10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

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

For the quarterly period ended JUNE 30, 2001

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

the transition period from                                                  to                                                 .

Commission file number 000-31253

PHARSIGHT CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	77-0401273
(State of Incorporation)	(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  ¨

As of July 31, 2001, there were 18,494,421outstanding shares of the Registrant’s common stock, $.001 par value.

EXPLANATORY NOTE

We are filing this amendment to our Quarterly Report on Form 10-Q, originally filed with the Securities and Exchange Commission on August 14, 2001, to include Exhibits 10.26, 10.26.1, 10.26.2, 10.27 and 10.27.1 under Item 6 of Part II.  This Form 10-Q/A makes no other changes to the original Form 10-Q.

PART II  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)EXHIBITS

Exhibit Number	Description Of Document
3.2*	Amended and Restated Certificate of Incorporation of Pharsight.
3.3*	Bylaws of Pharsight.
4.1	Reference is made to Exhibits 3.2 and 3.3.
4.2*	Amended and Restated Investors’ Rights Agreement, dated as of September 2, 1999, by and among Pharsight and the investors listed on Exhibit A attached thereto.
10.26	Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.1	Negative Pledge Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.2	Notice of Pledge and Security, dated June 28, 2001, by and among Pharsight, Morgan Stanley & Co. Incorporated and Silicon Valley Bank
10.27	Export-Import Bank Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.27.1	Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.

*Previously 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

No reports on Form 8-K were filed by Pharsight during the quarter ended June 30, 2001.

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SIGNATURES

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
June 27, 2002	By:	/s/ CHARLES K. FAAS
		Charles K. Faas
		Vice President, Finance and Chief Accounting Officer
		(Duly Authorized Officer)

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EXHIBIT INDEX

Exhibit Number	Description Of Document
3.2*	Amended and Restated Certificate of Incorporation of Pharsight.
3.3*	Bylaws of Pharsight.
4.1	Reference is made to Exhibits 3.2 and 3.3.
4.2*	Amended and Restated Investors’ Rights Agreement, dated as of September 2, 1999, by and among Pharsight and the investors listed on Exhibit A attached thereto.
10.26	Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.1	Negative Pledge Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.2	Notice of Pledge and Security, dated June 28, 2001, by and among Pharsight, Morgan Stanley & Co. Incorporated and Silicon Valley Bank
10.27	Export-Import Bank Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.27.1	Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.

*Previously 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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EX-10.26

Exhibit 10.26

LOAN AND SECURITY AGREEMENT

SILICON VALLEY BANK

and

PHARSIGHT, INC.

June 13, 2001

This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated June 13, 2001, between SILICON VALLEY BANK (“Bank”) and PHARSIGHT, INC., a Delaware corporation (“Borrower”), provides the terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows:

1.             ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP. The term “financial statements” includes the notes and schedules. The terms “including” and “includes” always mean “including (or includes) without limitation” in this or any Loan Document. Capitalized terms in this Agreement shall have the meanings set forth in Section 13. This Agreement shall be construed to impart upon Bank a duty to act reasonably at all times.

2.             LOAN AND TERMS OF PAYMENT

2.1          Advances.   Borrower will pay Bank the unpaid principal amount of all Advances and interest on the unpaid principal amount of the Advances.

2.1.1       Revolving Advances.

(a)           Bank will make Revolving Advances not exceeding (i) the Committed Revolving Line or the Borrowing Base, whichever is less.    Revolving Advances may be repaid and reborrowed during the term of this Agreement.   Revolving Advances shall bear interest as provided in Section 2.3(a).

(b)           To obtain an Revolving Advance, Borrower must notify Bank by facsimile or telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be made. Borrower must promptly confirm the notification by delivering to Bank the Payment/Advance Form attached as Exhibit B.   Bank will credit Revolving Advances to Borrower’s deposit account. Bank may make Revolving Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Revolving Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due to that reliance.

(c)           The Committed Revolving Line terminates on the Revolving Maturity Date, when all Revolving Advances are immediately payable.

2.1.2       Term Loan Advances.

(a)           Through June 13, 2002 (the “Term Loan Availability End Date”), Bank will make advances (a “Term Loan Advance” and, collectively, “Term Loan Advances”) not exceeding the Committed Term Loan.

(b)           Interest accrues from the date of each Term Loan Advance at the rate set forth in Section 2.3(a) and is payable monthly until the Term Loan Availability End Date.  Term Loan Advances outstanding on the Term Loan Availability End Date are payable in 48 equal monthly installments of principal, plus accrued interest, beginning on the first day of each month following the Term Loan Availability End Date and ending on June 1, 2006 (the “Term Loan Maturity Date”). Term Loan Advances when repaid may not be reborrowed.

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(c)           To obtain a Term Loan Advance, Borrower must notify Bank (the notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1 Business Day before the day on which the Term Loan Advance is to be made. The notice in the form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer or designee and include a copy of the invoice for the Equipment being financed.

2.2          Overadvances.   If Borrower’s Obligations under Section 2.1.1 exceed the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must immediately pay in cash to Bank the excess.

2.3          Interest Rate; Payments.

(a)           Interest Rate. Revolving Advances accrue interest on the outstanding principal balance at a per annum rate of one (1.0) percentage point above the Prime Rate.   Prior to the Term Loan Availability End Date, Term Loan Advances accrue interest on the outstanding principal balance at a per annum rate of one and one-quarter (1.25) percentage points above the Prime Rate.   Upon and after the Term Loan Availability End Date, the Term Loan Advances shall accrue interest at such floating rate or, if elected by Borrower by written notification to Bank received by Bank at least 30 days prior to the Term Loan Availability End Date, at a fixed per annum rate four and one-half (4.5) percentage points above the Treasury Rate as in effect on the Term Loan Availability End Date. After an Event of Default, Obligations accrue interest at five (5.0) percentage points above the rate effective immediately before the Event of Default. The interest rate increases or decreases when the Prime Rate changes. Interest is computed on a 360 day year for the actual number of days elapsed.

(b)           Payments. Interest is payable on the first day of each month. Bank may debit any of Borrower’s deposit accounts including Account Number 3300027682 for principal and interest payments or any amounts Borrower owes Bank. Bank will notify Borrower when it debits Borrower’s accounts. These debits are not a set-off. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue. The Term Loan Advances may be prepaid in whole or in part, provided that any partial prepayments shall be applied in inverse order of maturity, and provided further that any prepayment made as to the Term Loan Advances after Borrower has elected that the Term Loan Advances shall bear interest at fixed rate shall made together with the applicable Prepayment Fee.

2.4          Fees.   Borrower will pay to Bank:

(a)           Facility Fee. A fully earned, non-refundable facility fee consisting of: (i) 0.5% of the $2,500,000 portion of Committed Revolving Line available at any time with respect to Eligible Accounts which are not Eligible Foreign Accounts (i.e., $12,500); (ii) 0.5% of the Committed Term Loan amount of $3,500,000 (i.e., $17,500), for a total facility fee of $30,000 due on the Closing Date; and

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(b)           Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and expenses not exceeding $7,500 plus one-half (0.50) of such fees and expenses in excess of $7,500, for documentation and negotiation of this Agreement) incurred through and after the Closing Date when due.

2.5          Additional Costs.   If any law or regulation increases Bank’s costs or reduces its income for any loan, Borrower will pay the increase in cost or reduction in income or additional expense.

3.             CONDITIONS OF LOANS

3.1          Conditions Precedent to Initial Advance.   Bank’s obligation to make the initial

Advance is subject to the condition precedent that it receive the agreements, documents and fees

it requires, including, without limitation:

(a)           a Negative Pledge Agreement with respect to the Intellectual Property;

(b)           a Tri-Party Agreement with respect to Borrower’s securities account; and

(c)           an accounts receivable audit the results of which shall have been satisfactory to Bank.

3.2          Conditions Precedent to all Advances.   Bank’s obligations to make each Advance, including the initial Advance, is subject to the following:

(a)           timely receipt of any Payment/Advance Form; and

(b)           the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Advance and no Event of Default may have occurred and be continuing, or result from the Advance.   Each Advance is Borrower’s representation and warranty on that date that the representations and warranties in Section 5 remain true.

4.             CREATION OF SECURITY INTEREST

4.1          Grant of Security Interest.   Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower’s duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank may place a “hold” on any deposit account pledged as Collateral. Notwithstanding the foregoing, the security interest granted herein does not extend to and the term “Collateral” does not include any Intellectual Property; provided that the Collateral shall include Intellectual Property to the extent, and only to the extent, a security interest in any portion of the Intellectual Property is required in order to permit Bank to hold a perfected security interest in the other Collateral, including, without limitation, Accounts arising from the license, publication or other exploitation of Copyrights or other Intellectual Property; provided, further, that Borrower shall execute and deliver a Negative Pledge Agreement, in form and substance satisfactory to Bank, with respect to the Intellectual Property, and upon any breach thereof, the Collateral shall be deemed to include, retroactively from the Closing Date, the Intellectual Property. If the Agreement is terminated, Bank’s lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations.

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4.2          Required Cash Collateral.   In the event any financial covenant set forth in Section 6.7 is breached, and in addition to all of Bank’s other rights and remedies hereunder upon the occurrence of an Event of Default, Borrower shall immediately deliver to Bank, for deposit with Bank, additional cash collateral, in an amount of at least 105% of the then aggregate outstanding balance of the Term Loan Advances (and increased by 105% of any subsequent Term Loan Advances if such deposit shall occur prior to the Term Loan Availability End Date), to be held by Bank in an interest bearing time deposit account subject to a perfected, first priority security interest securing all Obligations. Such cash collateral shall be released by Bank if: (a) Bank shall have waived its other rights and remedies as to such existing financial covenant breach or breaches and no other Event of Default has occurred and is continuing; and (b) Bank shall have determined that Borrower is no longer in violation of any of the financial covenants in Section 6.7 previously breached.

5.             REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1          Due Organization and Authorization.   Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified.

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s formations documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could cause a Material Adverse Change.

5.2          Collateral.   Borrower has good title to the Collateral, free of Liens except Permitted Liens. The Eligible Accounts are bona fide, existing obligations, and the service or property has been performed or delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor.    Borrower has no notice of any actual or imminent Insolvency Proceeding of any account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate.    All Inventory is in all material respects of good and marketable quality, free from material defects.   Borrower is the sole owner of the Intellectual Property, except for exclusive or non-exclusive licenses granted to its customers in the ordinary course of business, provided that any such exclusive license limits the use and application of the licensed Intellectual Property to specific indications and geographic regions and does not impair Borrower’s ability to commercialize it Intellectual Property in its United States of America business markets.  Each Patent is valid and enforceable and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property violates the rights of any third party.

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5.3          Litigation.   Except as shown in the Schedule, there are no actions or proceedings pending or, to Borrower’s knowledge, threatened by or against Borrower or any Subsidiary in which an adverse decision could cause a Material Adverse Change.

5.4          No Material Adverse Change in Financial Statements.   All consolidated financial statements for Borrower and any Subsidiary delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.5          Solvency.   The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 

5.6          Regulatory Compliance.   Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could cause a Material Adverse Change.   None of Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.   Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes.  Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted.

5.7          Subsidiaries.   Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.8          Full Disclosure.   No representation, warranty or other statement of Borrower in any certificate or written statement given to Bank contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading.

6.             AFFIRMATIVE COVENANTS

Borrower will do all of the following:

6.1          Government Compliance.   Borrower will maintain its and all Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a material adverse effect on Borrower’s business or operations. Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business or operations or cause a Material Adverse Change.

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6.2          Financial Statements, Reports, Certificates.

(a)           Borrower will deliver to Bank:   (i) at any time (X) Liquidity is less than the product of two and one-half (2.5) multiplied by the then aggregate outstanding balance of the Term Loan Advances, or (Y) Remaining Month’s Liquidity is less than nine (9), then as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations during the period, in a form acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but no later than 90 days after the end of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank; (iii) within 5 days of filing, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $100,000 or more; and (v) board of directors’ approved budgets, sales projections, and/or operating plans, or such other financial information Bank requests, and, in any event, within 30 days after the end of Borrower’s fiscal year.

(b)           Within 20 days after the last day of each month, Borrower will deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form of Exhibit C, with aged listings of accounts receivable and accounts payable.

(c)           Together with the items delivered under clauses (i), (ii) and (iii) of subsection (a) above, Borrower will deliver to Bank a Compliance Certificate signed by a Responsible Officer in the form of Exhibit D.

(d)           Bank has the right to audit Borrower’s Accounts at Borrower’s expense, but the audits will be conducted no more often than once every six (6) months unless an Event of Default has occurred and is continuing.

6.3          Inventory;  Returns.   Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower’s customary practices as they exist at the Closing Date. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than $50,000.

6.4          Taxes.   Borrower will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments and will deliver to Bank, on demand, appropriate certificates attesting to the payment.

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6.5          Insurance.   Borrower will keep its business and the Collateral insured for risks and in amounts, as Bank requests. Insurance policies will be in a form, with companies, and in amounts that are satisfactory to Bank. All property policies will have a lender’s loss payable endorsement showing Bank as a loss payee and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least 20 days notice before canceling its policy. At Bank’s request, Borrower will deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy will, at Bank’s option, be payable to Bank on account of the Obligations.

6.6          Primary Accounts; Minimum and Target Balances.   Borrower will maintain its primary depository and operating accounts with Bank. In addition, Borrower agrees that it shall deposit or invest through Bank (in the sweep account or one of IPS Mutual Funds) at least one-third (1/3) of its cash and cash equivalents (as determined pursuant to GAAP and as reflected in Borrower’s quarterly financial statements).   Borrower further agrees that the target balance with respect to its sweep account shall be at least $200,000.

6.7          Financial Covenants.

Borrower will maintain as of the last day of each quarter (or each month if monthly reporting of Company prepared financial statements is required under Section 6.2(a)), unless otherwise noted:

(a)           Quick Ratio [Adjusted].   A ratio of Quick Assets to Current Liabilities minus Deferred Revenue of at least 1.0 to 1.0.

(b)           Debt/Tangible Net Worth Ratio [Adjusted].   A ratio of Total Liabilities less Subordinated Debt less Deferred Revenue to Tangible Net Worth plus Subordinated Debt of not more than 1.0 to 1.0.

(c)           Remaining Months Liquidity.   Borrower will maintain, as of the last day of each month, at least six (6) months Remaining Months Liquidity.

(d)           Liquidity.   Borrower will maintain, as of the last day of each month, Liquidity of at least twice the amount of the then outstanding aggregate balance of the Term Loan Advances.

(e)           Maximum Losses.   Commencing June 30, 2001, Borrower will have net losses no more than 20% greater than the projected amounts in the “street” projections approved by Borrower’s board of directors.

6.8          Registration and Protection of Intellectual Property Rights.   Borrower will register with the United States Copyright Office (i) any software material to the business of Borrower it has, develops or acquires, within 30 days of the Closing Date, and additional software rights developed or acquired, including significant revisions, additions or improvements to the software or revisions, additions or improvements which significantly improve the functionality of the software, after the Closing Date before the sale or licensing to any third party of the software or any product based on or containing any software.   Borrower will:    (i) protect, defend and maintain the validity and enforceability of the Intellectual Property; (ii) promptly advise Bank in writing of material infringements of the Intellectual Property; and (iii) not allow any Intellectual Property to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

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6.9          Further Assurances.   Borrower will execute any further instruments and take further action as Bank requests to perfect or continue Bank’s security interest in the Collateral or to effect the purposes of this Agreement.

7.             NEGATIVE COVENANTS

Borrower will not do any of the following without the Bank’s written consent, which will not be unreasonably withheld:

7.1          Dispositions.   Convey, sell, lease, transfer or otherwise dispose of (collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than a Transfer (i) of Inventory in the ordinary course of business; (ii) of exclusive or non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business so long as any exclusive licenses limits the use and application to specific indications and geographic regions and does not impair Borrower’s ability to utilize its assets in its United States business market; or (iii) of worn-out or obsolete Equipment.

7.2          Changes in Business, Ownership, Management or Business Locations.   Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or have a change in its ownership or management. Borrower will not, without at least 30 days prior written notice to Bank, relocate its principal executive office or add any new offices or business locations.

7.3          Mergers or Acquisitions.   Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.   A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

7.4          Indebtedness.   Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5          Encumbrance.   Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any change in the priority of Bank’s first priority security interest in the Collateral.

7.6          Investments; Distributions.   (i) Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so; or (ii) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock.

7.7          Transactions with Affiliates.   Directly or indirectly enter or permit any material transaction with any Affiliate, except transactions that are in the ordinary course of Borrower’s business, on terms less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

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7.8          Subordinated Debt.   Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt without Bank’s prior written consent.

7.9          Compliance.   Undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Advance for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could have a material adverse effect on Borrower’s business or operations or cause a Material Adverse Change, or permit any of its Subsidiaries to do so.

8.             EVENTS OF DEFAULT

Any one of the following is an Event of Default:

8.1          Payment Default.   Borrower fails to pay any of the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Advances will be made during the cure period);

8.2          Covenant Default.   Borrower does not perform any obligation in Section 6 or violates any covenant in Article 7 or does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 days or cannot be cured after Borrower’s attempts in the 10 day period, and the default may be cured within a reasonable time, then Borrower has an additional time, (of not more than 30 days) to attempt to cure the default. During the additional period the failure to cure the default is not an Event of Default (but no Advances will be made during the cure period);

8.3          Material Adverse Change.

If there (i) occurs a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower, or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations;

8.4          Attachment.   (i) Any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days; (ii) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (iii) a judgment or other claim becomes a Lien on a material portion of Borrower’s assets; or (iv) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Advances will be made during the cure period);

8.5          Insolvency.   (i) Borrower becomes insolvent; (ii) Borrower begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Advances will be made before any Insolvency Proceeding is dismissed);

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8.6          Other Agreements.   If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $100,000 or that could cause a Material Adverse Change;

8.7          Judgments.   If a money judgment(s) in the aggregate of at least $100,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Advances will be made before the judgment is stayed or satisfied);

8.8          Misrepresentations.   If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any communication delivered to Bank or to induce Bank to enter this Agreement or any Loan Document.

8.9          Default Under Exim Loan.   A default occurs under the Exim Loan Agreement.

9.             BANK’S RIGHTS AND REMEDIES

9.1          Rights and Remedies.   When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

(a)           Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b)           Stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c)           Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable;

(d)           Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral.   Borrower will assemble the Collateral if Bank requests and make it available as Bank designates.    Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(e)           Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(f)            Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, Mask Works, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit; and

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(g)           dispose of the Collateral according to the Code.

9.2          Power of Attorney.   When an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to:  (i) endorse Borrower’s name on any checks or other forms of payment or security; (ii) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower’s insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits.   Bank may exercise the power of attorney to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred.   Bank’s appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Advances terminates.

9.3          Accounts Collection.   When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank’s security interest in the funds and verify the amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit.

9.4          Bank Expenses.   If Borrower fails to pay any amount or furnish any required proof of payment to third persons Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent.   Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral.   No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.5          Bank’s Liability for Collateral.   If Bank complies with reasonable banking practices, it is not liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person.   Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6          Remedies Cumulative.   Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given.

9.7          Demand Waiver.   Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guaranties held by Bank on which Borrower is liable.

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10.          NOTICES

All notices or demands by any party to this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile at the addresses listed at the beginning of this Agreement. A Party may change its notice address by giving the other Party written notice.

11.          CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.          GENERAL PROVISIONS

12.1        Successors and Assigns.   This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or Obligations under it without Bank’s prior written consent which may be granted or withheld in Bank’s discretion.   Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits under this Agreement, the Loan Documents or any related agreement.

12.2        Indemnification.   Borrower will indemnify, defend and hold harmless Bank and its officers, employees and agents against:   (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.

12.3        Time of Essence.   Time is of the essence for the performance of all Obligations in this Agreement.

12.4        Severability of Provision.   Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

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12.5        Amendments in Writing, Integration.   All amendments to this Agreement must be in writing signed by both Bank and Borrower. This Agreement and the Loan Documents represent the entire agreement about this subject matter, and supersedes prior or contemporaneous negotiations  or  agreements.     All prior or contemporaneous  agreements,  understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.

12.6        Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, are one Agreement.

12.7        Survival.   All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run.

12.8        Confidentiality.   In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (i) to Bank’s subsidiaries or affiliates in connection with their present or prospective business relations with Borrower; (ii) to prospective transferees or purchasers of any interest in the Loans; (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank’s examination or audit; and (v) as Bank considers appropriate in exercising remedies under this Agreement.    Confidential information does not include information that either: (a) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

12.9        Attorneys’ Fees, Costs and Expenses.   In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled, whether or not a lawsuit is filed.

13.          DEFINITIONS

13.1        Definitions.

“Accounts” are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

“Advance” or “Advances” is a Revolving Advance or a Term Loan Advance.

“Affiliate” of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

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“Bank Expenses” are all audit fees and expenses and reasonable costs or expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings).

“Borrower’s Books” are all Borrower’s books and records including ledgers, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information.

“Borrowing Base” is 80% of Eligible Accounts determined by Bank from Borrower’s most recent Borrowing Base Certificate.

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

“Cash Burn” is (a) if Borrower is required to deliver monthly Company prepared financial statements under Section 6.2(a), the change in cash from operations (determined in accordance with GAAP for the month just ended); or (b) if Borrower is not required to deliver such monthly statements, the trailing three month average change in cash from operations (determined in accordance with GAAP).

“Closing Date” is the date of this Agreement.

“Code” is the California Uniform Commercial Code.

“Collateral” is the property described on Exhibit A.

“Committed Term Loan” is a credit extension of up to $3,500,000.

“Committed Revolving Line” is a credit extension of up to $2,500,000.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement.

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“Copyrights” are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held.

“Current Assets” are amounts that under GAAP should be included on that date as current assets on Borrower’s consolidated balance sheet.

“Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities which mature within one (1) year.

“Deferred Revenue” is all amounts received in advance of performance and not yet recognized as revenue.

“Eligible Accounts” are Accounts in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.2; but Bank may change eligibility standards by giving Borrower 30 days prior written notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not include:

(a)           Accounts that the account debtor has not paid within 90 days of invoice date;

(b)           Accounts for an account debtor, 50% or more of whose Accounts have not been paid within 90 days of invoice date;

(c)           Credit balances over 90 days from invoice date;

(d)           Accounts for an account debtor, including Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;

(e)           Accounts for which the account debtor does not have its principal place of business in the United States;

(f)            Accounts for which the account debtor is a federal, state or local government entity or any department, agency, or instrumentality;

(g)           Accounts for which Borrower owes the account debtor, but only up to the amount owed (sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);

(h)           Accounts for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms if account debtor’s payment may be conditional;

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(i)            Accounts for which the account debtor is Borrower’s Affiliate, officer, employee, or agent;

(j)            Accounts in which the account debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

(k)           Accounts for which Bank reasonably determines collection to be doubtful.

“Eligible Foreign Accounts” are Accounts as to which the account debtor does not have its principal place of business in the United States but otherwise qualify as Eligible Accounts and: (1) as to which at least 90% of the face amount of each such Account is guaranteed by an Export-Import Bank guaranty (the “EXIM Guaranty”) in form and substance satisfactory to Bank (and as to which the account debtor is located in a country listed as covered by the EXIM Guaranty per the most recent Export-Import Bank Country Limitation Schedule); or (2) are supported by commercial letter(s) of credit acceptable to Bank; or (3) that Bank approves in writing.

“Equipment” is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

“ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations.

“EXIM Loan Agreement” is that certain Export-Import Bank Loan and Security Agreement, dated of even date herewith, by and between Borrower and Bank.

“GAAP” is generally accepted accounting principles.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” is:

(a)           Copyrights,  Trademarks,  Patents,  and Mask Works  including amendments, renewals, extensions, and all licenses or other rights to use and all license fees and royalties from the use;

(b)           Any trade secrets and any Intellectual Property Rights in computer software and computer software products now or later existing, created, acquired or held;

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(c)           All design rights which may be available to Borrower now or later created, acquired or held;

(d)           Any claims for damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue and collect damages for use or infringement of the intellectual property rights above;

All proceeds and products of the foregoing, including all insurance, indemnity or warranty payments.

“Inventory” is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title.

“Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

“IPS Mutual Funds” are the mutual funds available through Bank’s investments, products and services desk.

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“Liquidity” is cash on hand (and cash equivalents) plus Borrower’s net borrowing availability with respect to Revolving Advances.

“Loan Documents” are, collectively, this Agreement, the EXIM Loan Agreement, the Negative Pledge Agreement, the Tri-Party Agreement, and any note, or notes or guaranties executed by Borrower or any guarantor, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated.

Material Adverse Change is defined in Section 8.3.

“Mask Works” are all mask works or similar rights available for the protection of semiconductor chips, now owned or later acquired.

“Obligations” are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including letters of credit and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank.

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“Patents” are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

“Permitted Indebtedness” is:

(a)           Borrower’s indebtedness to Bank under this Agreement or the Loan Documents;

(b)           Indebtedness existing on the Closing Date and shown on the Schedule;

(c)           Subordinated Debt;

(d)           Indebtedness to trade creditors incurred in the ordinary course of business; and

(e)           Indebtedness secured by Permitted Liens; and

(f)            Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (e) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investments” are:

(a)           Investments shown on the Schedule and existing on the Closing Date; and

(b)           (i)   marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit issued maturing no more than 1 year after issue;

(c)           Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;

(d)           Investments accepted in connection with Transfers permitted by Section 7.1;

(e)           Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed $50,000 in the aggregate in any fiscal year.

“Permitted Liens” are:

(a)           Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents;

(b)           Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank’s security interests;

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(c)           Purchase money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment;

(d)           Leases or subleases and licenses or sublicenses granted in the ordinary course of Borrower’s business, if the leases, subleases, licenses and sublicenses permit granting Bank a security interest;

(e)           Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

(f)            Liens securing Indebtedness of up to $1,200,000 on Equipment consisting only of computer hardware and software, but only on such Equipment, acquired by Borrower or its Subsidiaries between January 1, 2001, and March 31, 2001.

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“Prepayment Fee” is a fee on any portion of the Obligations with a fixed interest rate (the “Fixed Obligations”) paid before the payment due date. “Base Interest Rate” means Bank’s initial cost of funding the Fixed Obligations. The Prepayment Fee is calculated as follows: First, Bank determines a “Current Market Rate” based on what the Bank would receive if it loaned the remaining amount on the prepayment date in a wholesale funding market matching maturity, remaining principal and interest amounts and principal and interest payment dates (the aggregate payments received are the “Current Market Rate Amount”). Bank may select any wholesale funding market rate as the Current Market Rate. Second, Bank will take the prepayment amount and calculate the present value of each remaining principal and interest payment which, without prepayment, the Bank would have received during the term of the Fixed Obligations using the Base Interest Rate. The sum of the present value calculations is the “Mark to Market Amount.” Third, the Bank will subtract the Mark to Market Amount from the Current Market Rate Amount. Any amount greater than zero is the Prepayment Fee.

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

“Quick Assets” is, on any date, the Borrower’s consolidated, unrestricted cash, cash equivalents, and net billed trade accounts receivable, determined according to GAAP.

“Remaining Months Liquidity” is Liquidity minus the aggregate balance of the Term Loan Advances outstanding at the time of determination, divided by Cash Burn.

“Responsible Officer” is each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower.

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“Revolving Advances” are the advances made pursuant to Section 2.1.1.

“Revolving Maturity Date” is June 13, 2002.

“Schedule” is any attached schedule of exceptions.

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt to Bank (and identified as subordinated by Borrower and Bank) pursuant to a subordination agreement in form and substance satisfactory to Bank and approved by Bank in writing.

“Subsidiary” is for any Person, joint venture, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person.

“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus (i) any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, Patents, trade and service marks and names, Copyrights and research and development expenses except prepaid expenses, and (c) reserves not already deducted from assets, and (ii) Total Liabilities, plus Subordinated Debt.

“Term Loan” means the loan consisting of the Term Loan Advances.

“Term Loan Advances” means the Advances made pursuant to Section 2.1.2(a).

“Term Loan Maturity Date” is defined in Section 2.1.2(b).

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt.

“Trademarks” are trademark and service mark rights, registered or not, applications to register and registrations and like protections, and the entire goodwill of the business of Assignor connected with the trademarks.

“Treasury Rate” is, on the date of determination, the average weekly yield (of the week ending figures) in the most recent Federal Reserve Statistical Release on actively traded U.S. Treasury obligations of similar maturity to the principal being repaid or if a Statistical Release is not published, the arithmetic average (to the nearest .01%) of the per annum yields to maturity for each Business Day during the week (ending at least two Business Days before the determination is made) of all actively traded marketable United States Treasury fixed interest rate securities with a constant maturity of, or not more than 30 days longer or shorter than the average life of the principal and interest payments that are being repaid or prepaid (excluding securities that can be surrendered at face value to pay Federal estate tax, or which provide for tax benefits to the holder).

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PHARSIGHT, INC.

By:	/s/ Robin A. Kehoe
Title:	CFO

SILICON VALLEY BANK

By:	/s/ Sam Thompson
Title:	Vice President

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EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following:

All goods, equipment, inventory, contract rights, general intangibles, accounts, documents, instruments, chattel paper, cash, deposit accounts, fixtures, letters of credit, investment property, and financial assets, whether now owned or hereafter acquired, wherever located; and

All Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

The Collateral does not include:

Any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, now owned or later acquired; any patents, trademarks, service marks and applications therefor; any trade secret rights, including any rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damages by way of any past, present and future infringement of any of the foregoing; provided that the Collateral shall include any of such intellectual property to the extent, and only to the extent, a security interest therein is required in order to permit Bank to hold a perfected security interest in the other Collateral, including, without limitation, Accounts arising from the license, publication or other exploitation of copyrights or other intellectual property; provided, further, that upon any breach by Borrower of its obligations to Bank not grant or permit to exist a lien or encumbrance upon such intellectual property, the Collateral shall be deemed to include, retroactively from the date of grant of the security interest in the other Collateral in favor of Bank, such intellectual property.

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EXHIBIT B

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION	DATE:
FAX#: (408) 496-2426	TIME:

FROM:
	CLIENT NAME (BORROWER)
REQUESTED BY:
	AUTHORIZED SIGNER’S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT #		TO ACCOUNT #
REQUESTED TRANSACTION TYPE				REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE)			$
PRINCIPAL PAYMENT (ONLY)			$
INTEREST PAYMENT (ONLY)			$
PRINCIPAL AND INTEREST (PAYMENT)			$
OTHER INSTRUCTIONS:

All Borrower’s representations and warranties in the Export-Import Bank Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone request for and Advance confirmed by this Borrowing Certificate; but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of that date.

TELEPHONE REQUEST:

The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me.

Authorized Requester		Phone #
Received By (Bank)		Phone #
	Authorized Signature (Bank)

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EXHIBIT C

DOMESTIC BORROWING BASE CERTIFICATE

Borrower:	Pharsight, Inc.	Lender:	Silicon Valley Bank
Commitment Amount:	$2,500,000

ACCOUNTS RECEIVABLE
1.	Accounts Receivable Book Value as of		$
2.			$
3.			$
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.	Amounts over 90 days due		$
5.	Balance of 50% over 90 day accounts	$
6.	Credit balances over 90 days		$
7.	Concentration Limits		$
8.	Foreign Accounts		$
9.	Governmental Accounts		$
10.	Contra Accounts		$
11.	Promotion or Demo Accounts		$
12.	Intercompany/Employee Accounts	$
13.	Other (please explain on reverse)	$
14.	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS		$
15.	Eligible Accounts (#3 minus #13)		$
16.	LOAN VALUE OF DOMESTIC ACCOUNTS (80% of  #15)		$
17.	Maximum Loan Amount		$	2,500,000
18.	Total Funds Available		$
19.	Present balance owing on Line of Credit		$
BALANCES	RESERVE POSITION
20.			$
21.			$
22.			$
23.			$

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

COMMENTS:

By:
	Authorized Signer

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EXHIBIT D

COMPLIANCE CERTIFICATE

TO:	SILICON VALLEY BANK
FROM:	PHARSIGHT, INC.

The undersigned authorized officer of Pharsight, Inc., certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending             with all required covenants except as noted below and (ii) all representations and warranties in the Agreement are true and correct in all material respects on this date. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.

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

Reporting Covenant		Required		Complies
Monthly (if applicable)		Monthly (if applicable )		Yes	No
financial statements		within 30 days
Annual (CPA Audited)		FYE within 90 days		Yes	No
10-Q, 10-K and 8-K		Within 5 days after filing with SEC		Yes	No
A/R & A/P Agings		Monthly within 20 days		Yes	No
Financial Covenant		Required	Actual	Complies
Maintain on a Quarterly Basis
Minimum Quick Ratio		1.0:1.0	:1.0	Yes	No
Minimum Liquidity (Monthly)		2X Term Loan	$	Yes	No
Minimum Remaining
Months Liquidity (Monthly)		Six (6)		Yes	No
Maximum Debt/Tangible Net Worth		:1.0	:1.0	Yes	No
Maximum Losses:	Quarterly	no more than 20%	$	Yes	No
	(commencing	more than the
	6/30/01)	projected amount
		in the “street”
		projections
		approved by
		Borrower’s board
		of directors

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Comments Regarding Exceptions; See Attached

PHARSIGHT, INC.
	Received by:
Sincerely,	Authorized Signer
	Date:
Signature
	Verified:
Title	Authorized Signer
Date	Date:
	Compliance Status:	Yes	No

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EX-10.26.1

Exhibit 10.26.1

NEGATIVE PLEDGE AGREEMENT

                This Negative Pledge Agreement is made as of June 13, 2001, by and between Pharsight, Inc. (“Borrower”), and Silicon Valley Bank (“Bank”).

                In connection with, among other documents, the Loan and Security Agreement (the “Loan Documents’) being concurrently executed herewith between Borrower and Bank, Borrower agrees as follows:

1.Except for licensing as permitted under the Loan Documents, Borrow shall not sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of Borrower’s intellectual property, including, without limitation, the following:

a.Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held;

b.All mask works or similar rights available for the protection of semiconductor chips, now owned ore hereafter acquired;

c.Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

d.Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

e.All patents, patent applications and like protections including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part or the same, including without limitation the patents and patent applications;

f.Any trademark and service mark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks, including without limitation;

g.Any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, bun not the obligation, to sue for the collect such damages for said use or infringement of the intellectual property right identified above;

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h.All licenses or other rights to use any of the Copyrights, Patents, Trademarks or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or rights; and

i.All amendments, extensions, renewals and extensions of any of the Copyright, Trademarks, Patents, or Mask Works; and

j.All proceeds and products or the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing;

2.It shall be an event of default under the Loan Documents between Borrower and Bank if there is a breach of any term of this Negative Pledge Agreement.

3.Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Documents.

BORROWER:

PHARSIGHT. INC.

By:	/s/ Robin A. Kehoe
Name:	Robin A. Kehoe
Title:	CFO

BANK:

SILICON BALLEY BANK

By:	/s/ Sam Thompson
Name:	Sam Thompson
Title:	Vice President

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EX-10.26.2

Exhibit 10.26.2

June 28,2001

Morgan Stanley & Co. Incorporated (the “Broker”)

555 California Street, Suite 2200

San Francisco, CA   94104

Re: Notice of Pledge and Security

Gentlemen:

Please be advised that the undersigned, PharSight Corporation (“Pledgor”), has pledged a security interest in Account No. 14-78895 (the “Account”) held by Broker, as securities intermediary, and in all of the securities, proceeds, cash or other assets now or hereafter held in the Account ( collectively, the “Collateral”), to Silicon Valley Bank (“Pledgee”) pursuant to the terms and provisions of a certain Loan and Security Agreement (the “Agreement”), dated June 13, 2001 ...

Broker, Pledgor and Pledgee, by signing this letter, hereby agree as follows:

a) The Account shall be retitled “Pharsight Corporation- Pledgor Silicon Valley Bank - Pledgee”;

b ) Pledgee has a security interest in the Collateral and is authorized to instruct the Broker with regard to the Account;

c) Broker is hereby notified of Pledgee’s security interest, and agrees to comply with all instructions and entitlement orders of Pledgee with regard to the Account.  Broker shall not comply with instructions and entitlement orders with respect to the Collateral or the Account that are originated by the Pledgor except as described in Paragraph D below. Broker represents that it has not previously been notified of any other assignment or interest in the Collateral or the Account and has no knowledge of any assignment or interest in the Collateral or the Account.  Broker is also hereby authorized and agrees to send duplicate copies of any and all statements and confirmations relating to the Account directly to the Pledgee at the address indicated below,or to such other address as Pledgee may designate in writing. This pledge will remain in full force and effect until Pledgee notifies Broker in writing to the contrary;

d) Pledgee hereby instructs Broker that until further instruction in writing from an Authorized Officer of Pledgee (as defined below) that Pledgee is assuming exclusive control over the Account (“Notice of Exclusive Control”), the Broker shall comply with directions of Pledgor with respect to any transactions, including withdrawals, in the Account; provided however, that Broker will not distribute to Pledgor any Collateral in the Account and will not comply with any notification or entitlement order that would require Broker to make a free delivery of the

Collateral to Pledgor or any other third party.  Notwithstanding anything contained herein, upon receipt of a Notice of Exclusive Control (it being understood that Broker shall have no duty or obligation whatsoever to investigate or determine whether the Notice of Exclusive Control was rightfully or legally issued), Broker shall only follow the directions and instructions of Pledgee with regard to the Account.  In that case, if Pledgee so requests, Broker will proceed to liquidate the assets of the Account in accordance with Pledgee’s instructions and to deliver the proceeds to Pledgee.

For purposes of this Agreement, “Authorized Officer of Pledgee” shall refer to anyone of the following individuals: [Names of Authorized Officers]. If Pledgee finds it necessary to designate a replacement for any of the designated Authorized Officers of Pledgee, written notice of replacement shall be given to Broker, which notice shall be signed by the President, an Executive Vice President, a Senior Vice President, or such other officer of Pledgee as Broker may approve.  However, Broker shall be entitled to rely on any notice it receives from someone whom it reasonably believes is an Authorized Officer of Pledgee;

e) Broker shall have no obligation to monitor the Account for any purpose in connection with the pledge granted hereunder. The Pledgee accepts and acknowledges full responsibility for reviewing daily confirmations and monthly statements to ensure that it is adequately secured;

f) Pledgor and Pledgee hereby agree to indemnify and hold harmless Broker, its affiliates, officers, and employees from and against any and all claims, causes of actions, liabilities, lawsuits, demands, and/or damages, including, without limitation. any and all court costs and reasonable attorney’s fees, that might result by reason of the actions of Broker pursuant to this Agreement except those claims arising from Broker’s gross negligence or willfu1 misconduct.  Broker shall not be responsible for any losses, claims, damages, liabilities and expenses incurred by Pledgor or Pledgee, except to the extent that such losses, claims, damages, liabilities or expenses arise out of the bad faith, gross negligence, or criminal acts or omissions on the part of Broker;

g) Broker may terminate this Agreement at any timeby canceling the Account and transferring all funds and securities in the Account to Pledgee;

h) As of the date hereof, the Collateral has not been paid to or withdrawn by the Pledgor; Broker is not inreceipt of any notice of withdrawal or redemption with regard to the Collateral or notice not to renew the Account, and Broker has not given any notice that the Account will not be renewed or extended, as the case may be;

i) Broker’s records indicate that the value of the Collateral, as of the date hereof, is approximately                                  ;

j) Broker subordinates any right of offset Broker may now or hereafter have against the Collateral for any indebtedness now or hereafter owing to Broker by the Pledgors to the security interest of Pledgee; provided that Broker shall continue to have a first perfected security interest in the Collateral with respect to any charges incurred in connection with the operation of the Account, including, but not limited to, fees, commissions and any costs related to unsettled securities transactions.

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k) This Agreement shall be governed by the law of the State of New York, excluding its conflict of law rules.  The parties hereby agree that (i) the “securities intermediary’s jurisdiction” with respect to the Account and the Collateral is New York and (ii) the parties shall not agree with any other person that such securities intermediary’s jurisdiction is any jurisdiction other than New York.

Very truly yours,
PHARSIGHT CORPORATION
/s/ Robin A. Kehoe
By:	Robin A. Kehoe
Title:	CFO

Read and Agreed to:
MORGAN STANLEY & CO. INCORPORATED
By:	/s/ Thomas O'Connell
		Name:  Thomas O'Connell
		Title:  Managing Director
SILICON VALLEY BANK
By:	/s/ Sam Thompson
		Name:  Sam Thompson
		Title:  Vice President
		Address:
3003 Tasman Drive
Santa Clara, CA  95054

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EX-10.27

Exhibit 10.27

EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT

PHARSIGHT CORPORATION

TABLE OF CONTENTS

1	ACCOUNTING AND OTHER TERMS
2	LOAN AND TERMS OF PAYMENT
	2.1	Advances
	2.2	Overadvances
	2.3	Interest Rate, Payments
	2.4	Fees
	2.5	Use of Proceeds
3	CONDITIONS OF LOANS
	3.1	Conditions Precedent to Initial Advance
	3.2	Conditions Precedent to all Advances
4	CREATION OF SECURITY INTEREST
	4.1	Grant of Security Interest
5	REPRESENTATIONS AND WARRANTIES
	5.1	Domestic Loan Documents
6	AFFIRMATIVE COVENANTS
	6.1	Domestic Loan Documents
	6.2	EXIM Insurance
	6.3	Borrower Agreement
	6.4	Terms of Sale
	6.5	Reporting Requirements
	6.6	Further Assurances
7	NEGATIVE COVENANTS
	7.1	Domestic Loan Documents
	Violate or fail to comply with the Domestic Loan Documents
	7.2	Borrower Agreement
	7.3	Exim Agreement
8	EVENTS OF DEFAULT
	8.1	Payment Default
	8.2	Covenant Default
	8.3	Exim Guarantee
9	BANK’S RIGHTS AND REMEDIES
	9.1	Rights and Remedies
	9.2	Power of Attorney
	9.3	Accounts Collection
	9.4	Bank Expenses
	9.5	Bank’s Liability for Collateral
	9.6	Remedies Cumulative
	9.7	Demand Waiver
	9.8	Exim Direction
	9.9	Exim Notification
10	NOTICES
11	CHOICE OF LAW . VENUE AND JURY TRIAL WAIVER
12	GENERAL PROVISIONS
	12.1	Successors and Assigns
	12.2	Indemnification
	12.3	Time of Essence
	12.4	Severability of Provision
	12.5	Amendments in Writing, Integration
	12.6	Counterparts
	12.7	Survival
	12.8	Confidentiality
13	DEFINITIONS
	13.1	Definitions

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This EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT dated June 13, 2001, between SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and PHARSIGHT CORPORATION (“Borrower”), whose address is 800 West El Camino Real, Suite 200, Mountain View, CA 94040 provides the terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows:

1              ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Exim Agreement will be construed following GAAP Calculations and determinations must be made following GAAP. The term “financial statements” includes the notes and schedules. The terms “including” and “includes” always mean “including (or includes) without limitation” in this or any Loan Document. This Exim Agreement shall be construed to impart upon Bank a duty to act reasonably at all times.

2              LOAN AND TERMS OF PAYMENT

2.1          Advances.

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

2.1.1       Revolving Advances.

(a)           Bank will make Advances not exceeding (i) the Exim Committed Line or (ii) the Borrowing Base, whichever is less.  Borrowing Base means an amount equal to the sum of (i) ninety percent (90%) of Exim Eligible Foreign Accounts and (ii) ninety percent (90%) of Eligible Foreign Accounts  backed by commercial letter(s) of credit advised and negotiated by a bank that Bank approves in writing. Amounts borrowed under this Section may be repaid and reborrowed during the term of this Exim Agreement.

(b)           To obtain an Advance, Borrower must notify Bank by facsimile or telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be made.   Borrower must promptly confirm the notification by delivering to Bank the Payment/Advance Form attached as Exhibit B and submit purchase orders an Export Orders in connection with such Advance. Bank will credit Advances to Borrower’s deposit account.   Bank may make Credit Extensions under this Exim Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Credit Extensions are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss suffered by Bank from that reliance.

(c)           The Exim Committed Line terminates on the Exim Maturity Date, when all Advances and other amounts due under this Exim Agreement are immediately payable.

2.2          Overadvances.

If Borrower’s Obligations under Section 2.1.1 exceed the lesser of either (i) the Exim Committed Line or (ii) the Borrowing Base, Borrower must immediately pay Bank the excess.

2.3          Interest Rate, Payments.

(a)           Interest Rate.   Advances accrue interest on the outstanding principal balance at a per annum rate of 1 percentage point above the Prime Rate. After an Event of Default, Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. The interest rate increases or decreases when the Prime Rate changes. Interest is computed on a 360 day year for the actual number of days elapsed.

(b)           Payments.   Interest due on the Exim Committed Line is payable on the 5th of each month. Bank may debit any of Borrower’s deposit accounts including Account Number 3300027682 for principal and interest payments or any amounts Borrower owes Bank. Bank will notify Borrower when it debits Borrower’s accounts. These debits are not a set-off. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue.

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2.4          Fees.

Borrower will pay:

(a)           Bank Expenses. All Bank Expenses incurred through and after the date of this Exim Agreement, (including reasonable attorneys’ fees and expenses) payable when due.

(b)           Exim Fee. A facility fee equal to $22,500 will be due on the Closing Date.

(c)           Exim Bank Expenses.  On the Closing Date, Exim Bank Expenses incurred through the date hereof.

2.5          Use of Proceeds.

Borrower will use the proceeds of the Advances only for the purposes specified in the Borrower Agreement. Borrower will not use the proceeds of the Advances for any purpose prohibited by the Borrower Agreement.

3              CONDITIONS OF LOANS

3.1          Conditions Precedent to Initial Advance.

Bank’s obligation to make the initial Advance is subject to the condition precedent that it receive the agreements, documents and fees it requires.

3.2          Conditions Precedent to all Advances.

Bank’s obligations to make each Advance, including the initial Advance, is subject to the following:

(a)           timely receipt of any export purchase order and a Borrowing Base Certificate relating to the

request;

(b)           receipt of a Payment/Advance Form;

(c)           the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Advance and no Event of Default may have occurred and be continuing, or result from the Advance. Each Advance is Borrower’s representation and warranty on that date that the representations and warranties of Section 5 remain true; and

(d)           the Exim Guarantee is in full force and effect.

4              CREATION OF SECURITY INTEREST

4.1          Grant of Security Interest.

Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower’s duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank may place a “hold” on any deposit account pledged as Collateral.

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5              REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1          Domestic Loan Documents.

The representations and warranties contained in the Domestic Loan Documents, which are incorporated into this Agreement, are true and correct.

6              AFFIRMATIVE COVENANTS

Borrower will do all of the following:

6.1          Domestic Loan Documents.

Borrower will comply with all the provisions of the Domestic Loan Documents.

6.2          EXIM Insurance.

If required by Bank, Borrower will obtain, and pay when due all premiums with respect to, and maintain uninterrupted foreign credit insurance. In addition, Borrower will execute in favor of Bank an assignment of proceeds of any insurance policy obtained by Borrower and issued by Exim Bank insuring against comprehensive commercial and political risk (the “EXIM Bank Policy”). The insurance proceeds from the EXIM Bank Policy assigned or paid to Bank will be applied to the balance outstanding under this Exim Agreement. Borrower will immediately notify Bank and Exim Bank in writing upon submission of any claim under the Exim Bank Policy. Then Bank will not be obligated to make any further Credit Extensions to Borrower without prior approval from Exim Bank.

6.3          Borrower Agreement.

Borrower will comply with all terms of the Borrower Agreement. If any provision of the Borrower Agreement conflicts with any provision contained in this Exim Agreement, the more strict provision, with respect to the Borrower, will control.

6.4          Terms of Sale.

Borrower will cause all sales of products on which the Credit Extensions are based to be (i) supported by one or more irrevocable letters of credit in an amount and of matter, naming a beneficiary and issued by a financial institution acceptable to Bank or (ii) on open account to creditworthy buyers that have written preapproval from Bank and Exim Bank.

6.5          Reporting Requirements.

Borrower shall deliver all reports, certificates and other documents to Bank as provided in the Borrower Agreement and the Domestic Loan Documents including, without limitation, Borrowing Base Certificate on a monthly basis as described on Exhibit C hereof, purchase orders and any other information that Bank and Exim Bank may reasonably request. In addition, Borrower shall comply with the reporting requirements set forth in the Domestic Loan Documents.

6.6          Further Assurances.

Borrower will execute any further instruments and take further action as Bank requests to perfect or continue Bank’s security interest in the Collateral or to effect the purposes of this Exim Agreement.

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7              NEGATIVE COVENANTS

Borrower will not do any of the following:

7.1          Domestic Loan Documents.

Violate or fail to comply with the Domestic Loan Documents.

7.2          Borrower Agreement.

Violate or fail to comply with any provision of the Borrower Agreement.

7.3          Exim Agreement.

Take an action, or permit any action to be taken, that causes, or could be expected to cause, the Exim Guarantee to not be in full force and effect.

8              EVENTS OF DEFAULT

Any one of the following is an Event of Default:

8.1          Payment Default.

If Borrower fails to pay any of the Obligations when due;

8.2          Covenant Default.

If Borrower violates any covenant or breaches any representation or warranty in the Exim Loan Documents or in any of the Domestic Loan Documents or the Borrower Agreement or an Event of Default occurs under the Exim Loan Documents or the Domestic Loan Documents.

8.3          Exim Guarantee.

If the Exim Guarantee ceases for any reason to be in full force and effect, or if the Exim Bank declares the Exim Guarantee void or revokes any obligations under the Exim Guarantee.

9              BANK’S RIGHTS AND REMEDIES

9.1          Rights and Remedies.

When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

(a)           Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 of the Domestic Loan Documents occurs all Obligations are immediately due and payable without any action by Bank);

(b)           Stop advancing money or extending credit for Borrower’s benefit under this Exim Agreement or under any other agreement between Borrower and Bank;

(c)           Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable;

(d)           Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral.   Borrower will assemble the Collateral if Bank requires and make it available as Bank designates.   Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

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(e)           Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(f)            Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral; and

(g)           Dispose of the Collateral according to the Code.

9.2          Power of Attorney.

Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower’s name on any checks or other forms of payment or security; (ii) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower’s insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred. Bank’s appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Advances terminates.

9.3          Accounts Collection.

When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank’s security interest in the funds and verify the amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit.

9.4          Bank Expenses.

If Borrower fails to pay any amount or furnish any required proof of payment to third persons Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.5          Bank’s Liability for Collateral.

If Bank complies with reasonable banking practices it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6          Remedies Cumulative.

Bank’s rights and remedies under this Exim Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given.

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9.7          Demand Waiver.

Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

9.8          Exim Direction.

Upon the occurrence of an Event of Default, Exim Bank shall have right to (i) direct Bank to exercise the remedies specified in Section 9.1 and (ii) request that Bank accelerate the maturity of any other loans to Borrower.

9.9          Exim Notification.

Bank has the right to immediately notify Exim Bank in writing if it has knowledge of any of the following events: (1) any failure to pay any amount due under this Exim Agreement; (2) the Borrowing Base is less than the sum of the outstanding Credit Extensions; (3) any failure to pay when due any amount payable to Bank under any Loan owing by Borrower to Bank; (4) the filing of an action for debtor’s relief by, against or on behalf of Borrower; (5) any threatened or pending material litigation against Borrower, or any dispute involving Borrower.

If Bank sends a notice to Exim Bank, Bank has the right to send Exim Bank a written report on the status of events covered by the notice every 30 days after the date of the original notification, until Bank files a claim with Exim Bank or the defaults have been cured (but no Advances may be required during the cure period unless Exim Bank gives its written approval). If directed by Exim Bank, Bank will have the right to exercise any rights it may have against the Borrower to demand the immediate repayment of all amount outstandings under the Exim Loan Documents.

10           NOTICES

All notices or demands by any party about this Exim Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses first written above. A Party may change its notice address by giving the other Party written notice.

11           CHOICE OF LAW. VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12           GENERAL PROVISIONS

12.1        Successors and Assigns.

This Exim Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Exim Agreement or any rights under it without Bank’s prior written consent which may be granted or withheld in Bank’s discretion. Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits under this Exim Agreement.

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12.2        Indemnification.

Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.

12.3        Time of Essence.

Time is of the essence for the performance of all obligations in this Exim Agreement.

12.4        Severability of Provision.

Each provision of this Exim Agreement is severable from every other provision in determining the enforceability of any provision.

12.5        Amendments in Writing, Integration.

All amendments to this Exim Agreement must be in writing. This Exim Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Exim Agreement merge into this Exim Agreement and the Loan Documents.

12.6        Counterparts.

This Exim Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.

12.7        Survival.

All covenants, representations and warranties made in this Exim Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run.

12.8        Confidentiality.

In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank’s subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank’s examination or audit and (v) as Bank considers appropriate exercising remedies under this Exim Agreement. Confidential information does not include information that either: (a) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

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13           DEFINITIONS

13.1        Definitions.

Except as otherwise defined, terms that are capitalized in this Exim Agreement will have the same meaning assigned in the Domestic Loan Documents. In this Exim Agreement:

“Advance” or “Advances” is a loan advance (or advances) under the Exim Committed Line.

“Borrower Agreement” is the Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement between Borrower and Bank.

“Borrowing Base” is defined in Section 2.1.

“Closing Date” is the date of this Exim Agreement.

“Collateral” is the property described on Exhibit A.

“Domestic Loan Documents” means that certain Loan and Security Agreement dated June 13, 2001 (the “Loan Agreement”), as amended, any note or notes executed by Borrower or any other agreement entered into in connection with the Loan Agreement, between Borrower and Bank.

“Exim Bank” is the Export-Import Bank of the United States.

“Exim Bank Expenses” are all audit fees and expenses; reasonable costs or expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Exim Loan Documents (including appeals or Insolvency Proceedings) and the fees that the Bank pays to the Exim Bank in consideration of the issuance of the Exim Guarantee.

“Exim Committed Line” is an Advance of up to $1,500,000.00.

“Exim Eligible Foreign Accounts” are accounts payable in United States Dollars that arise in the ordinary course of Borrower’s business from Borrower’s sale of eligible foreign inventory (i) that the account debtor does not have its principal place of business in the United States, (ii) that have been assigned and comply with all of Borrower’s representations and warranties in, and (iii) supported by commercial letter(s) of credit advised and negotiated by a bank that Bank approves in writing; but Bank may change eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in writing, Exim Eligible Foreign Accounts will not include:

(a)           Accounts that the account debtor has not paid within 90 days of invoice date;

(b)           Accounts which are more than sixty (60) calendar days past the original due date, unless it is insured through Exim Bank export credit insurance for comprehensive commercial and political risk, or through Exim Bank approved private insurers for a comparable coverage, in which case ninety (90) calendar days shall apply;

(c)           Credit balances over 60 days from invoice date;

(d)           Accounts evidenced by a letter of credit until the date of shipment of the items covered by the subject letter of credit;

(e)           Accounts for which the account debtor is a federal, state or local government entity or any department, agency, or instrumentality;

(f)            Accounts for which Borrower owes the account debtor, but only up to the amount owed (sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);

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(g)           Accounts for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms if account debtor’s payment may be conditional;

(h)           Accounts for which the account debtor is Borrower’s Affiliate, officer, employee, or agent;

(i)            Accounts in which the account debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

(j)            Accounts generated by the sale of products purchased for military purposes;

(k)           Accounts generated by the sales of inventory which constitute defense articles or defense services;

(I)            Accounts excluded from the Borrowing Base under the Borrower Agreement;

(m)          Accounts that arise from the sales of items not in the ordinary course of Borrower’s business;

(n)           Accounts not owned by Borrower or that are subject to any right, claim or interest of another person other than the lien in favor of Bank;

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

(p)           Accounts billed or payable outside the United Stated unless approved in writing by Exlm Bank;

(q)           Accounts from account debtors with balance of 50% over 60 days past the invoice due date;

(r)            Accounts with open account term with balance more than 10% concentration of total foreign Accounts, unless pre-approved by Bank;

(s)           Accounts billed in currencies other than U.S. Dollars, unless approved in writing by Exim Bank;

(t)            Accounts from foreign buyers in countries where Exim Bank is legally prohibited from doing business or in which Exim Bank coverage is not available (as designated in the Country Limitation Schedule);

(u)           Foreign Accounts backed by letters of credit unacceptable to Bank;

(v)           Accounts for which Bank or Exim Bank determines collection to be doubtful;

(w)          Any intra-company accounts receivable or any accounts receivable from a subsidiary of Borrower, from a person or entity with a controlling interest in Borrower or from an entity that shares common controlling ownership with the Borrower; and

(x)            Any Export-Related Account Receivable (as defined in the Borrower Agreement) not deemed to be an Eligible Export Related Account Receivable under the Borrower Agreement.

“Exim Guarantee” is that certain Master Guarantee Agreement or other agreement, as amended from time to time, the terms of which are incorporated into this Exim Agreement.

“Exim Loan Documents” means that certain Export-Import Bank Loan and Security Agreement (“Exim Loan Agreement”), any note or notes executed by Borrower or any other agreement entered into in connection with this Exim Loan Agreement, pursuant to which Exim Bank guarantees Borrower’s obligations under this Exim Agreement.

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“Exim Maturity Date” is June 13, 2002.

“Export Order” is a written export order or contract for the purchase by the buyer from the Borrower of any finished goods or services which are intended for export.

“Loan Documents” are, collectively, this Exim Agreement, the Exim Loan Documents, the Domestic Loan Documents, any note, or notes or guaranties executed by Borrower or Guarantor in connection with the Exim Loan Documents or the Domestic Loan Documents, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Exim Agreement, the Exim Loan Documents or the Domestic Loan Documents, all as amended, extended or restated.

“Obligations” are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including letters of credit and exchange contracts and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank and the Obligations of Borrower under the Domestic Loan Documents.

“Schedule” is any attached schedule of exceptions.

BORROWER:
PHARSIGHT CORPORATION
By:.	/s/ Robin A. Kehoe
Title:	CFO
BANK:
SILICON VALLEY BANK
By:	/s/ Sam Thompson
Title:	Vice President

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EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following:

All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above;

All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind;

All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower;

All documents, cash, deposit accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower’s Books relating to the foregoing;

All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing

All Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof.

Notwithstanding the foregoing, the Collateral shall not be deemed to include any copyrights, copyright applications, copyright registration and like protection in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; any patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, trademarks, servicemarks and applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized by such trademarks, any trade secret rights, including any rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damage by way of any past, present and future infringement of any of the foregoing (collectively, the “Intellectual Property”), except that the Collateral shall include the proceeds of all the Intellectual Property that are accounts, (i.e. accounts receivable) of Borrower, or general intangibles consisting of rights to payment, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property.

Borrower and Bank are parties to that certain Negative Pledge Agreement, whereby Borrower, in connection with Bank’s loan or loans to Borrower, has agreed, among other things, not to sell, transfer, assign, mortgage, pledge, lease grant a security interest in, or encumber any of its Intellectual Property, without Bank’s prior written consent.

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EXHIBIT B

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION	DATE:
FAX#: (408)496-2426	TIME:

FROM:	Pharsight Corporation
	CLIENT NAME (BORROWER)
REQUESTED BY:
	AUTHORIZED SIGNER’S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT#		TO ACCOUNT #
REQUESTED TRANSACTION TYPE				REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE)			$
PRINCIPAL PAYMENT (ONLY)			$
INTEREST PAYMENT (ONLY)			$
PRINCIPAL AND INTEREST (PAYMENT)			$
OTHER INSTRUCTIONS:

All Borrower’s representations and warranties in the Export-Import Bank Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone request for and Advance confirmed by this Borrowing Certificate; but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of that date.

BANK USE ONLY

TELEPHONE REQUEST:

The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me.

Authorized Requester		Phone #
Received By (Bank)		Phone #
	Authorized Signature (Bank)

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BORROWING BASE CERTIFICATE

COLLATERAL SCHEDULE

(FOREIGN A/R LINE OF CREDIT)

Borrower: Pharsight Corporation Bank: Silicon Valley Bank

FOREIGN ACCOUNTS RECEIVABLE FROM EXPORT ACTIVITIES
1.  Foreign Accounts Receivable Book Value as of		$
2.  Additions (please explain on reverse)		$
3.  TOTAL FOREIGN ACCOUNTS RECEIVABLE		$
ACCOUNTS RECEIVABLE DEDUCTIONS
4.  Accounts over 90 days past invoice	$
5.  Credit Balances over 90 days past invoice	$
6.  Accounts in the form of L/Cs, if subject items have not yet been shipped by Borrower	$
7.  Governmental and Military Accounts	$
8.  Contra Accounts	$
9.  Promotion, Demo or Consignment Accounts	$
10.  Intercompany/Employee and affiliate Accts	$
11.  Disputed Accounts	$
12.  Accounts arising from the sale of defense articles or items	$
13.  Accounts excluded under the Borrower Agrt	$
14.  Accounts from sales not in the ordinary course of business	$
15.  Accounts not owned by Borrower	$
16.  Accounts without invoices	$
17.  Accounts outside U.S.	$
18.  Accounts with 50% over 90 days past invoice	$
19.  Accounts over 10% concentration	$
20.  Accounts billed in non U.S. currency	$
21.  Accounts in countries prohibited by EXIM	$
22.  Accts supported by LCs not accepted by EXIM	$
23.  Accounts determined doubtful	$
24.  Other	$
25.  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS		$
26.  Eligible Accounts (No. 3 - No. 25)		$
27.  Loan Value of Accounts (90%-Advance)	$
FOREIGN ACCOUNTS RECEIVABLE BACKED BY L/C (subject to the foregoing)
28.  TOTAL FOREIGN ACCOUNTS RECEIVABLE BACKED BY L/C		$
29.  Loan Value of Accounts (90% - Advance)
BALANCES
30.  Maximum Loan Amount	$
31  Total Available  (No.27 + No. 29)	$
32.  Present balance owing on Line of Credit	$
33.  Outstanding under Sublimits (if any)	$
34. RESERVE POSITION [No.51 - (No.32 + No. 33)]		$

The undersigned represents and warrants that as of the date hereof the foregoing is true, complete and correct, that the information reflected in this Collateral Schedule complies with the representations and warranties set forth in the Export - Import Bank Loan and Security Agreement, between Borrower and Bank, and the Borrower Agreement, executed by Borrower and acknowledged by Lender, each dated June 13, 2001, as may be amended from time to time, as if all representations and warranties were made as of the date hereof, and that Borrower is, and shall remain, in full compliance with its agreements, covenants, and obligations under such agreements. Such representations and warranties include, without limitation, the following: Borrower is using disbursements only for the purpose of enabling Borrower to finance the cost of manufacturing, purchasing or selling items intended for export. Borrower is not using disbursements for the purpose of: (a) servicing any of Borrower’s unrelated preexisting or future indebtedness; (b) acquiring fixed assets or capital goods for the use of Borrower’s business;

15

(c) acquiring, equipping, or renting commercial space outside the United States; or (d) paying salaries of non-U.S. citizens or non-U.S. permanent residents who are located in the offices of the United States. Additionally, disbursements are not being used to finance the manufacture, purchase or sale of all of the following: (a) Items to be sold to a buyer located in a country in which the Export Import Bank of the United States is legally prohibited from doing business; (b) that part of the cost of the items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the items and is incorporated into the items in the United States; (c) defense articles or defense services or items directly or indirectly destined for use by military organizations designed primarily for military use (regardless of the nature or actual use of the items); or (d) any items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities.

Sincerely,

BORROWER:

PHARSIGHT CORPORATION

By:

Name:

Title:

Date:

BANK USE ONLY

Received By:

Date:

Verified By:

16

EX-10.27.1

Exhibit 10.27.1

ANNEX B

Export-Import Bank of the United States

Working Capital Guarantee Program

Borrower Agreement

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

RECITALS

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

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

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

NOW, THEREFORE, Borrower hereby agrees as follows:

ARTICLE I
DEFINITIONS

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

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

1

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

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

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

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

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

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

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

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

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

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

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

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

2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3

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

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

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

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

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

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

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

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

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

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

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

4

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

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

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

(c)           that is placed by Borrower on consignment or held by Borrower on consignment from another Person;

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

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

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

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

(h)           that is demonstration Inventory;

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

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

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

(l)            that constitutes defense articles or defense services;

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

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

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

5

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE II         
OBLIGATIONS OF BORROWER

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

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

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

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

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

                (iii)          defense articles or defense services; or

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE III        
RIGHTS AND REMEDIES

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

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

ARTICLE IV
MISCELLANEOUS

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

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

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

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

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

PHARSIGHT, INC.

By:	/s/ Robin A. Kehoe
	(Signature)
Name:	Robin A. Kehoe
	(Print or Type)
Title:	CFO
	(Print or Type)
ACKNOWLEDGED:
SILICON VALLEY BANK
By:	/s/ Sam Thompson
	(Signature)
Name:	Sam Thompson
	(Print or Type)
Title:	Vice President
	(Print or Type)

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ANNEXES:

Annex A            -   Loan Authorization Agreement or Loan Authorization Notice

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CONSENT OF GUARANTORS

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

[INDIVIDUAL GUARANTOR]

[CORPORATE GUARANTOR]

By:

Name:

Title:

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