Exhibit 10.17


 


METASTORM INC.


 


STOCK
PURCHASE AGREEMENT


 


NOVEMBER
9, 2005


 

















 


EXHIBITS


 


	
  Exhibit A

  	
   

  	
  Form of Warrant

  
	
  Exhibit B

  	
   

  	
  Stockholder List

  
	
  Exhibit C

  	
   

  	
  Form of Joinder
  Agreement to Fourth Amended and Restated Stockholders Agreement

  
	
  Exhibit D

  	
   

  	
  Form of Joinder
  Agreement to Third Amended and Restated Registration Rights Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Opinion of
  Venable LLP

  



 


i

















 


SCHEDULES


 


	
  Schedule 1

  	
   

  	
  Purchasers, Shares
  Purchased and Purchase Price

  
	
  Schedule 1.2

  	
   

  	
  Qualified Purchasers,
  Shares Eligible for Purchase Pursuant to Warrant and Exercise Price

  
	
   

  	
   

  	
   

  
	
  Disclosure Schedule:

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  Foreign Jurisdictions

  
	
  Section 2.2

  	
   

  	
  Capitalization

  
	
  Section 2.3

  	
   

  	
  Subsidiaries

  
	
  Section 2.6

  	
   

  	
  Governmental Consents

  
	
  Section 2.7

  	
   

  	
  Litigation

  
	
  Section 2.8(b)

  	
   

  	
  Patents and Trademarks

  
	
  Section 2.8(c)

  	
   

  	
  Inbound License
  Agreements

  
	
  Section 2.8(d)

  	
   

  	
  Outbound License
  Agreements

  
	
  Section 2.8(f)

  	
   

  	
  Owned Software

  
	
  Section 2.8(g)

  	
   

  	
  Owned Internet
  Identifiers

  
	
  Section 2.8(h)

  	
   

  	
  Liens on Owned
  Intellectual Property

  
	
  Section 2.8(s)

  	
   

  	
  Support and Maintenance
  Service Obligations

  
	
  Section 2.11

  	
   

  	
  Absence of Liabilities

  
	
  Section 2.13

  	
   

  	
  No Conflict of Interest

  
	
  Section 2.17(b)

  	
   

  	
  Company Benefit Plans

  
	
  Section 2.17(c)

  	
   

  	
  Exceptions to Company
  Benefit Plans

  
	
  Section 2.18

  	
   

  	
  Tax Returns and Audits

  
	
  Section 2.25

  	
   

  	
  Changes

  
				



 


ii

















 


METASTORM INC.


 


STOCK PURCHASE
AGREEMENT


 


THIS
STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of November 9,
2005, by and among METASTORM INC.,
a Maryland corporation (the “Company”), and the several purchasers named
in Schedule 1 attached hereto (each
individually, a “Purchaser” and collectively the “Purchasers”).  All capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in Appendix A attached hereto.


 


WITNESSETH:


 


WHEREAS,
subject to the terms and conditions set forth herein, the Company desires to
issue and sell to the Purchasers shares of the Company’s Series BB
Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”) for an aggregate purchase price of Two Hundred Fifty-Five
Thousand Ninety Dollars ($255,090) (the “Aggregate Purchase Price”).


 


NOW,
THEREFORE, in consideration of the premises and the covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:


 


1.                                      Purchase
and Sale of Series BB Preferred Stock and Warrants.


 


1.1                                 Sale
and Issuance of Series BB Preferred Stock.


 


(a)                                  The
Company has authorized the issuance and sale of One Hundred Eighty-Four
Thousand Eighty-Four (184,084) shares of the Series BB Preferred Stock at
a purchase price of one and 38572/100000 dollars ($1.38572) per share to the
Purchasers.


 


(b)                                 Subject
to the terms and conditions of this Agreement, each Purchaser, subject to and
in reliance upon the representations, warranties and covenants of the Company,
and the other terms and conditions of this Agreement, severally, but not
jointly, agrees to purchase at the Closing, and the Company agrees to sell and
issue to such Purchaser at the Closing, such number of shares of the Company’s Series BB
Preferred Stock as set forth opposite such Purchaser’s name on Schedule 1 attached hereto for the
purchase price indicated with respect to such Purchaser on Schedule
1, with the aggregate purchase price for all of the shares of Series BB
Preferred Stock to be sold hereunder being Two Hundred Fifty-Five Thousand
Ninety Dollars ($255,090).


 


(c)                                  Subject
to the terms and conditions of this Agreement, each eligible Purchaser (a “Qualified
Purchaser”), subject to and in reliance upon the representations,
warranties and covenants of the Company, and the other terms and conditions of
this Agreement, severally, but not jointly, agrees to purchase at the Closing,
and the Company agrees to sell and issue to such Qualified Purchaser at the
Closing, warrants exercisable to purchase a number of shares of Series BB
Preferred Stock equal to two shares for every dollar by which the amount of 


 

















 


the Holder’s aggregate investment in the Series BB Preferred Stock
set forth opposite such Holder’s name on Schedule 1.2
attached hereto exceeds the product of (i) the sum (the “Investment
Amount”) of (x) $5,255,090 and (y) the Aggregate Purchase Price,
multiplied by (ii) the Pro Rata Percentage (as defined below).  In the event that the Company sells
additional shares of Series BB Preferred Stock after the date hereof and
prior to December 31, 2005, in accordance with the terms and conditions of
the Company’s Fifth Articles of Amendment and Restatement (the “Fifth
Articles”), the number of Warrant Shares shall be recalculated in
accordance with the previous sentence by adding to the Investment Amount the
additional cash proceeds received by the Company as a result of such sale.  “Pro Rata Percentage” shall mean the
number of shares of Series AA Convertible Preferred Stock, par value $0.01
per share (the “Series AA Preferred Stock”) held by the Holder
divided by the total number of Series AA Preferred Stock outstanding.  Such warrants, upon any such issuance, shall
be substantially in the form of Exhibit A  hereto
(the “Warrants”).


 


1.2                                 Closing;
Delivery.  The closing of the
purchase and sale of the Series BB Preferred Stock (the “Closing”)
shall take place at the offices of Venable LLP, 1800 Mercantile Bank and Trust
Building, 2 Hopkins Plaza, Baltimore, Maryland, at 10:00 a.m., on November 9,
2005, or at such other time and place as the Company and the Purchasers
mutually agree upon, orally or in writing. 
At the Closing, the Company shall deliver to each Purchaser a
certificate registered in the name of such Purchaser representing the Series BB
Preferred Stock and, if applicable, the Warrants being purchased thereby
against payment of the purchase price therefore, such payment to be made in the
amount set forth opposite such Purchaser’s name on Schedule
1 hereto by cashiers or certified check or wire transfer of
immediately available U.S. funds.  The
Company and each Purchaser shall take such additional actions and execute and
deliver such additional agreements and other instruments and documents as
necessary or appropriate to effect the transactions contemplated by this
Agreement in accordance with its terms.


 


2.                                      Representations,
Warranties and Covenants of the Company.  The Company hereby represents, warrants and
covenants to each Purchaser as of the date hereof and as of the Closing, that,
except as set forth on the schedules of exceptions attached hereto and labeled
as the “Disclosure Schedule,” which exceptions shall be deemed to be part of
the representations and warranties made hereunder (the “Disclosure Schedule”),
as follows:


 


2.1                                 Organization,
Good Standing and Qualification.  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland and has full corporate power and
authority to carry on its business as now being conducted.  The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to
so qualify or become licensed is reasonably likely to be materially adverse to
the business, results of operations, financial condition, assets or liabilities
of the Company (a “Material Adverse Effect”).  Section 2.1
of the Disclosure Schedule sets forth a true and complete list of all foreign
jurisdictions in which the Company is so qualified or licensed and in good
standing.


 


2

















 


2.2                                 Capitalization.


 


(a)                                  Immediately
prior to the consummation of the transactions contemplated by this Agreement,
the authorized capital stock of the Company consists of the following:


 


(i)                                     40,000,000
shares of Series AA Preferred Stock, of which 37,056,695.65 shares are
issued and outstanding;


 


(ii)                                  6,800,000
shares of Series BB Preferred Stock, of which 3,608,233 shares are issued
and outstanding; and


 


(iii)                               55,179,000 shares of
common stock, par value $0.01 per share (the “Common Stock”), none of
which are issued and outstanding.


 


(b)                                 The
Company has reserved 87,500 shares of Common Stock for issuance to directors,
key employees and consultants to the Company pursuant to its 1999 Equity
Incentive Plan, which has been duly adopted by the Company’s board of directors
and approved by the Company’s shareholders. 
The Company’s board of directors and shareholders have approved the 2004
Omnibus Stock Plan which allows the Company to issue stock options to purchase
up to 6,770,232 shares of Common Stock for issuance to directors, key employees
and consultants and 1,443,779.71 restricted stock units for shares of Series AA
Preferred Stock for issuance to key employees.


 


(c)                                  Except
as set forth on Section 2.2
of the Disclosure Schedule, (i) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company or any of its subsidiaries
is authorized or outstanding, (ii) neither the Company nor any of its
subsidiaries has any obligation (contingent or otherwise) to issue any subscription,
warrant, option, convertible security, participation right or other such right
or to issue or distribute to holders of any shares of its capital stock any
evidences of indebtedness or assets of the Company or any of its subsidiaries,
and (iii) neither the Company nor any of its subsidiaries has any
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof.  Section 2.2
of the Disclosure Schedule shows the equity capitalization of the Company on a
fully-diluted basis immediately prior to, and after giving effect to, the
Acquisition (as defined below) and the transactions contemplated by this
Agreement.


 


(d)                                 Attached
hereto as Exhibit B is a true and
complete list of the Company’s stockholders, showing the number of shares of
capital stock of the Company held of record by each stockholder as of the date
of this Agreement.  Except as provided in
Section 2.2 of the Disclosure
Schedule, there are no agreements, written or oral, between the Company and any
holder of its capital stock, or among any holders of its capital stock,
relating to the issuance, acquisition (including without limitation rights of
first refusal or preemptive rights), disposition, registration under the
Securities Act of 1933, as amended (the “Securities Act”), or voting of
the capital stock of the Company.


 


3

















 


2.3                                 Subsidiaries.  Except as set forth on Section 2.3
of the Disclosure Schedule, the Company does not have any subsidiaries or own
or control, directly or indirectly, any interest in any other corporation,
partnership, limited liability company, trust, association, or other business
entity.  Except as set forth on Section 2.3 of the Disclosure
Schedule, the Company’s subsidiaries are duly organized, validly existing and
in good standing under the laws of their respective jurisdictions and have all
requisite corporate power and authority for the ownership and operations of
their properties and to carry on their businesses as now conducted and as
proposed to be conducted.  The Company’s
subsidiaries are duly qualified to transact business and are in good standing
in each jurisdiction in which the failure so to qualify would have a Material
Adverse Effect.  Each of the subsidiaries
listed on Section 2.3 of the
Disclosure Schedule is, directly or indirectly, wholly-owned by the Company.


 


2.4                                 Authorization.  All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Warrants, the Joinder Agreement
to the Fourth Amended and Restated Stockholders Agreement dated as of October 5,
2005 (the “Stockholders Agreement”) in the form attached hereto as Exhibit C (the “Stockholders
Agreement Joinder”), the Joinder Agreement to the Third Amended and
Restated Registration Rights Agreement dated as of October 5, 2005 (the “Registration
Rights Agreement”) in the form attached hereto as Exhibit D
(the “Registration Rights Agreement Joinder”; the Warrants, the
Stockholders Agreement Joinder, and the Registration Rights Agreement Joinder
being collectively referred to herein as the “Investment Agreements”),
the performance of all obligations of the Company hereunder and thereunder and
the authorization, issuance and delivery of the Series BB Preferred Stock
and the authorization and reservation of the Common Stock issuable upon
conversion of the Series BB Preferred Stock has been taken or will be
taken prior to the Closing, and the Investment Agreements, when executed and
delivered by the Company, shall (assuming due execution by the other parties
thereto) constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms (i) subject
to the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, (ii) except
as the availability of equitable remedies may be limited by general principles
of equity, or (iii) except to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.


 


2.5                                 Valid
Issuance of Securities.  The Series BB
Preferred Stock that is being issued to the Purchasers hereunder and the Series BB
Preferred Stock to be issued to the Purchasers upon exercise of the Warrants,
when issued, sold and delivered in accordance with the terms hereof or thereof
for the consideration expressed herein or therein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Stockholders Agreement,
and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.  The Common Stock issuable upon conversion of
the Series BB Preferred Stock purchased hereunder has been duly and
validly reserved for issuance, and upon issuance in accordance with the terms
of the Fifth Articles, against payment received therefor, shall be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Stockholders Agreement and applicable federal 


 


4

















 


and state securities laws and will be issued in compliance with all
applicable federal and state securities laws. 
Neither the issuance, sale or delivery of the Series BB Preferred
Stock nor the issuance or delivery of the Common Stock upon conversion of the Series BB
Preferred Stock nor the issuance or delivery of the Series BB Preferred
Stock upon exercise of the Warrants is subject to any preemptive right of the
stockholders of the Company with which the Company has not complied or which
has not been properly waived or to any right of first refusal or other right in
favor of any individual or entity.


 


2.6                                 Governmental
Consents.  Except as set forth on Section 2.6 of the Disclosure
Schedule, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, foreign,
state or local governmental authority on the part of the Company or any of its
subsidiaries is required in connection with the consummation of the
transactions contemplated by the Investment Agreements, except for filings
pursuant to applicable state securities laws and Regulation D of the Securities
Act, which will be made by the Company in compliance with such laws.


 


2.7                                 Litigation.  Except as set forth on Section 2.7
of the Disclosure Schedule, there is no action, suit, proceeding or
investigation pending or, to the Company’s knowledge, currently threatened
against the Company or any of its subsidiaries nor, to the Company’s knowledge,
is there any basis for the foregoing. 
Except as set forth on Section 2.7
of the Disclosure Schedule, neither the Company nor any of its subsidiaries is
a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or
investigation by the Company or any of its subsidiaries currently pending or
which the Company or any of its subsidiaries intends to initiate.  To the Company’s knowledge, no executive
officer of the Company (including any of such person’s properties or assets) is
pursuing, is a party or is otherwise subject to any pending action, suit,
proceeding or investigation and there is no threat thereof which, individually
or in the aggregate, would reasonably be expected to prevent such executive
officer from devoting substantially all of such person’s business time to the
affairs of the Company.


 


2.8                                 Intellectual
Property.


 


(a)                                  Intentionally
Reserved.


 


(b)                                 Section 2.8(b) of the
Disclosure Schedule sets forth a complete and correct list of all Patents,
registered Trademarks, applications to register Trademarks, material
unregistered Trademarks and material unregistered Copyrights included in the
Owned Intellectual Property, identifying for each, as applicable: (A) the
serial number, registration number or application number; and (B) the
status of any issuance, renewal, maintenance or other payments required to be
made within twelve (12) months after the date hereof.  The Company owns no registered Copyrights nor
any applications for registration of any Copyrights.


 


(c)                                  Section 2.8(c) of the
Disclosure Schedule sets forth a complete and correct list of all Inbound
License Agreements other than Mass-Market Licenses, identifying for each: (A) the
licensor(s) thereunder; (B) the date thereof; and (C) the
Intellectual Property licensed thereunder.


 


5

















 


(d)                                 Section 2.8(d) of the
Disclosure Schedule sets forth a complete and correct list of all Outbound
License Agreements, identifying for each: (A) the licensee(s) thereunder;
(B) the date thereof; and (C) the Owned Intellectual Property
licensed thereunder.


 


(e)                                  No
Intra-company License Agreements exist.


 


(f)                                    Section 2.8(f) of the
Disclosure Schedule sets forth a complete and correct list of all Owned
Software, identifying for each all Third Party Software (other than software
subject to Mass-Market Licenses) that is (A) required to be used in
conjunction with such Owned Software in order for such Owned Software to
function in accordance with its design specifications; or (B) otherwise
used by the Company in conjunction with such Owned Software in the operation of
the Company’s business as presently conducted and as conducted since January 1,
2000.


 


(g)                                 Section 2.8(g) of the
Disclosure Schedule sets forth a complete and correct list of all Owned
Internet Identifiers.


 


(h)                                 Except
as set forth in Section 2.8(h) of
the Disclosure Schedule, the Company owns all right, title and interest in and
to the Owned Intellectual Property, free and clear of all liens.  The Owned Intellectual Property has been duly
maintained, is valid and subsisting, is in full force and effect and has not
been cancelled, expired or abandoned.


 


(i)                                     To
the Company’s knowledge, the Licensed Intellectual Property has been duly
maintained, is valid and subsisting, is in full force and effect and has not
been cancelled, expired or abandoned.


 


(j)                                     To
the Company’s knowledge, each Inbound License Agreement is a valid and binding
agreement of the Company enforceable in accordance with its terms (except as
the same may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar Laws now or hereafter in effect relating to creditors’ rights
generally and subject to general principles of equity), and there exists no
event or condition (including the consummation of the transactions contemplated
by this Agreement) that will result in a violation or breach thereof, or
constitute any default thereunder.


 


(k)                                  All
Owned Software and other works protectable by Copyright that are included in
the Owned Intellectual Property were created, developed and authored by either (A) employees
of the Company within the scope of their employment; or (B) independent
contractors who have assigned all of their rights to the Company pursuant to a
written agreement.  No Owned Software was
jointly developed with any third Person who has not assigned all of his, her or
its rights to the Company pursuant to a written agreement.


 


(l)                                     To
the Company’s knowledge, the operation of the Company’s business as presently
conducted, and as conducted since January 1, 2000, does not infringe any
Intellectual Property rights of any third-party.  For the avoidance of doubt, the use by the
Company of any Licensed Intellectual Property pursuant to a valid Inbound
License Agreement shall not be construed as an infringement of any Intellectual
Property rights of the licensor for purposes of this Section 2.8(l).


 


6

















 


(m)                               There
is no pending or, to the Company’s knowledge, threatened claim alleging that
the business of the Company, as presently conducted, and as conducted since January 1,
2000, infringes, violates, misappropriates or dilutes, or interferes with, any
Intellectual Property rights of any third-party and, to the Company’s
knowledge, there are no facts or circumstances that might reasonably provide a
basis for any such claim.


 


(n)                                 There
is no pending or, to the Company’s knowledge,
threatened claim challenging the validity or enforceability of any Inbound
License Agreement or Outbound License Agreement and, to the Company’s
knowledge, there are no facts or circumstances that might reasonably provide a
basis for any such claim.


 


(o)                                 The
Company has not brought or threatened a claim against any Person (A) alleging
infringement, violation, misappropriation, or dilution of, or interference
with, any Owned Intellectual Property or any License Agreement; (B) challenging
any Person’s ownership or use of, or the validity or enforceability of, any
Intellectual Property; or (C) challenging the validity or enforceability
of any License Agreement and, to the Company’s knowledge, there are no facts or
circumstances that might reasonably provide a basis for any claim described in
the foregoing clauses (A)-(C) and reasonably relating to the business of
the Company.


 


(p)                                 All
registered Trademarks, applications to register Trademarks and material unregistered
Trademarks included in the Owned Intellectual Property of the Company are in
use in the form appearing in, and in connection with the goods and services
listed in, their respective registration certificates (with respect to
registered Trademarks) or applications (with respect to unregistered Trademarks
for which an application has been filed).


 


(q)                                 The
Company takes commercially reasonable measures to protect the confidentiality
of (A) the Source Code and (B) Trade Secrets included in the Owned Intellectual
Property and the Licensed Intellectual Property, including requiring all
employees and third Persons having access thereto to execute written
non-disclosure agreements.  No Trade
Secrets included in the Owned Intellectual Property or the Licensed
Intellectual Property have been disclosed or authorized to be disclosed to any
third Person other than pursuant to a written non-disclosure agreement; and no
third Person that is a party to any non-disclosure agreement with the Company
is in breach or default thereof.  No
Person other than the Company is in possession of any Source Code included in
the Owned Intellectual Property.  The
Company is not bound by any agreement that will, or would reasonably be
expected to, result in or require the disclosure or release of any Source Code
included in the Owned Intellectual Property to a third Person by the Company or
any escrow agent(s).


 


(r)                                    No
Owned Software or any other Software used by the Comapny in the ordinary course
of its business is, includes, or is a derivative of any Software (A) for
which the source code is in the public domain, or (B) that includes “open
source” code or is licensed pursuant to an “open source” license, including by
way of example, but not in limitation, the GNU General Public License, the
Mozilla Public License, the BSD License or the Apache Software License.


 


7














 


(s)                                  Except
as set forth in Section 2.8(s) of
the Disclosure Schedule, the Company does not have any obligation to provide
any technical support or Software maintenance services to any third Person.


 


(t)                                    No
current or former shareholder, partner, member, director, officer or employee
of the Company has or will have, after giving effect to the transactions contemplated
by this Agreement, any legal or equitable right, title or interest in or to, or
any right to use, directly or indirectly, in whole or in part, any of the Owned
Intellectual Property or Licensed Intellectual Property; provided,
that for purposes of this Section 2.8(t), “Owned Intellectual Property”
shall not include, in the case of each such natural Person, moral rights and
rights of publicity and privacy relating to the use of the name, likeness,
voice, signature and biographical information of such natural Person.


 


(u)                                 Neither
this Agreement, nor the consummation of the transactions contemplated by this
Agreement, will result in any third Person being granted rights of access to,
use of, or the placement in or release from escrow of, any Owned Intellectual
Property or, to the Company’s knowledge, any Licensed Intellectual Property.


 


(v)                                 To
the Company’s knowledge, the Owned Intellectual Property and the Licensed
Intellectual Property include all Intellectual Property necessary for the
continued conduct of the business of the Company after the Closing in
substantially the same manner as currently conducted.


 


(w)                               To
the Company’s knowledge, the business of the Company is being conducted in
compliance in all material respects with all Laws relating to Intellectual
Property, and the Company has not received written notification that has not
lapsed, been withdrawn or abandoned by any Governmental Entity asserting a
violation by the business of the Company of any such Law, judgment, order,
settlement or decree, relating to Intellectual Property.


 


2.9                                 Compliance
with Other Instruments.


 


(a)                                  Neither
the Company nor any of its subsidiaries is in violation or default (i) of
any provisions of their respective articles of incorporation, bylaws or other
organizational documents, (ii) of any material instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
which violations or defaults are material, or (iii) of any provision of
federal or state statute, rule or regulation applicable to the Company or
any of its subsidiaries.  The Company and
its subsidiaries hold all material licenses or permits to the extent required
by the Company’s and its subsidiaries’ ownership of their assets and operations
and the conduct of their respective businesses as currently conducted.  The execution, delivery and performance of
the Investment Agreements and the consummation of the transactions contemplated
hereby or thereby will not, with or without the passage of time and/or the
giving of notice, result in any such violation or be in conflict with or
constitute either a default under any such provision, instrument, judgment,
order, writ, decree or contract or an event which results in the creation of
any lien, charge or encumbrance upon any assets of the Company or its
subsidiaries, except where any such violation, conflict, default or creation of
any such lien, charge or encumbrance would not have a Material Adverse Effect.


 


8

















 


(b)                                 Both
the Company and its subsidiaries have used commercially reasonable efforts to
avoid every condition, and not to perform any act, the occurrence of which would
result in the Company’s or the subsidiaries’ loss of any material Intellectual
Property Right.


 


2.10                           Agreements;
Action.


 


(a)                                  All
of the of the material agreements of the Company and its subsidiaries are
enforceable against the Company and the other parties thereto in accordance
with their terms, except as enforceability may be limited by the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors’ rights generally and except as the availability
of equitable remedies may be limited by general principles of equity.  Neither the Company nor any of its
subsidiaries is now in default in any material respect under, nor are there any
liabilities arising from any material breach or material default by the Company
or any subsidiary prior to the date of this Agreement of, any provision of any
such agreements.


 


(b)                                 For
purposes of this Agreement, “material agreements” shall mean agreements to
which the Company or any of its subsidiaries is a party or by which any of them
is bound that involve (i) obligations (contingent or otherwise) of, or
payments to, the Company or any of its subsidiaries in excess of, $25,000, (ii) any
agreement relating to the Intellectual Property Rights (excluding agreements in
the ordinary course of business and trade secrets and Intellectual Property
Rights to software generally available for commercial purchase or license), (iii) the
grant of rights to manufacture, produce, assemble, license, market or sell its
products to any other person or that affect the exclusive right of the Company
or any of its subsidiaries to develop, manufacture, assemble, distribute,
market or sell its products and (iv) all employment and consulting
agreements, employee benefit, severance, bonus, pension, profit-sharing, stock
option, stock purchase and similar plans and arrangements, and distribution and
sales representative agreements.


 


2.11                           Absence
of Liabilities.  Except as set forth
on Section 2.11 of the Disclosure
Schedule, since September 30, 2005, neither the Company nor any of its
subsidiaries has (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii) incurred any indebtedness for money borrowed or incurred any
other liabilities individually other than in the ordinary course of business
and in amounts and on terms consistent with past practices, (iii) made any
loans or advances to any person or entity, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights, other than the sale of its inventory in the ordinary
course of business or disposal of assets in the ordinary course of business.


 


2.12                           Disclosure.  The Company has fully provided each Purchaser
with all the information which such Purchaser has requested in writing.  No representation or warranty of the Company
contained in this Agreement and the schedules and exhibits attached hereto, any
certificate furnished or to be furnished to the Purchasers at the Closing (when
read together) contains any untrue statement of a material fact or omits to
state a material fact necessary to 


 


9

















 


make the statements contained herein or therein not misleading in light
of the circumstances under which they were made.


 


2.13                           No
Conflict of Interest.  Neither the
Company nor any of its subsidiaries is indebted, directly or indirectly, to any
of its officers or directors or to their respective spouses or children, in any
amount whatsoever other than in connection with expenses or advances of
expenses incurred in the ordinary course of business or relocation expenses of
employees.  None of the Company or its
subsidiaries’ officers, or any members of their immediate families, are,
directly or indirectly, indebted to the Company or any of its subsidiaries
(other than in connection with purchases of the Company or any of its
subsidiaries’ stock) or, to the knowledge of the Company, have any direct or
indirect ownership interest in any firm or corporation with which the Company
or any of its subsidiaries is affiliated or with which the Company or any of
its subsidiaries has a material business relationship, or any firm or
corporation which competes with the Company or any of its subsidiaries, except
for ownership by officers of the Company or any of its subsidiaries of stock in
(but not exceeding two percent of the outstanding capital stock of) any
publicly traded companies that may compete with the Company or any of its
subsidiaries.  To the knowledge of the
Company, none of the Company or any of its subsidiaries’ officers or directors
or any members of their immediate families are, directly or indirectly,
interested in any material contract with the Company or any of its
subsidiaries.  Other than in the ordinary
course of business and consistent with past practices and except as set forth
on Section 2.13 of the Disclosure
Schedule, neither the Company nor any of its subsidiaries is a guarantor or
indemnitor of any indebtedness of any other person, corporation, partnership or
other entity.


 


2.14                           Rights
of Registration and Voting Rights. 
Except (a) as contemplated in the Registration Rights Agreement,
the Registration Rights Agreement Joinder, the Stockholders Agreement and the
Stockholders Agreement Joinder, (b) the Agreement and Plan of Merger among
the Company, Metastorm Acquisition Corporation and Software Systems Group, Inc.,
dated as of May 12, 2000, (c) the Warrant Purchase Agreement by the
Company in favor of PNC Bank, National Association, dated October 27,
2000, (d) the Warrant to Purchase Stock by the Company in favor of
Comerica Bank – California, dated February 12, 2002, (e) the Warrant
to Purchase Stock by the Company in favor of Comerica Bank – California, dated February 20,
2003, and (f) the Warrants to Purchase Stock by the Company in favor of
Comerica Bank, each dated March 21, 2005, neither the Company nor any of
its subsidiaries has granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.  Except as contemplated in the Stockholders
Agreement and except for the Agreement by and among the Company and Avi Hoffer
dated August 20, 2004, no shareholders of the Company have entered into
any agreements to which the Company is a party and which will remain in effect
following the execution and delivery of the Stockholders Agreement with respect
to the voting of capital shares of the Company.


 


2.15                           Private
Placement.  Subject to the truth and
accuracy of the Purchasers’ representations set forth in this Agreement, the
offer, sale and issuance of the Series BB Preferred Stock as contemplated
by this Agreement is exempt from the registration requirements of the
Securities Act, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.


 


10

















 


2.16                           Title
to Property and Assets.  Each of the
Company and its subsidiaries owns its property and assets free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company’s ownership or use of such property or assets and except for Permitted
Liens.  With respect to the property and
assets leased by the Company or its subsidiaries, the Company and each of its
subsidiaries is in compliance with such leases and holds a valid leasehold
interest free of any liens, claims or encumbrances, except for Permitted Liens.


 


2.17                           Employee
Benefit Plans.


 


(a)                                  Intentionally
Reserved.


 


(b)                                 Section 2.17(b) of the
Disclosure Schedule contains a list of each Company Benefit Plan currently
sponsored, maintained or contributed to by the Company.


 


(c)                                  Except
as set forth in Section 2.17(c) of
the Disclosure Schedule, (A) with respect to each Company Benefit Plan
identified in Section 2.17(b) of
the Disclosure Schedule, the Company has heretofore made available to the
Purchasers true and complete copies of the plan documents, and any amendments
thereto, and (B) to the Company’s knowledge, each Company Benefit Plan has
been established, qualified, operated and administered in all material respects
in accordance with its terms and in compliance with ERISA, the Code and all
Applicable Benefit Laws including without limitation compliance with (1) the
continuation coverage requirements of ERISA Sections 601 to 608, (2) Code Section 401(a) in
the case of a Company Benefit Plan intended to be qualified thereunder, and (3) all
reporting and disclosure requirements.


 


(d)                                 No
Company Benefit Plan is a “multiemployer plan” as defined in ERISA Section 4001(a)(3) or
otherwise subject to Title IV of ERISA. 
No Company Benefit Plan is subject to Code Section 412 or ERISA Section 302.


 


2.18                           Tax
Returns and Audits.  Except as set
forth in Section 2.18 of the
Disclosure Schedule:


 


(a)                                  The
Company has (i) duly and timely filed (or there has been filed on its
behalf) with the appropriate Governmental Entities all material Tax Returns
required to be filed by the Company; and (ii) timely paid (or provided
adequate reserves in accordance with GAAP, consistently applied, on the Company’s
most recent books), or there has been paid on its behalf, all material Taxes
due from the Company (whether or not set forth on any Tax Return).  All such Tax Returns were complete and
accurate in all material respects.


 


(b)                                 The
Company has complied in all material respects with all applicable tax laws
relating to the payment and withholding of material Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441, 1442, 3402 and 4999
of the Code and employment withholding Taxes) and have, within the time and
manner prescribed by law, withheld and paid over to the proper Governmental
Entity all amounts required to be withheld and paid over under all applicable
tax laws.


 


11

















 


(c)                                  There
are no Liens for Taxes upon the assets or properties of the Company except for
Permitted Liens.


 


(d)                                 The
Company has not requested any extension of time within which to file any
material Tax Return in respect of any taxable year which has not since been
filed, and no outstanding waivers or comparable consents regarding the application
of the statute of limitations with respect to any material Taxes or material
Tax Returns has been given by or on behalf of the Company.


 


(e)                                  All
Tax deficiencies which have been claimed, proposed or asserted against the
Company by any taxing authority have been fully paid, and there are no other
federal, state, local or foreign audits, review, or other actions by any taxing
authority in progress relating to the Company or its business, nor has the
Company received any notice from any taxing authority that it intends to
conduct such an audit or investigation. 
The Company is not subject to any private letter ruling of the Internal
Revenue Service or any comparable ruling of any other taxing authority.


 


(f)                                    The
Company is not required to include in income any adjustment pursuant to Section 481(a) of
the Code, by reason of any voluntary or involuntary change in accounting method
(nor has any Governmental Entity proposed any such adjustment or change of
accounting method).


 


(g)                                 No
power of attorney has been granted by or with respect to the Company for any
matter relating to Taxes.


 


(h)                                 The
Company is not a party to any agreement, contract or arrangement that would
result, separately or in the aggregate, in the payment of any “excess parachute
payments” within the meaning of Section 280G of the Code; provided, however, that the Company shall have no liability
for breach of this representation to the extent liability arises from actions
taken by the Purchasers or any of their Affiliates on or after the date of
Closing.


 


(i)                                     The
Company is not a party to, bound by, or does not have any obligation under, any
Tax sharing agreement, Tax indemnification agreement or similar contract or
arrangement.


 


(j)                                     The
Company has no liability for Taxes of another person under Section 1.1502-6
of the treasury regulations promulgated under the Code (or any similar
provision under state, local or foreign law), by contract or otherwise.


 


(k)                                  The
Company is not or has not been a party to any joint venture, partnership, or
other arrangement or contract which could be treated as a partnership for U.S.
federal income tax purposes..


 


2.19                           Labor
Agreements and Actions.  Neither the
Company nor its subsidiaries is bound by or subject to (and none of its assets
or properties is bound by or subject to) any 


 


12

















 


written or oral,
express or implied, contract, commitment or arrangement with any labor union,
and no labor union has requested or, to the knowledge of the Company, has
sought to represent any of the employees, representatives or agents of the
Company or any of its subsidiaries. 
There is no strike or other labor dispute involving the Company and any
of its subsidiaries pending, or to the knowledge of the Company, threatened,
which could have a Material Adverse Effect, nor is the Company aware of any
labor organization activity involving its employees or those of any
subsidiary.  The Company and its
subsidiaries have complied in all material respects with all applicable federal
and state equal employment opportunity laws and with all other laws related to
employment or the health and safety of its employees.


 


2.20                           Employees;
Employment and Consulting Agreements.


 


(a)                                  To
the Company’s knowledge, no officer, director, member, stockholder, agent,
employee, consultant or contractor of the Company is bound by any contract that
purports to limit the ability of such officer, director, member, stockholder,
agent, employee, consultant or contractor (A) to engage in or continue to
perform any conduct, activity, duties or practice relating to the business of
the Company, or (B) to assign to the Company or to any other Person any
rights to any invention, improvement or discovery.  To the Company’s knowledge, no former or
current employee is a party to, or is otherwise bound by, any agreement that in
any way adversely affected, affects or will affect the ability of the Company
to conduct the business of the Company.


 


(b)                                 To
the Company’s knowledge, the Company has satisfied all tax withholding and
reporting obligations with respect to all its employees.


 


(c)                                  The
Company is not indebted, directly or indirectly, to any of its officers or
directors or to their respective spouses or children, in any amount whatsoever
other than in connection with expenses or advances of expenses incurred in the
ordinary course of business or relocation expenses of employees.  None of the Company’s officers, or any
members of their immediate families, are, directly or indirectly, indebted to
the Company or any of its subsidiaries (other than in connection with purchases
of the Company’s or any of its subsidiaries’ stock) or, to the Company’s
knowledge, have any direct or indirect ownership interest in any firm or
corporation with which the Company or any of its subsidiaries is affiliated or
with which the Company or any of its subsidiaries has a material business
relationship, or any firm or corporation which competes with the Company or any
of its subsidiaries, except for ownership by officers of the Company or any of
its subsidiaries of stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded companies that may compete with the
Company or any of its subsidiaries.  To
the Company’s knowledge, none of the Company or any of its subsidiaries’
officers or directors or any members of their immediate families are, directly
or indirectly, interested in any material contract with the Company or any of
its respective subsidiaries.


 


2.21                           Permits.  The Company and each of its subsidiaries has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it.  Neither the Company nor any of its
subsidiaries is in default in any material respect under any of such franchises,
permits, licenses or other similar authority.


 


13

















 


2.22                           Corporate
Documents.  The Fifth Articles and
the Bylaws of the Company are in the forms provided to counsel for the
Purchasers.  A true and complete copy of
the minute books of the Company has been made available to the Purchasers’
counsel and the minute books contain minutes of all meetings of directors and
stockholders of the Company and all actions by written consent without a
meeting by the directors and stockholders of the Company since the date of the
Company’s incorporation and reflects all actions by the directors (and any
committee of directors) and stockholders of the Company with respect to all
transactions referred to in such minutes accurately in all material
respects.  As of the date hereof, the
stock ledger of the Company is complete and reflects all issuances, transfers,
repurchases and cancellations of shares of capital stock of the Company.


 


2.23                           Real
Property Holding Corporation. 
Neither the Company nor any of its subsidiaries is a United States real
property holding corporation within the meaning of Code Section 897(c)(2) and
Section 1.897-2(c) of the Treasury Regulations promulgated
thereunder.


 


2.24                           Financial
Statements.  The Company has made
available to the Purchasers its (i) consolidated audited financial
statements as of, and for the fiscal year of the Company ended, December 31,
2004, and (ii) consolidated unaudited financial statements (including
balance sheet and income statement) as of, and for the 9-month period ended, September 30,
2005 (such financial statements identified in clauses (i) and (ii), the “Financial
Statements”).  The Financial
Statements have been prepared in accordance with GAAP, are complete and correct
in all material respects and fairly present the consolidated financial
condition and operating results of the Company and its subsidiaries as of the
dates thereof and for the periods then ended. 
Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
paid or incurred in the ordinary course of business subsequent to September 30,
2005 which aggregate less than One Hundred Thousand Dollars ($100,000) and (ii) obligations
under contracts and commitments incurred in the ordinary course of business.


 


2.25                           Changes.  Except as set forth in Section 2.25
of the Disclosure Schedule, since September 30, 2005, there has not been:


 


(a)                                  any
change in the assets, liabilities, financial condition or operating results of
the Company or any of its subsidiaries from that reflected in the Financial
Statements, except changes that have not had a Material Adverse Effect;


 


(b)                                 any
damage, destruction or loss, whether or not covered by insurance, having a
Material Adverse Effect (as such business is presently conducted and as it is
currently proposed to be conducted);


 


(c)                                  any
waiver or compromise by the Company or any of its subsidiaries of a valuable
right or of a material debt owed to it;


 


(d)                                 any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or any of its subsidiaries, except in the ordinary
course of business and that is not material to the business, financial
condition, operating results,


 


14

















 


assets, properties or prospects of the Company or any of its
subsidiaries (as such business is presently conducted and as it is proposed to
be conducted);


 


(e)                                  any
material change to a material contract or agreement by which the Company, any of
its subsidiaries or any of their assets is bound or subject;


 


(f)                                    any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its subsidiaries;


 


(g)                                 any
sale, assignment or transfer of any Intellectual Property Rights or other
intangible assets of the Company or any of its subsidiaries other than in the
ordinary course of business;


 


(h)                                 any
resignation or termination of employment of any officer or key employee of the
Company or any of its subsidiaries; and the Company, to the best of its
knowledge, does not know of any impending resignation or termination of
employment of any such officer or key employee;


 


(i)                                     loss
of, or order cancellation by, any major customer of the Company or any of its
subsidiaries;


 


(j)                                     any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company or any of its subsidiaries, with respect to any of its properties or
assets, except Permitted Liens;


 


(k)                                  any
loans or guarantees made by the Company or any of its subsidiaries to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;


 


(l)                                     any
declaration, setting aside or payment or other distribution in respect to any
of the Company’s capital stock, or any direct or indirect redemption, purchase,
or other acquisition of any of such stock by the Company;


 


(m)                               any
arrangement or commitment by the Company or any of its subsidiaries to do
anything described in this Section 2.25 (other than negotiating with
Purchasers and their representatives regarding the terms contemplated by this
Agreement); or


 


(n)                                 adoption
of, amendment to or increase in payments to or benefits under, any Company
Benefit Plan (except as necessary to comply with Applicable Benefit Laws).


 


2.26                           Insurance.  The Company and its subsidiaries maintain
and/or are covered by valid policies of workers’ compensation insurance and of
insurance with respect to their properties and business of the kinds and in the
amounts not less than is customarily obtained by


 


15

















 


corporations engaged in the same or similar business, including,
without limitation, insurance against loss, damage, fire, theft, public
liability and other risks.


 


2.27                           Compliance
with Law.  The operations of the
Company and its subsidiaries and the conduct of their business as and where
such business is presently conducted and or currently contemplated to be
conducted, and the property of the Company and its subsidiaries, and the use
thereof, comply, in all material respects, with all applicable statutes,
regulations, ordinances, orders and decrees.


 


2.28                           Accounts
and Notes Receivable.  Receivables
shown on the most recent Financial Statement arose in the ordinary course of
business and have been collected or, to the best knowledge of the Company, are
collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts provided for in such balance sheet.  Allowances for doubtful accounts are adequate
and have been prepared in accordance with GAAP consistently applied and in
accordance with past practices of the Company. 
No receivable (which, for purposes of this sentence will mean the
aggregate of amounts due from any customer or vendor) greater than $100,000 is
subject to any claim of offset, recoupment, set off or counterclaim and the
Company has no knowledge of any facts or circumstances that could give rise to
any such claim.


 


2.29                           Restrictions
on Business Activities.  There is no
material order binding upon the Company or any of its subsidiaries or any of
their properties which has had or could reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of the
Company or any of its subsidiaries or the conduct of business by the Company or
any of its subsidiaries as currently conducted or as proposed to be conducted
by the Company.  Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.


 


2.30                           No
Brokers.  The Company has no
liability, directly or indirectly, to pay any fees, commissions or other
amounts to any broker, finder or agent with respect to this Agreement or the
transactions contemplated hereby.


 


2.31                           Environmental
and Safety Laws.  Neither the Company
nor any of its subsidiaries is in material violation of any applicable statute,
law or regulation relating to the environment or occupational health and
safety, and no material expenditures are required in order to comply with any
such existing statute, law or regulation.


 


2.32                           Antitakeover
Statutes.  Except for laws relating
to antitrust issues, there are no laws (either state or federal) which would in
any way restrict, limit or impair any Purchaser from acquiring additional
shares of any class of capital stock of the Company or limit its ability to
vote or obtain full rights with respect to such stock.


 


16

















 


3.                                      Representations
and Warranties of Purchasers.  Each Purchaser hereby, severally and not
jointly represents and warrants to the Company, with respect to itself only, as
follows:


 


3.1                                 Accredited
Investor; Authorization.  Such
Purchaser is an “accredited investor” within the meaning of Rule 501
promulgated under the Securities Act and has the corporate, limited liability
company or partnership, as the case may be, power and authority to enter into
and perform this Agreement and to purchase the Series BB Preferred Stock
(and the Common Stock issuable upon conversion thereof).  This Agreement has been duly authorized,
executed and delivered by such Purchaser and (assuming due execution by the
Company) constitutes the legal, valid and binding obligation of such Purchaser,
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance or other similar laws affecting
the enforcement of creditors’ rights generally and except as the availability
of equitable remedies may be limited by general principles of equity.


 


3.2                                 No
Conflict With Other Agreements.  The
execution, delivery and performance of the Investment Agreements and the
consummation of the transactions contemplated hereby or thereby will not, with
or without the passage of time and/or the giving of notice, result in a
violation or default of any provisions of such Purchaser’s charter, bylaws,
partnership agreement or other organizational document or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound.


 


3.3                                 Investment
Knowledge.  Such Purchaser has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the risks and merits of its investment in the Company
and is capable of bearing the economic risks of such investment, including a
complete loss of its investment.


 


3.4                                 Distribution.  The Series BB Preferred Stock (and the
Common Stock issuable upon conversion thereof) and the Warrants, if any, (and
the Series BB Preferred Stock issuable upon exercise thereof) are being
acquired for such Purchaser’s own account for the purpose of investment and not
with a view to or for resale in connection with any distribution thereof.


 


4.                                      Conditions
of Purchasers’ Obligations at the Closing.  The obligations of the Purchasers to the
Company under this Agreement are subject to the fulfillment, concurrently with
or prior to the Closing, of each of the following conditions, unless otherwise
waived in writing by the Purchasers purchasing a majority of the Series BB
Preferred Stock:


 


4.1                                 Representations
and Warranties.  The representations
and warranties of the Company contained in this Agreement shall be true,
correct and complete, in all material respects (except that any materiality
qualifiers contained in the representations and warranties shall not be deemed
to be further qualified or limited as to materiality), on and as of the date of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.


 


17


















 


4.2           Performance.  The Company shall have performed and complied
with, in all material respects (except that any materiality qualifiers
contained in the covenants, agreements, obligations and conditions shall not be
deemed to be further qualified or limited as to materiality), all covenants,
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by the Company on or before the
Closing.


 


4.3           Compliance
Certificate.  The President of the
Company shall deliver to the Purchasers at the Closing a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.


 


4.4           Qualifications.  All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Series BB Preferred Stock pursuant to this Agreement shall be
obtained and effective as of the Closing.


 


4.5           Opinion
of Company Counsel.  The Purchasers
shall have received from Venable LLP, Counsel for the Company, an opinion,
dated as of the date of the Closing, substantially in the form of Exhibit E.


 


4.6           Supporting
Documents.  The Purchasers shall have
received the following:


 


(a)           A copy of resolutions of the Board of
Directors of the Company authorizing and approving the Investment Agreements
and the transactions contemplated thereby and, if applicable, the issuance of
the Warrants that are contemplated by this Agreement all such resolutions to be
certified by the Secretary of the Company;


 


(b)           A Certificate of Incumbency executed by the
Secretary of the Company certifying the names, titles and signatures of the
officers authorized to execute the Investment Agreements and further certifying
that the Fifth Articles and Bylaws of the Company delivered to the Purchasers
at the time of the execution of this Agreement have been validly adopted and
have not been amended or modified; and


 


(c)           Such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as legal counsel for the Purchasers may
reasonably request.


 


4.7           Stockholders
Agreement Joinder.  The Company, each
Purchaser that is a party thereto and the other parties thereto shall have executed
and delivered the Stockholders Agreement Joinder in substantially the form
attached as Exhibit C.


 


4.8           Registration
Rights Agreement Joinder.  The
Company, each Purchaser and the other parties thereto shall have executed and
delivered the Registration Rights Agreement Joinder in substantially the form
attached as Exhibit D.


 


18

















 


4.9           Payment
of Expenses.  The Company shall have
paid in accordance with Section 8.8 the expenses and disbursements of the
Purchasers.


 


4.10         Intentionally
Reserved.


 


4.11         No
Material Adverse Change.  No Material Adverse Change (as
defined herein) shall have occurred since September 30, 2005.  “Material Adverse Change” shall mean a
material adverse change, or any event, occurrence, state of circumstances or
facts or development involving a prospective material adverse change, in the
business, operations, assets, condition (financial or otherwise), results of
operations, properties, assets, value or prospects of the Company or any
subsidiary, individually.


 


5.             Conditions of the
Company’s Obligations at the Closing.  The obligations of the Company to each Purchaser
under this Agreement are subject to the fulfillment, on or before the Closing,
of each of the following conditions, unless otherwise waived by the Company in
writing.


 


5.1           Representations
and Warranties.  The representations
and warranties of such Purchaser contained in this Agreement shall be true,
correct and complete, in all material respects (except that any materiality
qualifiers contained in the representations and warranties shall not be deemed
to be further qualified or limited as to materiality), on and as of the Closing
with the same effect as though such representations and warranties had been
made on and as of the Closing.


 


5.2           Performance.  All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by such Purchaser
on or prior to the Closing shall have been performed or complied with in all
material respects (except that any materiality qualifiers contained in the
covenants, agreements, obligations and conditions shall not be deemed to be
further qualified or limited as to materiality).


 


5.3           Stockholders
Agreement Joinder.  Such Purchaser
shall have executed and delivered the Stockholders Agreement Joinder in
substantially the form attached as Exhibit C.


 


5.4           Registration
Rights Agreement Joinder.  Such
Purchaser shall have executed and delivered the Registration Rights Agreement
Joinder in substantially the form attached as Exhibit D.


 


5.5           Stockholder
Approval.  A written consent signed
by holders of at least two-thirds (2/3) of the currently outstanding Series AA
Preferred Stock and a written consent signed by holders of at least two-thirds
(2/3) of the currently outstanding Series BB
Preferred Stock, each approving the issuance and sale of the shares of Series BB
Preferred Stock to the Purchasers pursuant to the terms herein.


 


6.             Intentionally
Reserved.


 


19

















 


7.             Affirmative
Covenants.


 


7.1           Corporate Existence.  The Company
and each of its subsidiaries will maintain its respective corporate existence
in good standing and comply with all applicable laws and regulations of the
United States or of any state or political subdivision thereof and of any
foreign jurisdiction, and of any government authority of any of the foregoing,
where failure to so comply would have a Material Adverse Effect on the Company.


 


7.2           Books of
Account and Reserves.  The Company will keep books of record and
account in which full, true and correct entries are made of all of its
dealings, business and affairs, in accordance with GAAP.  The Company will employ certified public
accountants of established national reputation selected by the Board of Directors
of the Company who are “independent” within the meaning of the accounting
regulations of the Securities and Exchange Commission (the “Accountants”).  The Company will have annual audits made by
such Accountants in the course of which such Accountants shall make such
examinations, in accordance with generally accepted auditing standards, as will
enable them to give such reports or opinions with respect to the financial
statements of the Company as will satisfy the requirements of the Securities
and Exchange Commission (the “SEC”) in effect at such time with respect
to reports or opinions of accountants.


 


8.             Miscellaneous.


 


8.1           Survival
of Warranties.  Except for the
representations and warranties set forth in Sections 2.1-2.5 and 2.14 of the
Agreement, which shall survive the execution and delivery of this Agreement and
the Closing without limitation as to duration, and except for the
representations and warranties set forth in Section 2.18 of the Agreement,
which shall survive for the applicable statute of limitations period associated
with the tax matters set forth therein, the representations and warranties of
the Company and the Purchasers contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing for
a period of 18 months after the date hereof.


 


8.2           Transfer;
Successors and Assigns.   The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.


 


8.3           GOVERNING
LAW.  THIS AGREEMENT AND ALL ACTS AND
TRANSACTIONS PURSUANT HERETO AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW.


 


20

















 


8.4           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which together
shall constitute one instrument.


 


8.5           Titles
and Subtitles.  The titles and
subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.


 


8.6           Notices.  Any notice required or permitted by this
Agreement shall be in writing and shall be deemed given upon delivery, when
delivered personally or by overnight courier or sent by fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such party’s
address as set forth below or on Schedule 1
or Schedule 1.2  hereto, or as
subsequently modified by written notice, and


 


if to the Company at:


 


Metastorm Inc.


8825 Stanford Boulevard


Suite 200


Columbia, Maryland 21045-4757


Attention:  Robert J. Farrell


Telecopier: (410) 290-1172


 


with a
copy to:


 


Venable LLP


Two Hopkins Plaza, Suite 1800


Baltimore, MD  21201


Attention:  Thomas D. Washburne, Jr., Esq.


Telecopier:  (410) 244-7742


 


8.7           Finder’s
Fee.  Each party severally and not
jointly represents that it neither is nor will be obligated for any finder’s
fee or commission in connection with this transaction.  Each Purchaser agrees to indemnify and to
hold harmless the Company from any liability for any commission or compensation
in the nature of a finder’s fee (and the costs and expenses of defending
against such liability or asserted liability) for which such Purchaser or any
of its officers, employees, or representatives is responsible.  The Company agrees to indemnify and hold
harmless the Purchasers from any liability for any commission or compensation
in the nature of a finder’s fee (and the costs and expenses of defending
against such liability or asserted liability) for which the Company or any of
its officers, employees or representatives is responsible.


 


8.8           Expenses.  Each party shall bear its own costs and
expenses, provided, however, that the Company shall pay and be
responsible for all out-of-pocket expenses of the Purchasers and the reasonable
fees of the counsel for the Purchasers incurred with respect to this 


 


21

















 


Agreement, the documents referred to herein and the transactions
contemplated hereby up to a maximum of $5,000.


 


8.9           Amendments
and Waivers.  Any term of this
Agreement may be amended or waived with the written consent of the Company and
the Purchasers purchasing at least two-thirds (2/3)
of the Series BB Preferred Stock. 
Any amendment or waiver effected in accordance with this Section 8.9
shall be binding upon the Purchasers and each transferee of the Series BB
Preferred Stock, each future holder of all such securities, and the Company.


 


8.10         Severability.  If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.


 


8.11         Delays
or Omissions.  No delay or omission
to exercise any right, power or remedy accruing to any holder of any of the Series BB
Preferred Stock (or the Common Stock issuable upon conversation thereof) upon
any breach or default of the Company under this Agreement, shall impair any
such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring.  Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such writing.  All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.


 


8.12         Entire Agreement.  This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.


 


[signatures
on next page]


 


22

















 


IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date and year first above written.


 


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Farrell

  
	
   

  	
  Name: Robert J. Farrell

  
	
   

  	
  Title:   Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PURCHASERS:

  
	
   

  	
   

  
	
   

  	
  AXIOM
  VENTURE PARTNERS II, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William Wilcoxson

  
	
   

  	
  Name:
  William Wilcoxson

  
	
   

  	
  Title:   Partner

  
	
   

  	
   

  
	
   

  	
  IRONSIDE
  VENTURES, L.P.

  
	
   

  	
  By:
  Ironside Management LLC, its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Myles P. Gilbert

  
	
   

  	
  Name:
  Myles P. Gilbert

  
	
   

  	
  Title:   Managing Director

  
					



 


Signature
page to Stock Purchase Agreement


 






 










 


Appendix A


 


Definitions


 


“Affiliate”
means with respect to a specified Person, a Person that directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with the Person specified.


 


“Applicable
Benefit Laws” means all laws applicable to, or with respect to, any Company
Benefit Plan.


 


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


 


“Contract”
means any written agreement, License Agreement, lease (including all real and
personal property leases), policy, plan, instrument, contract, note, power of
attorney, insurance policy covenant, guaranty, arrangement, escrow account,
commitment or other instrument.


 


“Company
Benefit Plan” means each material written plan, fund, program, contract or
scheme, in each case, that is sponsored or maintained or required to be
sponsored or maintained by the Company or any Company ERISA Affiliate or to
which the Company or any Company ERISA Affiliate make, or have an obligation to
make, contributions providing for employee benefits or for the remuneration
(other than salary), direct or indirect, of the employees, former employees,
officers, contingent workers or leased employees of the Company or any Company
ERISA Affiliate or the dependents of any of them, including each written
deferred compensation, bonus, incentive compensation, pension, retirement,
stock purchase, stock option and other equity compensation plan, “welfare” plan
(within the meaning of Section 3(1) of ERISA, determined without
regard to whether such plan is subject to ERISA); each “pension” plan (within
the meaning of Section 3(2) of ERISA, determined without regard to
whether such plan is subject to ERISA); each severance plan or Contract; and
each health, vacation, supplemental unemployment benefit, hospitalization
insurance, medical, dental, legal program, agreement or arrangement.


 


“Company
ERISA Affiliate” means a member of a controlled group of corporations or a
trade or business under common control, as defined under Code Section 414(b) or
(c), with the Company.


 


“Copyrights”
means all copyrights, the content contained on or the “look and feel” of any
World Wide Web site, all mask works, and registrations and applications for any
of the foregoing, and the right to sue for past infringement thereof.


 


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


 


“GAAP”
means United States generally accepted accounting principles as in effect on
any applicable date, consistently applied.


 

















 


“Governmental
Entity” means any federal, state or local or foreign government or any
court, administrative, arbitrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign.


 


“Inbound
License Agreement” means any License Agreement pursuant to which the
Company or any of its subsidiaries has been granted any rights in any
Intellectual Property.


 


“Intellectual
Property” means, interchangeably and collectively as context requires, the
following, whether completed or in any stage of development: (a) Copyrights;
(b) Patents; (c) Trademarks; (d) Trade Secrets; (e) rights
of publicity and privacy relating to the use of the names, likenesses, voices,
signatures and biographical information of natural Persons; (f) all rights
with respect to Software, to the extent not otherwise embodied in the foregoing
clauses (a)-(e); (g) all rights with respect to Internet Identifiers, to
the extent not otherwise embodied in the foregoing clauses (a)-(e); and (h) all
moral rights in any of the foregoing.


 


“Intellectual
Property Rights” means the Company’s rights in the Owned Intellectual
Property and the Licensed Intellectual Property.


 


“Internet
Identifiers” means (a) internet domain names; (b) ranges of
internet protocol addresses and, to the extent not included in such ranges,
individual internet protocol addresses, but not including any such addresses
within the three blocks reserved by the Internet Assigned Numbers Authority for
private internets (i.e., 10.0.0.0/8, 172.16.0.0/12 and 192.168.0.0/15); (c) secure
socket layer certificates; and (d) Software code signing certificates.


 


“Intra-Company
License Agreement” means any License Agreement pursuant to which any rights
in Intellectual Property are granted (a) by the Company to any subsidiary
or Affiliate of the Company; or (b) to the Company by any subsidiary or
Affiliate of the Company.


 


“Laws”
means all applicable laws, codes, statutes, ordinances, orders, judgments,
decrees, administrative or judicial promulgations, injunctions, determinations,
approvals, rules, regulations, permits, certificates, licenses and
authorizations of all Governmental Entities with jurisdiction, that relate to
or affect the Business of Buyer or the Business of Sellers, as the case may be.


 


“License
Agreement” means any agreement (including, without limitation, any
outstanding decrees, orders, judgments, settlement agreements or stipulations,
and any Mass-Market Licenses) pursuant to which a Person is granted any rights
in any Intellectual Property, including any right to distribute, promote, market
or sell any Intellectual Property.


 


“Licensed
Intellectual Property” means Intellectual Property in which the Company is
granted any rights pursuant to an Inbound License Agreement.


 


“Liens”
means all mortgages, liens, pledges, security interests, charges, claims,
restrictions and encumbrances.


 


“Mass-Market
License” means any License Agreement that (a) grants the licensee(s) thereunder
any rights in Mass-Market Software; (b) is a “shrink wrap” or “click wrap”
license


 

















 


agreement; and (c) requires
aggregate annual and/or other fee payments of less than One Thousand Dollars
($1,000) or a one-time royalty of not less than Fifteen Thousand Dollars
($15,000).


 


“Mass-Market
Software” means non-customized, commercial, off-the-shelf Software made
generally available to the public.


 


“Outbound
License Agreement” means any License Agreement pursuant to which the
Company grants any rights in any Owned Intellectual Property to any other
Person.


 


“Owned
Intellectual Property” means Intellectual Property owned by the Company.


 


“Owned
Internet Identifiers” means, with respect to the Company, an Internet
Identifier owned by, allocated to (in the case of ranges of internet protocol
addresses and individual internet protocol addresses), or issued to (in the
case of secure socket layer certificates and Software code signing
certificates) the Company.


 


“Owned
Software” means Software included in the Owned Intellectual Property.


 


“Patents”
means all patents and registrations, industrial designs, including any
continuations, divisionals, continuations-in-part, renewals, reissues and
applications for any of the foregoing, and the right to sue for past
infringement thereof.


 


“Permitted
Liens” means: (a) liens imposed by Law for Taxes, assessments or
charges or claims by Governmental Entities that are not yet due or are being
properly contested; (b) carriers’, warehousemen’s, mechanics’, materialmen’s,
repairmen’s, landlords’ and other like liens imposed by Law or contract,
arising in the ordinary course of business and securing obligations that are
not overdue; (c) pledges and deposits made in the ordinary course of
business in compliance with workers’ compensation, unemployment insurance and
other social security Laws or regulations; (d) deposits to secure the
performance of bids, trade contracts, leases, statutory obligations, surety,
indemnity and appeal bonds, performance and return-of-money and fiduciary bonds
and other obligations of a like nature, in each case in the ordinary course of
business; (e) easements, zoning restrictions, rights-of-way, licenses,
covenants, conditions, minor defects, encroachments or irregularities in title
and similar encumbrances on or affecting real property leased by the Company (“Leased
Real Property”) that do not secure any monetary obligations and do not
materially interfere with the ordinary conduct of the business of the Company; (f) any
(i) interest or title of a lessor or sublessor under any lease, (ii) restriction
or encumbrance that the interest or title of such lessor or sublessor may be subject
to, or (iii) subordination of the interest of the lessee or sublessee
under such lease to any restriction or encumbrance referred to in the preceding
clause (ii); (g) with respect to the Leased Real Property, any defect or
encumbrance caused by or arising out of the failure to record the lease or a
memorandum thereof in the applicable real property records in the county where
such Leased Real Property is located; and (h) any liens created in favor of Comerica Bank –
California in accordance with (i) the Amended and Restated Loan and
Security Agreement dated as of August 19, 2004 (as amended from time to
time) by and among the Company, Elite Federal Forms, Inc. and Comerica
Bank – California; (ii) the Pledge Agreement, dated as of February 21,


 

















 


2002,
by and among the Company, Elite Federal Forms, Inc. and Comerica Bank –
California; (iii) the Intellectual Property Security Agreement, entered
into as of February 21, 2002, by and between the Company and Comerica Bank
– California; (iv)  the Intellectual Property Security Agreement, entered
into as of February 21, 2002, by and between Elite Federal Forms, Inc.
and Comerica Bank – California; and (v) the Intellectual Property Security
Agreement, entered into as of February 21, 2002, by and between Sysgenics
Limited and Comerica Bank – California.


 


“Person”
means an individual, a sole proprietorship, a partnership, a corporation, an
association, an institution, a joint stock company, a limited liability
company, a trust, a joint venture, an unincorporated organization, or a
Governmental Entity or any other legal entity.


 


“Software”
means all (a) computer programs, including software implementations of
algorithms, models and methodologies, whether in source code or object code
form; (b) libraries, functions, subroutines, development tools,
interfaces, displays and other work product or tools used to design, plan,
organize, develop, implement or operate any computer program; (c) databases
and compilations, including data and collections of data, in any form or format
whatsoever, and (d) documentation, including user manuals, training
materials, design documents and flowcharts relating to any of the foregoing.


 


“Source
Code” means the source code for (a) Owned Software and/or (b) Software
included in the Licensed Intellectual Property.


 


“Taxes”
means all taxes, assessments, charges, duties, fees, levies or other
governmental charges (including interest, penalties or additions associated
therewith), including income, franchise, capital stock, real property, personal
property, tangible property, escheat, withholding, employment, payroll, social
security, unemployment compensation, disability, transfer, sales, use, excise,
gross receipts, value-added and all other charges or assessments of any kind
for which Sellers may have any liability imposed by any Governmental Entity,
whether disputed or not, and any charges, interest or penalties imposed thereon
by any Governmental Entity.


 


“Tax
Return” means any return, declaration, estimate, installment, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment or supplement
thereof.


 


“Third
Party Software” means Software not owned by the Company or any of its
subsidiaries.


 


“Trademarks”
means all trademarks, service marks, trade names, trade dress, designs, logos,
emblems, signs or insignia, slogans, and other similar designations of source
or origin, together with all goodwill symbolized by any of the foregoing,
registrations and applications for any of the foregoing, and the right to sue
for past infringement thereof.


 


“Trade
Secrets” means any and all forms and types of confidential technology,
trade secrets and other confidential information, including know-how, customer
lists, prospect lists, business plans, inventions, invention disclosures,
proprietary processes, formulae, algorithms, models and methodologies.


 

















 


Schedule 1


 


Purchasers, Shares Purchased and Purchase Price


 


 


	
  Purchaser

  	
   

  	
  Shares of Series BB

  Preferred Stock

  Purchased

  	
   

  	
  Purchase Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Axiom Venture Partners II, LP

  Cityplace II, 17th Floor

  185 Asylum St

  Hartford, Connecticut  06103

  Attn: William Wilcoxson

  	
   

  	
  105,093

  	
   

  	
  $

  	
   145,630

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ironside Ventures, L.P.

  950 Winter Street, Suite 1400

  Waltham, Massachusetts 02451

  Attn: Steve Kurylo

  	
   

  	
  78,991

  	
   

  	
  $

  	
   109,460

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 

















 


Schedule 1.2


 


Qualified Purchasers, Shares Eligible for Purchase
Pursuant to Warrant


and Exercise Price


 


 


	
  Qualified Purchaser

  	
   

  	
  Shares Eligible for

  Purchase Pursuant to

  Warrant

  	
   

  	
  Exercise

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Axiom Venture Partners II, LP

  Cityplace II, 17th Floor

  185 Asylum St

  Hartford, Connecticut  06103

  Attn: William Wilcoxson

  	
   

  	
  76,775

  	
   

  	
  $

  	
   1.38572

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ironside Ventures, L.P.

  950 Winter Street, Suite 1400

  Waltham, Massachusetts 02451

  Attn: Steve Kurylo

  	
   

  	
  0

  	
   

  	
  N/A

  	
   

  
							



 














 


EXHIBIT A


 


Form of
Warrant


 


See
Attached


 

















 


Exhibit A


 


 


THIS WARRANT AND THE
SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE
SECURITIES LAWS OF ANY STATE.  THEY MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION
THEREFROM.


 


WARRANT AGREEMENT
TO PURCHASE STOCK OF


 


METASTORM INC.


 


	
  Issue Date:  November 9, 2005

  	
  Expiration Date:    November 9, 2015

  



 


THIS
WARRANT AGREEMENT (this “Warrant”) evidences the agreement of Metastorm
Inc., a Maryland corporation (the “Company”), for value received, the
receipt and sufficiency of which are hereby acknowledged, to issue to AXIOM
VENTURE PARTNERS II, LP, or its assigns (“Holder”), and the right of the
Holder, at the Holder’s option, to purchase, up to 76,775 fully paid and
nonassessable shares (the “Warrant Shares”) of Series BB
Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”), at the initial exercise price per share set forth herein
pursuant to Section 2 of this Warrant, and otherwise subject to the
provisions and upon the terms and conditions set forth in this Warrant.  Capitalized terms used herein but not
otherwise defined herein shall have the meaning assigned them in that certain
Stock Purchase Agreement, dated as of November 9, 2005 (the “Purchase
Agreement”), by and among the Company and the purchasers listed on the signature
pages thereto.  The number of
Warrant Shares shall be equal to two shares for every dollar by which the
amount of the Holder’s aggregate investment in the Series BB Preferred
Stock set forth opposite such Holder’s name on Schedule 1.2 of the
Purchase Agreement exceeds the product of (i) $5,255,090 (the “Investment
Amount”) multiplied by (ii) the Pro Rata Percentage (as defined
below).  In the event that the Company
sells additional shares of Series BB Preferred Stock after the date hereof
and prior to December 31, 2005, in accordance with the terms and
conditions of the Company’s Fifth Articles of Amendment and Restatement (the “Articles”),
the number of Warrant Shares shall be recalculated in accordance with the
previous sentence by adding to the Investment Amount the additional cash
proceeds received by the Company as a result of such sale.  “Pro Rata Percentage” shall mean the
number of shares of Series AA Convertible Preferred Stock, par value $0.01
per share (the “Series AA Preferred Stock”) held by the Holder
divided by the total number of Series AA Preferred Stock outstanding.


 


This Warrant is subject
to the following terms and conditions:


 

















 


1.             Term
of Warrant.  On the terms and
conditions set forth herein, this Warrant shall be exercisable, in whole or in
part, at any time after the date of issuance of this Warrant and ending at 5:00 p.m.,
New York time, on November 9, 2015 (the “Termination Date”).


 


2.             Warrant
Price.   The Warrant Price at which
this Warrant may be exercised for Series BB Preferred Stock shall be
$1.38572 per share, as shall be adjusted from time to time pursuant to Section 8
hereof (the “Warrant Price”).


 


3.             Exercise
of Warrant.


 


(a)           The
purchase rights represented by this Warrant are exercisable by the Holder in
whole or in part, at any time and from time to time, during the term hereof as
described in Section 1, by the surrender of this Warrant and the delivery
of the Notice of Exercise (attached hereto as Attachment 1), all duly
completed and executed on behalf of the Holder, at the office of the Company,
and the payment in cash or by wire transfer or by check to the Company of the
amount obtained by multiplying the number of Warrant Shares for which this
Warrant is exercised by the Warrant Price then in effect and applicable to such
Warrant Shares.


 


(b)           This
Warrant shall be deemed to have been exercised immediately prior to the close
of business on the date of its surrender for exercise as provided above, and
the Person entitled to receive the shares of Series BB Preferred Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date.  As promptly as practicable on or after such
date and in any event within ten (10) days thereafter, the Company, at its
expense, shall issue and deliver to the Person or Persons entitled to receive
the same a certificate or certificates for the number of shares of Series BB
Preferred Stock issuable upon such exercise. 
In the event that this Warrant is exercised in part, the Company, at its
expense, will execute and deliver a new Warrant in substantially the same form
as this Warrant exercisable for the remaining number of Warrant Shares for
which this Warrant may then be exercised following such partial exercise.


 


(c)           Cashless
Exercise.  In lieu of exercising this
Warrant as specified in Section 3(a), the Holder may elect to pay the
exercise price by surrendering a portion of its Warrant with a value equal to
the exercise price of the Warrant Shares for which this Warrant is exercised by
surrender of the Warrant at the principal office of the Company, together with
notice of such election, in which event the Company shall issue to the Holder a
number of shares of the Company’s Series BB Preferred Stock computed using
the following formula:


 


	
  X = Y(A-B)

  
	
   

  	
  A

  



 


	
  Where:

  	
  X =

  	
  The number of Warrant
  Shares to be issued to the Holder.

  
	
   

  	
   

  	
   

  
	
   

  	
  Y =

  	
  The number of Warrant
  Shares purchasable under this Warrant.

  
	
   

  	
   

  	
   

  
	
   

  	
  A =

  	
  The fair market value
  of one share of the Company’s Series BB Preferred Stock.

  
	
   

  	
   

  	
   

  
	
   

  	
  B =

  	
  The Warrant Price (as
  adjusted to the date of such calculations).

  



 


2

















 


For purposes of this Section 3(c), the fair
market value of the Company’s Series BB Preferred Stock shall be
determined in good faith by the Board of Directors of the Company (the “Board”).


 


4.             Fractional
Shares or Scrip.  No fractional
shares or scrip will be issued in connection with any exercise of this
Warrant.  In lieu of any fractional
shares to which Holder would otherwise be entitled, the Company shall make a
cash payment equal to the Warrant Price multiplied by such fraction.


 


5.             Replacement
of Warrant.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant, and of an indemnification undertaking by the Holder reasonably
satisfactory to the Company, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant in substantially the same form
as this Warrant.


 


6.             No
Rights as Stockholder.  The Holder
shall not be entitled to vote or receive dividends pursuant to this Warrant or
be deemed the holder of Series BB Preferred Stock nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company until the Warrant shall have been
exercised as provided herein.


 


7.             Transfer
of Warrant.


 


(a)           Warrant
Register. The Company will maintain a register (the “Warrant Register”)
containing the names and addresses of the Holder.  The Holder of this Warrant or any portion
hereof may change its address as shown on the Warrant Register by written
notice to the Company requesting such change. 
Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register.  Until this Warrant is transferred on the
Warrant Register of the Company, the Company may treat the Holder as shown on
the Warrant Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.


 


(b)           Warrant
Agent.  The Company may, by written
notice to the Holder, appoint an agent for the purpose of maintaining the Warrant
Register referred to in Section 7(a) above, issuing the Series BB
Preferred Stock or other securities then issuable upon the exercise of this
Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the
foregoing.  Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.


 


(c)           Compliance
with Securities Laws on Transfer. 
This Warrant and the Warrant Shares issuable upon exercise of this
Warrant (and the securities issuable, directly or indirectly, upon conversion
of the Warrant Shares) may not be transferred or assigned in whole or in part,
without compliance with the Registration Rights Agreement, the Stockholders
Agreement, and applicable federal and state securities laws by the transferor
and the transferee.  Subject to the
foregoing, this Warrant and the Warrant Shares may be transferred or assigned
by the Holder, in whole or in part, without prior written consent of the
Company if the Holder shall transfer this Warrant to any Affiliate of the
Holder.


 


(d)           Exchange
of Warrant.  On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form annexed
hereto as Attachment 2 and subject to the


 


3

















 


provisions of this Warrant with respect to compliance
with the Securities Act, the Company, at its expense, shall issue to or on the
order of the Holder a new warrant or warrants in substantially the same form as
this Warrant, in the name of the Holder or as the Holder (upon payment by the
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.


 


(e)           Compliance with Securities Laws.


 


(i)            The
Holder of this Warrant is an “accredited investor” as that term is defined in Rule 501
of Regulation D promulgated under the Securities Act.


 


(ii)           The
Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant,
the Warrant Shares and all shares of Common Stock issued upon the exercise of
the Warrant Shares are being acquired solely for the Holder’s own account, for
investment purposes and not with a view to the distribution thereof, and that
the Holder will comply with the applicable requirements of the Securities Act
or any state securities laws.


 


(iii)          This
Warrant, the Warrant Shares and all shares of Common Stock issued upon the
exercise of the Warrant Shares  (unless
registered under the Securities Act) shall be stamped or imprinted with a
legend in substantially the following form:


 


THIS WARRANT AND THE
SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE
SECURITIES LAWS OF ANY STATE.  THEY MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION
THEREFROM.


 


8.             Adjustments
to Exercise Price and Number of Securities.


 


8.1           Special
Definitions.  For purposes of this Section 8
(and, in the case of the definition of “Liquidation,” for the purposes of
Sections 8 and 9), the following definitions shall apply:


 


(a)           “Additional
Shares of Series BB Preferred Stock” shall mean all shares of Series BB
Preferred Stock issued by the Company after the Original Issue Date.


 


(b)           “Exercise
Price” shall mean, as of any time, the equivalent price per share of Series BB
Preferred Stock that is used as the Warrant Share purchase price for Series BB
Preferred Stock pursuant to this Warrant, as such price may have been adjusted
immediately prior to such time in accordance with this Warrant.


 


(c)           “Liquidation”
shall have the meaning ascribed to such term in the Articles.


 


(d)           “Option”
shall mean rights, options or warrants to subscribe for, purchase or otherwise
acquire Series BB Preferred Stock or Preferred Convertible Securities
other than options issued in connection with existing employee stock option
plans, if any, or the grant of


 


4

















 


such option was approved by the Company’s Compensation
Committee of the Board and which approval includes the affirmative vote of all
of the non-management directors on the Board.


 


(e)           “Original
Issue Date” shall mean the date on which a Warrant was first issued.


 


(f)            “Preferred
Convertible Securities” shall mean any evidences of indebtedness, shares or
other securities directly or indirectly convertible into or exchangeable for Series BB
Preferred Stock.


 


8.2           No
Adjustment of Exercise Price.  No
adjustment in the number of shares of Series BB Preferred Stock
purchasable upon exercise of the Warrants shall be made with respect to the
issuance of Additional Shares of Series BB Preferred Stock, by adjustment
in the Warrant Price thereof, unless the consideration per share (determined
pursuant to Section 8.5 hereof) for an Additional Share of Series BB
Preferred Stock issued or deemed to be issued by the Company is less than the
Exercise Price in effect on the date of, and immediately prior to, the issuance
of such Additional Shares of Series BB Preferred Stock.


 


8.3           Issue
of Securities; Deemed Issue of Additional Shares of Series BB Preferred
Stock.  If the Company at any time or
from time to time after the Original Issue Date shall issue any Options or
Preferred Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Options or Preferred Convertible Securities, then the maximum number of
shares of Series BB Preferred Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Preferred Convertible Securities and Options
therefor, the conversion or exchange of such Preferred Convertible Securities,
shall be deemed to be Additional Shares of Series BB Preferred Stock
issued as of the time of such issuance or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided
that Additional Shares of Series BB Preferred Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 8.5 hereof) of such Additional Shares of Series BB
Preferred Stock would be less than the applicable Exercise Price in effect on
the date of and immediately prior to such issuance, or such record date, as the
case may be, and provided  further  that in any such case in
which Additional Shares of Series BB Preferred Stock are deemed to be
issued:


 


(a)           No
further adjustment in the Exercise Price shall be made hereunder upon the
subsequent issuance of Preferred Convertible Securities or shares of Series BB
Preferred Stock upon the exercise of such Options or conversion or exchange of
such Preferred Convertible Securities;


 


(b)           If
such Options or Preferred Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase in the consideration payable
to the Company, or decrease in the number of shares of Series BB Preferred
Stock issuable, upon the exercise, conversion or exchange thereof, the Exercise
Price computed upon the original issuance thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be


 


5

















 


recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange
under such Preferred Convertible Securities;


 


(c)           No
readjustment pursuant to clause (b) above shall have the effect of
increasing the Exercise Price to an amount which exceeds the Exercise Price on
the original adjustment date or the Exercise Price that otherwise would be
provided for pursuant to the Articles; and


 


(d)           In
the event of any change in the number of shares of Series BB Preferred
Stock issuable upon the exercise, conversion or exchange of any Option or
Preferred Convertible Security other than as a result of any exercise thereof,
including, but not limited to, a change resulting from the anti-dilution
provisions thereof, the Exercise Price then in effect shall forthwith be
readjusted to such Exercise Price as would have been obtained had the
adjustment which was made upon the issuance or conversion of such Option or
Preferred Convertible Security been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Series BB
Preferred Stock upon the exercise or conversion of any such Option or Preferred
Convertible Security.


 


8.4           Adjustment
of Exercise Price Upon Issuance of Additional Shares of Series BB
Preferred Stock.  In the event the
Company shall at any time after the Original Issue Date issue Additional Shares
of Series BB Preferred Stock (including Additional Shares of Series BB
Preferred Stock deemed to be issued pursuant to Section 8.3, but excluding
shares issued as a dividend or distribution as provided in Section 8.7 or
upon a stock split or combination as provided in Section 8.6) without
consideration or for a consideration per share less than the Exercise Price in
effect on the date of and immediately prior to such issuance, then and in such
event, such Exercise Price shall be reduced, concurrently with such issuance, a
price (calculated to the nearest hundredth of a cent) determined by multiplying
the Exercise Price by a fraction:


 


(a)           the
numerator of which is the amount of Series BB Preferred Stock outstanding
immediately before such issuance plus the amount of Series BB Preferred
Stock that the aggregate consideration received by the Company for the
Additional Shares of Series BB Preferred Stock would purchase at the
Exercise Price in effect immediately before such issuance; and


 


(b)           the
denominator of which is the Series BB Preferred Stock outstanding
immediately before such issuance plus the number of such Additional Shares of Series BB
Preferred Stock.


 


8.5           Determination
of Consideration.  For purposes of
this Section 8.5, the consideration received by the Company for the
issuance of any Additional Shares of Series BB Preferred Stock shall be
computed as follows:


 


(a)           Cash
and Property.  Such consideration
shall:


 


(i)            insofar
as it consists of cash, be computed at the aggregate of cash received by the
Company, excluding amount paid or payable for accrued interest or accrued
dividends;


 


6

















 


(ii)           insofar
as it consists of property other than cash, be computed at the fair market
value thereof at the time of such issuance, as determined in good faith by the
Board; and


 


(iii)          in
the event Additional Shares of Series BB Preferred Stock are issued
together with other shares of securities or other assets of the Company for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (i) and (ii) above, as
determined in good faith by the Board.


 


(b)           Options
and Preferred Convertible Securities. 
The consideration per share received by the Company for Additional
Shares of Series BB Preferred Stock deemed to have been issued pursuant to
Section 8.3, relating to Options and Preferred Convertible Securities,
shall be determined by dividing:


 


(i)            the
total amount, if any, received or receivable by the Company as consideration
for the issuance of such Options or Preferred Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the Company upon
the exercise of such Options or the conversion or exchange of such Preferred
Convertible Securities, or in the case of Options for Preferred Convertible
Securities, the exercise of such Options for Preferred Convertible Securities
and the conversion or exchange of such Preferred Convertible Securities, by


 


(ii)           the
maximum number of shares of Series BB Preferred Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Preferred Convertible Securities.


 


8.6           Adjustment
for Stock Splits and Combinations of the Series BB Preferred Stock.  If the Company shall at any time or from time
to time after the Original Issue Date for the Warrant effect a subdivision of
the outstanding Series BB Preferred Stock, the Warrant Price then in
effect immediately before that subdivision shall be proportionately
decreased.  If the Company shall at any
time or from time to time after the Original Issue Date for the Warrant combine
the outstanding shares of Series BB Preferred Stock, the Warrant Price
then in effect immediately before the combination shall be proportionately
increased.  Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.


 


8.7           Adjustment
for Certain Dividends and Distributions of Series BB Preferred Stock.  In the event the Company at any time, or from
time to time, after the Original Issue Date for the Series BB Preferred
Stock, shall make or issue, or fix a record date for the determination of
holders of Series BB Preferred Stock entitled to receive, a dividend or
other distribution payable in additional shares of Series BB Preferred
Stock, then and in each such event the Warrant Price for the Warrant then in
effect shall be decreased as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such record
date, by multiplying the Warrant Price for the Warrant then in effect by a
fraction:


 


7

















 


(a)           the
numerator of which shall be the total number of shares of Series BB Preferred
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and


 


(b)           the
denominator of which shall be the total number of shares of Series BB
Preferred Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the total number of
shares of Series BB Preferred Stock issuable in payment of such dividend
or distribution; provided, however, if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not fully made
on the date fixed therefor, the Warrant Price for the Warrant shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Warrant Price for the Warrant shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions.


 


8.8           Adjustments
for Other Dividends and Distributions. 
In the event the Company at any time or from time to time after the
Original Issue Date for the Warrant shall make or issue, or fix a record date
for the determination of holders of Series BB Preferred Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
(other than shares of Series BB Preferred Stock), or any other assets or
consideration, then and in each such event provision shall be made so that the
holders of the Warrant Shares shall receive upon exercise of the Warrant in
addition to the number of shares of Series BB Preferred Stock receivable
thereupon, the amount of securities of the Company or other assets or
consideration that they would have received had the Warrant been exercised for Series BB
Preferred Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period, under this
paragraph with respect to the rights of the holders of the Warrant Shares.


 


8.9           Adjustment
for Reclassification, Exchange, or Substitution.  If  Series BB
Preferred Stock issuable upon the exercise of the Warrant shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holder of each Warrant Share shall have the
right thereafter to convert such Warrant Share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Series BB Preferred Stock for which the Warrant might have been
exercised immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.


 


8.10         Adjustment
for Merger or Reorganization.  In
case of any consolidation or merger of the Company with or into another Company
which does not cause a Liquidation, each Warrant Share shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of  Series BB Preferred Stock of the Company
deliverable upon exercise of the Warrant would have been entitled upon such
consolidation or merger; and, in such case, appropriate adjustment (as
determined in good faith by the Board) shall be made in the application of the
provisions in this Section 8 set forth with 


 


8

















 


respect to the rights and interest thereafter of the
holders of the Warrant, to the end that the provisions set forth in this Section 8
(including provisions with respect to changes in and other adjustments of the
Warrant Price) shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter deliverable
upon the exercise of the Warrant.


 


8.11         Notice
of Adjustment to Exercise Price and Warrant Price.  Whenever the Exercise Price or Warrant Price
is required to be adjusted as provided in this Section 8, the Company
shall forthwith compute the adjusted Exercise Price or Warrant Price,  as the case may be, and shall prepare a
certificate setting forth such adjusted Exercise Price or Warrant Price, as the
case may be, and showing in reasonable detail the facts upon which such
adjustment is based.  Whenever the
Exercise Price or Warrant Price is adjusted, the Company shall promptly mail,
or cause to be mailed, to the Holders a statement setting forth the adjustment
and the reasons for such adjustment.


 


8.12         No
Impairment or Circumvention.  Without
limiting the generality of the foregoing, the Company (a) shall take all
such action as may be necessary or appropriate in order that the Warrant Shares
to be issued upon the exercise of the Warrant from time to time outstanding
will, when issued, be fully paid and nonassessable, (b) will not take any
action that results in any adjustment to the Exercise Price or Warrant Price,
as the case may be, if after such adjustment the total number of shares of
Common Stock issuable upon conversion of the Series BB Preferred Stock or
the total number of shares of Series BB Preferred Stock issuable upon the
exercise of all of the outstanding Warrants would exceed the total number of
shares of Common Stock or Series BB Preferred Stock or other capital stock
of the Company then authorized and available for the purpose of issuance upon
such exercise and (c) will not take any other action that circumvents the
rights of the Holder hereunder.


 


9.             Notices
to Warrant Holders.  If, at any time
prior to the expiration of the Warrant and its exercise, any of the following
events shall occur:


 


(a)           the
Company shall take a record of the holders of its shares of Series BB
Preferred Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or


 


(b)           the
Company shall offer to all the holders of its Common Stock or Series BB
Preferred Stock, as applicable, any additional shares of capital stock of the
Company or securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe therefor; or


 


(c)           a
dissolution, liquidation or winding up of the Company (other than in connection
with a consolidation or merger) or a sale of all or substantially all of its
property assets and business as an entirety shall be proposed; or


 


(d)           a
Liquidation shall be proposed;


 


9

















 


then, in any one or more
of said events, the Company shall give written notice of such event at least
fifteen (15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale.  Such
notice shall specify such record date or the date of closing the transfer
books, as the case may be.  Failure to
give such notice or any defect therein shall not affect the validity of any
action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.


 


Any notice or other communication shall for all
purposes under this Agreement be treated as effective or having been given (i) when
delivered if delivered personally, (ii) if sent by reputable national
overnight carrier service, the next business day after deposit thereof with
such service, (iii) if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle
for the deposit of the United States mail, addressed and mailed as aforesaid,
or (iv) if sent by telecopier with written confirmation, at the earlier of
(a) 24 hours after confirmation of transmission by the sending telecopier
machine or (b) delivery of written confirmation, addressed to the party to
be notified at such party’s address at set forth below, or as subsequently
modified by written notice, and:


 


(a)           If
to the Company:


 


Metastorm Inc.


8825 Stanford
Boulevard


Suite 200


Columbia, MD 21045


Attention:  President


Facsimile:  (410) 290-1172


 


(b)           If to Holder, to such address as
Holder shall have furnished to the Company in writing.


 


10.           Repurchase
of Warrant upon a Liquidation. 
Concurrently with a Liquidation of the Company, the Company shall use
its best efforts, upon receipt of written notice from the Holder hereunder, to
purchase for cash the value of this Warrant as determined by the Board in good
faith based on the number of shares issuable upon exercise of this Warrant, the
Exercise Price then in effect, the current value of the Series BB
Preferred Stock and any other factors that the Board reasonably determines to
be applicable.  The purchase of the
Warrant shall be effected by the surrender of this Warrant at the office of the
Company, and the payment in cash or by wire transfer by the Company to the
Holder hereunder of an amount equal to the value of this Warrant as determined
pursuant to the immediately preceding sentence.


 


11.           Reservation
of Stock; Stock Fully Paid.  The
Company covenants that at all times during the term this Warrant is
exercisable, the Company will reserve and keep available for issuance from its
authorized shares of Series BB Preferred Stock a sufficient number of
shares to provide for the issuance of Series BB Preferred Stock upon the
exercise in whole or part of this Warrant,


 


10

















 


and reserve and keep available for issuance from its
authorized shares of Common Stock a sufficient number of shares to provide for
the issuance of Common Stock upon the conversion of the Warrant Shares to
Common Stock as applicable and, from time to time, will take all steps
necessary to amend its Articles to provide sufficient reserves of shares of Series BB
Preferred Stock issuable upon exercise of the Warrant and Common Stock upon the
conversion of the Warrant Shares and will refrain from effecting any amendment
to the Articles which in any manner would adversely affect the rights or
privileges granted hereunder.  The
Company further covenants that all shares that may be issued upon the exercise
of rights represented by this Warrant, upon exercise of the rights represented
by this Warrant and payment of the Warrant Price, all as set forth herein, will
be duly authorized, validly issued, fully paid and nonassessable, and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously).  The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary certificates
for shares of Series BB Preferred Stock upon the exercise of this Warrant.


 


12.           Shareholder
Rights.  Upon exercising the Warrant,
the Holder shall be entitled to the same rights, preferences, privileges and
restrictions granted to any other holders of securities of the same class and
series as the Warrant Shares.


 


13.           Amendments.
Any material terms set forth in this Warrant may be changed only with the
written consent of the Holder or Holders holding more than two-thirds (2/3) of the aggregate Warrant Shares represented by the then
issued and outstanding Warrants, provided that the Warrant Shares may be
reduced or the Warrant may be terminated solely with the written consent of the
Holder and the Company. Any other terms of this Warrant may be waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such waiver, discharge or termination is sought.
No waivers of, or exceptions to, any term, condition or provision of this
Warrant, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision unless
the parties to this Warrant  agree in
writing thereto.


 


14.           Governing
Law.  This Warrant shall be governed
by and construed in accordance with the laws of the State of Maryland, without
giving effect to its principles regarding conflicts of law.


 


15.           Successors.  All of the covenants and provisions of this
Warrant shall be binding upon and inure to the benefit of the Company, the
Holder and their respective successors and assigns hereunder.


 


16.           Severability.  If any provision of this Warrant shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Warrant.


 


11

















 


IN WITNESS WHEREOF, the
Company has caused this Warrant to be issued by its duly authorized officer to
take effect as of the date first set forth above.


 


	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 

















 


ATTACHMENT
1


 


NOTICE OF EXERCISE


 


(1)           The undersigned hereby elects to purchase            
shares of Series BB Preferred Stock of Metastorm Inc., pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price for such shares in full.


 


(2)           Please issue a certificate or certificates representing
said shares Series BB Preferred Stock in the name of the undersigned or in
such other name as is specified below:


 


 


	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
  (Address)

  



 


(3)           Please issue a new Warrant for the unexercised portion of
the attached Warrant in the name of the undersigned or in such other name as is
specified below:


 


	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  	
   

  
	
  (Date)

  	
  (Signature)

  
			



 

















 


ATTACHMENT 2


ASSIGNMENT FORM


 


FOR
VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells,
assigns and transfers unto the Assignee named below all of the rights of the
undersigned under the Warrant, with respect to the number of shares of Series BB
Preferred Stock of Metastorm Inc. set forth below:


 


	
  Name of Assignee

  	
   

  	
  Address

  	
   

  	
  No. of Shares*

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


and does hereby
irrevocably constitute and appoint                     as
its attorney-in-fact to make such transfer on the books of Metastorm Inc.
maintained for such purpose, with full power of substitution in the premises.


 


	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature
  of Holder

  



 






*Insert here the
number of shares without making any adjustment for additional shares of Series BB
Preferred Stock or any other stock or other securities or property or cash
which, pursuant to the adjustment provisions of the Warrant, may be deliverable
upon exercise.


 






 










 


EXHIBIT B


 


Stockholder
List


 


See
Attached


 

















 


SEE
SCHEDULE 2.2 TO STOCK PURCHASE AGREEMENT


 














 


EXHIBIT C


 


Form of
Joinder Agreement to Fourth Amended


and
Restated Stockholder’s Agreement


 


See
Attached


 

















 


Exhibit C


 


JOINDER
AGREEMENT


TO


FOURTH
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT


 


 


THIS
JOINDER AGREEMENT, (this “Agreement”), is entered into as of November 9,
2005, by and among (i) Metastorm Inc., a Maryland corporation (the “Company”),
(ii) the purchasers (the “Purchasers”) listed on Schedule 1 to the
Stock Purchase Agreement of even date herewith (the “Stock Purchase
Agreement”), and (iii) the holders of at least two-thirds (2/3)
of the Company’s Capital Stock on a Fully-Diluted Basis (as defined in the
Fourth Amended and Restated Stockholders Agreement of the Company, dated as of October 5,
2005 (the “Stockholders Agreement”)), on behalf of all holders of the
Company’s Capital Stock.  Capitalized
terms used herein, and not otherwise defined herein, shall have the respective
meanings ascribed to such terms in the Stockholders Agreement.


 


WHEREAS,
concurrently with the execution and delivery of this Agreement and pursuant to
the Stock Purchase Agreement, the Company has agreed to issue and sell to the
Purchasers, and the Purchasers have severally agreed to purchase from the
Company, certain shares of the Company’s Series BB Preferred Stock, subject
to the terms and conditions set forth in the Stock Purchase Agreement; and


 


WHEREAS, the
obligation of the Purchasers to enter into the Stock Purchase Agreement and
purchase the Series BB Preferred Stock thereunder is conditioned upon the
execution and delivery by each of the parties hereto of this Agreement pursuant
to which the Purchasers shall become parties to the Stockholders Agreement.


 


NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:


 


1.             Joinder. 
Each Purchaser is hereby made a party to the Stockholders
Agreement.  Each Purchaser shall be
deemed to be and shall be treated as a “Stockholder” and a “Series BB
Investor” and shall be entitled to any and all other rights, title and
interests otherwise accruing and attributable to a Stockholder or a Series BB
Investor under the Stockholders Agreement. 
Each Purchaser hereby agrees to be bound by all of the terms and
conditions of the Stockholders Agreement.


 


2.             Representations and Warranties of Purchasers.  Each Purchaser, severally but not jointly,
represents and warrants to the Company, the Series AA Holders and the Series BB
Investors that such Purchaser (a) has reviewed this Agreement and the
Stockholders Agreement, (b) has had an opportunity to obtain the advice of
counsel prior to executing this Agreement, and (c) fully understands all
of the provisions of this Agreement and the Stockholders Agreement.


 


3.             Waiver of Preemptive Rights.  The undersigned Series AA Holders and Series BB
Investors, on behalf of the Series AA Holders and Series BB
Investors, respectively, hereby waive the application of Section 2.4 of
the Stockholders Agreement with respect to the 


 

















 


preemptive rights granted
thereunder, including the notice period provided for therein, but solely with
respect to the transactions contemplated by the Stock Purchase Agreement.


 


4.             Acknowledge and Accept; Further Assurances.  The Company, the Series AA Holders and
the Series BB Investors hereby acknowledge, accept and consent to the
terms and conditions of this Agreement. The Company, the Series AA Holders
and the Series BB Investors also hereby agree to take any and all actions,
both now and in the future, to ensure that each Purchaser is deemed to be and
is treated as a Stockholder and a Series BB Investor, in all respects, as
an original signatory under the Stockholders Agreement.


 


5.             Governing Law. 
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to its conflicts of laws
provisions.


 


6.             Counterparts; Delivery via Facsimile.  This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which taken
together shall constitute one instrument, and may be delivered via facsimile
transmission.


[signatures on following pages]


 


2

















 


IN WITNESS
WHEREOF, the parties have executed this Agreement as of the day and year first
above written.


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  METASTORM
  INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Robert
  J. Farrell

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  AXIOM
  VENTURE PARTNERS II, LP

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  IRONSIDE
  VENTURES, L.P.

  
	
   

  	
  By:
  Ironside Management LLC, its general partner

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						



 


[signatures continue on next page]


 


1

















 


	
   

  	
  SERIES
  AA HOLDERS AND SERIES BB INVESTORS 

  CONSTITUTING HOLDERS OF AT LEAST SIXTY-SIX AND 

  TWO-THIRDS PERCENT (66 2/3%) OF THE CAPITAL STOCK OF
  THE COMPANY ON A FULLY-DILUTED BASIS:

  
	
   

  	
   

  	
   

  
	
   

  	
  ICG
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MAYFLOWER
  L.P.

  
	
   

  	
  By:
   3i Investments plc

  
	
   

  	
  Its:
   Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:
   

  	
  Authorized
  Person

  
	
   

  	
   

  	
   

  
	
   

  	
  WALL
  STREET TECHNOLOGY PARTNERS LP

  
	
   

  	
  By:
   Wall Street Technology Managers LP

  
	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:
   Technology Equity Employees LLC

  
	
   

  	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Its:
  

  	
  Authorized
  Person

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Authorized
  Person

  
												



 


[signatures continue on next page]


 


2

















 


	
   

  	
  UBS
  CAPITAL AMERICAS II, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SANDLER TECHNOLOGY PARTNERS, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  SANDLER
  TECHNOLOGY PARTNERS SUBSIDIARY, LLC

  
	
   

  	
  By: Sandler Technology Partners,
  L.P., Manager

  
	
   

  	
   

  	
  By: Sandler Investment Partners,
  L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SANDLER CAPITAL PARTNERS IV, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
												



 


[signatures continue on next page]


 


3

















 


	
   

  	
  SANDLER CAPITAL PARTNERS IV FTE, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SANDLER CO-INVESTMENT PARTNERS, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						



 


4














 


EXHIBIT D


 


Form of
Joinder Agreement to Third Amended


and
Restated Registration Rights Agreement


 


See
Attached


 

















 


Exhibit D


 


JOINDER
AGREEMENT


TO


THIRD
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT


 


 


THIS JOINDER AGREEMENT, (this “Agreement”), is entered into as
of November 9, 2005, by and among (i) Metastorm Inc., a Maryland
corporation (the “Company”), (ii) the purchasers (the “Purchasers”)
listed on Schedule 1 to the Stock Purchase Agreement of even date herewith (the
“Stock Purchase Agreement”), and (iii) the holders of at least two-thirds (2/3)
of the Company’s
Registrable Securities (as defined in the Third Amended and Restated
Registration Rights Agreement of the Company, dated as of October 5, 2005
(the “Registration Rights Agreement”)), on behalf of all holders of the
Company’s Registrable Securities. 
Capitalized terms used herein and not otherwise defined herein, shall
have the respective meanings ascribed to such terms in the Registration Rights
Agreement.


 


WHEREAS,
concurrently with the execution and delivery of this Agreement and pursuant to
the Stock Purchase Agreement, the Company has agreed to issue and sell to the
Purchasers, and the Purchasers have severally agreed to purchase from the
Company, certain shares of the Company’s Series BB Preferred Stock,
subject to the terms and conditions set forth in the Stock Purchase Agreement;
and


 


WHEREAS, the
obligation of the Purchasers to enter into the Stock Purchase Agreement and
purchase the Series BB Preferred Stock thereunder is conditioned upon the
execution and delivery by each of the parties hereto of this Agreement pursuant
to which the Purchasers shall become parties to the Registration Rights
Agreement.


 


NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:


 


1.             Joinder. 
Each Purchaser is hereby made a party to the Registration Rights
Agreement.  Each Purchaser shall be
deemed to be and shall be treated as a “Stockholder”, a “Series BB
Investor” and a “Holder”, and shall be entitled to any and all other rights,
title and interests otherwise accruing and attributable to a Stockholder, a Series BB
Investor or a Holder under the Registration Rights Agreement.  The Series BB Preferred Stock issued to
the Purchasers pursuant to the Stock Purchase Agreement (the “New Series BB
Shares”), and all shares of Series BB Preferred Stock issued to the
Purchasers upon any stock split, stock dividend, recapitalization,
reclassification or
similar event, shall be deemed to be and shall be treated as “Registrable
Securities” and “Registrable Preferred Securities”.  The Common Stock issued upon conversion
of the New Series BB Shares, and all shares of Common Stock issued to the
Purchasers upon any stock split, stock dividend, recapitalization,
reclassification or
similar event, shall be deemed to be and shall be treated as “Registrable
Securities”.  Each Purchaser hereby
agrees to be bound by all of the terms and conditions of the Registration
Rights Agreement.


 


2.             Representations and Warranties of Purchasers.  Each Purchaser, severally but not jointly,
represents and warrants to the Company, the Series AA Holders and the Series BB



 

















 


Investors that such
Purchaser (a) has reviewed this Agreement and the Registration Rights
Agreement, (b) has had an opportunity to obtain the advice of counsel
prior to executing this Agreement, and (c) fully understands all of the
provisions of this Agreement and the Registration Rights Agreement.


 


3.             Acknowledge and Accept; Further Assurances.  The Company, the Series AA Holders and
the Series BB Investors hereby acknowledge, accept and consent to the
terms and conditions of this Agreement. The Company, the Series AA Holders
and the Series BB Investors also hereby agree to take any and all actions,
both now and in the future, to ensure that each Purchaser is deemed to be and
is treated as a Stockholder, a Series BB Investor and a Holder, in all
respects, as an original signatory under the Stockholders Agreement.


 


4.             Governing Law. 
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to its conflicts of laws
provisions.


 


5.             Counterparts; Delivery via Facsimile.  This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which taken
together shall constitute one instrument, and may be delivered via facsimile
transmission.


 


[signatures on following pages]


 


2

















 


IN WITNESS
WHEREOF, the parties have executed this Agreement as of the day and year first
above written.


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  METASTORM
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Robert
  J. Farrell

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  AXIOM
  VENTURE PARTNERS II, LP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  IRONSIDE
  VENTURES, L.P.

  
	
   

  	
  By:
  Ironside Management LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						



 


[signatures continue on next page]


 


1

















 


	
   

  	
  SERIES
  AA HOLDERS AND SERIES BB INVESTORS 

  CONSTITUTING HOLDERS OF AT LEAST TWO-THIRDS (2/3) 

  OF THE REGISTRABLE SECURITIES OF THE COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  ICG
  HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MAYFLOWER
  L.P.

  
	
   

  	
  By:
   3i Investments plc

  
	
   

  	
  Its:
   Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:
   Authorized Person

  
	
   

  	
   

  	
   

  
	
   

  	
  WALL
  STREET TECHNOLOGY PARTNERS LP

  
	
   

  	
  By:
   Wall Street Technology Managers LP

  
	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  	
  By:
   Technology Equity Employees LLC

  
	
   

  	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Its:
  

  	
  Authorized
  Person

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Authorized
  Person

  
										



 


[signatures continue on next page]


 


2

















 


	
   

  	
  UBS
  CAPITAL AMERICAS II, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SANDLER TECHNOLOGY PARTNERS, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  SANDLER
  TECHNOLOGY PARTNERS SUBSIDIARY, LLC

  
	
   

  	
  By: Sandler Technology Partners,
  L.P., Manager

  
	
   

  	
   

  	
  By: Sandler Investment Partners,
  L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SANDLER CAPITAL PARTNERS IV, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
												



 


[signatures continue on next page]


 


3

















 


	
   

  	
  SANDLER CAPITAL PARTNERS IV FTE, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SANDLER CO-INVESTMENT PARTNERS, L.P.

  
	
   

  	
  By: Sandler Investment Partners, L.P., General Partner

  
	
   

  	
   

  	
  By: Sandler Capital Management,
  General Partner

  
	
   

  	
   

  	
  By: MJDM Corp., a General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						



 


4














 


EXHIBIT E


 


Form of
Opinion of Venable LLP


 


See
Attached


 

















 


November 9,
2005


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


Re:          Metastorm Inc.


 


Ladies and Gentlemen:


 


We
have acted as counsel to Metastorm Inc., a Maryland corporation (the “Company”),
in connection with the transactions contemplated by the Stock Purchase
Agreement, dated as of November 9, 2005 (the “Stock Purchase Agreement”),
by and among the Company and you (the “Purchasers”).  Capitalized terms used herein, and not
otherwise defined herein, shall have the respective meanings ascribed to such
terms in the Stock Purchase Agreement.


 


Reference
is made to Section 4.5 of the Stock Purchase Agreement which provides that
the obligation of the Purchasers to purchase the Series BB Convertible
Preferred Stock, $0.01 par value per share (the “Series BB Preferred Stock”),
is subject to receipt from the Company’s counsel of an opinion with respect to
the matters set forth herein.


 


In connection with
the foregoing and the delivery of this opinion, we have reviewed the originals,
or copies certified or otherwise identified to our satisfaction, of the
following:


 


(i)          fully executed copies of (a) the
Stock Purchase Agreement, (b) the Third Amended and Restated Registration
Rights Agreement dated as of October 5, 2005, by and among the Company,
the Purchasers and certain holders of the Company’s Series AA Convertible
Preferred Stock, $0.01 par value per share (the “Series AA Preferred Stock”),
listed on Exhibit A thereto (the “Registration Rights Agreement”), (c) the
Joinder Agreement to the Registration Rights Agreement, dated as of November 9,
2005, by and among the Company, the Purchasers and certain holders of the
Company’s Series AA Preferred Stock and Series BB Preferred Stock
(the “Registration Rights Agreement Joinder”), (d) the Fourth Amended and
Restated Stockholders Agreement dated as of October 5, 2005, by and among
the Company, the Purchasers and certain holders of the Company’s Series AA
Preferred Stock listed on Schedule A thereto (the “Stockholders
Agreement”), and (e) the Joinder Agreement to the Stockholders Agreement,
dated as of November 9, 2005, by and among the Company, the Purchasers and
certain holders of the Company’s Series AA Preferred Stock and Series BB
Preferred Stock (the “Stockholders Agreement Joinder” and, together with the
Stock Purchase Agreement, the Stockholders Agreement, the Registration Rights
Agreement, and the Registration Rights Agreement Joinder, the “Principal Agreements”);


 

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


(ii)           the Fifth Articles of Amendment and
Restatement of the Company (the “Restated Articles”), filed with the Maryland
State Department of Assessments and Taxation (the “SDAT”) on October 5,
2005, and a copy of the Bylaws of the Company (the “Bylaws”), as certified by
the Secretary of the Company as being complete, accurate and in effect;


 


(iii)          those records of the proceedings and
actions of the stockholders and the Board of Directors of the Company as we
have deemed necessary or appropriate to render the opinions expressed herein,
as certified by the Secretary of the Company as being complete, accurate and in
effect;


 


(iv)          a certificate of the SDAT dated November 9,
2005 with respect to the existence and good standing of the Company as of such
date;


 


(v)           a certificate dated November 9,
2005 from the Secretary of the Company (a copy of which is delivered herewith)
certifying that the records of the proceedings and actions of the stockholders
and the Board of Directors of the Company attached thereto constitute a true
and complete copy of all of the records of the proceedings and actions of the
stockholders and the Board of Directors related to the transactions
contemplated by the Principal Agreements; and


 


(vi)          a certificate of even date herewith
from the President of the Company (a copy of which is delivered herewith) (the “Officer’s
Certificate”) (a) identifying all consents, approvals, authorizations and
orders of, and notifications to or filing with, any court or governmental
agency or body necessary to the conduct of the Company’s business as presently
conducted (“Governmental Consents”), if any, stating that copies or originals
of all such Governmental Consents have been provided to us and that no further
Governmental Consents are necessary to the conduct of its business as presently
conducted, (b) certifying that the stock transfer ledger previously
provided to us is true and complete, (c) certifying as to the accuracy and
completeness of all representations and warranties made by the Company in the
Principal Agreements, (d) identifying all warrants, options, agreements,
convertible securities or other commitments pursuant to which the Company is or
may become obligated to issue, sell or otherwise transfer any shares of the
capital stock or other securities of the Company and (e) identifying all
agreements, liens, encumbrances and other restrictions (such as rights of first
refusal, rights of first offer, co-sale rights, proxies, voting trusts and
voting agreements) with respect to the sale or voting of any shares of capital
stock or other securities of the Company (whether outstanding or issuable upon
conversion or exercise of outstanding securities).


 


In
basing the opinions and other matters set forth herein on “our knowledge,” the
words “our knowledge” signify that, in the course of our representation of the
Company in matters with respect to which we have been engaged by the Company as
counsel, no information has come to our attention that would give us actual
knowledge or actual notice that any such 


 


2

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


opinions or other matters are not accurate or that any
of the foregoing documents, certificates, reports, and information identified
in Paragraphs (i) through (vi) above on which we have relied are not
accurate and complete.  Except as
otherwise stated herein, we have undertaken no independent investigation or
verification of such matters.  The phrase
“our knowledge” and similar language used herein are intended to be limited to
the knowledge of the lawyers within our firm who have worked on matters on
behalf of the Company.  While we have
represented the Company in matters involving the Principal Agreements, we do
not represent the Company as to all its matters requiring legal services and
did not represent the Company in connection with general corporate matters
prior to May 1999 and may therefore be unaware of certain facts.


 


In
reaching the opinions set forth below, with your permission we have assumed,
and to our knowledge there are no facts inconsistent with, the following:


 


(a)           the genuineness of all signatures and
the authenticity of all instruments, documents and agreements submitted to us
as originals;


 


(b)           the conformity to original documents
(and the authenticity of such original documents) of all instruments, documents
and agreements submitted to us as certified or photostatic copies;


 


(c)           that each of the parties thereto
(other than the Company) has duly and validly executed and delivered each of
the Principal Agreements, and such party’s obligations set forth therein are
its legal, valid, and binding obligations, enforceable in accordance with their
respective terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws affecting the rights of creditors
generally and (ii) the exercise of judicial discretion in accordance with
general principles of equity;


 


(d)           that each person executing any of the
Principal Agreements on behalf of any party (other than the Company) is duly
authorized to do so;


 


(e)           that each natural person executing
any such instrument, document, or agreement is legally competent to do so;


 


(f)            that there are no oral or written
modifications of or amendments to any of the instruments, documents or
agreements in question; and


 


(g)           that there are no records of any
proceedings or actions of the stockholders or the Board of Directors of the
Company which have not been provided to us and that there has been no waiver of
any of the provisions of any of the instruments, documents or agreements in
question, by actions or conduct of the parties or otherwise.


 


3

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


Based upon the
foregoing, we are of the opinion that as of the date hereof:


 


1.             The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland.


 


2.             The Company has the requisite
corporate power and authority to own and hold its properties and to carry on
its business as now conducted and to execute and deliver the Principal
Agreements and to perform the provisions thereof.


 


3.             The execution, delivery and
performance by the Company of each of the Principal Agreements will not (a) conflict
with, result in a breach or violation of, or constitute a material default
under any existing provision of the Restated Articles or the Bylaws, or under
any applicable federal or Maryland law, rule or regulation (with the
exception of Maryland securities or “blue sky” laws as to which we express no
opinion), or (b) to our knowledge, result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever, upon any of the
properties or assets of the Company.


 


4.             The execution, delivery and
performance by the Company of each of the Principal Agreements have been duly
authorized by all requisite corporate action on behalf of the Company.  Each of the Principal Agreements has been
duly executed and delivered by the Company, and assuming that each of the
Principal Agreements has been duly executed and delivered by the Purchasers,
would constitute the legal, valid and binding obligation of the Company, if
governed by laws of the State of Maryland, enforceable in accordance with its
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally and except as the availability of equitable
remedies may be limited by general principles of equity.


 


5.             Based solely on the confirmation of
the SDAT with respect to the Restated Articles, the Restated Articles have been
duly filed with the SDAT.


 


6.         Based
solely upon our  review of the Restated
Articles and the Bylaws of the Company, the corporate minute books and the corporate
stock ledger of the Company in the form certified to us by the Company as being
true and complete, and the Officer’s Certificate, upon filing the Restated
Articles with the SDAT and immediately after the Closing, (i) the
authorized capital stock of the Company consists of 55,179,000 shares of Common
Stock, $0.01 par value per share and 46,800,000 shares of preferred stock,
$0.01 par value per share, of which 40,000,000 shares have been designated Series AA
Preferred Stock and 6,800,000 shares have been designated Series BB Preferred
Stock (collectively, the “Authorized Stock”); (ii) there are currently no shares of Common
Stock, 37,056,695.65 shares of Series AA Preferred Stock and 3,792,317
shares of Series BB Preferred Stock which are issued and outstanding as of
the date 


 


4

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


hereof; (iii) no shares of stock are held in
treasury; and (iv) except (w) for the warrants to purchase an
aggregate of 36,486 shares of Common Stock, (x) for the outstanding
warrants to purchase an aggregate of 4,442 shares of Series AA Preferred
Stock, (y) for the outstanding warrants to purchase an aggregate of
2,712,722 shares of Series BB Preferred Stock (each of such warrants being
set forth on Section 2.2 of the Disclosure Schedule to the Stock
Purchase Agreement) and (z) as set forth in the Restated Articles, there
are no outstanding options, conversion rights, warrants or other rights in
existence to acquire any Authorized Stock.


 


7.             The Series BB Preferred Stock
issued to the Purchasers, when issued in compliance with the provisions of the
Stock Purchase Agreement, will be validly issued, fully paid and
nonassessable.  The Series BB
Preferred Stock to be issued to the holder of the Warrant (the “Warrant Holder”)
upon exercise of the Warrant, when issued in compliance with the provisions of
the Warrant, will be validly issued, fully paid and nonassessable.


 


8.             Upon issuance and delivery of the Series BB
Preferred Stock to each Purchaser pursuant to the Stock Purchase Agreement,
such Purchaser will be the record owner of the Series BB Preferred Stock,
and such shares of Series BB Preferred Stock will be free of any liens or
encumbrances created by the Company; provided, however, that the Series BB
Preferred Stock will be subject to restrictions on transfer under state and/or
federal securities laws and as contained in the Stockholders Agreement.  Upon issuance and delivery of the Series BB
Preferred Stock to the Warrant Holder upon the exercise of the Warrant held by
the Warrant Holder, the Warrant Holder will be the record owner of the Series BB
Preferred Stock, and such shares of Series BB Preferred Stock will be free
of any liens or encumbrances created by the Company; provided, however,
that the Series BB Preferred Stock will be subject to restrictions on
transfer under state and/or federal securities laws and as contained in the
Stockholders Agreement.


 


9.             The shares of Common Stock issuable
upon conversion of the Series BB Preferred Stock issued to the Purchasers
and the shares of Common Stock issuable upon conversion of the Series BB
Preferred Stock to be issued to the Warrant Holder upon the exercise of the
Warrant (collectively, the “Underlying Shares”) have been duly and validly
reserved and, when issued upon conversion in compliance with the Restated
Articles, will be validly issued, fully paid and nonassessable.  The issuance of the Underlying Shares upon
conversion of the Series BB Preferred Stock will not require any further
corporate action or approval.


 


10.           Subject
to the accuracy of the representations of the Purchasers concerning their
intent to purchase the Series BB Preferred Stock and concerning certain
other matters set forth in the Principal Agreements, the offer and sale of the Series BB
Preferred Stock (and the Underlying Shares issuable upon conversion of such Series BB
Preferred Stock) to the Purchasers in conformity with the terms of the Stock
Purchase Agreement are exempt (and in the 


 


5

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


case of the Underlying
Shares upon conversion of the Series BB Preferred Stock, will be exempt)
from the registration requirements of Section 5 of the Securities Act of
1933, as amended (the “Securities Act”). 
Subject to the accuracy of the representations of the Purchasers
concerning their intent to purchase the Warrant, if any, and concerning certain
other matters set forth in the Principal Agreements, (a) the offer and
sale of the Warrant is in conformity with the terms of the Stock Purchase
Agreement, and (b) the offer and sale of the Series BB Preferred
Stock to be issued upon exercise of the Warrant (and the Underlying Shares
issuable upon conversion of such Series BB Preferred Stock) to the Warrant
Holder in conformity with the terms of the Warrant are each exempt (and in the
case of the Series BB Preferred Stock to be issued upon exercise of the
Warrant and the Underlying Shares issuable upon conversion of such Series BB
Preferred Stock, will be exempt) from the registration requirements of Section 5
of the Securities Act.  We express no
opinion with respect to the applicability of the registration requirements of
the Securities Act or any state securities laws or the availability of an
exemption therefrom, with respect to any resale by the Purchasers of the Series BB
Preferred Stock, the Warrant or the Underlying Shares, which resales we
understand are not contemplated.


 


11.           Based
solely on the Officer’s Certificate (as to factual matters) and our knowledge, with the exception of Maryland securities
or “blue sky” laws as to which we express no opinion, and assuming receipt of
the consents, approvals, orders and authorizations, and the making of the
registrations, qualifications, designations, declarations and filings set forth
in the Principal Agreements, if any, there are no
authorizations, consents or approvals or other actions by, or any notice to or
filing with, any governmental authority or regulatory body of the United States
or the State of Maryland which are required for the due execution, delivery and
performance by the Company of the Principal Agreements, except for any
applicable federal securities laws filings pursuant to Regulation D promulgated
under the Securities Act and except as set forth in the disclosure schedules
to  the Principal Agreements.


 


12.           Based
solely on the Officer’s Certificate, except as disclosed in the Stock Purchase
Agreement and the disclosure schedules thereto, we are not aware of any (i) suits,
actions, or claims, or any investigations or inquiries by any administrative
agency or governmental body, or legal, administrative, or arbitration
proceedings pending against or threatened against the Company or to which the
Company is a party or, in the case of threatened proceedings, is reasonably
likely to become a party and (ii) any outstanding order, writ, judgment,
injunction, or decree of any court, administrative agency, governmental body,
or arbitration tribunal against or affecting the Company or its properties,
rights, assets, or business.


 


The foregoing opinions are also subject to the
following qualifications, exclusions, exceptions, limitations and assumptions:


 


6

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


(a)           The opinions expressed herein concern
only the laws of the State of Maryland and the laws of the United States, all
as currently in effect, without regard to conflict of laws provisions and with respect to the federal laws of
the United States is limited to only those laws, rules or regulations that
a lawyer in Maryland exercising customary professional diligence would
reasonably recognize as being directly applicable to the documents referred to
herein.  We express no opinion as to the
laws of any other state or jurisdiction, and we can accept no responsibility
for the applicability or effect of any such laws.  To the extent that the Principal Agreements
may be governed by the laws of other jurisdictions, we have assumed, with your
permission, that the laws of such other jurisdictions are identical to the laws
of the State of Maryland, and we have made no independent inquiry or review of
the laws of such other jurisdictions. Further, this opinion does not address
any permit, consent, approval or authorization necessary for the ongoing
operation of the Company’s business.  The
statements made and opinions rendered herein are based upon and limited by the
applicable laws as in effect as of the date hereof and our knowledge of the
facts relevant to such opinions on such date. 
We assume no obligation to supplement the opinions expressed herein if
any applicable laws change, or we become aware of any additional facts or
circumstances after the date hereof.


 


(b)           We
express no opinion as to the enforceability of any provisions requiring the
Company to indemnify the Purchasers or any of their respective agents, officers
or representatives, or of any provisions exculpating the Company from liability
for action or inaction, to the extent such indemnification or exculpation is
contrary to public policy.


 


(c)           We
have not examined any court dockets, agency files or other public records
regarding the entry of any judgments, writs, decrees, or order on the pendency
of any actions, proceedings, investigations or litigation.


 


(d)           We
express no opinion as to whether there are any oral or written modifications of
or amendments to the Principal Agreements, or whether there has been any waiver
of any of the provisions of the Principal Agreements by action by the parties
or otherwise.


 


(e)         With your permission, we have relied
for certain matters relating to this opinion on the Officer’s Certificate.


 


(f)            We express no
opinion with respect to the existence of or title to any property, real, fixed
or personal, tangible or intangible, nor do we express any opinion with respect
to the existence of liens or encumbrances upon any property of any of the
Company.


 


(g)           Except for the
Principal Agreements, we have not reviewed and are not necessarily familiar
with, any other contracts or agreements of the Company.


 


7

















 


To the Several Purchasers
Listed on


Schedule 1 to the Stock Purchase


Agreement, dated November 9,
2005


 


We call your attention to the Report of the Special
Joint Committee on Lawyers’ Opinions in Commercial Transactions of the Maryland
State Bar Association, Inc. and The Bar Association of Baltimore City
dated January 18, 1989, as published in The Business Lawyer, volume
45, number 2 (February 1990) at page 705, which Report guides us in
the preparation and delivery of legal opinions in commercial transactions.


 


This letter is being furnished solely for your benefit
in connection with the transactions contemplated in the Principal Agreements
and no other person, company or entity shall be entitled to rely on this
opinion without our prior written consent. 
The opinions expressed in this letter are limited to the matters set
forth in this letter, and no other opinions should be inferred beyond the
matters expressly stated.


 


Very truly yours,


 


 


8