EXHIBIT 10.18

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of
________2014, by and among SofTech, Inc., a Massachusetts corporation (the
“Company”), and ________ (the “Purchaser”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act, and Rule 506 promulgated
thereunder, the Company desires to issue and sell to Purchaser, and Purchaser,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and Purchaser agree as
follows:

ARTICLE I.

DEFINITIONS

1.1

Definitions. In addition to the terms defined elsewhere in this Agreement, for
all purposes of this Agreement, the following terms have the meanings set forth
in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144 under the
Securities Act.

“Business Day” means any day except Saturday or Sunday which shall be a federal
legal holiday in the United States, or any day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.

“Code” means the Internal Revenue Code of 1986, as amended.

“Closing” means the closing of the purchase and sale of the Shares pursuant to
Section 2.1.

“Closing Date” means the date when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchaser’s obligations to pay the Subscription Amount and
(ii) the Company’s obligations to deliver the Shares have been satisfied or
waived.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.10 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed.

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants, stock appreciation rights, restricted stock units or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock.

“Company Counsel” means Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One
Financial Center, Boston, MA 02111.

“Company Material Contracts” has the meaning ascribed to such term in Section
3.1(dd).

“Contract” shall mean any written or oral note, bond, mortgage, loan, indenture,
guarantee, contract, agreement, lease, license, permit, concession, franchise or
other binding commitment, instrument or obligation to which the Company or any
Subsidiary of the Company is a party or by which the Company or any of its
Subsidiaries or any property or asset of the Company or any of its Subsidiaries
is bound or affected, or result in the creation of any Lien on any property or
asset of the Company or any of its Subsidiaries (each, a “Contract”).

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“Disclosure Letter” means the Disclosure Letter of the Company delivered
concurrently herewith.

“Environmental Law” means, as currently in effect, any applicable law concerning
(i) the protection of the environment (including air, water, soil and natural
resources) or (ii) the use, storage, handling, release or disposal of any
substance presently listed, defined, designated or classified as hazardous,
toxic or radioactive under any applicable law concerning the protection of the
environment (including air, water, soil and natural resources), including
petroleum and any derivative or by-products thereof.

“Equity Incentive Plan” means (i) any equity incentive, stock option or similar
plan and (ii) any other agreement, arrangement, understanding or other document
pursuant to which the Company is obligated to grant or issue Common Stock or
Common Stock Equivalents to current or former employees in connection with their
services to the Company, in each case adopted or approved by a majority of the
non-employee members of the board of directors of the Company or a majority of
the members of a committee of non-employee directors established.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Fee” shall have the meaning ascribed to such term in Section 4.1.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

“MBCA” means the Massachusetts Business Corporation Act.

“MGL” means the Massachusetts General Laws.

“Mintz Levin” means Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., with
offices at One Financial Center, Boston, MA 02111.

“Payment Period” shall have the meaning ascribed to such term in Section 4.1.

“Per Share Purchase Price” equals $5.00 subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Proceeding” means an Action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

“Purchaser Put Right” shall have the meaning ascribed to such term in Section
4.2.

“Repurchase Date” shall have the meaning ascribed to such term in Section 4.2.

“Repurchase Notice” shall have the meaning ascribed to such term in Section 4.2.

“Repurchase Period” shall have the meaning ascribed to such term in Section 4.2.

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“Repurchase Price” shall have the meaning ascribed to such term in Section 4.2.

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

“Reinstatement Date” shall have the meaning ascribed to such term in Section
3.1(h).

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Share Bundle” means a lot equal to 10,000 Shares of Common Stock purchased
under this Agreement in exchange for $50,000.

“Shares” means the shares of Common Stock issued or issuable to the Purchaser
pursuant to this Agreement and shall specifically exclude any other Common
Stock.

“SOX” has the meaning ascribed to such term in Section 3.1(h).

“Subscription Amount” means, as to the Purchaser, the aggregate amount to be
paid for Shares purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds.

“Subsidiary” means Workgroup Technology Corporation, a Delaware corporation;
Information Decisions Incorporated, a Michigan corporation; and SofTech Srl, a
company formed under the laws of Italy.

“Transaction Documents” means this Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Registrar And Transfer Company, Attention: Eileen O’Neil,
10 Commerce Drive, Cranford, NJ 07016 (telephone no. 908-497-2300), and any
successor transfer agent of the Company.

ARTICLE II.

PURCHASE AND SALE

2.1

Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and the Purchaser,
severally and not jointly, agrees to purchase, at the Per Share Purchase Price,
the number of Shares indicated on its signature page hereto. The Company and the
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at
the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and
2.3, the Closing shall occur at the offices of Mintz Levin or such other
location as the parties shall mutually agree.

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2.2

Deliveries.

(a)

On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to the Purchaser the following:

(i)

this Agreement duly executed by the Company;

(ii)

a copy of the irrevocable instructions to the Transfer Agent instructing the
Transfer Agent to deliver, on an expedited basis, a stock certificate for the
Shares, registered in the name of such Purchaser;

and

(iii)

a certificate, dated as of the Closing Date and signed by its Chief Executive
Officer or its Chief Financial Officer, certifying to the fulfillment of the
conditions specified in Sections 2.3(b)(i).

(b)

On or prior to the Closing Date, the Purchaser shall deliver or cause to be
delivered to the Company the following:

(i)

this Agreement duly executed by such Purchaser; and

(ii)

such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company.

2.3

Closing Conditions.

(a)

The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

(i)

the accuracy in all material respects of the representations and warranties of
the Purchaser contained herein when made and on the Closing Date (except for
representations and warranties that speak as of a specific date which shall be
accurate in all material respects as of such date);

(ii)

all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and

(iii)

the delivery by the Purchaser of the items set forth in Section 2.2(b) of this
Agreement.

(b)

The respective obligations of the Purchaser hereunder in connection with the
Closing are subject to the following conditions being met:

(i)

the accuracy in all material respects of the representations and warranties of
the Company contained herein when made and on the Closing Date (except for
representations and warranties that speak as of a specific date which shall be
accurate in all material respects as of such date);

(ii)

all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;

(iii)

the delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement; and

(iv)

as of the Closing Date there shall have been no Material Adverse Effect with
respect to the Company since the date hereof.

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1

Representations and Warranties of the Company. Except as set forth in the
Disclosure Letter, which Disclosure Letter shall be deemed a part hereof and
shall qualify any representation or otherwise made herein to the extent of the
disclosure contained in the corresponding section of the Disclosure Letter, the
Company hereby makes the following representations and warranties to the
Purchaser:

(a)

Subsidiaries. All of the direct and indirect subsidiaries of the Company are set
forth in the SEC Reports. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.

(b)

Organization and Qualification. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of organization, bylaws or
other organizational or charter documents. Section 3.1(b) of the Disclosure
Letter sets forth the jurisdictions in which each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity. Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, would not have or reasonably be expected to result in (i) a material adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

(c)

Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

(d)

No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Shares and the
consummation by the Company of the other transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of organization, bylaws or
other organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as would not have or reasonably be expected to result in a Material Adverse
Effect.

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(e)

Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, and (ii) the
filing of Form D with the Commission and such filings as are required to be made
under applicable state securities laws (collectively, the “Required Approvals”).

(f)

Issuance of the Shares. The Shares are duly authorized and, when issued and paid
for in accordance with the applicable Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the
Transaction Documents. The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable pursuant to this
Agreement.

(g)

Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock and zero shares of preferred stock ("Preferred
Stock"). The rights and privileges of each class of the Company's capital stock
are as set forth in the Company's Articles of Organization. As of September 17,
2014, (i) 833,724 shares of Common Stock were issued and outstanding, (ii) no
shares of Common Stock were held in the treasury of the Company or by
Subsidiaries of the Company, and (iii) no shares of the Preferred Stock were
issued or outstanding.

Neither the Company nor any of its Subsidiaries has outstanding any restricted
stock, except as contemplated by this Agreement, or right of first refusal in
favor of the Company

Except as set forth in the SEC Reports (i) there are no equity securities of any
class of the Company or any of its Subsidiaries (other than equity securities of
any such Subsidiary that are directly or indirectly owned by the Company), or
any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding and (ii) there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound obligating the Company or any of
its Subsidiaries to issue, exchange, transfer, deliver or sell, or cause to be
issued, exchanged, transferred, delivered or sold, additional shares of capital
stock or other equity interests of the Company or any of its Subsidiaries or any
security or rights convertible into or exchangeable or exercisable for any such
shares or other equity interests, or obligating the Company or any of its
Subsidiaries to grant, extend, accelerate the vesting of, otherwise modify or
amend or enter into any such option, warrant, equity security, call, right,
commitment or agreement. Neither the Company nor any of its Subsidiaries has
outstanding any stock appreciation rights, phantom stock, performance based
rights or similar rights or obligations. Except as set forth in the SEC Reports
and/or as contemplated by this Agreement, there are no obligations, contingent
or otherwise, of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of Common Stock or the capital stock of the Company
or any of its Subsidiaries or to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in the Company or any
Subsidiary of the Company or any other entity, other than guarantees of bank
obligations of Subsidiaries of the Company entered into in the ordinary course
of business consistent with past practice (the "Ordinary Course of Business").
Neither the Company nor any of its Affiliates is a party to or is bound by any,
and to the knowledge of the Company, there are no, agreements or understandings
with respect to the voting (including voting trusts and proxies) or sale or
transfer (including agreements imposing transfer restrictions) of any shares of
capital stock or other equity interests of the Company or any of its
Subsidiaries. Except as disclosed in Section 3.1(g) of the Disclosure Letter,
there are no registration rights, and there is no rights agreement, "poison
pill" anti-takeover plan or other agreement or understanding to which the
Company or any of its Subsidiaries is a party or by which it or they are bound
with respect to any equity security of any class of the Company or any of its
Subsidiaries or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its Subsidiaries.

All outstanding shares of Common Stock are, and all shares of Common Stock
subject to issuance as specified in Section 3.1(g) above, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be, duly authorized, validly issued, fully paid and nonassessable
and not subject to or issued in violation of any purchase option, call option,
right of first refusal, preemptive right, subscription right or any similar
right under any provision of the MBCA, the Company's Articles of Organization or
By-laws or any agreement to which the Company is a party or is otherwise bound.

All of the outstanding shares of capital stock and other equity securities or
interests of each of the Company's Subsidiaries are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights.

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(h)

SEC Reports; Financial Statements. On December 28, 2011 the Company’s
registration document on Form S-1 was deemed effective thereby reinstating its
obligations as a filing entity with the SEC (“Reinstatement Date”). Except as
set forth in Section 3.1(h)(i) of the Disclosure Letter, since the Reinstatement
Date, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by the Company under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof (the
foregoing materials, including the exhibits thereto and documents incorporated
by reference therein, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. As of
the date hereof, the Company is not aware of any event occurring on or prior to
the Closing Date (other than the transactions contemplated by the Transaction
Documents) that requires the filing of a Form 8-K after the Closing. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments. All
material agreements to which the Company is a party or to which the property or
assets of the Company are subject are included as part of or specifically
identified in the SEC Reports. The Company SEC Reports included all certificates
required to be included therein pursuant to Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
promulgated thereunder (“SOX”), and the internal control report and attestation
of the Company’s outside auditors to the extent required by Section 404 of SOX.
As of the date of this Agreement, there are no outstanding or unresolved
comments in the comment letters received from the SEC staff with respect to the
Company SEC Documents. None of the SEC Reports is the subject of an SEC review.

(i)

Material Changes; Undisclosed Events, Liabilities or Developments. Since the
date of the latest audited financial statements included within the SEC Reports,
except as disclosed in a subsequent SEC Report filed prior to the date hereof or
in the Disclosure Letter, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
required to be reflected in the Company’s financial statements pursuant to GAAP
or disclosed in filings made with the Commission, (iii) except as disclosed in
Section 3.1 (i) (i) of the Disclosure Letter the Company has not altered its
method of accounting, (iv) except as disclosed in Section 3.1 (i) (ii) of the
Disclosure Letter the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, except as contemplated by the Transaction Documents, and (v) the Company
has not issued any equity securities to any executive officer, director or
Affiliate, except pursuant to an Equity Incentive Plan. The Company does not
have pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Shares contemplated by this
Agreement, no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company, that has not been disclosed.

(j)

Litigation. Except as disclosed in our SEC Reports, there is no action, suit,
inquiry, notice of violation, proceeding (including any partial proceeding such
as a deposition) or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Shares or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or executive officer thereof, is or
has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or executive officer of the
Company. The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

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(k)

Labor Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse Effect. None of the
Company’s or its Subsidiaries’ employees is a member of a union that relates to
such employee’s relationship with the Company, and neither the Company or any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the Company, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(l)

Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in violation of
any statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as would not
have or reasonably be expected to result in a Material Adverse Effect.

(m)

Regulatory Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not have or reasonably be expected to result in a Material Adverse
Effect (“Material Permits”), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any Material Permit.

(n)

Title to Assets. The Company and the Subsidiaries have good and marketable title
in all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for Liens (i) that do not materially affect the value of such property, (ii)
that do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties, and (iii) in favor of Prides Crossing Capital Funding,
L.P. granted in connection with the loan agreement and disclosed in the SEC
Reports. Any real property and facilities held under lease by the Company and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance in all material
respects. The Company does not own any real property.

(o)

Patents and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights and similar rights necessary or material for
use in connection with their respective businesses as described in the SEC
Reports (collectively, the “Intellectual Property Rights”). To the Company’s
knowledge, the conduct of the Company’s and any Subsidiary’s businesses will not
conflict in any material respects with any intellectual property rights of
others. Except as disclosed in the SEC Reports, neither the Company nor any
Subsidiary has received a notice (written or otherwise) that the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes upon
the rights of any Person. To the knowledge of the Company, all Intellectual
Property Rights are enforceable and valid and there is no existing infringement
by another Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.

(p)

Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which the Company and the
Subsidiaries are engaged Neither the Company nor any Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a significant
increase in cost.

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(q)

Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, Transaction Documents or Credit Agreements, none of the executive
officers or directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, executive
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
executive officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $10,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements and restricted stock unit agreements under any Equity Incentive Plan.

(r)

Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents other than the Fee due
Purchaser. The Purchaser shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.

(s)

Private Placement. Assuming the accuracy of the Purchaser’s representations and
warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Shares by the Company to the Purchaser as
contemplated hereby.

(t)

Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Shares, will not be an Affiliate
of, an “investment company” within the meaning of the Investment Company Act of
1940, as amended.

(u)

Takeover Laws. All the action necessary to ensure that the requirements and
restrictions set forth in Chapters 110C, 110D and 110F of the MGL do not apply
to this Agreement and the acquisition of Shares hereunder have been taken, and
(i) the provisions of Chapters 110C, 110D and 110F of the MGL shall not apply to
this Agreement and the acquisition of Shares hereunder, (ii) no restrictive
provision of any applicable anti-over provision in the Company’s Articles of
Organization or Amended and Restated By-laws applies to this Agreement or the
acquisition of Shares hereunder, (iii) no restrictive provision of the Rights
Agreement dated as of February 3, 2012 between the Company and Registrar and
Transfer Company, as Rights Agent, and (iv) to the knowledge of the Company, no
other state takeover law would otherwise apply to this Agreement and the
transactions contemplated by this Agreement.

(v)

No Integrated Offering. Assuming the accuracy of the Purchaser’s representations
and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Shares to be integrated or aggregated with prior offerings by the Company for
purposes of the Securities Act.

(w)

Tax Status. Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has accurately and timely filed all federal, state
and foreign income and franchise tax returns, reports and declarations required
by any jurisdiction to which it is subject, and has paid or accrued all taxes
shown as due thereon, and there is no tax deficiency in any material amount
which has been asserted or threatened against the Company or any Subsidiary.

(x)

No General Solicitation. Neither the Company nor any person acting on behalf of
the Company has offered or sold any of the Shares by any form of general
solicitation or general advertising. The Company has offered the Shares for sale
only to the Purchaser and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.

(y)

Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

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(z)

No Disagreements with Accountants. There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise, between
the Company and the independent registered public accounting firm formerly or
presently employed by the Company and the Company’s outstanding balance with
respect to any fees owed to such accounting firm is within the Company’s normal
payment terms.

(aa)

Acknowledgment Regarding Purchaser’s Purchase of Shares. The Company
acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents. The Company represents to the Purchaser that the
Company’s decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

(bb)

Regulation M Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the Shares,
(ii) sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Shares, or (iii) paid or agreed to pay to any Person
any compensation for soliciting another to purchase any other securities of the
Company.

(cc)

Stock Options and 409A Compliance. With respect to stock options issued pursuant
to the Company’s Equity Incentive Plan(s) (i) each stock option designated by
the Company at the time of grant as an “incentive stock option” under Section
422 of the Code so qualifies, (ii) each grant of a stock option was duly
authorized no later than the date on which the grant of such stock option was by
its terms to be effective (the “Grant Date”) by all necessary corporate action,
including, as applicable, approval by the board of directors of the Company (or
a duly constituted and authorized committee thereof) and any required
stockholder approval by the necessary number of votes or written consents, (iii)
each such grant was made in accordance with the material terms of an Equity
Incentive Plan, the Securities Act and all other applicable laws and regulatory
rules or requirements, and (iv) each such grant was or has now been properly
accounted for in accordance with GAAP in the financial statements (including the
related notes) of the Company and disclosed in the Company’s filings with the
Commission in accordance with the Exchange Act and all other applicable laws,
except, in the cases of clauses (i), (ii), (iii) and (iv), for any such failure,
violation or default that would not be material to the Company and its
subsidiaries taken as a whole. The Company believes in good faith that any
“nonqualified deferred compensation plan” (as such term is defined under Section
409A(d)(1) of the Code and the guidance thereunder) under which the Company
makes, is obligated to make or promises to make, payments (each, a “409A Plan”)
complies in all material respects, in both form and operation, with the
requirements of Section 409A of the Code and the guidance thereunder. To the
knowledge of the Company, no payment to be made under any 409A Plan is, or will
be, subject to the penalties of Section 409A(a)(1) of the Code.

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(dd)

Material Contracts. For purposes of this Agreement, “Company Material Contracts”
shall mean: (i) any Contract relating to indebtedness for borrowed money, any
financial guaranty or any capital lease in excess of $50,000; (ii) any Contract
that purports to limit the ability of the Company or any of its Subsidiaries to
engage or compete in any business line or compete with any person or operate in
any geographic area; (iii) any Contract that involves any exchange traded,
over-the-counter or other swap, cap, floor, collar, futures contract, forward
contract, option or any other derivative financial instrument; (iv) any Contract
that involved expenditures or receipts by the Company or any of its Subsidiaries
of more than $100,000 in the last fiscal year or that is expected to involve
expenditures or receipts by the Company or any of its Subsidiaries of more than
$100,000 in the next fiscal year; (v) any Contract that involved, since June 1,
2007, the acquisition or disposition, directly or indirectly (by merger or
otherwise), of assets or capital stock or other equity interests of any person
(other than acquisitions or dispositions of assets in the ordinary course of
business, including acquisitions and dispositions of inventory) and any
acquisition or disposition Contract pursuant to which the Company or any of its
Subsidiaries has continuing indemnification, “earn-out” or other contingent
payment obligations; (vi) any Contract with any director, officer or employee of
the Company or any of its Subsidiaries, or the spouses, relatives or affiliates
(excluding any Contract solely among the Company and its Subsidiaries) of such
persons, as applicable, including any Contract (x) to employ, terminate,
indemnify or reimburse any present or former directors, officers or other
employees and any Contract with respect to severance of, or a release of claims
against the Company or its Subsidiaries by, any present or former directors,
officers or other employees, or (y) that will result in the payment by, or the
creation of any commitment or obligation (absolute or contingent, matured or
unmatured) to pay on behalf of the Company, any of its Subsidiaries or any
affiliate of the Company, any severance, termination, “golden parachute”,
transaction bonus, finders fee or other similar payments to any present or
former director, officer or employee following termination of employment or
otherwise as a result of the consummation of the transactions contemplated
hereby; (vii) any Contract that by its terms limits the payment of dividends or
other distributions by the Company or any of its Subsidiaries; (viii) any
material joint venture or partnership Contract; (ix) any Contract that purports
to limit the ability of the Company or any of its Subsidiaries to own, operate,
sell, transfer, pledge or otherwise dispose of any material amount of assets or
business; (x) any material Contract related to Company Intellectual Property
Rights; (xi) any Contract pursuant to which any material payment or performance
obligation of the Company or any of its Subsidiaries would or could be
accelerated, or any material right of or benefit to the Company or any of its
Subsidiaries would terminate or would become subject to termination, amendment,
renegotiation or cancellation, in each case as a result of the execution of this
Agreement or the consummation of any of the transactions contemplated hereby;
and (xii) any Contract of the type required to be filed with the SEC in any
periodic report pursuant to Item 601(b)(10) of Regulation S-K.

As of the Closing Date, neither the Company nor any Subsidiary of the Company
nor, to the knowledge of the Company, any other party, is in material breach of
or material default under the terms of any Company Material Contract. Each
Company Material Contract is a legal, valid and binding obligation of the
Company or the Subsidiary of the Company which is party thereto and, to the
knowledge of the Company, of each other party thereto, and is in full force and
effect, and enforceable against the Company or a Subsidiary and, to the
knowledge of the Company, of each other party thereto, in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency (including
all laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting creditors’ rights generally and subject to the effect of
general principles of equity. None of the Company or any of its Subsidiaries has
received any written claim of default under any Company Material Contract or any
written notice of an intention to, and to the knowledge of the Company, no other
party to a Company Material Contract intends to, terminate, not renew or
challenge the validity or enforceability of any Company Material Contract
(including as a result of the execution and performance of this Agreement) and,
to the Company’s knowledge, no event has occurred which would result in a breach
or violation of, or a default under, any Company Material Contract (in each
case, with or without notice or lapse of time or both).

(ee)

Environmental Matters. Except in each case for such matters that would not
reasonably be expected to have a Material Adverse Effect: (i) to the knowledge
of the Company, the Company and its Subsidiaries have complied with all
applicable Environmental Laws, (ii) to the knowledge of the Company, the Company
and its Subsidiaries possess all permits, licenses, registrations,
identification numbers, authorizations and approvals required under applicable
Environmental Laws for the operation of the business as presently conducted,
(iii) neither the Company nor any of its Subsidiaries has received any written
claim or notice of any violation or alleged violation of any applicable
Environmental Law or concerning any actual or alleged liability of the Company
or any of its Subsidiaries arising under or pursuant to any Environmental Law
and (iv) there are no writs, injunctions, decrees, orders or judgments
outstanding, or any Actions pending or, to the knowledge of the Company,
threatened, concerning noncompliance by, or actual or potential liability of,
the Company or any Subsidiary with any Environmental Law.

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(ff)

Disclosure. All disclosure furnished by or on behalf of the Company to the
Purchaser regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Letter to this Agreement, is true and correct
and does not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.

3.2

Representations and Warranties of the Purchaser. The Purchaser hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows:

(a)

Organization; Authority. Such Purchaser is a natural person or an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution, delivery and performance by such Purchaser of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action, as may be applicable, on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

(b)

Own Account; No Registration Rights. Such Purchaser understands that the Shares
are “restricted securities” and have not been registered under the Securities
Act or any applicable state or other securities law and is acquiring the Shares
as principal for its own account and not with a view to or for distributing or
reselling such Shares or any part thereof in violation of the Securities Act or
any applicable state or other securities law, has no present intention of
distributing any of such Shares in violation of the Securities Act or any
applicable state or other securities law and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of such Shares (this representation and warranty not limiting
such Purchaser’s right to sell the Shares pursuant to the Registration Statement
or otherwise in compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state or other securities law.
Such Purchaser is acquiring the Shares hereunder in the ordinary course of its
business.

(c)

Purchaser Status. At the time such Purchaser was offered the Shares, it was, and
at the date hereof it is an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.

(d)

Experience of Such Purchaser. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Shares, and has so evaluated the merits and
risks of such investment. Such Purchaser is able to bear the economic risk of an
investment in the Shares and, at the present time, is able to afford a complete
loss of such investment.

(e)

General Solicitation. Such Purchaser is not purchasing the Shares as a result of
any advertisement, article, notice or other communication regarding the Shares
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.

(f)

Provision of Information. Such Purchaser has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
Shares and the finances, operations and business of the Company; and (ii) the
opportunity to request such additional information which the Company possesses
or can acquire without unreasonable effort or expense.

(g)

Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by such Purchaser to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents.

(h)

Acknowledgement. The Purchaser acknowledges that the Company has relied upon the
representations and warranties of the Purchaser set forth in Section 3.2 in its
determination that no registration under the Securities Act is required for the
offer and sale of the Shares by the Company to the Purchaser as contemplated by
this Agreement.

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ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1

Fee. In lieu of registration rights and to acknowledge the direct negotiation
for the sale of the Shares between the Company and the Purchaser without the use
of an intermediary, the Company agrees to pay to Purchaser an aggregate of
$5,000 per each Share Bundle (the “Fee”). The Fee shall be paid in eight equal
quarterly installments of $625 during the twenty-four month period immediately
following the Closing (the “Payment Period”). Each of the eight quarterly
installments shall be paid on the last Business Day of the calendar quarter,
commencing in December 2014, in accordance with the wire instructions set forth
on Annex A attached hereto. The Fee, or any installment thereof, shall be paid
to Purchaser during the Payment Period, regardless of whether Purchaser
continues to own the Shares.

4.2

Purchaser Put Right. During the thirty day period immediately following the
Payment Period (the “Repurchase Period”), Purchaser may exercise a right (the
“Purchaser Put Right”) to transfer all right, title and interest of Purchaser
in, to and under some or all of the Shares back to the Company, in consideration
for a price equal to $7.00 per Share (the “Repurchase Price”). Purchaser may
exercise the Purchaser Put Right by providing written notice (the “Repurchase
Notice”) to the Company prior to the expiration of the Repurchase Period that
states:

(a)

the number of Shares to be repurchased by the Company;

(b)

a date, not fewer than ten Business Days from the date of the Repurchase Notice,
to transfer the Shares to the Company in exchange for the Repurchase Price (the
“Repurchase Date”);

(c)

the Purchaser’s payment instructions; and

(d)

that such Shares shall be repurchased as of the Repurchase Date pursuant to the
terms of this Agreement.

On the later of the Repurchase Date or the date the Company receives from the
Purchaser the Shares subject to repurchase, the Company shall pay to Purchaser
the Repurchase Price, in immediately available funds and in accordance with the
payment instructions provided in the Repurchase Notice. Purchaser acknowledges
that the Purchase Put Right is non-transferrable and shall expire in the event
the Shares are sold or transferred by the Purchaser but only for the portion of
the Shares sold or transferred.

4.3

Transfer Restrictions.

(a)

The Shares may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Shares, other than pursuant
to an effective registration statement, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Shares
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.

(b)

The Purchaser acknowledges that the Shares have not been registered under the
Securities Act, and that there are no registration rights with respect to the
Shares, and agrees to the following restrictive notation on any book-entry
account or imprinting on any physical certificate, so long as is required by
this Section 4.3, of a legend on any of the Shares in the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

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(c)

The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Shares to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Shares to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no legal
opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Shares
may reasonably request in connection with a pledge or transfer of the Shares.

(d)

Certificates evidencing the Shares shall not contain any legend (including the
legend set forth in Section 4.3(b)), (i) following any sale of such Shares
pursuant to Rule 144, or (ii) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company agrees that
at such time as such legend is no longer required under this Section 4.3(d), it
will, no later than 3 Business Days following the delivery by a Purchaser to the
Company or the Transfer Agent of a certificate representing Shares issued with a
restrictive legend, deliver or cause to be delivered to such Purchaser a
certificate representing such Shares that is free from all restrictive and other
legends. Notwithstanding the foregoing, the Company shall not be required to
remove any legends until all Shares represented by a single certificate are no
longer subject to restrictions. If only a portion of the Shares represented by
any single certificate are subject to restrictions, the holder of the
certificate may request, or the Company may require, that such certificate be
cancelled and two new certificates be issued. One certificate shall represent,
and be in the amount of, Shares not subject to restrictions and shall bear no
legend and the second certificate shall represent, and be in the amount of,
Shares subject to restrictions and shall bear an appropriate legend. The Company
may not make any notation on its records or give instructions to the Transfer
Agent that enlarge the restrictions on transfer set forth in this Section.
Certificates for Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System.

(e)

The Purchaser agrees that the removal of the restrictive legend from
certificates representing Shares as set forth in this Section 4.3 is predicated
upon the Company’s reliance that the Purchaser will sell any Shares pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Shares are sold pursuant to a registration statement, they will be sold in
compliance with the plan of distribution set forth therein.

4.4

Furnishing of Information. As detailed in Section 3.1 (h) (i) of the Disclosure
Letter, the Company expects to file its delinquent Form 10-K for the fiscal year
ended May 31, 2014 by September 30, 2014. As long as the Purchaser owns Shares
and the Company remains subject to the requirements of the Exchange Act, the
Company covenants to take all reasonable actions to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act. As long as the Purchaser owns Shares, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchaser and make publicly available in accordance with Rule
144(c) such information as is required for the Purchaser to sell the Shares
under Rule 144. The Company further covenants that it will take such further
action as any holder of Shares may reasonably request, to the extent required
from time to time to enable such Person to sell such Shares without registration
under the Securities Act within the requirements of the exemption provided by
Rule 144.

4.5

Integration. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Shares in a manner that would require the registration under the Securities Act
of the sale of the Shares to the Purchaser.

4.6

Publicity. The Company and the Purchaser’s Representative shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of the Purchaser, or
without the prior consent of Purchaser’s Representative, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of the Purchaser, or include the
name of the Purchaser in any filing with the Commission or any regulatory
agency, without the prior written consent of Purchaser’s Representative, except
as required by federal securities law in connection any filing required by the
Commission.

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4.7

Reimbursement. If the Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Purchaser to or with any other stockholder), solely as a result of such
Purchaser’s acquisition of the Shares under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such Action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Shares under this Agreement,
except if such claim arises primarily from a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance.

4.8

Indemnification of Purchaser. Subject to the provisions of this Section 4.8, the
Company will indemnify and hold the Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any Action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such Action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any Action shall be brought against the Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. The Purchaser Party shall have the right to
employ separate counsel in any such Action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such Action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to the Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to (A) the Purchaser Party’s breach
of any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents, (B) any
violations by the Purchaser of state or federal securities laws or (C) any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance.

4.9

Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the purpose
of enabling the Company to issue Shares pursuant to this Agreement.

4.10

Delivery of Shares After Closing. The Company shall deliver, or cause to be
delivered, the respective Shares purchased by the Purchaser to such Purchaser
within 3 Business Days of the Closing Date.

15

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4.11

Form D; Blue Sky Filings. The Company agrees to timely file a Form D via EDGAR
with respect to the Shares as required under Regulation D and to provide a copy
thereof, promptly upon request of the Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Shares for, sale to the Purchaser at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of the Purchaser. The Purchaser shall take all commercially reasonable actions
that are reasonably requested by the Company related to, or to effectuate, the
filing of a Form D or any filing required pursuant to the “Blue Sky” laws of the
states of the United States which, for purposes of clarity, shall not include
the payment of any fees by such Purchaser.

4.12

Investment Company. The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act of 1940, as amended.

4.13

Reservation of Common Stock under Equity Incentive Plans. Immediately following
the Closing, the Purchaser acknowledges that the Company will not have in place
any reservation of shares of Common Stock for future issuances with respect to
its Equity Incentive Plans, except for a reservation of 150,000 shares with
respect to the Equity Incentive Plans that are outstanding immediately prior to
the Closing.

ARTICLE V.

MISCELLANEOUS

5.1

Fees and Expenses. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. Purchaser acknowledges that the Fee will
partially or fully offset such fees and expenses it may incur. The Company shall
pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Shares to the Purchaser.

5.2

Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

5.3

Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Business Day, (b) the next Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Business Day
or later than 5:30 p.m. (New York City time) on any Business Day, (c) the second
Business Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.

5.4

Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed by the Company and Purchaser. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.

5.5

Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.

5.6

Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of Purchaser (other than by merger). The Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Shares, provided such transferee agrees in
writing to be bound, with respect to the transferred Shares, by the provisions
of the Transaction Documents that apply to the Purchaser.

16

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5.7

No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not
for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.8 Indemnification of
Purchaser.

5.8

Governing Law. This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with the
internal laws of the Commonwealth of Massachusetts, without regard to the
conflicts of law principles thereof that would cause the application of the laws
of any jurisdiction other than the internal laws of the Commonwealth of
Massachusetts.

5.9

Jurisdiction; Enforcement; Remedies. Each of the parties hereto (i) irrevocably
consents to submit itself to the personal jurisdiction of the courts of the
Commonwealth of Massachusetts located in Suffolk County, and of the United
States District Courts for the District of Massachusetts, in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
(iii) agrees that it will not bring any Action relating to this Agreement or any
of the transactions contemplated by this Agreement in any court other than the
courts of the Commonwealth of Massachusetts located in Suffolk County, and of
the United States District Courts for the District of Massachusetts and (iv)
consents to service being made through the notice procedures set forth in
Section 5.3. The parties hereby agree that service of any process, summons,
notice or document by registered mail to the respective addresses set forth in
Section 5.3 shall be effective service of process for any suit or proceeding in
connection with this Agreement or the transactions contemplated hereby.

5.10

Survival of Representations and Warranties. The representations and warranties
contained herein shall survive the Closing and the delivery of the Shares until
the 2 year anniversary of the Closing Date.

5.11

Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

5.12

Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

5.13

Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

5.14

Replacement of Shares. If any certificate or instrument evidencing any Shares is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such
replacement Shares.

5.15

Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchaser and the
Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to
assert in any Action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

17

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5.16

[Reserved].

5.17

Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

5.18

Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

(Signature Pages Follow)

18

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SIGNATURE PAGE          Date Signed: __________, 2014

PURCHASER:

Number of Shares:

 

 

 

 

 

 

 

Multiplied by Per Share Purchase Price:

x

$

5.00

 

 

 

 

Equals Subscription Amount:

=

$

 

 

 

 

Signature

 

Second Signature (if purchasing jointly)

 

 

 

 

 

 

Printed Name

 

Printed Second Name

COMPANY:

SofTech, Inc.

Joseph P. Mullaney

Chief Executive Officer

/s/ Joseph P. Mullaney

Signature

 

Joseph P. Mullaney

Printed Name

[Signature Page – Securities Purchase Agreement]

--------------------------------------------------------------------------------

ANNEX A

Purchaser’s Wire Instructions

Name:

 

Bank:

 

Account name:

 

Routing number:

 

Account number:

 

--------------------------------------------------------------------------------

DISCLOSURE LETTER

SECTION 3.1(b)

List of Foreign Qualifications

·

Arizona

·

Colorado

·

Florida

·

Illinois

·

Indiana

·

Kentucky

·

Michigan

·

Missouri

·

New Hampshire

·

New Jersey

·

New York

·

Ohio

·

Pennsylvania

·

Texas

·

Wisconsin

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DISCLOSURE LETTER

SECTION 3.1(g)

Capitalization

Registration Rights

As part of the Recapitalization Transaction completed in March 2011 and
disclosed in the SEC Reports, the Company issued 384,588 shares of its common
stock to eight investors. As part of that agreement, the Company agreed to file
a registration statement with the Commission to register the resale of the
private placement shares and to use its reasonable best efforts to cause the
registration statement to be deemed effective. Further the Company agreed to use
its reasonable best efforts, once the registration statement was deemed
effective, to avoid the issuance of an order suspending the effectiveness of the
registration statement. The registration statement was deemed effective on
December 28, 2011.

Rights Agreement

On February 3, 2012, the Company entered into a Rights Agreement with Registrar
and Transfer Company, as Rights Agent, dated as of February 3, 2012 (the “Rights
Agreement”). By adopting the Rights Agreement, the Board of Directors was
seeking to protect the Company’s ability to carry forward its net operating
losses and certain other tax attributes (collectively, “NOLs”). The Company has
experienced and may continue to experience substantial operating losses, and for
federal and state income tax purposes, the Company may “carry forward” net
operating losses in certain circumstances to offset current and future taxable
income, which will reduce federal and state income tax liability, subject to
certain requirements and restrictions. These NOLs are a valuable asset of the
Company, which may inure to the benefit of the Company and its shareholders.
However, if the Company experiences an “ownership change,” as defined in Section
382 of the Internal Revenue Code (the “Code”), its ability to use the NOLs could
be substantially limited, and the timing of the usage of the NOLs could be
substantially delayed, which could significantly impair the value of the
Company’s NOL asset. Generally, an “ownership change” occurs if the percentage
of the Company’s stock owned by one or more “five percent stockholders”
increases by more than fifty percentage points over the lowest percentage of
stock owned by such stockholders at any time during the prior three-year period
or, if sooner, since the last “ownership change” experienced by the Company. An
NOL rights agreement like the Rights Agreement with a 4.99% “trigger” threshold
is intended to act as a deterrent to any person acquiring 4.99% or more of the
outstanding shares of Common Stock without the approval of the Board of
Directors. This would protect the Company’s NOL asset because changes in
ownership by a person owning less than 4.99% of the Common Stock are not
included in the calculation of “ownership change” for purposes of Section 382 of
the Code.

In connection with the Rights Agreement, the Board of Directors of the Company
declared a dividend of one common share purchase right (a “Right”) for each
outstanding share of common stock, par value $.10 per share, of the Company (the
“Common Stock”). The dividend was issued on February 15, 2012 to the
stockholders of record on February 15, 2012. Each Right entitles the registered
holder to purchase from the Company one share of Common Stock in certain
circumstances at a price of $5.00 per share of Common Stock, subject to
adjustment.

In the event that a person or group of affiliated or associated persons becomes
an Acquiring Person, as defined in the Rights Agreement, each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereupon become void), will thereafter have the right to receive upon exercise
of a Right that number of shares of Common Stock having a market value of two
times the purchase price of the Right.

--------------------------------------------------------------------------------

DISCLOSURE LETTER

SECTION 3.1(h)

SEC Reports; Financial Statements

(i)

The Company filed a Form NT with the SEC on September 2, 2014 notifying them of
our inability to timely file our Form 10-K for the fiscal year ended May 31,
2014. The Company was unable to file the Form 10-K by September 15, 2014, the
grace period allowed. As a result, our Form 10-K will be deemed delinquent and
the Company will be restricted from using certain simpler registration forms
until such time as it has timely filed its SEC Reports for at least a one year
period. The Company expects to complete its filing of Form 10-K for the fiscal
year ended May 31, 2014 by September 30, 2014.

(ii)

None.

--------------------------------------------------------------------------------

DISCLOSURE LETTER

SECTION 3.1(i)

(i)

Change in Accounting Principle

On October 18, 2013, the Company sold substantially all of the assets of its
CADRA product line, including all intellectual property related to that
technology but specifically excluding cash, billed accounts receivable and
liabilities other than the deferred maintenance liability associated with CADRA
customer maintenance contracts for support services (the “CADRA Sale”), to
Mentor Graphics Corporation (“Mentor”), pursuant to an Asset Purchase Agreement
dated August 30, 2013 (the “Asset Purchase Agreement”). The aggregate
consideration for the CADRA Sale is up to $3.95 million, which is comprised of
(i) $2.88 million of which was paid on the closing date; (ii) $320,000 of which
will be paid on the one year anniversary (the “Holdback Payment”) of the closing
date (subject to any indemnification claims); and (iii) up to an aggregate
$750,000 over the three-year period subsequent to the closing date, based on 10%
of the net revenue generated by the CADRA business, (the “Earn-Out Payments”)
subject to the terms of the Earn-Out Agreement dated August 30, 2013 (the
“Earn-Out Agreement”).

In our quarterly reports for the fiscal quarters ended November 30, 2013 and
February 28, 2014, we accounted for the Holdback Payment and the Earn-Out
payments due under the CADRA Sale pursuant to ASC 450, Contingencies whereby the
Company recorded a gain of approximately $155,000 through the nine months ended
February 28, 2014 which included consideration of the Holdback Payment and the
portion of the Earn-Out Payments that had been reported by Mentor, but excluded
up to $686,000 of potential future Earn-Out Payments.

During the fourth quarter, we changed our accounting policy with regard to
Earn-Out Payments to ASC 820, Fair Value Measurements and Disclosures. Pursuant
to the fair value policy, the Company estimated the fair value of Earn-Out
Payments on the date of the transaction and recognized the fair value of the
Earn-Out Payments as a component of the gain or loss on sale as of the
transaction date. The Earn-Out Payments asset will be adjusted to fair value at
each reporting period with changes in the fair value of the asset reported as a
component of other income, net.

Under the fair value method, the Company recorded a $565,000 gain on the CADRA
Sale during the year ended May 31, 2014, which included the estimated fair value
of the Earn-Out Payments of $474,000 on the date of the transaction. Under the
ASC 450 the reported gain would have been $198,000 for the year ended May 31,
2014, which would have included $107,000 of Earn-Out Payments, that being the
amount of the Earn-Out Payments actually reported by the buyer through fiscal
year end. There was no impact of the change in accounting policy on previous
fiscal years as the Company has not had sale transactions that included earn out
agreements in the past.

The Company determined that accounting for the Earn-Out Payments at fair value
under ASC 820 resulted in a more complete and accurate reflection of the
economic value associated with the sale of the CADRA business. The Company
considered, among other things, the following facts and circumstances related to
the Earn-Out Payments in the decision to change its accounting policy:

·

The Earn-Out Payments were earned upon completion of the CADRA Sale; the Company
had no further obligation to perform any services to be entitled to the Earn-Out
Payments;

·

The Earn-Out Payments cannot exceed $750,000 and are based on a percentage of
revenue, a more predictable measure of performance;

·

The Company’s continued involvement as a distributor of the CADRA technology
throughout most of Europe affords us significant insight into Mentor’s product
plans, pricing, upgrade release schedule, continued investment and ongoing
strategy with regard to the technology;

·

Mentor’s obligation to report the CADRA revenue on a quarterly basis aids in our
understanding of their progress against previously prepared forecasts and
historical revenue trends; and

·

The majority of the CADRA revenue is composed of recurring annual maintenance
contracts with a high renewal rate from long-time users of the technology. As
such, the revenue over the term of the Earn-Out Payments is predictable.

The Company concluded that deferring the recognition of the Earn-Out Payments
until reported by Mentor under ASC 450 did not accurately and completely reflect
the economic value of the sale of the CADRA business that was completed during
fiscal year 2014. Adopting ASC 820 results in financial statements that more
accurately and completely depict the results of operations for the fiscal year
ended May 31, 2014 and the financial position as of that date and is therefore
preferable.

--------------------------------------------------------------------------------

(ii)

Share Repurchase

In June 2014, the Company repurchased 50,000 shares of common stock from five
investors that participated in a 2012/2013 program wherein the investors
received the right to require the Company to repurchase the shares acquired by
them at $5.50 per share. This arrangement was described in the Company’s SEC
Reports and the repurchase shall be disclosed in subsequent filings.

In August 2014, the Company purchased 101,411 unregistered, restricted shares of
common stock from Greenleaf Capital for a purchase price of $37,522, or $0.37
per share.

Name of Accredited Investor

 

Date of Securities Purchase Agreement

 

Amount of Investment in Transaction ($/# of Shares Purchased)

Robert Anthonyson

 

September 18, 2014

 

$100,000 / 20,000 shares

Glenn W. Dillon

 

September 22, 2014

 

$100,000 / 20,000 shares

Thomas Doherty

 

September 22, 2014

 

$50,000 / 10,000 shares

Leonard Schrank

 

October 9, 2014

 

$50,000 / 10,000 shares