "Registration Statement") for the resale of the shares of Common Stock issuable to the purchasers upon conversion of the Preferred Stock and exercise of the Warrants (the "Shares"), and use its commercially reasonable efforts to cause the Registration Statement to become effective within 105 days after the closing of the sale of the Initial Units.

In the event that the Company shall fail to cause the Registration Statement to be timely filed, timely declared effective, or to be kept effective (other than pursuant to the permissible suspension

periods), the Company shall pay as liquidated damages the amount of 1% per month of the aggregate purchase price for the Shares remaining to be sold pursuant to the Registration Statement. The Company caused the Registration Statement to be declared effective on November 1, 2002, and the holders of the Preferred Stock waived the right to receive liquidated damages resulting from the delayed date of effectiveness.

Warrants

The Warrants are exercisable for a period of five years from the date of issuance at a per share price equal to $1.15, subject to proportional adjustments for stock splits, stock dividends, recapitalizations and the like. If not exercised after five years, the right to purchase the Common Stock will terminate. The Warrants contain a cashless exercise feature. The Common Stock issuable upon exercise of the Warrants are entitled to the benefits and subject to the terms of the Registration Rights described above.

Summary of Certain Preferred Stock and Warrant Accounting

Due to the nature of the redemption features of the Series A Preferred, the Company excluded the Series A Preferred from equity in its financial statements.

The amount representing the Series A Preferred with total gross proceeds of $7.5 million was discounted by a total of $2.1 million including $1.3 million representing the value assigned to the Warrants, $585,000 representing the related beneficial conversion feature of the Series A Preferred, and $239,000 representing issuance costs. The $1.3 million value of the warrants is subject to accretion over the 5-year redemption period. After reducing the proceeds by the value of the warrants, the remaining proceeds are used to compute a discounted conversion price in accordance with EITF 00-27, "Application of EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios to Certain Convertible Instruments". The discounted conversion price for each of the two closings is compared to the fair market value of the Company's common stock on June 26, 2002 (the date of issuance of the Series A preferred stock) and September 6, 2002 (the date of the shareholder vote approving the second closing) resulting in a total beneficial conversion feature of $585,000, which represents the difference between the fair market value of the Company's common stock and the discounted conversion price. The beneficial conversion feature of $585,000 is subject to accretion over the 5-year redemption period. Issuance costs of $239,000 were accounted for as a discount on the redeemable preferred stock and are also accreted over the 5-year redemption period.

The net discounted value for the Series A Preferred of $5.5 million is recorded as a long term liability as of September 30, 2002 with the corresponding aggregate value of the warrants and the beneficial conversion feature of $1.9 million ($1.3 million plus $585,000) recorded as additional-paid-in-capital within equity.

Deemed dividends were recorded by the Company for the three and six months ended September 30, 2002 totaling approximately $55,000 and $58,000 respectively in aggregate representing accretion of the discount resulting from the value of warrants, the value of the beneficial conversion feature and the issuance costs. The aggregate deemed dividends recorded were charged against additional-paid-in-capital and included in the calculation of net loss attributable to common stockholders.

Dividends on the Preferred Stock, calculated at the rate of 8% per annum, were approximately $81,000 for the three months ended September 30, 2002 and $84,000 for the six months ended September 30, 2002. The dividends were charged against additional-paid-in-capital and included in the calculation of net loss attributable to common stockholders.

NOTE 7. CONTINGENCIES

From time to time, the Company may become involved in claims, legal proceedings, or state or federal government agency proceedings that arise in the ordinary course of its business. The Company is currently subject to one such agency proceeding. The Company does not believe that the resolution of this agency proceeding will have a material adverse effect on its financial position and results of operations.

NOTE 8. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Business Combinations, Goodwill and Other Intangible Assets

In June 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement No. 142 requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead an entity must perform an assessment of whether these assets are impaired as of the date of adoption and test for impairment at least annually in accordance with the provisions of Statement No. 142. The standards also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed annually for impairment. The Company adopted the provisions of Statement No. 141 on July 1, 2001 and Statement No. 142 on April 1, 2002. The adoption of Statement No. 141 or 142 did not have a significant impact on the Company's financial position and results of operations.

The following tables present net loss and loss per share attributable to common stockholders as reported and adjusted to exclude the amortization of goodwill and assembled workforce as if these items had not been amortized (in thousands except per share data).

	Three Months Ended September 30,												Six Months Ended September 30,
	2002						2001						2002						2001
	Net Loss			Loss per share			Net Loss			Loss per share			Net Loss			Loss per share			Net Loss			Loss per share
Net Loss per share attributable to common stockholders / Basic and diluted	$	(3,137	)	$	(0.17	)	$	(4,629	)	$	(0.25	)	$	(6,608	)	$	(0.35	)	$	(11,079	)	$	(0.61	)
Add back goodwill and assembled workforce amortization		—			—			19			—			—			—			45			—

Adjusted Net Loss per share attributable to common stockholders / Basic and diluted	$	(3,137	)	$	(0.17	)	$	(4,610	)	$	(0.25	)	$	(6,608	)	$	(0.35	)	$	(11,034	)	$	(0.61	)

Accounting for Costs Associated with Exit and Disposal Activities

In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146 ("FAS 146"), Accounting for Costs Associated with Exit and Disposal Activities. This statement revises the accounting for exit and disposal activities under Emerging Issues Task Force Issue 94-3 ("EIFT 94-3"), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, by spreading out the reporting of expenses related to restructuring activities. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs. Instead, companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, and they will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not

restate previously issued financial statements for the effect of the provisions of SFAS No. 146 and liabilities that a company previously recorded under EITF Issue No. 94-3 are grandfathered. The restructuring activities initiated by the Company in November 2001 and July 2002 have been accounted for under the provisions of EITF 94-3. The Company plans to adopt SFAS 146 January 1, 2003. The Company does not believe that the adoption of SFAS No. 146 will have a material impact on the financial statements.

NOTE 9. SUBSEQUENT EVENT

On October 23, 2002, the Company obtained a modification to its Silicon Valley Bank loan agreement. This modification revised the Company's allowable Net Losses for covenant compliance. The Company has been in compliance with all loan covenants during the first six months of fiscal 2003.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and the results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements are usually accompanied by words like "believe," "anticipate," "plan," "seek," "expect," "intend" and similar expressions. Our actual results could differ materially from those discussed by these forward-looking statements as a result of factors, which include, but are not limited to, those discussed under "Risk Factors" below. We caution readers not to place undue reliance on these forward-looking statements, which reflect management's analysis, judgment, belief or expectation only as of the date hereof.

Overview

Pharsight Corporation develops and markets products and services that help pharmaceutical and biotechnology companies improve their decision-making in drug development and commercialization. By integrating scientific, clinical and business decision criteria into a dynamic, model-based methodology, we help our customers optimize the value of their drug development programs and portfolios from discovery to post-launch marketing and any point in between. We use computer-based drug-disease models, dynamic predictive market models, clinical trial simulation and advanced valuation models to create a continuously evolving view of our customers' development efforts and product portfolios.

Critical Accounting Policies and Estimates

For critical accounting policies and estimates, refer to Pharsight's Annual Report on Form 10-K for the year ended March 31, 2002 filed with the Securities and Exchange commission on July 1, 2002.

Results of Operations

Three and Six Months Ended September 30, 2002 and 2001

Revenues

Total revenues decreased 11% to $3.3 million in the three months ended September 30, 2002 from $3.7 in the three months ended September 30, 2001. For the first six months of fiscal 2003, total revenues increased 5% to $6.8 million from $6.5 million in the comparable period in fiscal 2002.

License and renewal revenues increased 16% to $1.5 million in the three months ended September 30, 2002, from $1.3 million in the three months ended September 30, 2001. For the first six months of fiscal 2003, license and renewal revenues increased 31% to $3.0 million from $2.3 million in the comparable period in fiscal 2002. The quarter to quarter and six month increases were primarily due to increased sales of our Pharsight® Knowledgebase Server™ (PKS), which we began selling in July 2001, and a 36% increase in the quantity of licenses for our desktop software products sold. The increased quantity is primarily attributed to customers upgrading to and renewing our higher priced WinNonlin® Enterprise product from earlier versions. The average selling prices (ASP) of the desktop software licenses increased 13%, reflecting both a price increase and a shift towards our more expensive desktop software products.

Services revenues decreased 25% to $1.8 million in the three months ended September 30, 2002, from $2.4 million in the three months ended September 30, 2001. For the first six months of fiscal 2003, services revenues decreased 9% to $3.8 million from $4.2 million in the comparable period in fiscal 2002. The decrease for the second quarter and first half of fiscal 2003 is primarily driven by the slowdown of services rendered under consulting agreements as some key pharmaceutical customers

have reduced their spending budgets during these periods. We have seen services revenues continue to decline as a percentage of total revenues as our new versions of software products have become available, and the market for consulting services remains weak due to the economy.

Cost and Expenses

Cost of License and Renewal Revenues. Cost of license and renewal revenues consists of royalty expense and cost of materials for both initial licenses and product updates provided for in our annual license agreements. Cost of license and renewal revenues decreased 72% to $173,000 in the three months ended September 30, 2002, from $621,000 in the three months ended September 30, 2001. For the first six months of fiscal 2003, cost of license and renewal revenues decreased 74% to $352,000 from $1.4 million in the comparable period in fiscal 2002. The decrease was due primarily to the elimination of information products spending in the first and second quarter of fiscal 2003. We began including our information product team's costs to convert data from contract providers into customer usable information as cost of license and renewal revenues in December 2000 when we began selling the product. We have incurred no costs from information products in fiscal year 2003. Cost of license and renewal revenues as a percentage of license and renewal revenues was 12% for the three months ended September 30, 2002, compared to 18%, excluding costs of information products, in the three months ended September 30, 2001. For the first six months of fiscal 2003, cost of license and renewal revenues was 12% compared to 16%, excluding costs of information products, in the comparable period in fiscal 2002. The overall margin improvement in both the three and six month periods as compared to the prior year are due to our revenue growth in PKS sales, which has resulted in a higher proportion of our license revenues attributable to sales of PKS, which has a significantly lower cost of license, specifically lower royalties.

Cost of Services Revenues. Cost of services revenues consists of salary and related expenses associated with the delivery of consulting and training projects. Cost of services revenues decreased 20% to $1.3 million in the three months ended September 30, 2002, from $1.6 million in the three months ended September 30, 2001. For the first six months of fiscal 2003, cost of services revenues decreased 15% to $2.8 million from $3.3 million in the comparable period in fiscal 2002. The decreases were due primarily to fewer consulting personnel in our strategic services group. The decrease in headcount over the prior year period is designed to enable us to better improve utilization while still preserving capacity to meet our customers' demands. Cost of services as a percentage of services revenues was 72% for the three months ended September 30, 2002, compared to 67% in the same period in 2001. For the first six months of fiscal 2003, cost of services as a percentage of services revenues decreased to 75% compared to 80% in the same period in fiscal 2002. Service margins declined in the second quarter of fiscal 2003 due to the 25% decline in services revenues, offset in large part by the 20% decline in cost of services revenues. The service margin increase during the first six months of fiscal 2003 resulted primarily from savings in cost of services revenues over the prior year due to the December 2001 and July 2002 restructuring actions, which outweighed the reduction in services revenues from period to period.

Research and Development. Research and development expenses decreased 48% to $900,000 in the three months ended September 30, 2002, from $1.7 million in the three months ended September 30, 2001. For the first six months of fiscal 2003, research and development expenses decreased 37% to $2.4 million from $3.7 million in the comparable period in fiscal 2002. Of the twenty people affected by our November 2001 restructuring actions, five were in the Research and Development organization. In addition, nine of the eighteen people effected by our July 2002 restructuring actions were in the Research and Development organization. These restructuring actions did not impact the resources assigned to develop and support our current and future Pharsight® Knowledgebase Server™, WinNonlin®, WinNonMix® and Trial Simulator™ product families. Our restructuring actions reduced resources in areas such as the management and development of our

Information Products program. Research and development expenses as a percentage of revenues were 27% for the three months ended September 30, 2002, compared to 47% in the comparable period in 2001. For the first six months of fiscal 2003 research and development expenses as a percentage of total revenues was 35% compared to 58% in the same period in fiscal 2002. We believe research and development expenses will decline in absolute spending in fiscal 2003 as compared to fiscal 2002, based on the restructuring actions we have taken.

Sales and Marketing. Sales and marketing expenses decreased 19% to $1.7 million in the three months ended September 30, 2002, from $2.1 million in the three months ended September 30, 2001. For the first six months of fiscal 2003, sales and marketing expenses decreased 26% to $3.4 million from $4.5 million in the comparable period in fiscal 2002. The decrease in sales and marketing expenses is related primarily to a decrease in the number of direct sales personnel and a reduction in corporate marketing spending. Sales and marketing expenses as a percentage of total revenues were 52% for the three months ended September 30, 2002, compared to 58% in the three months ended September 30, 2001. For the first six months of fiscal 2003, sales and marketing expenses as a percentage of total revenues was 50% compared to 70% in the same period in fiscal 2002. We estimate our sales and marketing expenses will grow in absolute dollars in future periods as we continue our efforts to increase productivity related to changes in sales and marketing management and a more focused sales process.

General and Administrative. General and administrative expenses decreased 2% to $1.4 million in the three months ended September 30, 2002, from $1.5 million in the three months ended September 30, 2001. For the first six months of fiscal 2003, general and administrative expenses increased 3% to $3.0 million from $2.9 million in the comparable period in fiscal 2002. The decrease during the three month period ended September 30, 2002 resulted from reduced staff associated with the restructuring actions taken in November 2001 and July 2002. The increase during the first six months of fiscal 2003 as compared to the same period in fiscal 2002 is due to higher insurance and other outside professional fees, as well as the cost to enhance our internal management systems infrastructure, offset in part by cost reductions resulting from our restructuring actions. General and administrative expenses as a percentage of total revenues were 43% for the three months ended September 30, 2002, compared to 39% in the quarter ended September 30, 2001. For the first six months of fiscal 2003, general and administrative expenses as a percentage of total revenues were 44% compared to 45% in the same period in fiscal 2002.

Deferred Stock Compensation. During the three months ended September 30, 2002 and 2001, we recorded amortization of deferred compensation of $371,000, and $793,000, respectively. For the six month period ended September 30, 2002 and 2001, we recorded $828,000 and $1.8 million, respectively. The deferred compensation expenses recorded in each period represent the difference between the exercise price of stock options granted and the then deemed fair value of our common stock.

Restructuring Charges. During the three months ended December 31, 2001, we implemented a restructuring program to better align operating expenses with anticipated revenues (December 2001 Restructuring Plan). Our December 2001 Restructuring Plan reduced resources in non-core areas such as our Information Products. We recorded a $676,000 restructuring charge, which consists of $402,000 in facility exit costs, $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 31, 2001, 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 September 30, 2002, we had $120,000 of accrued restructuring costs primarily related to monthly lease expenses for two facilities that were exited in 2001. We estimate that the restructuring program will save the Company approximately $4.5 million of expenses on an annualized basis.

In July 2002, we announced that we were taking additional actions intended to help further reduce operating expenses across all non-core functional areas (July 2002 Restructuring Plan). The July 2002 Restructuring Plan included a total reduction of 18 employees. As of September 30, 2002 all but three of these staff have been terminated. The three remaining staff are scheduled for termination in December of 2002 and March of 2003. We expect that once completed the restructuring actions, including employee terminations, will result in a reduction in annualized operating expenses of $2.5 to $3.0 million. We have recorded $324,000 in restructuring charges during the quarter ended September 30, 2002. At September 30, 2002, we had $157,000 of remaining accrued restructuring costs related to employee termination costs to be paid out in the third and fourth quarter of fiscal 2003.

Other Income (Expense). Interest income and other, net, decreased to $3,000 in the three months ended September 30, 2002, from $117,000 in the three months ended September 30, 2001. For the first six months of fiscal 2003, interest income and other, net, decreased to $18,000 from $329,000 in the comparable period in fiscal 2002. This decrease occurred from lower interest income resulting from a lower average balance of cash and short-term investments and lower interest rates. Interest expense increased to $92,000 in the three months ended September 30, 2002, from $48,000 in the three months ended September 30, 2001. For the first six months of fiscal 2003, interest expense increased to $186,000 from $93,000 in the comparable period in fiscal 2002. Substantially all of the increases were a result of interest paid on notes payable to Silicon Valley Bank which were outstanding for the entire three and six month periods during fiscal 2003. Borrowings under the Silicon Valley Bank credit facility were initially drawn during the second quarter of fiscal 2002 resulting in substantially lower interest expense during fiscal 2002.

Liquidity and Capital Resources

As of September 30, 2002, we had $13.4 million in cash, cash equivalents and short-term investments, a decrease of $71,000 from cash, cash equivalents and short-term investments held as of March 31, 2002. As of September 30, 2002, there was an aggregate of $4.3 million in borrowings under our borrowing arrangements and credit facilities. During the first two quarters of fiscal 2003, the Company increased its borrowings by $750,000 and re-paid this amount in full. The net decrease in borrowings during the six month period resulted from scheduled repayments of principal under our term loan with Silicon Valley Bank. Our working capital, defined as current assets less current liabilities, at September 30, 2002, was $8.4 million, an increase of $1.6 million from $6.8 million at March 31, 2002. The increase in working capital is attributable to cash proceeds from the issuance of Series A redeemable convertible preferred stock and warrants, decreased operational spending resulting from our restructuring actions, offset by a higher than average accounts receivable balance at quarter end due primarily to several significant PKS sales made during the quarter, and by cash used to fund operations.

In June 2002 and September 2002, we sold an aggregate of 1,814,662 shares of Series A preferred stock and warrants to purchase 1,814,662 shares of our common stock to investors affiliated with The Sprout Group and Alloy Ventures. Dr. Chambon, one of our directors, is affiliated with the Sprout Group, and two of our directors, Mr. Sanders and Dr. Kelly, are affiliated with Alloy Ventures. Gross proceeds from these transactions were approximately $7.5 million. The purchase price was arrived at through negotiations with the investors and was determined as four times the closing price of our common stock at the date of the signing of the agreement for each share of Series A preferred stock, and $0.125 per share subject to the warrants.

The Series A 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 Series A preferred stock is redeemable at a price of $4.008 per share plus any unpaid dividends with respect to such share. Each share of Series A preferred stock is convertible into four shares of Common Stock at the election of such holder or upon the occurrence of certain other events. The Series A preferred stock is entitled to

receive an annual dividend of 8% payable quarterly in cash or shares of Series B preferred stock. The Series B preferred stock has identical rights, preferences and privileges to the Series A preferred stock except that the Series B preferred stock is not entitled to 8% dividends. These quarterly dividends commenced in September 2002. During the six months ended September 30, 2002, we paid $45,000 in dividends to the Series A preferred stockholders and we have recorded an additional $39,000 in accrued dividends payable as of September 30, 2002. The warrants are exercisable for a period of five years from issuance with an exercise price of $1.15. In connection with the transaction, we registered the common stock issuable upon conversion of the preferred stock and exercise of the warrants, and are required to keep the registration statement effective or to pay liquidated damages in the amount of 1% of the purchase price per month in the event that we fail to keep the registration statement effective, subject to limited exceptions.

Net cash used in operating activities for the six months ended September 30, 2002 was $6.7 million and primarily reflects our net loss for the period, partially offset by $828,000 of non-cash charges related to deferred stock compensation and $777,000 of non-cash charges related to depreciation and amortization, as well as $1.3 million of deferred revenue. The remainder of cash used in operating activities were attributable to net changes in operating assets and liabilities.

Net cash provided by investing activities was $2.9 million for the six months ended September 30, 2002. Cash provided by investing activities primarily resulted from the maturities of short-term investments, offset in part by the purchase of $96,000 of fixed assets.

Net cash provided by financing activities was $6.7 million for the six months ended September 30, 2002. Cash from financing activities was provided primarily as a result of proceeds from the issuance of Series A redeemable convertible preferred stock and warrants and issuance of common stock upon the exercise of stock options. Decreasing this amount were principal payments on capital leases and the term loan with Silicon Valley Bank and dividends paid to the preferred stockholders.

In June 2002, we extended our secured revolving credit facility agreement with Silicon Valley Bank for an additional year. As of September 30, 2002, we had up to $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 secured term loan. The revolving credit facilities expire in June 2003. The secured term loan principal is payable over forty-eight months, beginning in July 2002. As of September 30, 2002, we had $1.0 million and $3.3 million borrowed from our revolving credit facilities and its secured term loan, respectively. All three facilities are secured by certain of our assets, excluding intellectual property.

We are required to meet certain financial covenants on a quarterly basis including: quick ratio greater than 1.0, remaining months liquidity of at least 6 months, liquidity of at least two times the term loan advance, and annual net losses within 20% of our plan, measured at specific quarterly amounts. On October 23, 2002, we obtained a modification to our Silicon Valley Bank loan agreement. This modification revised our allowable Net Losses for the second half of fiscal 2003. We are in compliance with each of these covenants as of September 30, 2002.

The following table depicts contractual obligations of the Company as of September 30, 2002:

	Payments Due by Period
Contractual Obligations (in thousands)	Total		Less Than 1 Year		2-3 Years		4-5 Years
Notes payable	$	4,281	$	875	$	1,750	$	656
Capital lease obligations	$	687	$	597	$	90	$	—
Operating leases*	$	1,979	$	1,600	$	349	$	30

Total contractual cash obligations	$	6,947	$	3,072	$	2,189	$	686

*: Net of $116,000 in restructuring vacated facilities expenditures and $13,000 in sublease income for the period October 1, 2002 through September 30, 2003.

We currently anticipate that our current cash, cash equivalents, investments and available credit facilities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures through the next 12 months. We are managing our business to achieve positive cash flow, utilizing existing assets. During 2002, our commitments and liabilities decreased significantly due to our restructuring actions. In addition, we reduced ongoing operating expenses by minimizing 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.

There can be no assurance, however, that we will realize our goal with respect to achieving positive cash flow at the current level of resources. We may need to raise additional funds through public or private financings or other sources to fund our operations, or for potential acquisitions. We may not be able to obtain adequate or favorable financing at that time. Failure to raise capital when needed could harm our business. If we raise additional funds through the issuance of equity securities, these equity securities might have rights, preferences or privileges senior to our common stock. In addition, the necessity of raising additional funds could force us to incur debt on terms that could restrict our ability to make capital expenditures and incur additional indebtedness.

Recent Accounting Pronouncements

Accounting for Business Combinations, Goodwill and Other Intangible Assets

In June 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142 Goodwill and Other Intangible Assets. Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement No. 142 requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead and entity must perform an assessment of whether these assets are impaired as of the date of adoption and test for impairment at lease annually in accordance with the provisions of Statement No. 142. The standards also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed annually for impairment. We adopted the provisions of Statement No. 141 on July 1, 2001 and Statement No. 142 on April 1, 2002. The adoption of Statement No. 141 or 142 did not have a significant impact on our financial position and results of operations.

Accounting for Costs Associated with Exit and Disposal Activities

Exit an Activity, by spreading out the reporting of expenses related to restructuring activities. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs. Instead, companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, and they will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not restate previously issued financial statements for the effect of the provisions of SFAS No. 146 and liabilities that a company previously recorded under EITF Issue No. 94-3 are grandfathered. The restructuring activities initiated by us in November 2001 and July 2002 have been accounted for under the provisions of EITF 94-3. We plan to adopt SFAS 146 January1, 2003. We do not believe that the adoption of SFAS No. 146 will have a material impact on our financial position or results of operation.

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition or operating results could be materially adversely affected. This could cause the trading price of our common stock to decline, and you may lose part or all of your investment.

Business Risks

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 September 30, 2002, we had an accumulated deficit of $72.6 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 may never generate sufficient revenues to achieve profitability. Furthermore, even if we do achieve profitability and/or 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.

We may need to raise additional funds through public or private financings or other sources to fund our operations, or for potential acquisitions. We may not be able to obtain adequate or favorable financing at that time. Failure to raise capital when needed could harm our business. If we raise additional funds through the issuance of equity securities, these equity securities might have rights, preferences or privileges senior to our common stock. In addition, the necessity of raising additional funds could force us to incur debt on terms that could restrict our ability to make capital expenditures and incur additional indebtness.

Our quarterly operating results may fluctuate significantly and may fail to meet the expectations of investors.

We expect our quarterly operating results may fluctuate in the future, and may vary from investors' expectations, depending on a number of factors described below and elsewhere in this "Business Risks" section, 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
•: Restructuring actions.

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 our investors.

We have engaged in restructuring actions in order to reduce our operating expenses. These actions may not be sufficient to reduce our operating expenses to the level that we need to achieve, and so we may need to engage in additional restructuring actions until we reach profitability.

In November 2001, we announced that we were taking actions intended to reduce our expenses by approximately $5.0 million, on an annualized basis. Our current estimate for the November 2001 restructuring is a reduction of approximately $4.5 million on an annualized basis. In July 2002, we announced that we were taking further actions intended to reduce our expenses by an additional $2.5 to $3.0 million on an annualized basis. Our restructuring actions 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 restructuring actions 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 September 30, 2002, we had working capital of $8.4 million. During the twelve-months ended September 30, 2002, we used cash for operating activities of $10.0 million. We cannot assure you 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 as we anticipated from the restructurings, and continue to develop successful product and services offerings could prevent us from successfully achieving breakeven operations and result in additional restructuring actions as well as possibly require us to raise additional funds that may not be available on commercially reasonable terms or at all.

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. For the six months ended September 30, 2002, sales to our top customer accounted for 21% of our revenue and sales to our top five customers accounted for 56% 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. During the past year we have experienced a significant decrease in the utilization of our consulting services as a result of reduced by large pharmaceutical customers. 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 on a timely basis, we may not achieve revenue growth and our products and services may become obsolete, and our business could suffer. Moreover, we have terminated a number of employees and other service providers in connection with our restructuring actions which may harm our ability to adapt. We have also 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 lose key members of our management, scientific or development staff, or our scientific advisors, our operations may be adversely affected and our reputation may be harmed and therefore 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.

In addition, several members of our management team have recently assumed new positions, including:

•: Michael S. Perry, who joined the Company as President and Chief Executive Officer in February 2002;
•: Shawn M. O'Connor, who joined the Company as Senior Vice President and Chief Financial Officer in September 2002;
•: Mona Cross Sowiski, who joined the Company as Senior Vice President of Consulting Services in July 2002;

•: Mark R. Robillard, who joined the Company as Vice President, Global Sales, in October 2001, and was named Senior Vice President, PKS Business Unit in July 2002; and
•: Michael J. Schwartz, who previously served as the Company's Vice President, Marketing, was named Senior Vice President, Strategic Development in July 2002.

If our management team and key employees do not work together effectively, our business may be seriously harmed.

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.

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. As of September 30, 2002, we have a total of nine employees based outside the United States that market and sell our products and services. 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 has recently been, and could continue to 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

Our common stock was delisted from the Nasdaq National Market, which seriously impairs the liquidity of our common stock.

Our common stock is no longer listed on the Nasdaq National Market, which seriously impairs the liquidity of our common stock and limits our potential to raise future capital through the sale of our common stock.

Because the holders of Series A Preferred Stock 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 holders of our Series A Preferred Stock are entities affiliated with The Sprout Group and Alloy Ventures. As of September 11, 2002, the entities affiliated with The Sprout Group beneficially owned approximately 27% of our common stock and the entities affiliated with Alloy Ventures beneficially owned approximately 33% of our common stock. If these stockholders choose to act or vote together, they will have the power to control 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market and currency risk disclosures set forth in Item 7A of our Annual Report on Form 10-K for the year ended March 31, 2002 have not changed significantly.

ITEM 4. CONTROLS AND PROCEDURES

As of September 30, 2002, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, Dr. Michael Perry, and our Chief Financial Officer, Shawn O'Connor, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including Dr. Perry and Mr. O'Connor, concluded that our disclosure controls and procedures were effective as of September 30, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2002.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On June 26, 2002 and September 11, 2002, the Company completed private placements of its securities to certain entities affiliated with Alloy Ventures, Inc. and the Sprout Group, both of which are existing stockholders of the Company, pursuant to a Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company agreed to sell up to an aggregate of 1,814,662 units (each a "Unit," and collectively the "Units"). Each Unit consists of one share of the Company's Series A redeemable convertible preferred stock (the "Series A Preferred") and a warrant to purchase one share of the Company's common stock. The purchase price for each Unit is $4.133, which is the sum of $4.008 (four times the underlying average closing price for the Company's common stock over the five trading days prior to the Initial Closing (i.e., $1.002)) and $0.125 for each share of Series A Preferred and warrant, respectively.

The sale and issuance of the Units under the Purchase Agreement was structured to close in two phases. The first phase (the "Initial Closing") was completed on June 26, 2002, pursuant to which the Company sold an aggregate of 761,920 Units for an aggregate purchase price of $3.15 million in cash. The net cash proceeds of the offering, after expenses, were approximately $3.0 million. The second phase (the "Second Closing") was completed on September 11, 2002, pursuant to which the Company sold an aggregate of 1,052,742 Units for an aggregate purchase price of $4.35 million in cash. The net cash proceeds of the offering, after expenses, were approximately $4.26 million. The Company intends to use the proceeds for general corporate purposes, including working capital to fund operations and ongoing research and development projects. The sale and issuance in connection with each of the Initial Closing and the Second Closing was made to accredited investors and was exempt from registration pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"). In the Second Closing, which occurred on September 11, 2002 was subject to stockholder approval which was obtained on September 6, 2002.

The Series A Preferred is redeemable at any time after five years from the date of issuance upon the affirmative vote of at least 75% of the holders of Series A Preferred, at a price of $4.008 per share plus any unpaid. Each share of Series A Preferred is convertible into four shares of the Company's common stock at the election of the holder or upon the occurrence of certain other events. The holders of Series A Preferred are entitled to receive, but only out of legally available funds, quarterly cumulative dividends at the rate of 8% per year commencing in September 2002, which are payable in cash or shares of Series B redeemable convertible preferred stock (the "Series B Preferred"), at the election of the holder. The terms of the Series B Preferred are identical to the Series A Preferred, except that the Series B Preferred is not entitled to receive the 8% dividends. In the event of any liquidation or winding up of the Company, the holders of the Series A Preferred and Series B Preferred shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to the greater of (a) the original issue price, plus any accrued but unpaid dividends and (b) the amount that such shares would receive if converted to Common Stock immediately prior thereto (the "Liquidation Preference"). After the payment of the Liquidation Preference to the holders of Preferred Stock, the remaining assets shall be distributed ratably to the holders of the Common Stock. A merger, acquisition, sale of voting control or sale of substantially all of the assets of the Company in which the stockholders of the Company do not own a majority of the outstanding shares of the surviving corporation will be deemed to be a liquidation.

The holders of Series A Preferred and Series B Preferred are entitled to vote together with the Common Stock. Each share of Preferred Stock shall have a number of votes equal to the number of

shares of Common Stock then issuable upon conversion of such share of Preferred Stock. In addition, consent of the holders of at least 75% of the then outstanding Preferred Stock shall be required for certain actions, including any action that amends the Company's charter documents so as to adversely affect the Preferred Stock.

The warrants are exercisable for a period of five years from issuance with an exercise price of $1.15 per share.

Pursuant to the Purchase Agreement, the Company filed a registration statement on Form S-3 for the resale of the shares of Common Stock issuable to the investors upon conversion of the shares of Preferred Stock and exercise of the warrants. The registration statement became effective on November 1, 2002.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

Not Applicable

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

Not Applicable

ITEM 5. OTHER INFORMATION

On November 8, 2002, the Company's common stock ceased to trade on the Nasdaq National Market as a result of the failure of the common stock to maintain a minimum price per share. The Company's common stock is currently traded on the over-the-counter market.

Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is responsible for listing the non-audit services approved by the Company's Audit Committee to be performed by Ernst & Young, the company's external auditor. Non-audit services are defined as services other than those provided in connection with an audit or a review of the financial statements of the Company. Following the quarterly period covered by this filing, the Audit Committee approved new or recurring engagements of Ernst & Young for the following non-audit services: (1) services rendered in connection with the preparation of the Company's tax returns; and (2) other services regarding tax compliance.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): EXHIBITS.

The following exhibits are filed with this report:

Exhibit Number		Description of Document
3.2(1)		Amended and Restated Certificate of Incorporation of Pharsight.
3.3(2)		Bylaws of Pharsight.
3.4(1)		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(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.
10.34		Employment Letter, dated August 16, 2002, between Company and John Wehrli.
10.35		Employment Letter, dated August 16, 2002, between Company and Charles Faas.
10.36		Employment Letter, dated August 19, 2002, between Company and Robert Powell.
10.37		Employment Letter, dated August 20, 2002, between Company and Arthur Reidel.
10.38		Employment Letter, dated September 4, 2002, between Company and Shawn O'Connor.
10.39		Employment Letter, dated September 27, 2002, between Company and Daniel Weiner.
10.40		Loan Modification Agreement, dated as of October 23, 2002, by and between Pharsight Corporation and Silicon Valley Bank.
99.1		Certification of Chief Executive Officer and Chief Financial Officer.

(1)

Filed as the like-numbered exhibit to the Registrant's Annual Report on Form 10-K (Commission No. 000-31253) for the fiscal year ended March 31, 2002, and incorporated herein by reference.

(2)

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.

(b): REPORTS ON FORM 8-K.

On July 8, 2002, the Company filed a Current Report on Form 8-K under "Item 5 Other Events" announcing the first closing of its sale of units consisting of Series A Preferred Stock and common stock warrants. On September 20, 2002, the Company filed a Current Report on Form 8-K under "Item 1. Change of Control of Registrant" announcing the second closing of its sale of units consisting of Series A Preferred Stock and common stock warrants.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PHARSIGHT CORPORATION
Date: November 14, 2002		By:		/s/ CHARLES K. FAAS Charles K. Faas Vice President, Finance and Chief Accounting Officer (Duly Authorized Officer)

CERTIFICATION

I, Michael S. Perry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pharsight Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designated such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness.

Date: November 14, 2002

/s/ MICHAEL S. PERRY

Michael S. Perry
President and Chief Executive Officer
(Principal Executive Officer)

CERTIFICATION

I, Shawn M. O'Connor, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pharsight Corporation;

(d) designated such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(e) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(f) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

(d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: November 14, 2002

/s/ SHAWN M. O'CONNOR

Shawn M. O'Connor
Chief Financial Officer
(Principal Financial Officer)

EXHIBIT INDEX

Exhibit Number		Description of Document
3.2(1)		Amended and Restated Certificate of Incorporation of Pharsight.
3.3(2)		Bylaws of Pharsight.
3.4(1)		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(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.
10.34		Employment Letter, dated August 16, 2002, between Company and John Wehrli.
10.35		Employment Letter, dated August 16, 2002, between Company and Charles Faas.
10.36		Employment Letter, dated August 19, 2002, between Company and Robert Powell.
10.37		Employment Letter, dated August 20, 2002, between Company and Arthur Reidel.
10.38		Employment Letter, dated September 4, 2002, between Company and Shawn O'Connor.
10.39		Employment Letter, dated September 27, 2002, between Company and Daniel Weiner.
10.40		Loan Modification Agreement, dated as of October 23, 2002, by and between Pharsight Corporation and Silicon Valley Bank.
99.1		Certification of Chief Executive Officer and Chief Financial Officer.

(1): Filed as the like-numbered exhibit to the Registrant's Annual Report on Form 10-K (Commission No. 000-31253) for the fiscal year ended March 31, 2002, and incorporated herein by reference.
(2): 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.

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PHARSIGHT CORPORATION FORM 10-Q INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PHARSIGHT CORPORATION CONDENSED BALANCE SHEETS (In thousands, except par value amounts)
PHARSIGHT CORPORATION CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
PHARSIGHT CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
PHARSIGHT CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RISK FACTORS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULT UPON SENIOR SECURITIES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURE
CERTIFICATION
CERTIFICATION
EXHIBIT INDEX
EX-10.34 3 a2093150zex-10_34.htm EXHIBIT 10.34

Exhibit 10.34

August 16, 2002

VIA HAND DELIVERY

John Wehrli

Pharsight Corporation

Dear John:

As we have discussed, Pharsight Corporation (“Pharsight” or the “Company”) is offering you continued employment through December 31, 2002 and severance benefits under the terms and conditions set forth below (the “Agreement”).

1. CONTINUED EMPLOYMENT. Provided that you continue to satisfactorily perform your job duties, and comply with Company policies and procedures, subject to Paragraph 4 below, the Company may continue to employ you in the position of Vice President, General Counsel and Secretary through December 31, 2002 (the “Separation Date”) and you will continue to be paid your regular base salary in effect as of the date of this Agreement during the period of such continued employment.

2. ACCRUED SALARY AND PAID TIME OFF. On the Separation Date, the Company will pay you all accrued and unpaid salary, and all accrued and unused vacation, earned through the Separation Date, less required payroll deductions and withholdings. You are entitled to these payments regardless of whether you sign this Agreement.

3. SEVERANCE BENEFITS. If you fully comply with all conditions of this Agreement (including continuing to work through the Separation Date), and sign and return the Supplemental Release (attached hereto as Exhibit A) on or after the Separation Date, the Company will provide you with the following severance benefits (the “Severance Benefits”):

(a) A severance payment equal to six (6) months of your base salary in effect as of the Separation Date, subject to required payroll deductions and required withholdings (the “Severance Payment”). In addition, you agree to provide the Company with the appropriate withholding rates for federal and state taxes prior to the Separation Date, but in any event the Company agrees to apply a federal income tax withholding rate no greater than twenty-eight percent (28%) and a California income tax withholding rate no greater than six percent (6%) to your Severance Payment. The Severance Payment will be provided within ten (10) business days after you sign and return the Supplemental Release to the Company; and

(b) If you timely elect to continue your health insurance coverage under the federal COBRA law following the Separation Date pursuant to Section 5, the Company will reimburse your out-of-pocket costs to continue your COBRA coverage for you and your dependent children at the same level of coverage in effect as of the Separation Date for either six (6) months following the Separation Date or the date that you become eligible for health insurance coverage through a new employer, whichever is shorter.

4. TERMINATION OF EMPLOYMENT PRIOR TO SEPARATION DATE. The Company can terminate your employment prior to the Separation Date with or without Cause (as defined below), upon notice to you. In addition, you can terminate your employment prior to the Separation Date with or without Good Reason (defined below), upon notice to the Company. If, prior to the Separation Date, the Company terminates your employment without Cause or you resign for Good Reason, you will be entitled to receive the Severance Benefits, provided that you must first sign and return the Supplemental Release to the Company. You will not be entitled to receive the Severance Benefits if your employment is terminated for Cause or you resign for any reason that does not constitute Good Reason. For the purposes of this Agreement, Cause for termination of your employment by the Company shall mean: (a) your conviction (including a guilty or no contest plea) of any felony or any other crime involving dishonesty; (b) your participation in any fraud against the Company; (c) your breach of any obligation under this Agreement; (d) your damage to any Company property; or (e) conduct by you which in the good faith and reasonable determination of the Company’s Board of Directors (“Board”) demonstrates gross unfitness to serve. For the purposes of this Agreement, your resignation will qualify as a resignation for Good Reason if it results from requests by the Company’s Chief Executive Officer (“CEO”) or the Board that you engage in conduct that would violate the ethical rules applicable to licensed attorneys in California, provided that such requests must continue to be made after you provide written notice of your objection to the requests to the CEO or Board, as applicable.

5. HEALTH INSURANCE. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense after the Separation Date. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided a separate notice describing your rights and obligations under COBRA on or after the Separation Date.

6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, stock option vesting, or benefits before or after the Separation Date. By way of example, but not limitation, you acknowledge and agree that you are not eligible for any bonus or other incentive compensation.

7. EXPENSE REIMBURSEMENTS. Within ten (10) business days following the Separation Date (or any earlier termination date), you must submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practices.

8. RETURN OF COMPANY PROPERTY. You agree to return to the Company, no later than the Separation Date or at the Company’s earlier request, all Company documents (and all copies thereof) and other Company property that you have in your possession or control, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, but not limited to, computers), credit cards, entry cards, identification badges and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof). The timely return of such property is a condition precedent to the Company providing you with the Severance Payment.

9. PROPRIETARY INFORMATION OBLIGATIONS. You hereby acknowledge and reaffirm your continuing obligations under your Proprietary Information and Inventions Agreement, which apply both during and after your employment. A copy of your Proprietary Information and Inventions Agreement is attached hereto as Exhibit B.

10. CONFIDENTIALITY. The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement in confidence to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement to investors or potential investors and to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former employee, consultant or independent contractor of the Company.

11. NONDISPARAGEMENT. You agree that you will not at any time disparage the Company or its directors, officers, shareholders, agents, or employees in any manner likely to be harmful to the personal or business reputation of it or them, and the Company (through its officers and directors) agrees that it will not disparage you in any manner likely to be harmful to your personal or business reputation, provided that both you and the Company shall respond accurately and fully to any question, inquiry, or request for information when required by legal process.

12. NONSOLICITATION OF COMPANY EMPLOYEES. You hereby agree that during your continued employment and for six (6) months after the termination of your employment for any reason, you will not, either directly or indirectly, solicit, attempt to solicit, induce or otherwise cause any employee of the Company to terminate his or her employment with the Company.

13. RELEASE OF CLAIMS. In consideration for, and as a condition of, your continued employment and other consideration provided to you by the Company under this Agreement, to which you are not otherwise entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way

related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (2) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, and the California Fair Employment and Housing Act (as amended).

14. RELEASE OF UNKNOWN CLAIMS. You acknowledge that you have read and understand Section 1542 of the California Civil Code: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to your release of any unknown or unsuspected claims.

15. ARBITRATION. To ensure rapid and economical resolution of any disputes which may arise under this Agreement, you and the Company agree that any and all disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance, enforcement or breach of this Agreement shall be resolved, to the fullest extent allowed by law, by confidential, final and binding arbitration conducted before a single arbitrator with Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in San Francisco, California, under the then-existing JAMS employment rules. The parties acknowledge that by agreeing to this arbitration procedure, they each waive the right to resolve any such dispute through a trial by jury, judge or administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and the Company each have the right to resolve any issue or dispute involving Company trade secrets or invention rights by court action instead of arbitration.

16. MISCELLANEOUS. This Agreement, including Exhibits A and B, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matters. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company.

This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California.

We hope the foregoing terms are acceptable to you. If you agree to the terms set forth in this Agreement, please sign below and return the original to me. You have up to fourteen (14) calendar days to decide whether you want to accept the Company’s offer contained herein. If you have any questions regarding these matters, feel free to contact me.

We wish you good luck in your future endeavors.

Sincerely,

PHARSIGHT CORPORATION


By:	/s/ Stacy Murphy
	Stacy Murphy
	Vice President, Human Resources


Exhibit A — Supplemental Release

Exhibit B — Proprietary Information and Inventions Agreement


AGREED:


/s/ John Wehrli
John Wehrli

Date: August 16, 2002

EXHIBIT A

SUPPLEMENTAL RELEASE

(to be signed on or after the Separation Date)

In consideration for the Severance Payment and other consideration provided to me by Pharsight Corporation (the “Company”), and as required by the Agreement between the Company and me dated August 16, 2002, I hereby give the following Supplemental Release.

I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Supplemental Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, and the California Fair Employment and Housing Act (as amended).

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have.

	By:
		John Wehrli

	Date:

EXHIBIT B

PHARSIGHT CORPORATION

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with PHARSIGHT CORPORATION, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

1. Purpose of Agreement; Effective Date. I understand that the Company is engaged in a continuous program of research, development, production, and marketing in connection with its business and that it is critical for the Company to preserve and protect its Proprietary Information (as defined below) and its rights in Inventions (as defined below) and all related intellectual property rights. Accordingly, whether or not I am expected to create inventions of value for the Company, I am entering into this Proprietary Information and Inventions Agreement (this “Agreement”) as a condition of my employment with the Company. This Agreement shall be effective as of the first day of my employment with the Company.

2. Definition of Proprietary Information. Proprietary Information is any information of a confidential nature (i.e., not generally known or publicly available) that may be disclosed to me that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer, or supplier of the Company or to the business of any other party with whom the Company agrees to hold the information disclosed by such party in confidence. Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, customer lists, and product sales and pricing information.

3. Confidentiality. I understand that my employment by the Company creates a relationship of confidence and trust with respect to Proprietary Information. At all times, both during my employment with the Company and after the termination of such employment, I will keep and hold all Proprietary Information in confidence and trust, and I will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me any documents or materials or copies thereof containing any Proprietary Information.

4. Work for Hire. I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment are “works for hire” under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works.

5. Definition of Invention. The term Invention includes all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, algorithms, computer software programs, databases, mask works, and trade secrets that either (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development.

6. Disclosure and Assignment of Inventions. I will promptly disclose in confidence to the Company all Inventions that I make or conceive or create or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment and

whether or not such Inventions are patentable, copyrightable, or protectable as trade secrets. I agree that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company.

7. Assignment of Other Rights. In addition to the foregoing assignment of Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and any other intellectual property rights in any and all Inventions, and (b) any and all Other Rights (as defined below) that I may have in or with respect to any Invention. I also hereby forever waive and agree never to assert any Other Rights I may have in or with respect to any Invention, even after termination of my employment with the Company. “Other Rights” means any right to claim author’s rights with respect to an Invention, to object to or prevent the modification of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether such right is denominated or generally referred to as a “moral right” or otherwise.

8. Labor Code Notice. I have been notified and understand that the provisions of paragraphs 6 and 7 of this Agreement do not apply to any Invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which states as follows:

ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN EMPLOYEE SHALL ASSIGN OR OFFER TO ASSIGN ANY OF HIS OR HER RIGHTS IN AN INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION THAT THE EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT USING THE EMPLOYER’S EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION EXCEPT FOR THOSE INVENTIONS THAT EITHER: (1) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF THE INVENTION TO THE EMPLOYER’S BUSINESS, OR ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER, OR (2) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. TO THE EXTENT A PROVISION IN AN EMPLOYEE AGREEMENT PURPORTS TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER CALIFORNIA LABOR CODE SECTION 2870 (A), THE PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.

9. Assistance. I agree to assist the Company in every proper way to obtain for the Company and to enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company’s Inventions in any and all countries. I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secret rights and other legal protections. My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Company’s request on such assistance.

10. No Breach of Prior Agreement. I represent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials of a former employer unless such items have been legally transferred to the Company or are generally available to the public.

11. Prior Inventions. If, in the course of my employment with the Company, I incorporate a prior invention made by me into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such prior invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, prior inventions in any Company Inventions without the Company’s prior written consent.

12. Notification. I hereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

13. Injunctive Relief. I understand that in the event of a breach or threatened breach of this Agreement by me, the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement.

14. Governing Law; Severability. This Agreement will be governed and interpreted in accordance with the laws of the State of California, without regard to application of choice of law rules or principles. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then such provision shall not be voided but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect.

15. No Duty to Employ. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

16. FDA Debarrment. I represent that I have never been debarred under Section 306(a) or (b) of the Federal Food Drug or Cosmetic Act and that I will immediately notify the Company in the event that any debarrment proceedings are commenced against me.

PHARSIGHT CORPORATION		[JOHN WEHRLI]

By	/s/ Stacy Murphy	/s/ John Wehrli

Stacy Murphy Vice President, Human Resources		Date: November 18, 2000

EX-10.35 4 a2093150zex-10_35.htm EXHIBIT 10.35

Exhibit 10.35

August 16, 2002

VIA HAND DELIVERY

Charles Faas

Pharsight Corporation

Dear Charlie:

As we have discussed, Pharsight Corporation (“Pharsight” or the “Company”) is offering you continued employment through March 31, 2003 and severance benefits under the terms and conditions set forth below (the “Agreement”).

1. CONTINUED EMPLOYMENT. Provided that you continue to satisfactorily perform your job duties, and comply with Company policies and procedures, subject to Paragraph 4 below, the Company may continue to employ you through March 31, 2003 (the “Separation Date”) and you will continue to be paid your regular base salary in effect as of the date of this Agreement during the period of such continued employment.

2. ACCRUED SALARY, AND PAID TIME OFF. On the Separation Date, the Company will pay you all accrued and unpaid salary, and all accrued and unused vacation, earned through the Separation Date, less required payroll deductions and withholdings. You are entitled to these payments regardless of whether you sign this Agreement.

3. BONUS PAYMENT. If your employment continues through March 31, 2003, the Company agrees that you will be eligible to receive an annual targeted bonus of thirty-five percent (35%) of your then-current base salary in accordance with the terms and conditions of the Company’s Management Incentive Bonus Program for its Executive Officers. If such a bonus is owed, the Company will pay you this bonus on the same date as it pays its other executives, regardless of whether you are employed by the Company on such date. You and the Company agree that you will be eligible to receive an annual targeted bonus under the Management Incentive Bonus Program for its Executive Officers if your employment ends for any reason prior to March 31, 2003, regardless of whether your employment is terminated by the Company without Cause (as defined below)

4. SEVERANCE PAYMENT. If you fully comply with all conditions of this Agreement (including continuing to work through the Separation Date), and sign and return the Supplemental Release (attached hereto as Exhibit A) on or after the Separation Date, the Company will provide you with a severance payment equal to four (4) months of your base salary in effect as of the Separation Date, subject to required payroll deductions and required

withholdings (the “Severance Payment”). The Severance Payment will be provided within ten (10) business days after the Effective Date of the Supplemental Release (as defined therein).

5. TERMINATION OF EMPLOYMENT PRIOR TO SEPARATION DATE. The Company can terminate your employment prior to the Separation Date with or without Cause, upon notice to you. In addition, you can terminate your employment prior to the Separation Date for any reason upon notice to the Company. If, prior to the Separation Date, the Company terminates your employment without Cause, and provided that you must first sign and return the Supplemental Release to the Company, you will be entitled to receive, as your sole severance compensation, a payment, subject to required payroll deductions and required withholdings, equal to the lesser of the following: (a) the sum of the Severance Payment and the amount of additional salary you would have received if your employment had continued from the employment termination date through the Separation Date; or (b) an amount equal to seven (7) months of your base salary in effect as of the employment termination date. You will not be entitled to receive the payment referenced in the immediately preceding sentence if your employment is terminated for Cause or you resign for any reason prior to the Separation Date. For the purposes of this Agreement, Cause for termination of your employment by the Company shall mean: (a) your conviction (including a guilty or no contest plea) of any felony or any other crime involving dishonesty; (b) your participation in any fraud against the Company; (c) your breach of any obligation under this Agreement; (d) your damage to any Company property; or (e) conduct by you which in the good faith and reasonable determination of the Company’s Board of Directors demonstrates gross unfitness to serve.

6. HEALTH INSURANCE. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense after the Separation Date. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided a separate notice describing your rights and obligations under COBRA on or after the Separation Date.

7. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, stock option vesting, or benefits before or after the Separation Date. By way of example, but not limitation, you acknowledge and agree that you are not eligible for any bonus or other incentive compensation.

8. EXPENSE REIMBURSEMENTS. Within ten (10) business days following the Separation Date (or any earlier termination date), you must submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practices.

9. RETURN OF COMPANY PROPERTY. You agree to return to the Company, no later than the Separation Date or at the Company’s earlier request, all Company documents (and all copies thereof) and other Company property that you have in your possession or control, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property

(including, but not limited to, computers), credit cards, entry cards, identification badges and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof). The timely return of such property is a condition precedent to the Company providing you with the Severance Payment.

10. PROPRIETARY INFORMATION OBLIGATIONS. You hereby acknowledge and reaffirm your continuing obligations under your Proprietary Information and Inventions Agreement, which apply both during and after your employment. A copy of your Proprietary Information and Inventions Agreement is attached hereto as Exhibit B.

11. CONFIDENTIALITY. The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement in confidence to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement to investors or potential investors and to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former employee, consultant or independent contractor of the Company.

12. NONDISPARAGEMENT. You agree that you will not at any time disparage the Company or its directors, officers, shareholders, agents, or employees in any manner likely to be harmful to the personal or business reputation of it or them, and the Company (through its officers and directors) agrees that it will not disparage you in any manner likely to be harmful to your personal or business reputation, provided that both you and the Company shall respond accurately and fully to any question, inquiry, or request for information when required by legal process.

13. COOPERATION. You agree to cooperate with the Company in responding to the Company’s requests in connection with any existing or future litigation, arbitrations, mediations or investigations brought by or against the Company or any of its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which the Company reasonably deems your cooperation necessary or desirable. In such matters, you agree to provide the Company with reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, and participating in discovery and trial preparation and testimony. You also agree to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by you in connection with any such legal proceedings, unless you are expressly prohibited by law from so doing. You will act in good faith to furnish the information and cooperation required by this paragraph and the Company will act in good faith so that the requirement to furnish such information and cooperation does not create an undue hardship for you. The Company will reimburse you for reasonable out-of-pocket expenses incurred by you as a result of your cooperation, with the exception of lost compensation, within ten (10) days of the presentation of appropriate documentation thereof, in accordance with the Company’s standard reimbursement policies and procedures.

14. NONSOLICITATION OF COMPANY EMPLOYEES. You hereby agree that during your continued employment and for six (6) months after the termination of your employment for any reason, you will not, either directly or indirectly, solicit, attempt to solicit, induce or otherwise cause any employee of the Company to terminate his or her employment with the Company.

15. RELEASE OF CLAIMS. In consideration for, and as a condition of, your continued employment and other consideration provided to you by the Company under this Agreement, to which you are not otherwise entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (2) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

16. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing that: (a) your waiver and release do not apply to any rights or claims that may arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement; (c) you have twenty-one (21) days to consider this Agreement (although you may choose to voluntarily sign this Agreement earlier); (d) you have seven (7) days following the date you sign this Agreement to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date you sign this Agreement.

17. RELEASE OF UNKNOWN CLAIMS. You acknowledge that you have read and understand Section 1542 of the California Civil Code: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to your release of any unknown or unsuspected claims.

18. ARBITRATION. To ensure rapid and economical resolution of any disputes which may arise under this Agreement, you and the Company agree that any and all disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance, enforcement or breach of this Agreement shall be resolved, to the fullest extent allowed by law, by confidential, final and binding arbitration conducted before a single arbitrator with Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in San Francisco, California, under the then-existing JAMS employment rules. The parties acknowledge that by agreeing to this arbitration procedure, they each waive the right to resolve any such dispute through a trial by jury, judge or administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and the Company each have the right to resolve any issue or dispute involving Company trade secrets or invention rights by court action instead of arbitration.

19. MISCELLANEOUS. This Agreement, including Exhibits A and B, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matters. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California.

We hope the foregoing terms are acceptable to you. If you agree to the terms set forth in this Agreement, please sign below and return the original to me. You have up to twenty-one (21) calendar days to decide whether you want to accept the Company’s offer contained herein. If you have any questions regarding these matters, feel free to contact me.

We wish you good luck in your future endeavors.

Sincerely,

PHARSIGHT CORPORATION


By:	/s/ Stacy Murphy
	Stacy Murphy
	Vice President, Human Resources


Exhibit A — Supplemental Release

Exhibit B — Proprietary Information and Inventions Agreement


AGREED:


/s/ Charles Faas
Charles Faas

Date: August 19, 2002

EXHIBIT A

SUPPLEMENTAL RELEASE

(to be signed on or after the Separation Date)

In consideration for the severance payment and other consideration provided to me by Pharsight Corporation (the “Company”), and as required by the Agreement between the Company and me dated August 16, 2002, I hereby give the following Supplemental Release.

I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Supplemental Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Supplemental Release; (b) I should consult with an attorney prior to signing this Supplemental Release (although I may choose not to do so); (c) I have twenty-one (21) days to consider this Supplemental Release (although I may choose to voluntarily sign it earlier); (d) I have seven (7) days following the date I sign this Supplemental Release to revoke it; and (e) this Supplemental Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it (the “Effective Date”).

	By:
		Charles Faas

	Date:

EXHIBIT B

PHARSIGHT CORPORATION

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with Pharsight Corporation, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

12. Notification. I hereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

15. No Duty to Employ. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

PHARSIGHT CORPORATION		[EMPLOYEE’S NAME]

By	/s/ Stacy Murphy	/s/ Charles Faas

Stacy Murphy		Date: July 31, 2000
Vice President, Human Resources

EX-10.36 5 a2093150zex-10_36.htm EXHIBIT 10.36

Exhibit 10.36

August 19, 2002

VIA HAND DELIVERY

Robert Powell

Pharsight Corporation

Dear Bob:

As you have been informed, Pharsight Corporation (“Pharsight” or the “Company”) is undergoing operational restructuring. As a result, your position will be eliminated and your employment with Pharsight will terminate. In order to ease your transition to other employment, the Company is offering you continued employment through September 30, 2002 and severance benefits under the terms and conditions set forth below (the “Agreement”).

1. CONTINUED EMPLOYMENT. Provided that you continue to satisfactorily perform your job duties, and comply with Company policies and procedures, subject to Paragraph 4 below, the Company may continue to employ you in the position of Senior Vice President through September 30, 2002 (the “Separation Date”) and you will continue to be paid your regular base salary in effect as of the date of this Agreement during the period of such continued employment.

3. SEVERANCE PAYMENT. If you fully comply with all conditions of this Agreement (including continuing to work through the Separation Date), and sign and return the Supplemental Release (attached hereto as Exhibit A) on or after the Separation Date, the Company will provide you with a severance payment equal to seventy-five thousand dollars ($75,000), subject to required payroll deductions and required withholdings (the “Severance Payment”). The Severance Payment will be provided within ten (10) business days after the Effective Date of the Supplemental Release (as defined therein).

any obligation under this Agreement; (d) your damage to any Company property; or (e) conduct by you which in the good faith and reasonable determination of the Company’s Board of Directors demonstrates gross unfitness to serve.

7. EXPENSE REIMBURSEMENTS. Within ten (10) business days following the Separation Date (or any earlier termination date), you must submit your final documented expense reimbursement statement, including written receipts, reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practices.

Agreement to any current or former employee, consultant or independent contractor of the Company.

12. COOPERATION. You agree to cooperate with the Company in responding to the Company’s requests in connection with any existing or future litigation, arbitrations, mediations or investigations brought by or against the Company or any of its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which the Company reasonably deems your cooperation necessary or desirable. In such matters, you agree to provide the Company with reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, and participating in discovery and trial preparation and testimony. You also agree to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by you in connection with any such legal proceedings, unless you are expressly prohibited by law from so doing. You will act in good faith to furnish the information and cooperation required by this paragraph and the Company will act in good faith so that the requirement to furnish such information and cooperation does not create an undue hardship for you. The Company will reimburse you for reasonable out-of-pocket expenses incurred by you as a result of your cooperation, with the exception of lost compensation, within ten (10) days of the presentation of appropriate documentation thereof, in accordance with the Company’s standard reimbursement policies and procedures.

13. NONSOLICITATION OF COMPANY EMPLOYEES. You hereby agree that during your continued employment and for six (6) months after the termination of your employment for any reason, you will not, either directly or indirectly, solicit, attempt to solicit, induce or otherwise cause any employee of the Company to terminate his or her employment with the Company.

14. RELEASE OF CLAIMS. In consideration for, and as a condition of, your continued employment and other consideration provided to you by the Company under this Agreement, to which you are not otherwise entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (2) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all

claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

15. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing that: (a) your waiver and release do not apply to any rights or claims that may arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement; (c) you have forty-five (45) days to consider this Agreement (although you may choose to voluntarily sign this Agreement earlier); (d) you have seven (7) days following the date you sign this Agreement to revoke the Agreement; (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date you sign this Agreement; and (f) you hereby acknowledge that with this Agreement, the Company has provided you with a Disclosure Under Title 29 U.S. Code Section 626(f)(1)(H) which is attached hereto as Exhibit C.

16. RELEASE OF UNKNOWN CLAIMS. You acknowledge that you have read and understand Section 1542 of the California Civil Code: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to your release of any unknown or unsuspected claims.

17. ARBITRATION. To ensure rapid and economical resolution of any disputes which may arise under this Agreement, you and the Company agree that any and all disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance, enforcement or breach of this Agreement shall be resolved, to the fullest extent allowed by law, by confidential, final and binding arbitration conducted before a single arbitrator with Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in San Francisco, California, under the then-existing JAMS employment rules. The parties acknowledge that by agreeing to this arbitration procedure, they each waive the right to resolve any such dispute through a trial by jury, judge or administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and the Company each

have the right to resolve any issue or dispute involving Company trade secrets or invention rights by court action instead of arbitration.

18. MISCELLANEOUS. This Agreement, including Exhibits A and B, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matters. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California.

We hope the foregoing terms are acceptable to you. If you agree to the terms set forth in this Agreement, please sign below and return the original to me. You have up to forty-five (45) calendar days to decide whether you want to accept the Company’s offer contained herein. If you have any questions regarding these matters, feel free to contact me.

We wish you good luck in your future endeavors.

Sincerely,

PHARSIGHT CORPORATION


By:	/s/ Stacy Murphy
	Stacy Murphy
	Vice President, Human Resources


Exhibit A — Supplemental Release

Exhibit B — Proprietary Information and Inventions Agreement

Exhibit C — Disclosure Under Title 29 U.S. Code Section 626(f)(1)(H)


AGREED:


/s/ Robert Powell
Robert Powell

Date: August 19, 2002

EXHIBIT A

SUPPLEMENTAL RELEASE

(to be signed on or after the Separation Date)

In consideration for the Severance Payment and other consideration provided to me by Pharsight Corporation (the “Company”), and as required by the Agreement between the Company and me dated August 19, 2002, I hereby give the following Supplemental Release.

I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Supplemental Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Supplemental Release; (b) I should consult with an attorney prior to signing this Supplemental Release (although I may choose not to do so); (c) I have forty-five (45) days to consider this Supplemental Release (although I may choose to voluntarily sign it earlier); (d) I have seven (7) days following the date I sign this Supplemental Release to revoke it; (e) this Supplemental Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it (the “Effective Date”); and (f) I hereby acknowledge that with the Agreement, the Company provided me with a Disclosure Under Title 29 U.S. Code Section 626(f)(1)(H), attached as Exhibit C.

	By:	/s/ Robert Powell
		Robert Powell

	Date:	September 30, 2002

EXHIBIT B

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

In consideration of, and as a condition of, my employment with Pharsight Corporation, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

5. Additional Activities. I agree that during the period of my employment by the Company I will not, without the Company’s express written consent, engage in any employment or business activity which is competitive with, or would otherwise conflict with, my employment by the Company. I agree further that for the period of my employment by the Company and for

one (l) year after the date of termination of my employment by the Company I will not, either directly or through others, solicit or attempt to solicit any employee, independent contractor or consultant of the company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.

6. Definition of Invention. The term Invention includes all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, algorithms, computer software programs, databases, mask works, and trade secrets that either (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development.

7. Disclosure and Assignment of Inventions. I will promptly disclose in confidence to the Company all Inventions that I make or conceive or create or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment and whether or not such Inventions are patentable, copyrightable, or protectable as trade secrets. I agree that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company.

8. Assignment of Other Rights. In addition to the foregoing assignment of Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and any other intellectual property rights in any and all Inventions, and (b) any and all Other Rights (as defined below) that I may have in or with respect to any Invention. I also hereby forever waive and agree never to assert any Other Rights I may have in or with respect to any Invention, even after termination of my employment with the Company. “Other Rights” means any right to claim author’s rights with respect to an Invention, to object to or prevent the modification of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether such right is denominated or generally referred to as a “moral right” or otherwise.

9. Labor Code Notice. I have been notified and understand that the provisions of paragraphs 6 and 7 of this Agreement do not apply to any Invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which states as follows:

INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER CALIFORNIA LABOR CODE SECTION 2870 (A), THE PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.

10. Assistance. I agree to assist the Company in every proper way to obtain for the Company and to enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company’s Inventions in any and all countries. I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secret rights and other legal protections. My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Company’s request on such assistance.

11. No Breach of Prior Agreement. I represent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person, or unless the items have been legally transferred to the Company or are generally available to the public. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided, developed or owned by the Company.

12. Prior Inventions. If, in the course of my employment with the Company, I incorporate a prior invention made by me into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such prior invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, prior inventions in any Company Inventions without the Company’s prior written consent.

13. Notification. I hereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

14. Injunctive Relief. I understand that in the event of a breach or threatened breach of this Agreement by me, the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement.

15. Governing Law; Severability. This Agreement will be governed and interpreted in accordance with the laws of the State of California, without regard to application of choice of law rules or principles. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then such provision shall not

be voided but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect.

16. No Duty to Employ. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

17. FDA Debarrment. I represent that I have never been debarred under Section 306(a) or (b) of the Federal Food Drug or Cosmetic Act and that I will immediately notify the Company in the event that any debarrment proceedings are commenced against me.

PHARSIGHT CORPORATION


By	/s/ Stacy Murphy	/s/ John Robert Powell

Stacy Murphy		Date: March 8, 2001
Vice President, Human Resources

Exhibit C

DISCLOSURE UNDER TITLE 29 U.S. CODE SECTION 626(F)(1)(H)

Confidentiality Provision:

The information contained in this document is private and confidential. You may not disclose this information to anyone except your professional advisors.

1. The following departments have been selected for the severance package program:

(Dept. 220) Service Management

(Dept. 230) Scientific Services

(Dept. 400) R&D Management

(Dept. 410) R&D SF Repository

(Dept. 440) R&D Bio Workbench

(Dept. 460) R&D Information Products

(Dept. 470) R&D Technical Publications

(Dept. 490) R&D Quality Assurance

(Dept. 700) Direct Sales

(Dept. 810) Accounting

(Dept. 820) Human Resources

(Dept. 930) Information Technology

(Dept. 950) Facilities

2. In the departments listed above, employees whose job positions are being eliminated are eligible to participate in the severance package program.

3. You and all others receiving this disclosure will have forty-five (45) days to review the terms and conditions of the severance package and to decide whether to accept the package.

EMPLOYEES ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM

JOB TITLE		AGE

Software Engineer		45

Numerical Analyst		34

Desktop Publisher		53

Manager, QA Engineering		60

Software Engineer		32

Administrative Services Coordinator		47

Field Support Tech		31

Human Resources Representative		39

A/P Accountant		34

Account Executive		38

Software Developer		24

Software Engineer		35

Software Developer		25

Director of User Experience		33

Consultant		26

Senior VP, Drug Development Consulting Services		54

EMPLOYEES NOT ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM

JOB TITLE		AGE

VP and Chief Scientist		38

Sr. VP Drug Development Consulting		52

Project Manager		30

Sr. Project Manager		48

Scientific Consultant		42

Senior Consultant		48

Scientist		38

Senior Scientific Consultant		34

Data Analyst		38

Senior Scientific Consultant		50

Scientific Consultant		30

Director, Scientific Consulting		40

Scientific Consultant		35

Consultant		35

VP Product Development		44

Director, Software Development		36

Software Engineer		25

Software Engineer		41

Principal Software Engineer		34
Software Engineer		42
Software Engineer		32
Project Manager		38
Senior Software Engineer		34
Senior Software Engineer		55
VP, R&D		53
Senior Product Designer		37
Software Development Manager		33
On-line Developer / Technical Writer		51
Technical Publications Manager		34
Senior QA Engineer		46
QA Engineer		35
QA Engineer		54
Global Account Manager		41
Senior Account Manager		53
VP, Sales		54
Global Account Director		40
Senior Accounting Manager		55
A/R Specialist		29
GL Accountant		30
Financial Controller		33
Unix Systems Administrator		31
Corporate Webmaster		28
Senior Network Administrator		36
Service Desk Administrator		21
Systems Administrator		47
Database Administrator		31
Director of IT		34

Administrative Services Coordinator		32
Administrative Assistant		39

EX-10.37 6 a2093150zex-10_37.htm EXHIBIT 10.37

Exhibit 10.37

August 20, 2002

VIA HAND DELIVERY

Arthur Reidel

Pharsight, Inc.

Re: New Terms of Employment

Dear Art:

As we discussed, this letter sets forth the terms and conditions of your new employment agreement (the “Agreement”) with PHARSIGHT CORPORATION (“Pharsight” or the “Company”).

1. EMPLOYMENT POSITION AND RESPONSIBILITIES. You will continue to be employed in the position of Chairman of the Board of Directors until March 31, 2003 (the “Separation Date”). You will report to the Company’s Board of Directors (the “Board”), and you will continue to perform those job duties and responsibilities customarily associated with such position, as well as others as directed by the Board. During your continued employment, the Company will provide you with the office space and administrative support required for the performance of your job duties, as determined by the Company. You will continue to be subject to, and must comply with, the Company’s general employment policies, rules and regulations. If it does not terminate earlier pursuant to Section 7, your employment relationship with the Company will terminate effective as of the Separation Date.

2. WORK SCHEDULE. Effective as of August 15, 2002 and until the Separation Date, your work schedule will change from full-time to half-time. It is anticipated that you will be able to perform your duties within a time commitment averaging about fifty percent (50%) of that of a full-time professional employee, and you will be expected to maintain a regular work schedule of at least twenty (20) hours per week. Because your position is classified as exempt, you will not be eligible for overtime premiums.

3. COMPENSATION, EMPLOYEE BENEFITS AND VACATION ACCRUAL RATE. The following compensation and employee benefits terms are effective as of August 15, 2002:

(a) Base Salary. Your annual base salary will be one hundred ten thousand dollars ($110,000), subject to standard payroll deductions and withholdings and paid on the Company’s normal payroll schedule.

(b) Bonus. If your employment continues until the Separation Date, or if the Company terminates your employment other than for Cause (as defined herein) prior to the Separation Date, the Company will pay you a one-time bonus in the amount of seventy-five thousand six hundred twenty-five dollars ($75,625), subject to standard payroll deductions and withholdings (the “Bonus”). The Bonus will be paid to you on the Separation Date or, notwithstanding anything to the contrary in Section 7 below, within thirty (30) days following your employment termination date if the Company terminates your employment other than for Cause prior to the Separation Date. You will not earn and will not receive the Bonus if you resign or the Company terminates your employment for Cause prior to the Separation Date. Because of your eligibility to receive the Bonus as provided herein, you are not eligible to earn or receive any other bonus or incentive compensation, including but not limited to any bonus pursuant to the Company’s Management Incentive Bonus Plan.

(c) Employee Benefits. You understand that by reducing your work schedule to half-time you will no longer be eligible to participate in any of the Company’s standard employee benefit plans. However, to the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at the Company’s expense as described below after August 31, 2002. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided a separate notice describing your rights and obligations under COBRA on or after the August 31, 2002. If you timely elect to continue your health insurance coverage under the federal COBRA law following the above date, the Company will reimburse your out-of-pocket costs to continue your COBRA coverage for you at the same level of coverage in effect as of the above date until the Separation Date or the date that you become eligible for health insurance coverage through a new employer, whichever is shorter. Notwithstanding anything to the contrary stated above, the Company’s obligation to reimburse your COBRA costs ceases immediately if you resign from your employment with the Company or if you are terminated for Cause prior to the Separation Date.

(d) Vacation Accrual Rate. As a half-time employee, your annual vacation accrual rate will be reduced to fifty percent (50%) of the rate for full-time employees with your length of service.

4. CURRENT EQUITY AWARDS; NEW STOCK OPTION GRANT. Your employment under a half-time schedule will be considered continuous service to the Company and your current equity award(s) with unvested shares will vest during your continued employment. In addition, subject to approval by the Board, you will be provided a stock option grant to purchase ninety thousand (90,000) shares of Pharsight Common Stock under the Pharsight 2000 Equity Incentive Plan (the “Plan”), at a purchase price equal to the fair market value of the Common Stock on the date of grant, as determined by the Board (the “New Option”). The New Option, if granted, will be subject to the terms and conditions of the Plan and a grant agreement, which will include a nine-month vesting schedule under which, during your Continuous Service to the Company (as defined in the Plan), the New Option will vest in monthly installments with eleven thousand two hundred fifty (11,250) shares vesting effective August 31, 2002 (the “Vesting Commencement Date”) and eleven thousand two hundred fifty (11,250) shares vesting on each monthly anniversary of the Vesting Commencement Date. If the Company terminates your

employment other than for Cause prior to the Separation Date vesting for your current equity awards and the New Option will be accelerated to the level of vesting you would have reached on the Separation Date.

5. CONTINUING BOARD MEMBERSHIP. Your role as a member of the Board is not affected by this Agreement or your change to half-time employment status.

6. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. You acknowledge that during your employment with the Company you had and continue to have access to, and have obtained and will obtain, proprietary information and trade secrets of the Company. Concurrent with the execution of this Agreement, and as a condition of your continued employment, you agree to execute the form of Proprietary Information and Inventions Agreement attached hereto as Exhibit A.

7. AT-WILL EMPLOYMENT STATUS. Nothing in this Agreement alters the at-will nature of your employment relationship with the Company, and either you or the Company may terminate your employment relationship at any time (including prior to the Separation Date), with or without Cause or advance notice. However, if the Company terminates your employment other than for Cause prior to the Separation Date, and if you first sign, make effective, and return to Pharsight a general release of all known and unknown claims in a form acceptable to Pharsight, you will receive the following as your sole severance benefits (the “Severance Benefits”): (a) severance pay equal to the amount of additional base salary you would have received if your employment had continued from your employment termination date until the Separation Date, subject to required payroll deductions and withholdings and paid in a single lump sum within thirty (30) days after your employment termination date; and (b) your equity awards with unvested shares as of your employment termination date, including but not limited to the New Option, will be subject to accelerated vesting equal to the number of additional shares that would have vested if your employment had continued from your employment termination date until the Separation Date. If do not sign the above general release, you will not receive the Severance Benefits, but you will receive the Bonus. If you resign from your employment or the Company terminates your employment for Cause prior to the Separation Date, you will not be eligible for and will not receive the Severance Benefits or the Bonus. Because of your eligibility to receive the Severance Benefits as provided herein, you are not eligible to earn or receive any other severance compensation or benefits.

8. DEFINITION OF CAUSE FOR TERMINATION. For the purposes of this Agreement, Cause for termination of your employment by the Company shall mean: (a) your conviction (including a guilty or no contest plea) of any felony or any other crime involving dishonesty; (b) your participation in any fraud against the Company; (c) your breach of any obligation under this Agreement; (d) your damage to any Company property; or (e) conduct by you which in the good faith and reasonable determination of the Company’s Board of Directors demonstrates gross unfitness to serve.

9. DISPUTE RESOLUTION. To ensure rapid and economical resolution of any and all disputes that may arise in connection with this Agreement or your employment relationship, you and the Company agree that any and all disputes, claims, and causes of action, in law or equity, arising from or relating to your employment or this Agreement, its enforcement, performance,

breach, or interpretation, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted by a single arbitrator at Judicial Arbitration and Mediation Services, Inc. (“JAMS”) or its successor, under the then applicable employment rules of JAMS. The parties acknowledge that by agreeing to this arbitration procedure, they hereby waive the right to resolve any such dispute through a trial by jury or judge or by administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The Company will pay all JAMS’ arbitration fees in excess of those that which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any arbitration. Notwithstanding the foregoing, you and the Company each have the right to resolve any issue or dispute involving Company trade secrets, proprietary information or intellectual property rights by court action instead of arbitration.

10. MISCELLANEOUS. This Agreement, including Exhibit A, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to your employment relationship. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations related to its subject matters. The failure to enforce any breach of this Agreement shall not be deemed to be a waiver of any other or subsequent breach. For purposes of construing this Agreement, any ambiguities shall not be construed against either party as the drafter. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. This Agreement may be executed in counterparts or with facsimile signatures, which shall be deemed equivalent to originals.

If this Agreement is acceptable to you, please sign below and return the original to me.

Pharsight appreciates your continued dedication and commitment.

Sincerely,

PHARSIGHT CORPORATION

By:	/s/ Ferrell Sanders
	Ferrell Sanders
	Chairman of the Compensation Committee, Board of Directors

I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT.

/s/ Arthur Reidel
ARTHUR REIDEL

Date: August 20, 2002

Exhibit A — Proprietary Information and Inventions Agreement

Exhibit A

PHARSIGHT CORPORATION

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with Pharsight Corporation, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

by the Company. I agree further that for the period of my employment by the Company and for one (l) year after the date of termination of my employment by the Company I will not, either directly or through others, solicit or attempt to solicit any employee, independent contractor or consultant of the company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.

PROVISION IN AN EMPLOYEE AGREEMENT PURPORTS TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER CALIFORNIA LABOR CODE SECTION 2870 (A), THE PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.

13. Notification. I hereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then such provision shall not be voided but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect.

16. No Duty to Employ. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

PHARSIGHT CORPORATION		Arthur Reidel

By	/s/ Stacy Murphy	/s/ Arthur Reidel

Stacy Murphy		Date: August 20, 2002
Vice President, Human Resources

EX-10.38 7 a2093150zex-10_38.htm EXHIBIT 10.38

Exhibit 10.38

September 4, 2002

Shawn O’Connor

1010 Dunhill Ct.

Danville, CA 94506

Dear Shawn:

On behalf of Pharsight Corporation, I am pleased to offer you the position of Senior Vice President and Chief Financial Officer, reporting directly to me. In your role, you would provide leadership for our Finance, Information Technology, Human Resources and Legal groups.

We are confident that you will make an outstanding addition to our team. There are many professional and technical challenges and the company is still small enough and growing rapidly enough to provide ample opportunity for professional development and an increasing role in the leadership of the firm. As a young and recently public company, Pharsight also offers you the opportunity to participate in the company’s growth, on both a financial and intellectual basis.

Your base salary will be $240,000 annually, and will be paid semi-monthly. In FY2003 (which began April 1, 2002) you are eligible for an incentive bonus program targeted at 40 percent of your base salary, with total compensation targeted at $336,000. This bonus is tied to the company corporate performance goals and will be pro-rated for FY2003. To the extent that the percentage you earn is less than 62.5%, and provided you are actively employed at Pharsight on date the bonus is paid out, you will be paid an additional guaranteed bonus equal to the difference between your actual FY2003 bonus payout and $30,000. For example, if your FY2003 bonus payout is $20,000, and you are employed by Pharsight on the payout date, you will receive an additional bonus of $10,000 at that time. In addition, your performance and potential merit increase will be reviewed during our normal annual cycle in May 2003.

You will be eligible for Pharsight’s employee benefits programs, including health, dental, life and disability insurance, 401(k) plan and an annual accrual of 20 paid personal-time-off days.

In addition, the Company’s management will recommend to the Board of Directors that you be granted an option to purchase 250,000 shares of stock. This option will vest over four years and is subject to the terms and conditions of the Company’s 2000 Stock Option Plan. The exercise price of the option will be the fair market value of the stock as determined by the closing price on the Thursday of the week in which you start work as an employee of Pharsight. In addition, the Board of Directors will review additional stock option grants for you based on your performance and execution of deliverables.

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.

As a condition of your employment with Pharsight, you will be required to sign 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.

In order to comply with Federal labor law requirements (IRCA), you will be required to provide the Company documentary evidence of your identity and eligibility for employment in the United States. Such

documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.

I am providing two originals of this letter. Please sign and return one to indicate your acceptance. This offer is valid through September 10, 2002. We are excited about the prospect of having you on the Pharsight team.

Sincerely,

/s/ Mike Perry

Mike Perry PhD

President and Chief Executive Officer

Pharsight Corporation

Enclosures

I accept employment with Pharsight Corporation subject to the terms and conditions hereof. I understand that the terms set forth in this letter supersede all oral discussions I may have had with anyone in the Company.

I anticipate a start date of September 16, 2002.

/s/ Shawn O’Connor
Shawn O’Connor

September 9, 2002
Date

PHARSIGHT CORPORATION

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with Pharsight Corporation, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER CALIFORNIA LABOR CODE SECTION 2870 (A), THE PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.

13. Notification. I hereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

16. No Duty to Employ. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

PHARSIGHT CORPORATION		Shawn O’Connor

By	/s/ Stacy Murphy	/s/ Shawn O’Connor

	Stacy Murphy	Date: September 9, 2002
	Vice President, Human Resources

EX-10.39 8 a2093150zex-10_39.htm EXHIBIT 10.39

Exhibit 10.39

September 27, 2002

VIA HAND DELIVERY

Daniel Weiner

Pharsight Corporation

Dear Dan:

1. CONTINUED EMPLOYMENT. Provided that you continue to satisfactorily perform your job duties, and comply with Company policies and procedures, subject to Paragraph 4 below, the Company may continue to employ you through December 31, 2002 (the “Separation Date”) and you will continue to be paid your regular base salary in effect as of the date of this Agreement during the period of such continued employment.

3. SEVERANCE BENEFITS. If you fully comply with all conditions of this Agreement, including continuing to work through the Separation Date and failing to engage in any of the Forfeiture Actions (defined in Section 14), and you sign and return the Supplemental Release (attached hereto as Exhibit A) on or after the Separation Date, the Company will provide you with the following severance benefits (the “Severance Benefits”): (a) severance payments in the form of a continuation of your base salary in effect as of the Separation Date, subject to required payroll deductions and required withholdings, and paid on the Company’s normal payroll schedule beginning with the first payday following the Effective Date of the Supplemental Release (as defined therein) and continuing for six (6) months thereafter (the “Severance Payments”); (b) a cash bonus, subject to required withholdings, in the amount of one-hundred fifty thousand dollars ($150,000) and (c) if you timely elect to continue your health insurance coverage under the federal COBRA law following the Separation Date pursuant to Section 6, the Company will reimburse your out-of-pocket costs to continue your COBRA coverage for you and your dependents (if any) at the same level of coverage in effect as of the Separation Date for either six (6) months following the Separation Date or the date that you become eligible for health insurance coverage through a new employer, whichever is shorter.

6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, stock option vesting, bonus or benefits before or after the Separation Date. By way of example but not limitation, you acknowledge and agree that the Incentive Bonus is the only bonus or incentive compensation for which you may be eligible.

9. PROPRIETARY INFORMATION OBLIGATIONS. You hereby acknowledge and reaffirm your continuing obligations under your Proprietary Information and Inventions

Agreement, which apply both during and after your employment. A copy of your Proprietary Information and Inventions Agreement is attached hereto as Exhibit B.

12. COOPERATION. You agree to cooperate with the Company in responding to the Company’s requests in connection with any existing or future litigation, arbitrations, mediations or investigations brought by or against the Company or any of its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which the Company reasonably deems your cooperation necessary or desirable. In such matters, you agree to provide the Company with reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, and participating in discovery and trial preparation and testimony. You also agree to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by you in connection with any such legal proceedings, unless you are expressly prohibited by law from so doing. You will act in good faith to furnish the information and cooperation required by this paragraph and the Company will act in good faith so that the requirement to furnish such information and cooperation does not create an undue hardship for you. The Company will reimburse you for reasonable out-of-pocket expenses incurred by you as a result of your cooperation, with the exception of lost compensation, within ten (10) days of the presentation of appropriate documentation thereof, in accordance with the Company’s standard reimbursement policies and procedures.

13. NONINTERFERENCE WITH COMPANY’S BUSINESS.

(a) Forfeiture Actions. During your continued employment and for a period of six (6) months following the termination of your employment (the “Severance Period”), you agree not to engage in any of the following conduct (the “Forfeiture Actions”): (i) either directly or indirectly, solicit, attempt to solicit, induce or otherwise cause any employee of the Company to terminate his or her employment with the Company; (ii) either directly or indirectly, Solicit (as defined below) or attempt to Solicit any Customer (defined below) of the Company; or (iii) directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engaging, participating or investing in any Competing Business (defined below). In the event that you engage in any of the Forfeiture Actions, your right to receive the Severance Benefits will cease immediately upon the date that the Forfeiture Action(s) first occurred and the Company will have no further obligation to provide the Severance Benefits. Notwithstanding the foregoing, you may own up to one percent (1%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business.

(b) Definitions. For purposes of this Agreement:

(i) The term “Competing Business” shall mean: (A) a business which is competitive with any business that the Company or any of its affiliates conducts or proposes to conduct at any time during your employment; or (B) a business that the Company or any of its affiliates conducts or proposes to conduct at any time during the Severance Period, if you participated in the conduct of or planning for such business while you were employed by the Company.

(ii) The term “Customer” shall mean any present or past customer, vendor, supplier or business partner of the Company or any prospective customer, vendor, supplier or business partner of the Company with whom you had contact during your employment.

(iii) The term “Solicit” shall mean, directly or indirectly: (A) soliciting the business or patronage of any Customer for any person or entity other than the Company; (B) diverting, enticing, or otherwise taking away from the Company the business or patronage of any Customer, or attempting to do so; or (C) soliciting or inducing any Customer to terminate or reduce its relationship with the Company.

14. RELEASE OF CLAIMS. In consideration for, and as a condition of, your continued employment and other consideration provided to you by the Company under this Agreement, to which you are not otherwise entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (b) all claims related to your compensation or benefits from the Company,

including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

15. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing that: (a) your waiver and release do not apply to any rights or claims that may arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement; (c) you have twenty-one (21) days to consider this Agreement (although you may choose to voluntarily sign this Agreement earlier); (d) you have seven (7) days following the date you sign this Agreement to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date you sign this Agreement.

have the right to resolve any issue or dispute involving Company trade secrets or invention rights by court action instead of arbitration.

We wish you good luck in your future endeavors.

Sincerely,

PHARSIGHT CORPORATION


By:	/s/ Mike S. Perry
	Mike S. Perry
	President and Chief Executive Officer


Exhibit A — Supplemental Release

Exhibit B — Proprietary Information and Inventions Agreement


AGREED:


/s/ Daniel Weiner
Daniel Weiner

Date: September 28, 2002

EXHIBIT A

SUPPLEMENTAL RELEASE

(to be signed on or after the Separation Date)

In consideration for the Severance Benefits and other consideration provided to me by Pharsight Corporation (the “Company”), and as required by the Agreement between the Company and me dated September 27, 2002, I hereby give the following Supplemental Release.

I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Supplemental Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

	By:
		Daniel Weiner

	Date:

EXHIBIT B

PHARSIGHT CORPORATION

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with Pharsight Corporation, a California corporation (the “Company”), I Daniel L. Weiner hereby represent to and agree with the Company as follows:

5. Definition of Invention. As used in this Agreement, the term Invention means any invention, idea, design, technology, original work of authorship, formula, discovery, process, composition of matter, algorithm, computer program, database, mask work, or trade secret, or any improvement to any of the foregoing, that both (1) is made or conceived or created or first

reduced to practice by me, either alone or jointly with others, during the period of my employment, and (2) either (a) is developed using equipment, supplies, facilities or trade secrets of the Company, (b) results from work performed by me for the Company, or (c) relates to the Company’s business or to its current or anticipated research or development.

6. Disclosure and Assignment of Inventions. I will promptly disclose in confidence to the Company all Inventions, whether or not in the course of my employment and whether or not such Inventions are patentable, copyrightable, or protectable as trade secrets. I hereby irrevocably transfer and assign to the Company all Inventions, and I agree that all Inventions will be the sole and exclusive property of the Company.

termination for time and expenses actually spent by me at the Company’s request on such assistance.

11. Notification. I hereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

12. Injunctive Relief. I understand that in the event of a breach or threatened breach of this Agreement by me, the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement.

13. Governing Law; Severability. This Agreement will be governed and interpreted in accordance with the laws of the State of California, without regard to application of choice of law rules or principles. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then such provision shall not be voided but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect.

14. No Duty to Employ. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

PHARSIGHT CORPORATION		RECIPIENT’S FULL NAME

By	/s/ Robin A. Kehoe	/s/ Daniel L. Weiner

	Robin A. Kehoe	Date: December 3, 1997
	Vice President, Finance
	Date: December 2, 1997

EX-10.40 9 a2093150zex-10_40.htm EXHIBIT 10.40

Exhibit 10.40

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement is entered into as of October 23, 2002 by and between PHARSIGHT, INC. (the “Borrower”) and Silicon Valley Bank (“Bank”). This loan modification agreement is hereby amended to reflect “PHARSIGHT CORPORATION” as the name of the Borrower.

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 modified and 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 modified and 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.

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: $3,500,000 for quarter ending December 31, 2002, and $3,700,000 for quarter ending March 31, 2003. Commencing June 30, 2003, Borrower will have net losses no more than 20% greater than the projected amount in the “street” projections approved by Borrower’s board of directors. If Borrower 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.

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. PAYMENT OF LOAN FEE. Borrower shall pay Bank a fee in the amount of Five Hundred and 00/100 Dollars ($500.00) (“Loan Fee”) plus all out-of-pocket expenses.

7. 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.

8. 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 CORPORATION		SILICON VALLEY BANK

By:	/s/ Charles Faas	By:	/s/ Ron Kundich

Name:	Charles Faas	Name:	Ron Kundich

Title:	Vice President, Finance	Title:	Vice President

EX-99.1 10 a2093150zex-99_1.htm EX-99.1

Exhibit 99.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Michael S. Perry, Chief Executive Officer of Pharsight Corporation (the “Company”), and Shawn M. O’Connor, the Chief Financial Officer of the Company, each hereby certify that, to the best of their knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002, and to which this Certification is attached as Exhibit 99.1 (the “Periodic Report”) fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 14th day of November, 2002.

	/s/ MICHAEL S. PERRY
	MICHAEL S. PERRY, CHIEF EXECUTIVE OFFICER

	/s/ SHAWN M. O’CONNOR
	SHAWN M. O’CONNOR, CHIEF FINANCIAL OFFICER

[EMPLOYEE’S NAME]

Vice President, Human Resources

Vice President, Human Resources

PHARSIGHT CORPORATION

Vice President, Human Resources

RECIPIENT’S FULL NAME

Date: December 2, 1997