Document:

Exhibit 10.7

 

RALLY SOFTWARE DEVELOPMENT CORP.

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

 

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the “Agreement”) is entered into as of December 22, 2010 (“Closing Date”), by and between Square 1 Bank (“Bank”) and RALLY SOFTWARE DEVELOPMENT CORP.  (“Borrower”).

 

RECITALS

 

Bank and Borrower have entered into that certain Loan and Security Agreement dated as of May 16, 2007 (the “Original Closing Date”), as amended from time to time (the “Original Agreement”).  Borrower and Bank wish to amend and restate the terms of the Original Agreement in accordance with the terms hereof.  This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.

 

AGREEMENT

 

The parties agree as follows:

 

1.                                      DEFINITIONS AND CONSTRUCTION.

 

1.1                               Definitions.  As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A.  Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.

 

1.2                               Accounting Terms.  Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP (except for certain periodic non-cash adjustments).  The term “financial statements” shall include any notes and schedules that accompany any financial statements delivered in connection with this Agreement.

 

2.                                      LOAN AND TERMS OF PAYMENT.

 

2.1                               Credit Extensions.

 

(a)                                  Promise to Pay.  Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

 

(b)                                  Advances Under Revolving Line.

 

(i)                                    Amount.  Subject to and upon the terms and conditions of this Agreement, including without limitation the Aggregate Borrowing Limit set forth in Section 2.2, (1) Borrower may request Advances in an aggregate outstanding principal amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base, and (2) amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable.  Borrower may prepay any Advances without penalty or premium.

 

(ii)                                Form of Request.  Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission, telephone or email no later than 5:30 p.m. Eastern time (4:30 p.m. Eastern time for wire transfers), on the Business Day that the Advance is to be made.  Each such notification shall be promptly confirmed by a Loan Advance/Paydown Request Form in substantially the form of Exhibit C.  Bank is authorized to make Advances under this Agreement, based upon instructions received from an Authorized Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid.  Bank shall be entitled to rely on any telephonic or email notice given by a person whom Bank reasonably believes to be an Authorized Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss, costs and expenses suffered by Bank as a result of such reliance.  Bank will credit the amount of Advances made under this Section 2.1(b) to Borrower’s deposit account.

 

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(c)                                  Non-Formula Line.

 

(i)                                    Ancillary Services.  Subject to and upon the terms and conditions of this Agreement, including without limitation the Aggregate Borrowing Limit set forth in Section 2.2, at any time from the Closing Date through the Non-Formula Maturity Date, Borrower may request Ancillary Services under the Non-Formula Line.  Notwithstanding the foregoing, the aggregate limit of corporate credit card services provided to Borrower shall not exceed $150,000.  In addition, Bank may, in its sole discretion, charge as Advances any amounts for which Bank becomes liable to third parties in connection with the provision of the Ancillary Services.  The terms and conditions (including repayment and fees) of such Ancillary Services shall be subject to the terms and conditions of the Bank’s standard forms of application and agreement for the applicable Ancillary Services, which Borrower hereby agrees to execute.

 

(ii)                                Collateralization of Obligations Extending Beyond Maturity.  If Borrower has not secured to Bank’s satisfaction its obligations with respect to any Ancillary Services by the Non-Formula Maturity Date, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or outstanding Ancillary Services.  Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the applicable Ancillary Services are outstanding or continue.

 

2.2                               Aggregate Borrowing Limit; Overadvances.  The aggregate amount of the outstanding Credit Extensions shall at no time exceed the Aggregate Borrowing Limit.  If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.

 

2.3                               Interest Rates, Payments, and Calculations.

 

(a)                                  Interest Rates.

 

(i)                                    Advances.  Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance thereof, at a variable annual rate equal to the greater of (A) 3.00% above the Prime Rate then in effect, or (B) 5.25%.

 

(b)                                  Late Fee; Default Rate.  If any payment is not made within 10 days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law.  All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to 5 percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

 

(c)                                  Payments.  Interest under the Revolving Line shall be due and payable on the 16th calendar day of each month during the term hereof.  Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder.  Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

 

(d)                                  Computation.  In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate.  All interest chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.

 

2.4                               Crediting Payments.  Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies,

 

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except that to the extent Borrower uses the Term Loans to purchase Collateral, Borrower’s repayment of the Term Loans shall apply on a “first-in-first-out” basis so that the portion of the Term Loans used to purchase a particular item of Collateral shall be paid in the chronological order the Borrower purchased the Collateral.  After the occurrence and during the continuance of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 5:30 p.m. Eastern time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day.  Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

 

2.5                               Fees.  Borrower shall pay to Bank the following:

 

(a)                                  Facility Fee.  On the Closing Date, a facility fee of $1,000, which may be debited from any of Borrower’s accounts; and

 

(b)                                  Bank Expenses.  On the Closing Date, all Bank Expenses incurred through the Closing Date (provided however that legal fees (excluding the costs of the UCC and good standing searches) shall not exceed $3,000 on the Closing Date), and, after the Closing Date, all Bank Expenses, as and when they become due.

 

2.6                               Term.  This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations (other than inchoate indemnity obligations) remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

 

3.                                      CONDITIONS OF LOANS.

 

3.1                               Conditions Precedent to Initial Credit Extension.  The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:

 

(a)                                  this Agreement;

 

(b)                                  an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

 

(c)                                  a financing statement (Form UCC-1), which was prepared by Bank on or about the Original Closing Date;

 

(d)                                  payment of the fees and Bank Expenses then due specified in Section 2.5, which may be debited from any of Borrower’s accounts with Bank;

 

(e)                                  current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;

 

(f)                                    current financial statements, including company prepared statements for Borrower’s most recently ended fiscal year, company prepared consolidated and consolidating balance sheets and income statements for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;

 

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(g)                                 current Compliance Certificate in accordance with Section 6.2;

 

(h)                                 the Warrant, which was delivered to Bank on the Original Closing Date;

 

(i)                                    a Borrower Information Certificate, which was delivered to Bank on or about the Original Closing Date;

 

(j)                                    an Affirmation of Guaranty, in form satisfactory to Bank, duly executed by Guarantor; and

 

(k)                                such other documents or certificates, and completion of such other matters, as Bank may reasonably request.

 

3.2                               Conditions Precedent to all Credit Extensions.  The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:

 

(a)                                  timely receipt by Bank of the Loan Advance/Paydown Request Form as provided in Section 2.1; and

 

(b)                                  the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Loan Advance/Paydown Request Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).  The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.

 

4.                                      CREATION OF SECURITY INTEREST.

 

4.1                               Grant of Security Interest.  Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents.  Except for Permitted Liens or as disclosed in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral.  Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property, except for licenses granted by Borrower to its customers in the ordinary course of business.  Notwithstanding any termination of this Agreement or of any filings undertaken related to Bank’s rights under the Code, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations (other than inchoate indemnity obligations) are outstanding.

 

4.2                               Perfection of Security Interest.  Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable.  Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement.  Where Collateral in excess of $100,000 in the aggregate is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) subject to Section 7.10 below, obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, and (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance

 

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satisfactory to Bank.  Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper.  Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.  Borrower shall take such other actions as Bank requests to perfect its security interests granted under this Agreement.

 

4.3                               Pledge of Collateral.  Borrower hereby pledges, assigns and grants to Bank a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations.  The certificate or certificates for the Shares shall be delivered to Bank, accompanied by an instrument of assignment duly governing the Shares, Borrower shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares.  Upon the occurrence of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new certificates representing such securities to be issued in the name of Bank or its transferee.  Unless an Event of Default shall have occurred and be continuing, Borrower shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms.  All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.

 

5.                                      REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants as follows:

 

5.1                               Due Organization and Qualification.  Borrower and each Subsidiary is a corporation duly existing under the laws of the state in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

 

5.2                               Due Authorization; No Conflict.  The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.

 

5.3                               Collateral.  Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens.  All Collateral (other than movable items of personal property such as laptop computers having an aggregate book value not in excess of $100,000) is located solely in the Collateral States.  The Eligible Accounts are bona fide existing obligations.  The property or services (as applicable) giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or its agent for immediate shipment (if applicable) to and unconditional acceptance by the account debtor.  Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account.  All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made.  Except as set forth in the Schedule, none of the Borrower’s Cash is maintained or invested with a Person other than Bank or Bank’s Affiliates.

 

5.4                               Intellectual Property.  Borrower is the sole owner or licensee in good standing of the Intellectual Property created or purchased by Borrower, except for licenses granted by Borrower to its customers in the ordinary course of business.  To the best of Borrower’s knowledge, each of the copyrights, trademarks and patents created or purchased by Borrower is valid and enforceable, and no part of the intellectual property created or

 

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purchased by Borrower has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the intellectual property created or purchased by Borrower violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect.  Except as set forth in the Schedule, Borrower’s rights as a licensee of intellectual property do not give rise to more than 5% of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service.

 

5.5                               Name; Location of Chief Executive Office.  Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement.  The chief executive office of Borrower is located at the address indicated in Section 10 hereof.

 

5.6                               Litigation.  Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect.

 

5.7                               No Material Adverse Change in Financial Statements.  All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower’s consolidated and consolidating financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended.  There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.

 

5.8                               Solvency, Payment of Debts.  Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.

 

5.9                               Compliance with Laws and Regulations.  Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA.  No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect.  Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940.  Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System).  Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be expected to have a Material Adverse Effect.  Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.

 

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

 

5.11                        Government Consents.  Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

 

5.12                        Inbound Licenses.  Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any material license or other agreement important for the conduct of Borrower’s business that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property important for the conduct of Borrower’s business, other than this Agreement or the other Loan Documents.

 

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5.13                        Full Disclosure.  No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading in light of the circumstances in which they were made, it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.

 

5.14                        Shares.  Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligations exist that would prohibit Borrower from pledging the Shares pursuant to this Agreement, To Borrower’s knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares.  The Shares have been and remain duly authorized and validly issued, and are fully paid and non-assessable.  To Borrower’s knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings.

 

6.                                      AFFIRMATIVE COVENANTS.

 

Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:

 

6.1                               Good Standing and Government Compliance.  Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in the respective states of formation, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable.  Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA.  Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.

 

6.2                               Financial Statements, Reports, Certificates.  Borrower shall deliver to Bank: (i) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower’s operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event within 210 days after the end of Borrower’s fiscal year, audited consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which is either unqualified, qualified only for going concern so long as Borrower’s investors provide additional equity as needed or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (iii) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could reasonably be expected to result in damages or costs to Borrower or any Subsidiary of $250,000 or more; (v) promptly upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; and (vi) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time, including without limitation Borrower’s annual budget approved by Borrower’s Board of Directors.

 

(a)                                  Within 30 days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto, together with aged listings by invoice date of accounts receivable and accounts payable.

 

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(b)                                  Within 30 days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements described in Section 6.2 above a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit E hereto.

 

(c)                                  As soon as possible and in any event within 3 Business Days after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.

 

(d)                                  Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than once a year (unless an Event of Default has occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, inspect, audit and appraise the Collateral at Borrower’s expense (not to exceed $2,500.00 USD) per audit unless an Event of Default has occurred and is continuing) in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.

 

Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer.  Borrower shall include a submission date on any certificates and reports to be delivered electronically.

 

6.3                               Inventory and Equipment; Returns.  Borrower shall keep all Inventory and Equipment in good and merchantable condition, free from all material defects (ordinary wear and tear excepted) except for Inventory and Equipment (i) sold in the ordinary course of business, and (ii) for which adequate reserves have been made, in all cases in the United States and such other locations as to which Borrower gives prior written notice.  Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date.  Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving inventory having a book value of more than $100,000.

 

6.4                               Taxes.   Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower or such Subsidiary.

 

6.5                               Insurance.

 

(a)                                  Borrower, at its expense, shall (i) keep the Collateral insured against loss or damage, and (ii) maintain liability and other insurance, in each case in as ordinarily insured against by other owners in businesses similar to Borrower’s.

 

(b)                                  All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank.  All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least 20 days notice to Bank before canceling its policy for any reason.  Upon Bank’s request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments.  Proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest, provided that if an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.

 

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6.6                               Primary Depository.  Borrower and its Subsidiaries shall maintain all its depository, operating and investment accounts with Bank, other than the Permitted Account.

 

6.7                               Liquidity Ratio.  Borrower shall at all times maintain a Liquidity Ratio of at least 1.10 to 1.00; provided that during one consecutive 30-day period per fiscal year (the “Liquidity Reduction Period”), Borrower’s Liquidity Ratio may fall as low as 0.90 to 1.00.  Following the expiration of the Liquidity Reduction Period, Borrower shall at all times maintain a Liquidity Ratio of at least 1.10 to 1.00 for the remainder of the applicable fiscal year.

 

6.8                               Consent of Inbound Licensors.  Prior to entering into or becoming bound by any material inbound license or agreement, Borrower shall: (i) provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower’s business or financial condition; and (ii) in good faith use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement.

 

6.9                               Further Assurances.  At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.

 

7.                                      NEGATIVE COVENANTS.

 

Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without Bank’s prior written consent, which shall not be unreasonably withheld:

 

7.1                               Dispositions.  Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.

 

7.2                               Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control.  Change its name or the state of Borrower’s formation or relocate its chief executive office without 30 days prior written notification to Bank; replace or terminate its chief executive officer or chief financial officer without written notification to Bank within 2 Business Days thereafter; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; have a Change in Control.

 

7.3                               Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) each of the following conditions is applicable: (i) the consideration paid in connection with such transactions (including assumption of liabilities) does not in the aggregate exceed $250,000 during any fiscal year, (ii) no Event of Default has occurred and is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity; or (b) the Obligations are repaid in full concurrently with the closing of any merger or consolidation of Borrower in which Borrower is not the surviving entity, provided however, that Borrower shall not, without Bank’s prior written consent, enter into any binding contractual arrangement with any Person to attempt to facilitate a merger or acquisition of Borrower; provided however, Borrower may enter into any such agreement without Bank’s prior written consent so long as (i) no Event of Default exists when such agreement is entered into by Borrower, (ii) such agreement does not give such Person the right to claim any fee, payment or damages from any parties, other than from Borrower or Borrower’s investors, in connection with a sale of Borrower’s stock or assets pursuant to or resulting from an assignment for the benefit of

 

9

 

creditors, an asset turnover to Borrower’s creditors (including, without limitation, Bank), foreclosure, bankruptcy or similar liquidation, and (iii) Borrower notifies Bank in advance of entering into such an agreement (provided, the failure to give such notification shall not be deemed a material breach of this Agreement).

 

7.4                               Indebtedness.  Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.

 

7.5                               Encumbrances.  Create, incur, assume or allow any Lien with respect to its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person (other than (i) the licensors of in-licensed property with respect to such property or (ii) the lessors of specific equipment or lenders financing specific equipment with respect to such leased or financed equipment) that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property.

 

7.6                               Distributions.  Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, and (ii) repurchase the stock of former employees pursuant to stock repurchase agreements by the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists.

 

7.7                               Investments.  Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its Investment Property with a Person other than Bank or Bank’s Affiliates or permit any Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.

 

7.8                               Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

 

7.9                               Subordinated Debt.  Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision affecting Bank’s rights contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.

 

7.10                        Inventory and Equipment.  Store the Inventory or the Equipment of a book value in excess of $100,000 with a bailee, warehouseman, collocation facility or similar third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment.  Notwithstanding the above, Borrower shall be permitted to store Inventory and Equipment with a book value in excess of $100,000 with Qwest prior to receiving an acknowledgment from Qwest that it is holding the Inventory and Equipment for Bank’s benefit, provided that Bank shall have received such an acknowledgment from Qwest on or before February 22, 2011.  Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank is able to take such actions as may be necessary needed to perfect its security interest or to obtain a bailee’s acknowledgment of Bank’s rights in the Collateral.

 

7.11                        No Investment Company; Margin Regulation.  Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged

 

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in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.

 

8.                                      EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:

 

8.1                               Payment Default.  If Borrower fails to pay any of the Obligations when due;

 

8.2                               Covenant Default.

 

(a)                                  If Borrower fails to perform any obligation under Sections 6.2, 6.4, 6.5 6.6 or 6.7, or violates any of the covenants contained in Article 7 of this Agreement; or

 

(b)                                  If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within 10 days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the 10 day period or cannot after diligent attempts by Borrower be cured within such 10 day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;

 

8.3                               Material Adverse Change.  If there occurs any circumstance or circumstances which would reasonably be expected to have a Material Adverse Effect;

 

8.4                               Attachment.  If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within 10 days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any material portion of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period);

 

8.5                               Insolvency.  If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by or against Borrower and is not dismissed or stayed within 30 days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

 

8.6                               Other Agreements.  If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $250,000 or that would reasonably be expected to have a Material Adverse Effect;

 

8.7                               Judgments.  If a final, uninsured judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $250,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of 10 days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or

 

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8.8                               Misrepresentations.  If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.

 

8.9                               Guaranty.  If any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any reason to be in full force and effect, or Guarantor fails to perform any obligation under any Guaranty or a security agreement securing any Guaranty (collectively, the “Guaranty Documents”), or any event of default occurs under any Guaranty Document or Guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if any of the circumstances described in Sections 8.3 though 8.8 occur with respect to Guarantor.

 

9.                                      BANK’S RIGHTS AND REMEDIES.

 

9.1                               Rights and Remedies.  Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:

 

(a)                                  Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);

 

(b)                                  Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrower shall promptly deposit and pay such amounts;

 

(c)                                  Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;

 

(d)                                  Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;

 

(e)                                  Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral.  Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate.  Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.  With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;

 

(f)                                    Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;

 

(g)                                 Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral.  Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and

 

12

 

selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;

 

(h)                                 Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate.  Bank may sell the Collateral without giving any warranties as to the Collateral.  Bank may specifically disclaim any warranties of title or the like.  This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.  If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser.  If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;

 

(i)                                    Bank may credit bid and purchase at any public sale;

 

(j)                                    Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and

 

(k)                                Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.

 

Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

 

9.2                               Power of Attorney.  Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clause (g) above, regardless of whether an Event of Default has occurred.  The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is terminated.

 

9.3                               Accounts Collection.  At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank’s security interest in such funds and verify the amount of such Account.  Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.

 

9.4                               Bank Expenses.  If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent.  Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate

 

13

 

hereinabove provided, and shall be secured by the Collateral.  Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

 

9.5                               Bank’s Liability for Collateral.  Bank has no obligation to clean up or otherwise prepare the Collateral for sale.  So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, all risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

 

9.6                               No Obligation to Pursue Others.  Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Bank’s rights against Borrower.  Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.

 

9.7                               Remedies Cumulative.  Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative.  Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity.  No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower’s part shall be deemed a continuing waiver.  No delay by Bank shall constitute a waiver, election, or acquiescence by it.  No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.  Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.

 

9.8                               Demand; Protest.  Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.

 

10.                               NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:

 

	
If   to Borrower:
    	
 
    	
RALLY   SOFTWARE DEVELOPMENT CORP.
    
	
 
    	
 
    	
4001   Discovery Drive
    
	
 
    	
 
    	
Boulder,   CO 80303
    
	
 
    	
 
    	
Attn:   Chief Executive Officer
    
	
 
    	
 
    	
FAX:   (303) 226-1179
    
	
 
    	
 
    	
 
    
	
with   a copy to:
    	
 
    	
Cooley   Godward Kronish LLP
    
	
 
    	
 
    	
380   Interlocken Crescent, Suite 900
    
	
 
    	
 
    	
Broomfield,   CO 80021
    
	
 
    	
 
    	
Attn:   Michael Platt
    
	
 
    	
 
    	
FAX:   (720) 566-4012
    
	
 
    	
 
    	
 
    
	
If   to Bank:
    	
 
    	
Square   1 Bank
    
	
 
    	
 
    	
406   Blackwell Street, Suite 240
    
	
 
    	
 
    	
Durham,   North Carolina 27701
    
	
 
    	
 
    	
Attn:   Loan Operations Manager
    
	
 
    	
 
    	
FAX:   (919) 314-3080
    

 

14

 

	
with   a copy to:
    	
 
    	
Square   1 Bank
    
	
 
    	
 
    	
1801   13th Street, Suite 204
    
	
 
    	
 
    	
Boulder,   CO 80302
    
	
 
    	
 
    	
Attn:   Ken Fugate
    
	
 
    	
 
    	
FAX:   (303) 938-3099
    

 

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

11.                               CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of North Carolina, without regard to principles of conflicts of law.  Jurisdiction shall lie in the State of North Carolina.  BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.  If the jury waiver set forth in this Section 11 is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in Durham County, North Carolina in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules.  The arbitrator shall apply North Carolina law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration.  Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof.  Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section.  The expenses of the arbitration, including the arbitrator’s fees and expert witness fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator.  Unless and until the arbitrator decides that one party is to pay for all (or a share) of such expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

 

12.                               GENERAL PROVISIONS.

 

12.1                        Successors and Assigns.  This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion.  Bank shall have the right without the consent of or notice to Borrower to sell, assign, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.

 

12.2                        Indemnification.  Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation 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 set forth in this Agreement.

 

15

 

12.4                        Severability of Provisions.  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

12.5                        Amendments in Writing, Integration.  All amendments to or terminations of this Agreement or the other Loan Documents must be in writing.  All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged 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, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Executed copies of the signature pages of this Agreement sent by facsimile or transmitted electronically in Portable Document Format (“PDF”), or any similar format, shall be treated as originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to object to such treatment,

 

12.7                        Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding (other than inchoate indemnity obligations) or Bank has any obligation to make any Credit Extension to Borrower.  The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

 

12.8                        Confidentiality.  In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank or Borrower in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Credit Extensions, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder.  Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.

 

16

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

	
 
    	
RALLY   SOFTWARE DEVELOPMENT CORP.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Nicholas Budor
    
	
 
    	
 
    	
Nicholas   Budor
    
	
 
    	
Title:
    	
VP &   Associate General Counsel
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SQUARE   1 BANK
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/Ben   Rudnick
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
VP
    

 

[Signature Page to Amended and Restated Loan and Security Agreement]

 

 

EXHIBIT A

 

DEFINITIONS

 

“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

 

“Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.

 

“Aggregate Borrowing Limit” means $10,000,000.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and general partners.

 

“Ancillary Services” means any of the following products or services requested by Borrower and approved by Bank under the Non-Formula Line, including, without limitation, Automated Clearing House transactions, corporate credit card services, FX Contracts, Letters of Credit, or other treasury management services.

 

“Authorized Officer” means someone designated as such in the corporate resolution provided by Borrower to Bank in which this Agreement and the transactions contemplated hereunder are authorized by Borrower’s board of directors.  If Borrower provides subsequent corporate resolutions to Bank after the Closing Date, the individual(s) designated as “Authorized Officer(s)” in the most recently provided resolution shall be the only “Authorized Officers” for purposes of this Agreement.

 

“Bank Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.

 

“Borrower’s Books” means all of Borrower’s books and records including: ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.

 

“Borrowing Base” means an amount equal to 85% of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower; provided, that Bank may change the Borrowing Base by giving Borrower 30 days prior written notice.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of North Carolina are authorized or required to close.

 

“Cash” means unrestricted cash and cash equivalents.

 

“Change in Control” shall mean a transaction (other than a bona fide equity financing or series of financings on terms and from investors reasonably acceptable to bank) in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.

 

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“Closing Date” means the date of this Agreement.

 

“Code” means the North Carolina Uniform Commercial Code as amended or supplemented from time to time.

 

“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote, or (iv) property (including any attachments, accessions or replacements) that is subject to a Lien that is permitted pursuant to clause (c) of the definition of Permitted Liens, if the grant of a security interest with respect to such property pursuant to this Agreement would be prohibited by the agreement creating such Permitted Lien or would otherwise constitute a default thereunder, provided, that such property will be deemed “Collateral” hereunder upon the termination and release of such Permitted Lien.

 

“Collateral State” means the state or states where the Collateral is located, which is Colorado.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

“Copyrights” means 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.

 

“Credit Extension” means each Advance, use of Ancillary Services, or any other extension of credit by Bank to or for the benefit of Borrower hereunder.

 

“Eligible Accounts” means those Accounts that arise in the ordinary course of Borrower’s business that comply with all of Borrower’s representations and warranties to Bank set forth in Section 5.3; provided, that Bank may change the standards of eligibility by giving Borrower 30 days prior written notice.  Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:

 

(a)                                  Account balances that the account debtor has failed to pay in full within 120 days of invoice date;

 

(b)                                  Account credit balances greater than 120 days from invoice date;

 

(c)                                  Accounts with respect to an account debtor, 25% of whose Accounts the account debtor has failed to pay within 120 days of invoice date;

 

(d)                                  Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed 25% (the “Concentration Limit”) of all Accounts, but only to the extent such

 

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obligations exceed the Concentration Limit, except as approved in writing by Bank, and provided that the Concentration Limit for Accounts of Cisco, AOL, Northrop Grumman, Avaya, BMC, Intell, Dell, eBay/PayPal, Comcast/TV Works, RIM, United Healthcare/Ingenix, Intuit and GE shall be 35%;

 

(e)                                  Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts;

 

(f)                                    Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for Accounts of the United States if the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);

 

(g)                                 Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;

 

(h)                                 Accounts with respect to which the account debtor is an officer, employee, agent or Affiliate of Borrower;

 

(i)                                    Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, demo or promotional, or other terms by reason of which the payment by the account debtor may be conditional; provided however that Accounts billed to new customers that are backed by a signed contract and contain 60-day money back terms shall not be excluded pursuant to this subsection (i);

 

(j)                                    “Advanced Billings,” i.e., accounts that have not yet been billed to the account debtor or that relate to deposits (such as good faith deposits) or other property of the account debtor held by Borrower for the performance of services or delivery of goods which Borrower has not yet performed or delivered; provided however that pre-billed subscription services shall not be subject to this exclusion);

 

(k)                                Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business;

 

(l)                                    Accounts the collection of which Bank reasonably determines after inquiry and consultation with Borrower to be doubtful;

 

(m)                              Retentions and hold-backs; and

 

(n)                                 “Project Billings,” i.e., accounts that are billed based on project milestones and not on actual time and materials bases (subject to review and pre-approval for inclusion).

 

“Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that are (i) supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, (ii) insured by the Export Import Bank of the United States, (iii) generated by an account debtor with its principal place of business in Canada, provided that the Bank has perfected its security interest in the appropriate Canadian province, or (iv) approved by Bank on a case-by¬case basis.  Notwithstanding the foregoing, Accounts billed to customers in the United Kingdom, Australia and Canada shall be considered Eligible Foreign Accounts, provided such Accounts do not otherwise fall within sections (a) through (n) of the definition of Eligible Accounts.  All Eligible Foreign Accounts must be calculated in U.S. Dollars.

 

“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining to the environment or to

 

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any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.

 

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

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

 

“Event of Default” has the meaning assigned in Article 8.

 

“Foreign Exchange Reserve Percentage” means a percentage of reserves for FX Contracts as determined by Bank, in its sole discretion from time to time.

 

“FX Contracts” means contracts between Borrower and Bank for foreign exchange transactions.

 

“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time.

 

“Guarantor” means Rally Software Development International Corp., a Delaware corporation and wholly owned subsidiary of Borrower.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, (d) all Contingent Obligations, including but not limited to any sublimit contained herein and (e) all obligations arising under the Credit Card Line.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

“Intellectual Property” means all of Borrower’s right, title, and interest in and to the following:

 

(a)                                  Copyrights, Trademarks and Patents;

 

(b)                                  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;

 

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

 

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

 

(e)                                  All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

 

(f)                                    All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

 

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

 

“Inventory” means all present and future inventory in which Borrower has any interest.

 

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

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

 

“Letter of Credit” means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower’s request.

 

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

 

“Liquidity” means Cash at Bank, plus Borrower’s total accounts receivable as determined with reference to Borrower’s most recently submitted Borrowing Base Certificate.

 

“Liquidity Ratio” means the ratio of Liquidity to all Indebtedness to Bank.

 

“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, any guaranty or security agreement executed by Guarantor and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.

 

“Material Adverse Effect” means a material adverse effect on (i) the operations, business or financial condition of Borrower and its Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents, or (iii) Borrower’s interest in, or the value, perfection or priority of Bank’s security interest in the Collateral.

 

“Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the foregoing.

 

“Non-Formula Line” means Credit Extensions of up to $500,000 in the aggregate, exclusively for the use of Ancillary Services.

 

“Non-Formula Maturity Date” means December 21, 2011.

 

“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.

 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

“Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.

 

“Permitted Account” means an account held by Guarantor at a financial institution (or third party service provider for the purposes of facilitating payroll and paying various operating expenses) in the United Kingdom with a balance not to exceed 300,000 British Pounds at any time.

 

“Permitted Indebtedness” means:

 

(a)           Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;

 

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

 

(c)           Indebtedness not to exceed $750,000 in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market value of the property financed with such Indebtedness;

 

(d)           Subordinated Debt;

 

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

 

(f)            Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

“Permitted Investment” means:

 

(a)           Investments existing on the Closing Date disclosed in the Schedule;

 

(b)           (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than one year from the date of investment therein, and (iv) Bank’s money market accounts; (v) Investments in regular deposit or checking accounts held with Bank or subject to a control agreement in favor of Bank; and (vi) Investments consistent with any investment policy adopted by the Borrower’s board of directors;

 

(c)           Investments accepted in connection with Permitted Transfers;

 

(d)           Investments of Borrower in Guarantor in an amount not to exceed 300,000 British Pounds per month, subject to the limitations of Section 6.6 hereof provided that Bank acknowledges that such Investments may be made in the form of wire or other cash transfers to Borrower’s third-party service provider client account(s) to facilitate payroll and various operating expenses.  Prior to the date hereof Borrower was permitted Investments in Guarantor in an amount not to exceed 60,000 British Pounds per month.  Bank hereby waives any violations of this Agreement existing on or before the date hereof resulting from Borrower making Investments in Guarantor in an amount in excess of 60,000 British Pounds per month;

 

(e)           Investments not to exceed $250,000 outstanding in the aggregate at any time consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;

 

(f)            Investments in unfinanced Capital Expenditures in any fiscal year, not to exceed $250,000;

 

(g)           Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;

 

(h)           Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary;

 

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(i)            Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $250,000 in the aggregate in any fiscal year; and

 

(j)            Investments permitted under Section 7.3.

 

“Permitted Liens” means the following:

 

(a)           Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Credit Extensions) or arising under this Agreement, the other Loan Documents, or any other agreement in favor of Bank;

 

(b)           Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves;

 

(c)           Liens not to exceed $750,000 in the aggregate (i) upon or in any Equipment (other than Equipment financed by a Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

 

(d)           Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and

 

(e)           Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 (attachment) or 8.7 (judgments).

 

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:

 

(a)           Inventory in the ordinary course of business;

 

(b)           licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;

 

(c)           worn-out, surplus or obsolete Equipment not financed with the proceeds of Credit Extensions;

 

(d)           grants of security interests and other Liens that constitute Permitted Liens; and

 

(e)           other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $250,000 during any fiscal year.

 

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

 

“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Vice President of Finance (or the equivalent position) and the Controller of Borrower, or any additional officers or employees designated by Borrower with written notice to the Bank.

 

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“Revolving Line” means Credit Extensions of up to $10,000,000 in the aggregate, less any amounts outstanding under the Non-Formula Line.

 

“Revolving Maturity Date” means December 21, 2011.

 

“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.

 

“Shares” means (i) sixty-five percent (65%) of the issued and outstanding capital stock, membership units, or other securities owned or held of record by Borrower in any Subsidiary of Borrower which is not an entity organized under the laws of the United States or territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by Borrower in any Subsidiary of Borrower which is an entity organized under the laws of the United States or any territory thereof.

 

“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, the state where Borrower’s chief executive office is located, the state of Borrower’s formation and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).

 

“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.

 

“Total Liabilities” means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event, to the extent not already included, all Indebtedness.

 

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

 

“Warrant” means that certain warrant to purchase preferred stock of the Borrower and issued to the Bank on the Closing Date.

 

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DEBTOR                                               RALLY SOFTWARE DEVELOPMENT CORP.

 

SECURED PARTY:                             SQUARE 1 BANK

 

EXHIBIT B

 

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

 

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

 

(a)           all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

 

(b)           any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment.  All terms above have the meanings given to them in the North Carolina Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions.

 

Notwithstanding the foregoing, the Collateral shall not include any of the intellectual property, in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds or hereafter acquires or receives any right or interest (collectively, the “Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).

 

Notwithstanding the foregoing, 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 the Rights to Payment, then the Collateral shall automatically, and effective as of May 16, 2007, include the Intellectual Property to the extent and only to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment, and further provided, however, that Bank’s enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to Payment only, and Bank shall have no recourse whatsoever with respect to the underlying Intellectual Property.

 

 

EXHIBIT C

 

LOAN ADVANCE/PAYDOWN REQUEST FORM

 

[Please refer to New Borrower Kit]

 

EXHIBIT D

 

BORROWING BASE CERTIFICATE

 

[Please refer to New Borrower Kit]

 

EXHIBIT E

 

COMPLIANCE CERTIFICATE

 

[Please refer to New Borrower Kit]

 

 

FIRST AMENDMENT
 TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This First Amendment to Amended and Restated Loan and Security Agreement (the “Amendment”), is entered into as of July 28, 2011, by and between SQUARE 1 BANK (the “Bank”) and RALLY SOFTWARE DEVELOPMENT CORP. (the “Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of December 22, 2010 (as amended from time to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1)              Borrower’s address for notices in Section 10 of the Agreement is hereby deleted in its entirety and replaced with the following new address:

 

	
If   to Borrower:
    	
 
    	
RALLY   SOFTWARE DEVELOPMENT CORP.
    
	
 
    	
 
    	
3333Walnut   Street
    
	
 
    	
 
    	
Boulder,   CO 80301
    
	
 
    	
 
    	
Attn:   Chief Executive Officer
    
	
 
    	
 
    	
Fax:   (303) 957-2695
    

 

2)              Subsection (d) of the definition of “Permitted Investment” in Exhibit A to the Agreement is hereby amended and restated, as follows:

 

(d) Investments of Borrower in Guarantor or subsidiaries of Guarantor in an amount not to exceed (i) 300,000 British Pounds per month and (ii) $300,000 Australian dollars per month, subject to the limitations of Section 6.6 hereof provided that Bank acknowledges that such Investments (A) in (d)(i) hereof may be made in the form of wire or other cash transfers to Borrower’s third-party service provider client account, or Borrower or Guarantor’s account at Lloyd’s TSB Commercial, and (B) in (d)(ii) hereof may be made in the form of wire or other cash transfers to Borrower’s third-party service provider client account, or Borrower or Guarantor’s account at ANZ Bank in Australia, in each case to facilitate payroll and various operating expenses;

 

3)              The following definitions in Exhibit A to the Agreement are hereby amended and restated, as follows:

 

“Collateral State” means the state or states where the Collateral is located, which are Colorado and North Carolina.

 

“Permitted Account” means accounts held by Borrower or Guarantor at (i) a financial institution (or third party service provider) in the United Kingdom with a balance not to exceed 300,000 British Pounds at any time, and (ii) ANZ Bank (or third party service

 

 

provider) in Australia with a balance not to exceed $300,000 Australian dollars at any time, in each case for the purpose of facilitating payroll and paying various operating expenses.

 

4)              Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement.  The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects.  Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.  Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

 

5)              Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment.

 

6)              This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

 

7)              As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

 

a)              this Amendment, duly executed by Borrower;

 

b)             payment for Bank Expenses not to exceed $800 incurred through the date of this Amendment, including Bank’s expenses in the documentation of this Amendment, which may be debited from any of Borrower’s accounts; and

 

c)              such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

[Signature Page Follows]

 

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 

	
 
    	
RALLY   SOFTWARE DEVELOPMENT CORP.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/Nicholas   Budor
    
	
 
    	
Name:
    	
Nicholas   Budor
    
	
 
    	
Title:
    	
VP &   Associate General Counsel
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
SQUARE   1 BANK
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/Ken   Fugate
    
	
 
    	
Name:
    	
Ken   Fugate
    
	
 
    	
Title:
    	
SVP
    

 

[Signature Page to First Amendment to Amended and Restated Loan and Security Agreement]

 

 

SECOND AMENDMENT

TO

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This Second Amendment to Amended and Restated Loan and Security Agreement (the “Amendment”), is entered into as of December 16, 2011, by and between SQUARE 1 BANK (“Bank”) and RALLY SOFTWARE DEVELOPMENT CORP. (“Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of December 22, 2010 (as amended from time to time, the “Agreement”).  The parties desire to amend the Agreement in accordance with the terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1)                                      The following definitions in Exhibit A to the Agreement are hereby amended and restated, as follows:

 

“Non-Formula Maturity Date” means February 1, 2012.

 

“Revolving Maturity Date” means February 1, 2012.

 

2)                                      Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement.  The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects.  Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.  Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

 

3)                                      Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment.

 

4)                                      This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

 

5)                                      As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

 

a)             this Amendment, duly executed by Borrower;

 

b)                                     payment of a $500 facility fee, which shall be debited from any of Borrower’s accounts;

 

Rally Software Development Corp. – 2nd Amendment to A&R LSA

 

 

c)                                      payment for Bank Expenses incurred through the date of this Amendment, including Bank’s expenses in the documentation of this Amendment, which may be debited from any of Borrower’s accounts; and

 

d)                                     such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

[Signature Page Follows]

 

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 

	
RALLY   SOFTWARE DEVELOPMENT CORP.
    	
SQUARE   1 BANK
    
	
 
    	
 
    
	
By:
    	
/s/Nicholas   Budor
    	
 
    	
By:
    	
/s/Evan   Travis
    
	
Name:
    	
Nicholas   Budor
    	
 
    	
Name:
    	
Evan   Travis
    
	
Title:
    	
VP &   Associate General Counsel
    	
 
    	
Title:
    	
VBO
    

 

 

[Signature Page to Second Amendment to

Amended and Restated Loan and Security Agreement]

 

 

THIRD AMENDMENT

TO

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This Third Amendment to Amended and Restated Loan and Security Agreement (the “Amendment”), is entered into as of February 3, 2012, by and between SQUARE 1 BANK (“Bank”) and RALLY SOFTWARE DEVELOPMENT CORP. (“Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of December 22, 2010 (as amended from time to time, the “Agreement”).  The parties desire to amend the Agreement in accordance with the terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1)                                      Section 2.1 of the Agreement is hereby amended and restated, in its entirety, as follows:

 

2.1                               Credit Extensions.

 

(a)                                  Promise to Pay.  Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

 

(b)                                 Advances Under Revolving Line.

 

(i)                                    Amount.  Subject to and upon the terms and conditions of this Agreement, (1) Borrower may request Advances in an aggregate outstanding principal amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base, less any amounts outstanding under the Ancillary Services Sublimit, and (2) amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable.  Borrower may prepay any Advances without penalty or premium.

 

(ii)                                Form of Request.  Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission, telephone or email no later than 5:30 p.m. Eastern time (4:30 p.m. Eastern time for wire transfers), on the Business Day that the Advance is to be made.  Each such notification shall be promptly confirmed by a Loan Advance/Paydown Request Form in substantially the form of Exhibit C.  Bank is authorized to make Advances under this Agreement, based upon instructions received from an Authorized Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid.  Bank shall be entitled to rely on any telephonic or email notice given by a person whom Bank reasonably believes to be an Authorized Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss, costs and expenses suffered by Bank as a result of such reliance.  Bank will credit the amount of Advances made under this Section 2.1(b) to Borrower’s deposit account.

 

Rally Software – 3rd Amendment to A&R LSA – Execution Version

 

1

 

(iii)                            Ancillary Services Sublimit.  Subject to the availability under the Revolving Line, at any time and from time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Borrower may request the provision of Ancillary Services from Bank.  The aggregate limit of the Ancillary Services shall not exceed the Ancillary Services Sublimit, provided that availability under the Revolving Line shall be reduced by the aggregate limits of (i) any outstanding and undrawn amounts under all Letters of Credit issued hereunder, (ii) corporate credit card services provided to Borrower, (iii) the total amount of any Automated Clearing House processing reserves, (iv) the applicable Foreign Exchange Reserve Percentage, and (v) any other reserves taken by Bank in connection with other treasury management services requested by Borrower and approved by Bank.  In addition, Bank may, in its sole discretion, charge as Advances any amounts for which Bank becomes liable to third parties in connection with the provision of the Ancillary Services.  The terms and conditions (including repayment and fees) of such Ancillary Services shall be subject to the terms and conditions of the Bank’s standard forms of application and agreement for the applicable Ancillary Services, which Borrower hereby agrees to execute.

 

(iv)                               Collateralization of Obligations Extending Beyond Maturity.  If Borrower has not secured to Bank’s satisfaction its obligations with respect to any Ancillary Services by the Revolving Maturity Date, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or outstanding Ancillary Services.  Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the applicable Ancillary Services are outstanding or continue.

 

2)                                      Section 2.2 of the Agreement is hereby amended and restated, in its entirety, as follows:

 

2.2                               Overadvances.  If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in Cash, the amount of such excess.

 

3)                                      Section 6.7 of the Agreement is hereby amended and restated, in its entirety, as follows:

 

6.7                               Adjusted Quick Ratio.  Borrower shall at all times maintain an Adjusted Quick Ratio of at least 1.10 to 1.00; provided that during one consecutive 30-day period per fiscal year (the “AQR Reduction Period”), Borrower’s Adjusted Quick Ratio may fall as low as 0.90 to 1.00.  Following the expiration of the AQR Reduction Period, Borrower shall at all times maintain an Adjusted Quick Ratio of at least 1.10 to 1.00 for the remainder of the applicable fiscal year.

 

4)                                      The following definitions in Exhibit A to the Agreement are hereby added, or amended and restated, as follows:

 

2

 

“Adjusted Quick Ratio” means (i) Cash at Bank plus net Accounts less than 90 days from invoice date to (ii) Current Liabilities less deferred Revenue.

 

“Ancillary Services” means any of the following products or services requested by Borrower and approved by Bank under the Revolving Line, including, without limitation, Automated Clearing House transactions, corporate credit card services, FX Contracts, Letters of Credit, or other treasury management services.

 

“Ancillary Services Sublimit” means a sublimit for Ancillary Services under the Revolving Line not to exceed $3,000,000.

 

“Current Liabilities” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, undrawn Letters of Credit and Borrower’s maximum potential obligations under the Ancillary Services Sublimit, if any, but specifically excluding any cash-secured Obligations.

 

“Revenue” means revenue recognized in accordance with GAAP.

 

“Revolving Line” means Credit Extensions of up to $12,000,000 in the aggregate, less any amounts outstanding under the Ancillary Services Sublimit.

 

“Revolving Maturity Date” means February 1, 2013.

 

5)                                      The following definitions in Exhibit A to the Agreement are hereby deleted in their entirety:

 

“Aggregate Borrowing Limit”

“Liquidity”

“Liquidity Ratio”

“Non-Formula Line”

“Non-Formula Maturity Date”

 

6)                                      Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement.  The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects.  Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.  Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

 

7)                                      Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment.

 

8)                                      This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

 

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9)                                      As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

 

a)                                      this Amendment, duly executed by Borrower;

 

b)                                     an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;

 

c)                                      an Affirmation of Guaranty, in form satisfactory to Bank, duly executed by Rally Software Development International Corp.;

 

d)                                     payment of a $6,500 facility fee, which shall be debited from any of Borrower’s accounts (and which shall be inclusive of any legal expenses associated with the drafting of this amendment, provided that UCC searches, corporate good standing, and other diligence related costs shall not be included in the $6,500 facility fee set forth above);

 

e)                                      payment for Bank Expenses (which shall not include legal expenses associated with the drafting of this Amendment, but which shall include UCC searches, corporate good standing, and other diligence related costs) incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and

 

f)                                        such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

[Signature Page Follows]

 

4

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 

	
RALLY   SOFTWARE DEVELOPMENT CORP.
    	
SQUARE   1 BANK
    
	
 
    	
 
    
	
By:
    	
/s/Nicholas   Budor
    	
 
    	
By:
    	
/s/Zack   Robbins
    
	
Name:
    	
Nicholas   Budor
    	
 
    	
Name:
    	
Zack   Robbins
    
	
Title:
    	
VP &   Associate General Counsel
    	
 
    	
Title:
    	
AVP
    

 

 

[Signature Page to Third Amendment to

Amended and Restated Loan and Security Agreement]

 

5

 

FOURTH AMENDMENT

TO

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This Fourth Amendment to Amended and Restated Loan and Security Agreement (the “Amendment”), is entered into as of April 24, 2012, by and between SQUARE 1 BANK (“Bank”) and RALLY SOFTWARE DEVELOPMENT CORP. (“Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of December 22, 2010 (as amended from time to time, the “Agreement’).  The parties desire to amend the Agreement in accordance with the terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1)                                      Section 6.6 of the Agreement is hereby amended and restated, as follows:

 

6.6                               Primary Depository.  Borrower and its Subsidiaries shall maintain all its depository, operating and investment accounts with Bank.  Notwithstanding the foregoing, Borrower, Guarantor and Guarantor’s subsidiaries shall be permitted to maintain up to an aggregate of $2,000,000 in accounts outside of Bank for the purposes of funding all existing and future foreign operations.

 

2)                                      Subsection (d) of the definition of “Permitted Investment” in Exhibit A to the Agreement is hereby amended and restated, as follows:

 

(d)                                 Investments of Borrower in Guarantor or subsidiaries of Guarantor in an aggregate amount not to exceed $2,000,000 per month, subject to the limitations of Section 6.6 hereof, for the purposes of funding all existing and future foreign operations;

 

3)                                      The defined term “Permitted Account” and its definition in Exhibit A to the Agreement are hereby deleted.

 

4)                                      Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement.  The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects.  Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.  Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

 

5)                                      Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment.

 

6)                                      This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

 

Rally Software – 4th Amendment to A&R LSA

 

1

 

7)                                      As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

 

a)                                      this Amendment, duly executed by Borrower;

 

b)                                     payment for Bank Expenses incurred through the date of this Amendment, including Bank’s expenses in the documentation of this Amendment, which may be debited from any of Borrower’s accounts; and

 

c)                                      such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

[Signature Page Follows]

 

2

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 

	
RALLY   SOFTWARE DEVELOPMENT CORP.
    	
SQUARE   1 BANK
    
	
 
    	
 
    
	
By:
    	
/s/Nicholas   Budor
    	
 
    	
By:
    	
/s/Zack   Robbins
    
	
Name:
    	
Nicholas   Budor
    	
 
    	
Name:
    	
Zack   Robbins
    
	
Title:
    	
VP &   Associate General Counsel
    	
 
    	
Title:
    	
AVP
    

 

 

[Signature Page to Fourth Amendment to
 Amended and Restated Loan and Security Agreement]

 

3

 

FIFTH AMENDMENT
 TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This Fifth Amendment to Amended and Restated Loan and Security Agreement (the “Amendment”), is entered into as of January 30, 2013, by and between SQUARE 1 BANK (“Bank”) and RALLY SOFTWARE DEVELOPMENT CORP. (“Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of December 22, 2010 (as amended from time to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1)                                     Borrower has informed Bank that Borrower intends to (i) acquire all of the outstanding capital stock of Flowdock Oy, a Finnish entity, in exchange for $3,000,000 in cash and 300,000 shares of Borrower’s common stock (ii) establish the acquired entity as a subsidiary of Guarantor (the “Flowdock Acquisition”).  Bank hereby consents to the Flowdock Acquisition.

 

2)                                     The following definition in Exhibit A to the Agreement is hereby amended and restated, as follows:

 

“Revolving Maturity Date” means February 1, 2014.

 

3)                                     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement.  The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects.  Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.  Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

 

4)                                     Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment.

 

5)                                     This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

 

6)                                     As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

 

a)                                     this Amendment, duly executed by Borrower;

 

b)                                     payment of a $6,500 facility fee, which may be debited from any of Borrower’s accounts;

 

1

 

Rally Software – 5th Amendment to A&R LSA

 

 

c)                                      payment of all Bank Expenses incurred through the date of this Amendment, including any UCC, good standing or intellectual property search or filing fees, which may be debited from any of Borrower’s accounts; provided that the $6,500 fee set forth in Paragraph 6(b) above shall be applied to cover any Bank Expenses associated with documenting this Amendment; and

 

d)                                     such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

[Signature Page Follows]

 

2

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

 

 

	
RALLY   SOFTWARE DEVELOPMENT 
    	
SQUARE   1 BANK 
    
	
CORP.
    	
 
    
	
 
    	
 
    	
 
    	
By:   
    	
/s/Ben   Pattison 
    
	
By:
    	
/s/Nicholas   Budor 
    	
 
    	
Name:   
    	
Ben   Pattison 
    
	
Name:   
    	
Nicholas   Budor 
    	
 
    	
Title:   
    	
AVP
    
	
Title:   
    	
VP &   Associate General Counsel
    	
 
    	
 
    	
 
    

 

[Signature Page to Fifth Amendment to
 Amended and Restated Loan and Security Agreement]

 

3Exhibit 10.8

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT.

 

RALLY SOFTWARE DEVELOPMENT CORP.

 

WARRANT TO PURCHASE

COMMON STOCK

 

Void after November 15, 2016

 

THIS CERTIFIES THAT, for value received, ENTREPRENEURS FOUNDATION OF COLORADO LLC (the “Holder”) is entitled to purchase, on the terms and subject to the conditions hereof, the number of shares of Common Stock, par value $0.001 per share (the “Common Stock”), of Rally Software Development Corp., a Delaware corporation (the “Company”), set forth below, at a per share purchase price of $0.26 (the “Exercise Price”), subject to adjustment as provided herein.

 

The following terms shall apply to this Warrant:

 

1.                                       Exercise of Warrant.  The terms and conditions upon which this Warrant may be exercised, and the Common Stock covered hereby (the “Warrant Shares”) may be purchased, are as follows:

 

1.1                                 Number of Shares.  This Warrant shall be exercisable for 65,002 Warrant Shares, which number shall be subject to adjustment in accordance with Section 2 of this Warrant.

 

1.2                                 Exercise.  This Warrant may be exercised in whole or in part:

 

(a)                                  on November 15, 2016 (the “Termination Date”),

 

(b)                                 on the closing date of a “Sale of the Company” (as defined in Section 1.3 below),

 

(c)                                  on the closing date of the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Securities Act of 1933, as amended (the “Initial Offering”); or

 

1

 

(d)                                 at any time prior to the Termination Date, but only with the prior written consent of the Company.

 

If not exercised on or prior to the Termination Date, a Sale of the Company, or an Initial Offering, this Warrant shall be void thereafter.  The exercise of the purchase rights hereunder, in whole or in part, shall be effected by (a) the surrender of this Warrant, together with a duly executed copy of the form of the subscription attached as Exhibit A hereto, to the Company at its principal executive offices, (b) the delivery of the Exercise Price by (i) cashier’s or certified check or bank draft payable to the Company’s order, (ii) by wire transfer to the Company’s account, or (iii) pursuant to Section 1.4 of this Warrant for the number of Warrant Shares for which the purchase rights hereunder are being exercised, and (c) if this Warrant is not registered in the name of the Holder, an Assignment or Assignments in the form set forth in Exhibit C hereto evidencing the assignment of this Warrant to the Holder, in which case the Holder shall have complied with the provisions set forth in Section 8 of this Warrant.

 

1.3                                 Automatic Exercise.  Notwithstanding any provision herein to the contrary, this Warrant shall automatically be deemed to be exercised in full in the manner set forth in Section 1.4 of this Warrant, without any further action on behalf of Holder (other than the payment of the exercise price in the manner set forth in Section 1.4 of this Warrant) on the earliest date immediately prior to (a) the time this Warrant would otherwise expire, (b) immediately prior to a Sale of the Company, or (c) immediately prior to the closing of an Initial Offering.  A “Sale of the Company” shall mean either of the following (i) the acquisition of all or substantially all of the capital stock of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (ii) a sale of all or substantially all of the assets of the Company; unless the Company’s shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the corporation’s acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity.  In connection with the exercise of this Warrant pursuant to clause (b) above, such exercise shall be conditioned upon the closing of such Sale of the Company, and the Warrant shall not be deemed to have been exercised until the closing of such Sale of the Company.

 

1.4                                 Net Issue Election.

 

(a)                                  Notwithstanding any provision herein to the contrary, upon automatic exercise of this Warrant as provided in Section 1.3 of this Warrant or at any time or from time to time as Holder may elect, Holder shall be entitled to receive, without the payment by Holder of any additional consideration, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the net issue election notice attached hereto as Exhibit B duly executed (other than exercise pursuant to Section 1.3), at the Company’s executive principal offices.  Thereupon, the Company shall issue to Holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula:

 

2

 

X = Y (A-B)

A

 

where:                                                             X =                             the number of shares of Common Stock to be issued to Holder

 

Y =                              the number of shares of Common Stock purchasable under this Warrant in respect of which the net issue election is made

 

A =                            the fair market value of one share of Common Stock, as determined pursuant to Section 1.4(b) of this Warrant, as at the time the net issue election is made

 

B =                              the Exercise Price in effect under this Warrant at the time the net issue election is made

 

(b)                                 For purposes of this Section 1.4, fair market value of one share of Common Stock as of a particular date shall mean:

 

(i)                                     In the case of an initial public offering of the Company’s Common Stock, the initial “price to public” of one share of such Common Stock specified in the final prospectus with respect to such offering;

 

(ii)                                  If the Company’s Common Stock is listed on a security exchange or the NASDAQ National Market, the average closing price of the Company’s Common Stock on such exchange or the NASDAQ National Market for the five trading days prior to the day notice of exercise is provided to the Company;

 

(iii)                               In the case of a Sale of the Company, the effective per share consideration to be received by the holders of the Common Stock; or

 

(iv)                              If Sections 1.4(b)(i), (ii) or (iii) of this Warrant do not apply, then as determined by the Company’s board of directors in good faith.

 

1.5                                 Issuance of Shares.  In the event of any exercise of the rights represented by this Warrant in accordance with and subject to the terms and conditions hereof, (i) certificates for the shares of Common Stock so purchased shall be dated the date of issuance and, together with any other securities issuable upon such exercise and any other property to which the Holder may be entitled upon such exercise, shall be delivered to the Holder hereof within a reasonable time, not exceeding three business days after receipt of an Exercise Notice by the Company, with the certificates for the shares of Common Stock so purchased being in such denominations as may be specified in the applicable Exercise Notice, and registered in the name of the Holder or such other name or names as shall be specified in the applicable Exercise Notice, and the Holder hereof (or such

 

3

 

other person(s)) shall be deemed for all purposes to be the holder of record of the shares of Common Stock so purchased as of the date of such exercise, and (ii) unless this Warrant has expired, a new Warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised (less any amount thereof which shall have been cancelled in payment or partial payment of the Warrant Price as hereinafter provided) shall also be issued to the Holder hereof within such time.  The issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock.

 

2.                                       Certain Adjustments.

 

2.1                                 Merger, Sale of Assets, Etc.  If at any time while this Warrant, or any portion hereof, is outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company’s capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (c) a sale or transfer of the Company’s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive upon exercise of this Warrant in accordance with the terms hereof, during the period and upon the events specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, consolidation, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 2.  The foregoing provisions of this Section 2.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant.  If the per-share consideration payable to Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company’s board of directors.  In all events, appropriate adjustment, as determined in good faith by the Company’s board of directors, shall be made in the application of the provisions of this Warrant with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant.

 

2.2                                 Reclassification, etc.  If the Company, at any time while this Warrant, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the

 

4

 

right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 2.

 

2.3                                 Split, Subdivision or Combination of Shares.  If the Company at any time while this Warrant, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.

 

2.4                                 Adjustments for Dividends in Stock or Other Securities or Property.  If while this Warrant, or any portion hereof, remains outstanding and unexpired, the holders of the securities as to which purchase rights under this Warrant exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property, other than cash, of the Company by way of dividend, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property, other than cash, of the Company that Holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Warrant on the date hereof and had thereafter, during the period from the date hereof to and including the date of such event, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 2.

 

2.5                                 Certificate as to Adjustments.  Upon the occurrence of each adjustment or readjustment pursuant to this Section 2, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Company shall, upon the written request, at any time, of Holder, furnish or cause to be furnished to Holder a like certificate setting forth: (a) such adjustments and readjustments; (b) the Exercise Price at the time in effect; and (c) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of this Warrant.

 

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3.                                       Representations and Warranties of Holder.

 

3.1                                 Holder hereby warrants and represents that Holder is (i) acquiring this Warrant, and any Warrant Shares issued upon exercise of this Warrant, for Holder’s own account and not with a view to their resale or distribution and (ii) Holder is an “accredited investor” as such term is defined under rule 501 promulgated under the Securities Act of 1933, as amended (the “1933 Act”).

 

3.2                                 Holder acknowledges that this Warrant has not been registered under the 1933 Act, on the ground that the issuance of this Warrant is exempt from registration pursuant to Section 4(2) of the 1933 Act, and that the Company’s reliance on such exemption is predicated on the representations of Holder set forth herein.

 

3.3                                 In connection with the investment representations made herein, Holder represents that it is able to fend for itself in the transactions contemplated by this Warrant, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his investment, has the ability to bear the economic risks of its investment and has been furnished with and has had access to such information as it has requested and deemed appropriate to its investment decision.

 

3.4                                 Holder hereby confirms that Holder has been informed that this Warrant, and the Warrant Shares issued upon exercise of this Warrant, are restricted securities under the 1933 Act and may not be resold or transferred unless this Warrant, or the Warrant Shares issued upon exercise of this Warrant, as the case may be, are first registered under the federal securities laws or unless an exemption from such registration is available.  Holder acknowledges that the Company has no obligation to register the Warrant Shares.  Accordingly, Holder hereby acknowledges that Holder is prepared to hold this Warrant, and the Warrant Shares issued upon exercise of this Warrant, for an indefinite period and that Holder is aware that Rule 144 of the Securities and Exchange Commission issued under the 1933 Act is not presently available to exempt the issuance of this Warrant from the registration requirements of the 1933 Act.

 

3.5                                 Holder hereby agrees that Holder shall make no disposition of this Warrant or the Warrant Shares issued upon exercise of this Warrant unless and until Holder shall have provided the Company with assurances that (a) the proposed disposition does not require registration of the Warrant Shares under the 1933 Act, or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act or of any exemption from registration available under the 1933 Act has been taken.

 

3.6                                 In order to reflect the restrictions on disposition of the Warrant Shares, the stock certificates for the Warrant Shares will be endorsed with restrictive legends to the following effect:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,

 

6

 

OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.

 

THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT, AND AS MAY BE AMENDED FROM TIME TO TIME, AND SAID SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT.  SUCH AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL PLACE OF BUSINESS OF THE COMPANY AND A COPY THEREOF WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS CERTIFICATE UPON RECEIPT BY THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE STOCKHOLDER.”

 

4.                                       Representations, Warranties and Covenants of the Company.  This Warrant is issued and delivered by the Company and accepted by Holder on the basis of the following representations, warranties and covenants made by the Company:

 

4.1                                 The Company covenants that it will at all times from and after the date hereof reserve and keep available, free and clear of all preemptive or similar rights, such number of its authorized shares of Common Stock as will be sufficient to permit, respectively, the exercise of this Warrant in full.  The Company covenants further that such shares as may be issued pursuant to such exercise will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof.

 

4.2                                 The Company has all necessary authority to issue, execute and deliver this Warrant and to perform its obligations hereunder.  This Warrant has been duly authorized, issued, executed and delivered by the Company and is the valid and binding obligation of the Company, enforceable in accordance with its terms.

 

4.3                                 The issuance, execution and delivery of this Warrant do not, and the issuance of the shares of Common Stock upon the exercise of this Warrant in accordance with the terms hereof will not, (a) violate or contravene the Company’s Certificate of Incorporation or Bylaws, or any law, statute, regulation, rule, judgment or order applicable to the Company, (b) violate, contravene or result in a breach or default under any contract, agreement or instrument to which the Company is a party or by which the Company or any of its assets are bound or (c) require the consent or approval of or the filing of any notice or registration with any person or entity.

 

4.4                                 If any shares of the Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with

 

7

 

any governmental authority or other governmental approval or filing under any federal or state law before such shares may be so issued, the Company will in good faith use its best efforts to, as promptly as practicable at its expense, cause such shares to be duly registered or qualified or such approval to be obtained or filing made.  If the Company shall list any shares of Common Stock on any securities exchange it will, at its expense, list thereon, maintain and increase when necessary such listing of, all shares of Common Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder, and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Common Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed.

 

4.5                                 The Company shall not by any action (including, without limitation, amending the Certificate of Incorporation or bylaws of the Company or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action) avoid or seek to avoid (directly or indirectly) the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary, appropriate or desirable to protect the rights of the Holder hereof against impairment.

 

5.                                       Fractional Shares.  No fractional shares shall be issued in connection with any exercise of this Warrant.  In lieu of the issuance of such fractional shares, the Company shall make a cash payment equal to the then fair market value of such fractional share as determined in good faith by the Company’s board of directors.

 

6.                                       No Privilege of Stock Ownership.  Prior to the exercise of this Warrant, Holder shall not be entitled, by virtue of holding this Warrant, to any rights of a stockholder of the Company, including, without limitation, the right to vote, receive dividends or other distributions, or exercise preemptive rights, and such holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company.  Nothing in this Section 6 shall limit the right of Holder to be provided the notices required herein or to participate in distributions described in Section 2 of this Warrant if Holder ultimately exercises this Warrant.

 

7.                                       “Market Stand-Off” Agreement.  Holder hereby agrees that is shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration or purchased in the registration or aftermarket) for the 180-day period following the effective date of the Initial Offering (or such longer period not to exceed 18 days after the expiration of the 180-day period, as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711); provided, that, with respect to (i) above, all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements.  Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the Holder’s obligations under this Section 7 or that are necessary to give further effect thereto.  The obligations described in this Section 7 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or

 

8

 

Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future.

 

8.                                       Transfers or Exchanges.  Subject to compliance with all applicable federal and state securities laws, which the Holder shall establish to the satisfaction of the Company, this Warrant and all rights hereunder are transferable in whole or in part by Holder to any person.  Holder will provide prior written notice of such transfer to the Company.  The transfer shall be recorded on the books of the Company upon the surrender of this Warrant, properly endorsed, to the Company at its principal executive offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer.  In the event of a partial transfer, the Company shall issue to Holder and its transferees one or more appropriate new warrants.

 

9.                                       Successors and Assigns.  The terms and provisions of this Warrant shall be binding upon the Company, Holder, and their respective successors and assigns, subject at all times to the restrictions set forth in this Warrant.

 

10.                                 Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt of notice by the Company of the loss, theft, destruction, or mutilation of this Warrant, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and, if mutilated upon surrender and cancellation of this Warrant, the Company will make and deliver a new warrant, in identical form, and dated as of such cancellation, in lieu of this Warrant.

 

11.                                 Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action, or the expiration of any right required or granted herein shall be a Saturday, or Sunday, or shall be a legal holiday, then such action may be taken or such right may be exercised, except as to the purchase price, on the next succeeding day not a legal holiday.

 

12.                                 Amendments and Waivers.  Any term of this Warrant may be amended, and the observance of any term of this Warrant may be waived (either generally or in a particular instance, and either retroactively or prospectively), with the written consent of the Company and Holder.

 

13.                                 Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the conflict of law provisions thereof.

 

14.                                 Notices.  Any notice, demand or delivery pursuant to the provisions of this Warrant shall be in writing, shall be addressed as set forth below and shall be sufficiently delivered or made on the second business day if delivered by Federal Express or any other reliable overnight courier.

 

	
If   to the Company:
    	
 
    	
Rally   Software Development Corp.
    
	
 
    	
 
    	
1050   Walnut Street
    
	
 
    	
 
    	
Suite 202
    
	
 
    	
 
    	
Boulder,   CO 80302
    
	
 
    	
 
    	
Attention:   Chief Executive Officer
    

 

9

 

	
If   to the Holder:
    	
 
    	
Entrepreneurs   Foundation of Colorado LLC
    
	
 
    	
 
    	
1123   Spruce Street
    
	
 
    	
 
    	
Boulder,   CO 80302
    

 

Either the Company or Holder may change its address for notice purpose by providing written notice to the other party in accordance with this Section 14.

 

[SIGNATURE PAGE FOLLOWS]

 

10

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of November 15, 2006.

 

 

	
 
    	
/s/Ryan Martens
    
	
 
    	
 
    
	
 
    	
By:
    	
Ryan   Martens
    
	
 
    	
Title:
    	
Chief   Technology Officer
    

 

11

 

EXHIBIT A

 

SUBSCRIPTION

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Attention:
    	
 
    	
 
    

 

Ladies and Gentlemen:

 

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant dated                      , 20    ,                      shares of the Common Stock of                                         , a                  corporation.

 

	
Dated:
    	
                  ,             
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Print   Name:
    	
 
    
	
 
    	
Title:
    	
 
    
						

 

 

EXHIBIT B

 

NET ISSUE ELECTION

 

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Attention:
    	
 
    	
 
    

 

Ladies and Gentlemen:

 

The undersigned hereby elects under Section 1.4 of the Warrant dated                     , 20      , (the “Warrant”), to exercise its right to receive                         shares of Common Stock pursuant to the Warrant.  The certificate(s) for such shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below:

 

 

	
Name   for Registration:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Mailing   Address:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Print   Name:
    	
 
    
	
 
    	
Title:
    	
 
    
					

 

 

EXHIBIT C

 

ASSIGNMENT

 

FOR VALUE RECEIVED,                                                              hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (Certificate No. W-            ) with respect to the number of shares of the Non-Voting Common covered thereby set forth below, unto:

 

	
Names of Assignee
    	
 
    	
Address
    	
 
    	
No. of Shares
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    

 

 

 

	
Dated:
    	
Signature:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Witness:

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