Exhibit 4.2


 





CREDIT AGREEMENT


 


THIS CREDIT AGREEMENT (this "Agreement")
dated March 31, 2020, is by and between SIMULATIONS PLUS, INC., a California corporation ("Borrower"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank").


 


RECITALS


 


Borrower
has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to
Borrower on the terms and conditions contained herein.


 


NOW, THEREFORE, for valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:


 


ARTICLE
I


CREDIT TERMS


 


SECTION 1.1.          LINE OF CREDIT.


 


(a)      
Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower
from time to time up to and including April 15, 2022, not to exceed at any time the aggregate principal amount of Three Million
Five Hundred Thousand Dollars ($3,500,000.00) ("Line of Credit"), the proceeds of which shall be used to finance Borrower's
working capital requirements; provided however, the proceeds shall not be used to finance or assist with the financing of any acquisition,
whether that be a stock purchase or an acquisition of another company's assets (but such proceeds may be used by Borrower to fund
its loan described in Section 5.7(b) below). Borrower's obligation to repay advances under the Line of Credit shall be evidenced
by a promissory note dated March 31, 2020, as modified from time to time ("Line of Credit Note").


 


(b)      
Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or
wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein
or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth herein. Notwithstanding the foregoing, Borrower shall
maintain a zero balance on advances under the Line of Credit for a period of at least thirty (30) consecutive days during each
12-month period commencing March 31, 2020.


 


SECTION 1.2.          INTEREST/FEES.


 


(a)      
Interest. The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest
set forth in each promissory note or other instrument or document executed in connection therewith.


 


(b)      
Computation and Payment. Interest shall be computed on the basis set forth in each promissory note or other instrument
or document required hereby. Interest shall be payable at the times and place set forth in each promissory note or other instrument
or document required hereby.


 


SECTION 1.3.          COLLECTION
OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under each credit subject hereto by debiting
Borrower's deposit account number 0784259301 with Bank, or any other deposit account maintained by Borrower with Bank, for the
full amount thereof. Should there be insufficient funds in any such deposit account to pay all such sums when due, the full amount
of such deficiency shall be immediately due and payable by Borrower.


 


 


 






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SECTION 1.4.          COLLATERAL.


 


As security for all indebtedness
and other obligations of Borrower to Bank, other than indebtedness that is excluded from such secured obligations by the terms
of the security agreement(s) required hereunder, Borrower shall grant to Bank security interests of first priority in all Borrower's
accounts receivable and other rights to payment, general intangibles, inventory and equipment.


 


All of the foregoing shall
be evidenced by and subject to the terms of such security agreements, financing statements, deeds or mortgages, and other documents
as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall pay to Bank immediately upon demand
the full amount of all charges, costs and expenses (to include fees paid to third parties and all allocated costs of Bank personnel),
expended or incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording
fees and costs of appraisals, audits and title insurance.


 


ARTICLE II


REPRESENTATIONS
AND WARRANTIES


 


Borrower makes the following representations
and warranties to Bank, on the date hereof and on the date of each subsequent request for any extension of credit hereunder (including,
without limitation, the issuance of any product under any subfeature contained herein, to the extent applicable), which representations
and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.


 


SECTION
2.1.          LEGAL STATUS. (a) Borrower is a corporation, duly organized
and existing and in good standing under the laws of California, and is qualified or licensed to do business (and is in good
standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required
or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower; (b) each
subsidiary of Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its
formation; and (c) no member of the Borrowing Group (as defined below) is a Sanctioned Target (as defined below) of economic
or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes or restrictions and anti-terrorism laws
imposed, administered or enforced from time to time by the United States of America, the United Nations Security Council, the
European Union, the United Kingdom, any other governmental authority with jurisdiction over Borrower or any member of the
Borrowing Group (collectively, "Sanctions"). As used herein, "Borrowing Group" means: (i) Borrower, (ii)
any direct or indirect parent of Borrower, (iii) any affiliate or subsidiary of Borrower, (iv) any Third Party Obliger (as
defined below), and (v) any officer, director or agent acting on behalf of any of the parties referred to in items (i)
through and including (iv) with respect to the obligations hereunder, this Agreement or any of the other Loan Documents.
“Sanctioned Target” means any target of Sanctions, including (i) persons on any list of targets identified or
designated pursuant to any Sanctions, (ii) persons, countries, or territories that are the target of any territorial or
country-based Sanctions program, (iii) persons that are a target of Sanctions due to their ownership or control by any
Sanctioned Target(s), or (iv) persons otherwise a target of Sanctions, including vessels and aircraft, that are designated
under any Sanctions program.


 


SECTION 2.2.           AUTHORIZATION
AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter
delivered to Bank in connection herewith (collectively, the “Loan Documents") have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations
of Borrower or the party which executes the same, enforceable in accordance with their respective terms.


 


 


 






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SECTION 2.3.          NO VIOLATION.
The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation,
or contravene any provision of the organizational and governing documents of Borrower or any subsidiary, or result in any breach
of or default under any contract, obligation, indenture or other instrument to which Borrower or any subsidiary is a party or by
which Borrower or any subsidiary may be bound.


 


SECTION 2.4.           LITIGATION.
There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings
by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect
on the financial condition or operation of Borrower or any subsidiary, other than those disclosed by Borrower to Bank in writing
prior to the date hereof.


 


SECTION 2.5.          CORRECTNESS
OF FINANCIAL STATEMENT AND OTHER INFORMATION. The annual financial statement of Borrower and its subsidiaries dated August 31,
2019, and all interim financial statements delivered to Bank since said date, true copies of which have been delivered by Borrower
to Bank prior to the date hereof, (a) are complete and correct and present fairly the financial condition of Borrower and its
subsidiaries, (b) disclose all liabilities of Borrower and its subsidiaries that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared
in accordance with generally accepted accounting principles consistently applied. Since the dates of such financial statements
there has been no material adverse change in the financial condition of Borrower or any subsidiary, nor has Borrower or any subsidiary
mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of
Bank or as otherwise permitted by Bank in writing. All information provided from time to time by Borrower or any Third Party Obliger
to Bank for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes was complete
and correct at the time such information was provided and, except as specifically identified to Bank in a subsequent writing,
remains complete and correct today.


 


SECTION 2.6.          INCOME
TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its or any subsidiary's income tax payable
with respect to any year.


 


SECTION 2.7.          NO
SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may
be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any
other obligation of Borrower.


 


SECTION 2.8.          PERMITS,
FRANCHISES. Borrower and each subsidiary possess, and will hereafter possess, all permits, consents, approvals, franchises and
licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct
the business in which it is now engaged in compliance with applicable law.


 


SECTION 2.9.          ERISA. Borrower
and its subsidiaries are in compliance in all material respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time (“ERISA”); Borrower and its subsidiaries have not violated
any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower or any
subsidiary(each, a “Plan”); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any
Plan initiated by Borrower or any subsidiary; Borrower and its subsidiaries have met their minimum funding requirements under ERISA
with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the
Plan documents and under generally accepted accounting principles.


 


SECTION 2.10.        OTHER OBLIGATIONS.
Neither Borrower, nor any subsidiary, is in default on any obligation for borrowed money, any purchase money obligation or any
other material lease, commitment, contract, instrument or obligation.


 


 


 






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SECTION 2.11.        ENVIRONMENTAL
MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower and its subsidiaries are in compliance
in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any
rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's or any subsidiary's operations and/or properties,
including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control
Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or any subsidiary
is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into the environment. Neither Borrower nor any subsidiary
has any material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.


 


SECTION
2.12         SANCTIONS, ANTI-MONEY LAUNDERING AND ANTI-CORRUPTION LAWS. (a) each
member of the Borrowing Group has instituted, maintains and complies with policies, procedures and controls reasonably
designed to assure compliance with Anti Money Laundering Laws and Anti-Corruption Laws (each as defined below), and
Sanctions; and (b)  to the best of Borrower's knowledge,
after due care and inquiry, no member of the Borrowing Group is under investigation for an alleged violation of any
Sanctions, Anti-Money Laundering Laws or Anti-Corruption Laws by a governmental authority that enforces such laws. As used
herein: “Anti-Corruption Laws” means: (i) the U.S. Foreign Corrupt Practices Act of 1977, as amended; (ii) the
U.K. Bribery Act 2010, as amended; and (iii) any other anti-bribery or anti corruption laws, regulations or ordinances in any
jurisdiction in which the Borrower or any member of the Borrowing Group is located or doing business. "Anti-Money
Laundering Laws" means applicable laws or regulations in any jurisdiction in which the Borrower or any member of the
Borrowing Group is located or doing business that relates to money laundering, any predicate crime to money laundering, or
any financial record keeping and reporting requirements related thereto.


 


ARTICLE
III


CONDITIONS


 


SECTION
3.1.          CONDITIONS TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effective date of this Agreement shall be (a) the date that each of the following conditions set forth in this Section 3.1
have been satisfied or waived, as determined by Bank, or (b) such alternative date to which Bank and Borrower may mutually
agree, in each case as evidenced by Bank's system of record. Notwithstanding the occurrence of the effective date of this
Agreement, Bank shall not be obligated to extend credit under this Agreement or any other Loan Document until all conditions
to each extension of credit set forth in Section 3.2 have been fulfilled to Bank's satisfaction.


 


(a)      
Approval of Bank Counsel. All legal matters incidental to the effectiveness of this Agreement shall be satisfactory
to Bank's counsel.


 


(b)      
Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly
executed by all parties:


		(i)	This Agreement and each promissory note or other instrument or document required hereby.
		(ii)	Agreement and Acknowledgment of Security Interest (Landlord Waiver).
		(iii)	Corporate resolutions and Certificate of Incumbency Borrower.
		(iv)	Security Agreement: Business Assets.
		(v)	Certificate of Insurance.
		(vi)	Such other documents as Bank may require under any other Section of this Agreement.



 


(c)      
Satisfaction of Regulatory and Compliance Requirements. In addition to any requirements set forth above, and notwithstanding
Borrower's execution or delivery of this Agreement or any other Loan Document, all regulatory and compliance requirements, standards
and processes shall be completed to the satisfaction of Bank.


 


 


 






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SECTION 3.2           CONDITIONS
OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following conditions:


 


(a)      
Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be
true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto,
with the same effect as though such representations and warranties had been made on and as of each such date, and on each such
date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time
or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.


 


(b)      
Documentation. Bank shall have received all additional documents which may be required in connection with such extension
of credit.


 


(c)      
Payment of Fees. Bank shall have received payment in full of any fee required by any of the Loan Documents to be
paid at the time such credit extension is made.


 


(d)       Financial Condition.
There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, any
subsidiary or any Third Party Obliger hereunder, if any, nor any material decline, as determined by Bank, in the market value of
any collateral required hereunder or a substantial or material portion of the assets of Borrower, any subsidiary or any such Third
Party Obliger, if any.


 


ARTICLE IV


AFFIRMATIVE
COVENANTS


 


Borrower covenants that so
long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, unless Bank otherwise consents in writing:


 


SECTION 4.1.          PUNCTUAL
PAYMENTS. Borrower shall punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents
at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding
principal balance of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.


 


SECTION 4.2.          ACCOUNTING
RECORDS. Borrower shall, and shall cause each subsidiary to, maintain adequate books and records in accordance with generally
accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect,
audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower and its subsidiaries.
If at any time any change in generally accepted accounting principles would affect the computation of any covenant (including
the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Loan Document, Borrower
and Bank shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of
such change; provided, that, until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance
with the application of generally accepted accounting principles prior to such change and (ii) Borrower shall provide to Bank
a written reconciliation in form and substance reasonably satisfactory to Bank, between calculations of such covenant and/or pricing
grid made before and after giving effect to such change in generally accepted accounting principles.


 


 


 






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SECTION 4.3.           FINANCIAL
STATEMENTS AND OTHER INFORMATION. Borrower shall, and shall cause each subsidiary to, provide to Bank all of the following, in
form and detail satisfactory to Bank:


 


(a)      
not later than 120 days after and as of the end of each fiscal year, an unqualified audited consolidated and consolidating
financial statement of Borrower and its subsidiaries, prepared by a certified public accountant acceptable to Bank, to include
balance sheet, income statement, statement of cash flows, and source and application of funds statement; and


 


(b)      
not later than 60 days after and as of the end of each fiscal quarter, a consolidated and consolidating financial statement
of Borrower and its subsidiaries, prepared by Borrower, to include balance sheet, income statement, statement of cash flows, and
source and application of funds statement; and


 


(c)       contemporaneously
with each annual and quarterly financial statement of Borrower and its subsidiaries required hereby, a certificate of the president
or chief financial officer, a general partner or a member of Borrower, as applicable, that said financial statements are accurate,
that Borrower is in compliance with all financial covenants in this Agreement (as evidenced by detailed calculations attached to
such certificate), and that there exists no Event of Default nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute an Event of Default; and


 


(d)       from time to time
such other financial and business information as Bank may reasonably request, including without limitation, copies of rent rolls
and other information with respect to any real property collateral required hereby; and


 


(e)       from time to time
such other information as Bank may request for the purpose of enabling Bank to fulfill its regulatory and compliance requirements,
standards and processes.


 


SECTION 4.4.          COMPLIANCE.


 


(a)      
Borrower shall, and shall cause each subsidiary to, preserve and maintain all licenses, permits, governmental approvals,
rights, privileges and franchises necessary for the conduct of its business; comply with the provisions of all documents pursuant
to which Borrower is organized and/or which govern its continued existence; comply with the requirements of all laws, rules, regulations
and orders of any jurisdiction in which the Borrower or any subsidiary is located or doing business, or otherwise is applicable
to Borrower or any subsidiary; and


 


(b)      
Borrower shall comply with, and cause each member of the Borrowing Group to comply with, all Sanctions, Anti-Money Laundering
Laws, and Anti-Corruption Laws.


 


SECTION 4.5.          INSURANCE.
(a) Borrower shall, and shall cause each subsidiary to, maintain and keep in force, for each business in which it is engaged, insurance
of the types and in amounts customarily carried in similar lines of business, including but not limited to fire, extended coverage,
commercial general liability, flood, and, if required by governmental regulation or Bank, hurricane, windstorm, seismic property
damage, workers' compensation, marine cargo insurance, and specific hazards affecting any real property, including terrorism, with
all such insurance carried in amounts satisfactory to Bank and where required by Bank, with replacement cost, mortgagee loss payable
and lender loss payable endorsements in favor of Bank, and (b) deliver to Bank prior to the date hereof, and from time to time
at Bank's request, schedules setting forth all insurance then in effect, together with a lender's loss payee endorsement for all
such insurance naming Bank as a lender loss payee. Such insurance may be obtained from an insurer or through an insurance agent
of Borrower's choice, provided that any insurer chosen by Borrower is acceptable to Bank on such reasonable grounds as may be permitted
under applicable law.


 


 


 






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SECTION
4.6.          FACILITIES. Borrower shall, and shall cause each subsidiary to, keep all properties useful or necessary to its business in
good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.


 


SECTION 4.7.          TAXES AND
OTHER LIABILITIES. Borrower shall, and shall cause each subsidiary to, pay and discharge when due any and all indebtedness, obligations,
assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property
taxes and assessments, except (a) such as Borrower


or
any subsidiary may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower and its subsidiaries
have made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower or any subsidiary is obligated
to make such payment.


 


SECTION 4.8.          LITIGATION.
Borrower shall, and shall cause each subsidiary to, promptly give notice in writing to Bank of any litigation pending or threatened
against Borrower or any subsidiary.


 


SECTION 4.9.          FINANCIAL
CONDITION. Borrower shall, and shall cause each subsidiary to, maintain their financial condition on a consolidated basis as follows
using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent
modified by the definitions herein):


 


(a)      
Net income after taxes not less than $1.00 as of each fiscal quarter end, determined on a rolling 4-quarter basis, commencing
with the 4-quarter period ending May 31, 2020.


 


(b)      
Total Funded Debt to Adjusted EBITDA not greater than 2.0 to 1.0 as of each fiscal quarter end, determined on a rolling
4-quarter basis, commencing with the 4-quarter period ending May 31, 2020, with 'Total Funded Debt'1 defined as the sum of all
obligations for borrowed money (including subordinated debt) plus all capital lease obligations, and with "Adjusted EBITDA"
defined as: (a) Borrower's consolidated net earnings (or loss), minus (b) without duplication, the sum of the following amounts
of Borrower for such period to the extent included in determining consolidated net earnings (or loss) for such period: (i) interest
income, and (ii) any software development costs to the extent capitalized during such period, plus (c) without duplication, the
sum of the following amounts of Borrower for such period to the extent included in determining consolidated net earnings (or loss)
for such period: (i) interest expense, (ii)  tax expense
based on income, profits or capital, including federal, foreign, state, franchise and similar taxes (and for the avoidance of
doubt, specifically excluding any sales taxes or any other taxes held in trust for a governmental authority), and (iii) depreciation
and amortization for such period.


 


SECTION 4.10.        NOTICE
TO BANK. Borrower shall, and shall cause each subsidiary to, promptly (but in no event more than five (5) days after the occurrence
of each such event or matter and in no event more than one (1) business day after the occurrence of each such event or matter
described below with respect to Sanctions, Anti-Money Laundering Laws, and Anti Corruption Laws) give written notice to Bank in
reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice
or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure
of Borrower or any subsidiary, including, by illustration, merger, conversion or division; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (d)
any termination or cancellation of any insurance policy which Borrower or any subsidiary is required to maintain, or any uninsured
or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's
or any subsidiary's property; or (e) any breach of any covenant contained herein related to Sanctions, Anti-Money Laundering Laws,
and Anti-Corruption Laws or the Borrower's inability to make the representations and warranties contained herein related to Sanctions,
Anti-Money Laundering Laws, and Anti-Corruption Laws on any date, or the failure of any representations and warranties contained
herein related to Sanctions, Anti-Money Laundering Laws, and Anti Corruption Laws to be true and correct in all respects on or
as of any date.


 


 


 






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ARTICLE V


NEGATIVE COVENANTS


 


Borrower further covenants
that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, without Bank's prior written consent:


 


SECTION 5.1.          USE OF FUNDS. SOURCES OF REPAYMENT
AND COLLATERAL.


 


(a)      
Borrower will not use, or permit any member of the Borrowing Group to use, any of the proceeds of any credit extended hereunder
except for the purposes stated in Article I hereof, or directly or indirectly use any such proceeds to fund, finance or facilitate
any activities, business or transactions: (i) that are prohibited by Sanctions; (ii) that would be prohibited by Sanctions if conducted
by Bank or any of Bank's affiliates; or (iii) that would be prohibited by any Anti-Money Laundering Laws or Anti-Corruption Laws.


 


(b)      
Borrower will not fund any repayment of the obligations hereunder or under any other Loan Document with proceeds, or provide
any property as collateral for any such obligations, or permit any third party to provide any property as collateral for any such
obligations, that is directly or indirectly derived from any transaction or activity that is prohibited by any Sanctions, Anti-Money
Laundering Laws or Anti-Corruption Laws, or that could otherwise cause Bank or any of Bank's affiliates to be in violation of any
Sanctions, Anti-Money Laundering Laws or Anti-Corruption Laws.


 


SECTION 5.2.          CAPITAL
EXPENDITURES. Make any additional investment in any fixed or capital assets (including assets leased under capital leases) in any
fiscal year in excess of an aggregate of $250,000.00.


 


SECTION 5.3           LEASE
EXPENDITURES. Incur any operating lease expense in any fiscal year in excess of an aggregate of $1,500,000.00.


 


SECTION 5.4.          OTHER INDEBTEDNESS.
Borrower will not, and will not permit any subsidiary to, create, incur, assume or permit to exist any indebtedness or liabilities
resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint
or several, except (a) the liabilities of Borrower and subsidiaries to Bank, (b) any other liabilities of Borrower and any subsidiary
existing as of, and disclosed to Bank prior to, the date hereof, and (c) the one-time borrowing by the new acquired subsidiary
from Borrower in accordance with Section 5.7(b) below


 


SECTION 5.5.          MERGER,
CONSOLIDATION, TRANSFER OF ASSETS. (a) Borrower will not, and will not permit any subsidiary to, merge into or consolidate with
any other entity; (b) make any substantial change in the nature of Borrower's or any subsidiary's business as conducted as of
the date hereof; (c) acquire all or substantially all of the assets of any other entity; (d) sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of Borrower's or any subsidiary's assets except in the ordinary course of
its business; nor (e) accomplish any of the above by virtue of a division or similar transaction.


 


SECTION 5.6.          GUARANTIES.
Borrower will not, and will not permit any subsidiary to, guarantee or become liable in any way as surety, endorser (other than
as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower or any subsidiary as security for, any liabilities or obligations
of any other person or entity, except any of the foregoing in favor of Bank.


 


 


 






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SECTION 5.7.          LOANS, ADVANCES,
INVESTMENTS. Borrower will not, and will not permit any subsidiary to, make any loans or advances to or investments in any person
or entity, including any of the foregoing accomplished by a division or similar transaction, except (a) any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and (b) a one time loan of $3,700,000.00 by Borrower to LIXOFT, INC., which
entity has been or will shortly hereafter be acquired by Borrower, as heretofore described to Bank.


 


SECTION 5.8           DIVIDENDS, DISTRIBUTIONS.
Borrower will not pay any dividend or distribution either in cash, stock or other property on Borrower's stock now or hereafter
outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock nor or hereafter outstanding;
provided however that so long as no Event of Default or any act, condition or event which with the giving of notice or the passage
of time or both would constitute an Event of Default exists, Borrower may pay cash dividends to its shareholders on a quarterly
basis so long as such quarterly dividends are not more than $0.01 per share more than the current quarterly dividend ($0.06 per
share).


 


SECTION 5.9.          PLEDGE OF
ASSETS. Borrower will not, and will not permit any subsidiary to, mortgage, pledge, grant or permit to exist a security interest
in, or lien upon, all or any portion of Borrower's or any subsidiary's assets now owned or hereafter acquired, except any of the
foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof.


 


ARTICLE VI


EVENTS
OF DEFAULT


 


SECTION 6.1.          The occurrence
of any of the following shall constitute an "Event of Default" under this Agreement:


 


(a)      
Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.


 


(b)      
Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower
or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material
respect when furnished or made.


 


(c)      
Any default in the performance of or compliance with: (1) any collateral value requirement set forth herein or in any other
Loan Document; (2) any negative covenant set forth in Article V hereof; (3) any affirmative covenant set forth in Article IV hereof
requiring the delivery of financial statements and other information to Bank; or (4) any obligation, agreement or other provision
contained herein or in any other Loan Document related to Sanctions, Anti Money Laundering Laws, or Anti-Corruption Laws.


 


(d)      
Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in
any other Loan Document (other than those defaults specifically described as constituting an "Event of Default" under
any other subsection of this Section 6.1.), and with respect to such default(s) that by their nature can be cured (excluding any
defaults specifically described as constituting an "Event of Default" under any other subsection of this Section 6.1.,
none of which shall be subject to a cure period), such default shall continue for a period of twenty (20) days from its occurrence.


 


(e)      
Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract,
instrument or document (other than any of the Loan Documents) pursuant to which Borrower, any subsidiary, any guarantor hereunder,
the owner of any collateral securing the obligations hereunder or under any other Loan Document, or any general partner or joint
venturer in Borrower if a partnership or joint venture (with each such guarantor, owner of pledged collateral, general partner
and/or joint venturer referred to herein as a "Third Party Obliger") has incurred any debt or other liability to any
person or entity, including Bank.


 


 


 






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(f)       
Borrower, any subsidiary or any Third Party Obliger shall become insolvent, or shall suffer or consent to or apply for the
appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower, any subsidiary or any Third
Party Obliger shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement
with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified
from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter
in effect; or Borrower, any subsidiary or any Third Party Obliger shall file an answer admitting the jurisdiction of the court
and the material allegations of any involuntary petition; or Borrower, any subsidiary or any Third Party Obligor shall be adjudicated
a bankrupt, or an order for relief shall be entered against Borrower, any subsidiary or any Third Party Obliger by any court of
competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors.


 


(g)      
The filing of a notice of judgment lien against Borrower, any subsidiary or any Third Party Obliger; or the recording of
any abstract or transcript of judgment against Borrower, any subsidiary or any Third Party Obliger in any county or recording district
in which Borrower, such subsidiary or such Third Party Obligor has an interest in real property; or the service of a notice of
levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower, any subsidiary or any
Third Party Obliger; or the entry of a judgment against Borrower, any subsidiary or any Third Party Obliger; or any involuntary
petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors is filed or commenced against Borrower, any subsidiary or any Third Party Obliger.


 


(h)      
There shall exist or occur any event or condition that Bank in good faith believes impairs, or is substantially likely to
impair, the prospect of payment or performance by Borrower, any Third Party Obliger, or the general partner of either if such entity
is a partnership, of its obligations under any of the Loan Documents.


 


(i)       
The death or incapacity of Borrower or any Third Party Obliger if an individual. The withdrawal, resignation or expulsion
of any one or more of the general partners in Borrower or any Third Party Obligor if a partnership. The dissolution, division,
or liquidation of Borrower, any subsidiary or any Third Party Obliger if a corporation, partnership, joint venture or other type
of entity; or Borrower, any such subsidiary or any such Third Party Obliger, or any of its directors, stockholders or members,
shall take action seeking to effect the dissolution, division, or liquidation of Borrower or such Third Party Obliger.


 


(j)       
The withdrawal, resignation or expulsion of any one or more of the general partners in Borrower, if a partnership, or any
change in control of Borrower or any entity or combination of entities that directly or indirectly control Borrower, with "control''
defined as ownership of an aggregate of twenty-five percent (25%) or more of the common stock, members' equity or other ownership
interest (other than a limited partnership interest); provided however that the transfer of WALTER WOLTOSZ's stock in Borrower
upon his death shall not constitute an Event of Default under this paragraph 0).


 


(k)      
The sale, transfer, hypothecation, assignment or encumbrance, whether voluntary, involuntary or by operation of law, without
Bank's prior written consent, of all or any part of or interest in any real property collateral required hereby.


 


SECTION 6.2.          REMEDIES.
Upon the occurrence of any Event of Default: (a) all principal, unpaid interest outstanding and other indebtedness of Borrower
under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice
(except as expressly provided in any mortgage or deed of trust pursuant to which Borrower has provided Bank a lien on any real
property collateral) become immediately due and payable without presentment, demand, protest or any notices of any kind, including
without limitation, notice of nonperformance, notice of protest, notice of dishonor, notice of intention to accelerate or notice
of acceleration, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further
credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all
security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence
of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided
by law or equity.


 


 


 






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ARTICLE VII


MISCELLANEOUS


 


SECTION 7.1.          NO WAIVER.
No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect
or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy.
Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.


 


SECTION 7.2.          NOTICES.
All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:


 


	 	BORROWER:	SIMULATIONS PLUS, INC.
	 	 	42505 10th St., W.
	 	 	Lancaster, California 92534
	 	 	 
		BANK:	WELLS FARGO BANK, NATIONAL ASSOCIATION 
	 	 	MAC E2155-011
	 	 	21255 Burbank Blvd., Suite 110
	 	 	Woodland Hills,
California 91367



 


or to such other address as
any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made
as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three
(3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.


 


SECTION 7.3.          COSTS,
EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including, to the extent permitted by applicable law, reasonable attorneys' fees (to include outside counsel
fees and all allocated costs of Bank's in-house counsel to the extent permissible), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) 
the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents,
whether or not suit is brought, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents,
including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or
any other person or entity. Notwithstanding anything in this Agreement to the contrary, reasonable attorneys' fees shall not exceed
the amount permitted by law.


 


SECTION 7.4.          SUCCESSORS,
ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interests or rights hereunder
without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower
or its business, any guarantor hereunder or the business of such guarantor, if any, or any collateral required hereunder.


 


 


 






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SECTION 7.5.          ENTIRE AGREEMENT;
AMENDMENT. To the full extent permitted by law, this Agreement and the other Loan Documents constitute the entire agreement between
Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions
and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each
party hereto.


 


SECTION 7.6.          NO THIRD
PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct
or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a
party.


 


SECTION 7.7.          TIME. Time
is of the essence of each and every provision of this Agreement and each other of the Loan Documents.


 


SECTION 7.8.          SEVERABILITY
OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.


 


SECTION 7.9.           COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same Agreement.


 


SECTION 7.10.        GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of California (such State, Commonwealth or District
is referred to herein as the "State"), but giving effect to federal laws applicable to national banks, without reference
to the conflicts of law or choice of law principles thereof.


 


SECTION 7.11.        BUSINESS PURPOSE.
Borrower represents and warrants that each credit subject hereto is made for (a) a business, commercial, investment, agricultural
or other similar purpose, (b) the purpose of acquiring or carrying on a business, professional or commercial activity, or (c) the
purpose of acquiring any real or personal property as an investment and not primarily for a personal, family or household use.


 


SECTION 7.12.        RIGHT
OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at any
time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Bank shall have declared
any credit subject hereto to be due and payable in accordance with the terms hereof, to set off against, and to appropriate and
apply to the payment of, Borrower's obligations and liabilities under the Loan Documents (whether matured or unmatured, fixed
or contingent, liquidated or unliquidated), any and all amounts owing by Bank to Borrower (whether payable in U.S. dollars or
any other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow
accounts), time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts
as collateral to secure such obligations and liabilities and to return as unpaid for insufficient funds any and all checks and
other items drawn against any deposits so held as Bank, in its sole discretion, may elect. Bank may exercise this remedy regardless
of the adequacy of any collateral for the obligations of Borrower to Bank and whether or not the Bank is otherwise fully secured.
Borrower hereby grants to Bank a security interest in all deposits and accounts maintained with Bank to secure the payment of
all obligations and liabilities of Borrower to Bank under the Loan Documents.


 


SECTION 7.13.        ARBITRATION.


 


(a)      
Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes
and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether
in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents,
and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional credit. In the event of a court ordered arbitration,
the party requesting arbitration shall be responsible for timely filing the demand for arbitration and paying the appropriate
filing fee within 30 days of the abatement order or the time specified by the court. Failure to timely file the demand for arbitration
as ordered by the court will result in that party's right to demand arbitration being automatically terminated.


 


 


 






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(b)      
Governing Rules. Any arbitration proceeding will (i) proceed in a location in the State selected by the American
Arbitration Association ("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by
the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute
resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees
and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex
commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes
to be referred to herein, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and
the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following
a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute.
Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12
U.S.C. §91 or any similar applicable state law.


 


(c)      
No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right
of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral
or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion
does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder,
including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.


 


(d)      
Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00
or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than
$5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations.
The arbitrator will be a neutral attorney licensed in the State or a neutral retired judge of the state or federal judiciary of
the State, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes
of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a
claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of
the State and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all
costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge
could pursuant to the Federal Rules of Civil Procedure, the corresponding rules of civil practice and procedure applicable in
the State or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.
The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute
a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.


 


(e)      
Discovery. In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery
shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20
days before the hearing date. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject
to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation
and that no alternative means for obtaining information is available.


 


(f)       
Class Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against
others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as
a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney
general capacity.


 


 


 






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(g)      
Payment of Arbitration Costs and Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.


 


(h)      
Real Property Collateral: Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall
be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real
property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration,
or (ii)  all parties to the arbitration waive any rights
or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness
and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall
remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee
in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to
be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators
shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered
in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.


 


(i)       
Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action
required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other
party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information
by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration
by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration
of any of the Loan Documents or any relationship between the parties.


 


j)         Small
Claims Court. Notwithstanding anything herein to the contrary, each party retains the right to pursue in Small Claims Court
any dispute within that court's jurisdiction. Further, this arbitration provision shall apply only to disputes in which either
party seeks to recover an amount of money (excluding attorneys' fees and costs) that exceeds the jurisdictional limit of the Small
Claims Court.


 


IN WITNESS WHEREOF, the parties
hereto, intending to be legally bound hereby, have caused this Agreement to be effective as of the effective date set forth above.


 


 


	SIMULATIONS PLUS, INC.	WELLS FARGO BANK,
	 	 NATIONAL
ASSOCIATION
	 	 
	By: /s/ John Kneisel            	By: /s/ Trevor Morris            
	JOHN KNEISEL, CFO	TREVOR MORRIS,
	 	SENIOR VICE PRESIDENT












 


 


 


 


 


 


 






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