Document:

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,

 

 

8Exhibit 10.18

 

METASTORM INC.

 

SERIES CC
CONVERTIBLE PREFERRED

 

STOCK
PURCHASE AGREEMENT

 

JULY 31,
2007

 

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Form of Sixth
  Articles of Amendment and Restatement

  
	
  Exhibit B

  	
   

  	
  Form of Amended
  and Restated 2004 Omnibus Stock Plan

  
	
  Exhibit C

  	
   

  	
  Stockholder List

  
	
  Exhibit D

  	
   

  	
  Form of Opinion of
  Venable LLP

  
	
  Exhibit E

  	
   

  	
  Form of
  Indemnification Agreement

  
	
  Exhibit F-1

  	
   

  	
  Form of Management
  Rights Letter (ABS V)

  
	
  Exhibit F-2

  	
   

  	
  Form of Management
  Rights Letter (ABS V-A)

  
	
  Exhibit G

  	
   

  	
  Form of Agreement
  and Plan of Merger

  
	
  Exhibit H

  	
   

  	
  Form of Fourth
  Amended and Restated Registration Rights Agreement

  
	
  Exhibit I

  	
   

  	
  Form of Fifth
  Amended and Restated Stockholders Agreement

  

 

SCHEDULES

 

	
  Schedule 1

  	
   

  	
  Purchasers, Shares
  Purchased and Purchase 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(a)

  	
   

  	
  Intellectual Property

  
	
  Section 2.8(b)

  	
   

  	
  Inbound License
  Agreements

  
	
  Section 2.8(c)

  	
   

  	
  Outbound License
  Agreements

  
	
  Section 2.8(e)

  	
   

  	
  Owned Software

  
	
  Section 2.8(f)

  	
   

  	
  Owned Internet
  Identifiers

  
	
  Section 2.8(g)

  	
   

  	
  Liens on Intellectual
  Property

  
	
  Section 2.8(n)

  	
   

  	
  Infringement Claims by
  the Company

  
	
  Section 2.8(p)

  	
   

  	
  Third Parties in
  Possession of Source Code

  
	
  Section 2.8(q)

  	
   

  	
  Open Source Materials

  
	
  Section 2.8(r)

  	
   

  	
  Maintenance Obligations

  
	
  Section 2.10

  	
   

  	
  Material Contracts

  
	
  Section 2.13

  	
   

  	
  Guarantees

  
	
  Section 2.17(a)

  	
   

  	
  Benefit Plans

  
	
  Section 2.17(b)

  	
   

  	
  Exceptions to Benefit
  Plans

  
	
  Section 2.18

  	
   

  	
  Tax Returns and Audits

  
	
  Section 2.18(c)

  	
   

  	
  Severance

  
	
  Section 2.25

  	
   

  	
  Changes

  

 

 

METASTORM INC.

 

SERIES CC
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

 

THIS
SERIES CC CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”),
dated as of July 31, 2007, 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 CC
Convertible Preferred Stock, par value $0.01 per share (the “Series CC
Preferred Stock”) for an aggregate purchase price of up to Thirty Million
Dollars ($30,000,000).

 

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 CC Preferred Stock.

 

1.1      Sale and Issuance of Series CC
Preferred Stock.

 

(a)           The Company has authorized the issuance
and sale of up to 18,844,221 shares of the Series CC Preferred Stock at a
purchase price of $1.592 per share (the “Per Share Purchase Price”) to
the Purchasers.  The Company shall adopt
and file with the State Department of Assessments and Taxation of the State of
Maryland (the “SDAT”) on or before the Initial Closing (as defined
below) the Sixth Articles of Amendment and Restatement of the Company which
shall be in the form attached hereto as Exhibit A
(the “Sixth Articles”).  The Series CC
Preferred Stock and the Common Stock issuable upon conversion of the Series CC
Preferred Stock (the “Conversion Stock”) are hereinafter referred to as
the “Securities”.

 

(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 Initial Closing (as defined below), and the Company agrees to
sell and issue to such Purchaser at the Initial Closing, such number of shares
of the Company’s Series CC 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 CC Preferred Stock to be
sold hereunder (either at the Initial Closing or the Additional Closing (as
defined below)) being up to Thirty Million Dollars ($30,000,000).

 

 

1.2      Closings; Delivery.

 

(a)           Initial Closing.   
The initial closing of the purchase and sale of the Series CC
Preferred Stock (the “Initial Closing”) pursuant to this Agreement 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 July 31,
2007, or at such other time and place as the Company and the Purchasers
acquiring in the aggregate more than half of the shares of Series CC
Preferred Stock being sold at the Initial Closing mutually agree upon, orally
or in writing (the “Initial Closing Date”.  At the Initial Closing, the Company shall
deliver to each Purchaser a certificate registered in the name of such
Purchaser representing the number of shares of Series CC Preferred Stock set
forth opposite such Purchaser’s name on Schedule 1
hereto against payment of the purchase price therefor, 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.

 

(b)           Additional Closing. 
On or before the thirtieth (30th) day following the Initial
Closing Date, the Company may sell and issue at an additional closing (the “Additional
Closing” and together with the Initial Closing, a “Closing”) up to
the balance of the authorized number of shares of Series CC Preferred
Stock not purchased at the Initial Closing at a price per share of not less
than the Per Share Purchase Price, to one or more of the Company’s existing
stockholders, including existing stockholders that purchase shares of Series CC
Preferred Stock at the Initial Closing. 
Any such sale and issuance in the Additional Closing shall be on the
same terms and conditions as those contained herein, and such persons or
entities shall, upon execution and delivery of the relevant signature pages,
become parties to, and be bound by, this Agreement.  The Additional Closing shall take place at
the offices of Venable LLP, 1800 Mercantile Bank and Trust Building, 2 Hopkins
Plaza, Baltimore, Maryland, at such date and time as is mutually agreed upon by
the Company and the additional purchasers acquiring in the aggregate more than
half of the shares of Series CC Preferred Stock being sold at the
Additional Closing (the “Additional Closing Date”, and together with the
Initial Closing Date, a “Closing Date”). Each purchaser participating in
such Additional Closing shall execute a counterpart signature to this Agreement
and shall become a party to the Stockholders Agreement and the Registration
Rights Agreement, at which time such purchaser shall be treated as a “Purchaser”
for purposes of this Agreement and the stock purchased by such purchaser shall
be deemed to be sold under this Agreement for purposes of this Agreement, the
Stockholders Agreement and the Registration Rights Agreement; provided, that
Purchasers that participate in the Initial Closing shall not be required to
execute such agreements again.

 

(c)           Articles Supplementary. 
As promptly as practicable after (i) the Post-Closing Audit (as
defined in the Agreement and Plan of Merger attached hereto as Exhibit G (the “Proforma
Merger Agreement”)) is complete, (ii) the amount (if any) of the
revenue-based adjustment of the Merger Consideration (as defined in the Proforma
Merger Agreement) has been determined pursuant to the Proforma Merger
Agreement, and (iii) all disputes relating to the foregoing have been
finally resolved, the Company shall use its reasonable best efforts to  

 

2

 

prepare, execute and file with SDAT one or
more Articles Supplementary for the purposes of (x) reclassifying the
Unused Series AA Shares (defined below) as shares of  Common Stock and decreasing the number of
authorized shares of Series AA Preferred Stock by the number of Unused Series AA
Shares; and (y) reclassifying all shares of Series BB Preferred Stock
that the Company is authorized to issue as shares of Common Stock and
decreasing the number of authorized shares of Series BB Preferred Stock to
zero.  As used herein, “Unused Series AA
Shares” means the number of shares of Series AA Preferred Stock
authorized in the Sixth Articles, less:

 

(i)            37,056,696
shares of Series AA Preferred Stock issued and outstanding on the date
hereof;

 

(ii)           9,667,605
shares of Series AA Preferred Stock to be issued in the Recapitalization
to holders of shares of, and warrants to purchase shares of, Series BB
Preferred Stock;

 

(iii)          the number of shares of Series AA Preferred
Stock issuable as Merger Consideration, (taking into account the result of the
Post-Closing Audit, the amount of the revenue-based adjustment of the Merger
Consideration, and the final resolution of all disputes related thereto);

 

(iv)          42,331 shares
of Series AA Preferred Stock reserved for issuance upon exercise of
options granted under the
Company’s 1999 Equity Incentive Plan;

 

(v)           1,443,780
shares of Series AA Preferred Stock in respect of restricted stock units
awarded under the
Company’s Amended and Restated 2004 Omnibus Stock Plan;

 

(vi)          788,264.28  shares of Series AA Preferred Stock in
respect of dividends projected to accrue over a five (5) year period after
the Initial Closing on restricted stock units awarded under the Company’s Amended and Restated 2004
Omnibus Stock Plan; and

 

(vii)         14,279
shares of Series AA Preferred Stock reserved for issuance upon
exercise of outstanding warrants.

 

(d)           Restriction of Issuance of Series AA
Shares.  The Company shall not, at any time on or
before the date on which the Articles Supplementary contemplated by Section 1.2(c) are
filed, issue any shares of Series AA Preferred Stock for any purpose other
than the purposes described in the definition of “Unused Series AA Shares.”

 

1.3      Use of Proceeds.  The Company will use the proceeds from the
sale of the Series CC Preferred Stock to fund the closing of the Proforma
Acquisition, with any excess proceeds to be used for general corporate
purposes.

 

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
applicable Closing Date (except to the extent expressly made as of an earlier
date, in which case 

 

3

 

as of such date), 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 would reasonably be expected to have a Company
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      Capitalization.

 

(a)           The authorized and outstanding capital
stock of the Company consists, or will consist immediately prior to the Initial
Closing (giving effect to the Recapitalization but prior to the closing of the
Proforma Acquisition) of:

 

(i)            71,012,991 shares of Series AA
Preferred Stock, of which 48,172,486 will be issued and outstanding as of
immediately prior to the Initial Closing;

 

(ii)           6,800,000 shares of Series BB
Preferred Stock, none of which will be issued and outstanding as of immediately
prior to the Initial Closing

 

(iii)          18,844,221
shares of Series CC Preferred Stock, none of which will be issued and
outstanding as of immediately prior to the Initial Closing; and

 

(iv)          120,000,000 shares of Common Stock, of
which 28,125 will be issued and outstanding as of immediately prior to the
Initial Closing.

 

(b)           The Company has reserved 42,331 shares of
Series AA Preferred 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 stockholders.  The Company’s
board of directors and stockholders have approved the Amended and Restated 2004
Omnibus Stock Plan, a copy of which is attached hereto as Exhibit B,  which allows the Company to issue stock
options to purchase up to 12,770,232 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 (as defined below) is
authorized or outstanding, (ii) neither the Company nor any of its
Subsidiaries has any obligation (contingent or otherwise) to (A) issue any
subscription, warrant, option, convertible security, participation right or
other such right or (B) issue or distribute to holders of 

 

4

 

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
transactions contemplated by this Agreement (including the Recapitalization and
the Proforma Acquisition (assuming that stockholders of Proforma elect to
receive the maximum number of shares of Series AA Preferred Stock issuable
pursuant to the Proforma Acquisition)). Section 2.2
of the Disclosure Schedule, as revised in accordance with Section 4.20
hereof, will, when delivered by the Company to the Purchasers, show the equity
capitalization of the Company on a fully diluted basis immediately prior to,
and after giving effect to, the transactions contemplated by this Agreement
(including the Recapitalization and the actual elections made by Proforma
stockholders to receive shares of Series AA Preferred Stock in the
Proforma Acquisition).

 

(d)           Attached hereto as Exhibit C
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.

 

(e)           The issuance of the Securities and the
consummation of the transactions contemplated under this Agreement (including
the Recapitalization and the Proforma Acquisition) will not result in any
adjustment to the conversion rate into Common Stock of any series of the
Company’s authorized preferred stock.

 

2.3      Subsidiaries. 
Except as set forth on Section 2.3
of the Disclosure Schedule (each entity listed thereon, a “Subsidiary”),
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 reasonably be expected to have a Company 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      Authority; Authorization. The Company has all
requisite corporate power and authority to execute and deliver the Investment
Agreements, to issue and sell the Securities, to carry out the provisions of
the Investment Agreements and, when filed with the SDAT, the Sixth Articles,
and to carry on its business as currently conducted.  All corporate action on the 

 

5

 

part of the Company, its directors and stockholders necessary for the
authorization, execution and delivery of the Investment Agreements, the
performance of all obligations of the Company hereunder and thereunder, the
consummation of the Recapitalization and the Proforma Acquisition, the
authorization, issuance and delivery of the Series CC Preferred Stock, and
the authorization and reservation of the Conversion Stock has been taken or
will be taken prior to the Initial 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. 
All authorized and outstanding shares of capital stock of the Company (i) have
been duly authorized and validly issued in compliance with applicable laws,
including, without limitation, all applicable state and federal securities laws
concerning the issuance of securities, and are fully paid and nonassessable and
(ii) have been issued in compliance with articles of incorporation, bylaws
and other organizational documents of the Company and with all material
agreements to which the Company is a party. 
The Series CC Preferred Stock that is being issued to the
Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, 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,
the Registration Rights Agreement and applicable federal and state securities
laws and will be issued in compliance with all applicable federal and state
securities laws.  The Conversion Stock
has been duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the Sixth Articles, 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 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 CC Preferred Stock nor the issuance or delivery of the Conversion
Stock 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, or
the consummation of the Recapitalization or the Proforma Acquisition, 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.

 

6

 

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)           Section 2.8(a) of the Disclosure Schedule sets forth a
complete and correct list of all Patents, registered Trademarks, applications
to register Trademarks, material unregistered Trademarks, registered
Copyrights, applications to register Copyrights, 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.

 

(b)           Section 2.8(b) 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;
and (B) the Intellectual Property licensed thereunder.

 

(c)           Section 2.8(c) 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.

 

(d)           No Intra-Company License Agreements
exist.

 

(e)           Section 2.8(e) 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 October 5,
2005.

 

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

 

7

 

(g)           Except as set forth in Section 2.8(g) 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.

 

(h)           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.

 

(i)            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, to the
Company’s knowledge, 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.

 

(j)            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.

 

(k)           To the Company’s knowledge, the operation
of the Company’s business as presently conducted, and as conducted for the
three (3) years prior to the date of this Agreement, 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(k).

 

(l)            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, 2003, 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.

 

(m)          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.

 

(n)           Except as set forth in Section 2.8(n) of
the Disclosure Schedule, 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 

 

8

 

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.

 

(o)           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).

 

(p)           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.  Except as set forth in Section 2.8(p) of
the Disclosure Schedule, 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).

 

(q)           Section 2.8(q) of the Disclosure Schedule lists all
Software that is distributed as “free software,” “open source software” or
under a similar licensing or distribution model (“Open Source Materials”)
used by or for Company in any way, and states for each item of Open Source
Material listed thereon (x) the name of the license under which the Open
Source Material is licensed and (y) a brief description of the purpose or
function of the Open Source Material.  The Company has not (i) incorporated
Open Source Materials into, or combined Open Source Materials with, the Company’s
software or other intellectual property, except as otherwise specifically
described in Section 2.8(q) of
the Disclosure Schedule; (ii) distributed Open Source Materials in
conjunction with any of the Company’s software or other intellectual property,
except as expressly provided in Section 2.8(q) of
the Disclosure Schedule; or (iii) used Open Source Materials in a manner
that has given rise to any legally enforceable obligation on the Company to (i) disclose
or distribute the source code of any Owned Software, (ii) grant any license
for the purpose of making derivative works of any Owned Software, or (iii) redistribute
at no charge any of the Owned Software.

 

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

 

(s)           No current or former stockholder,
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 

 

9

 

Licensed Intellectual Property; provided, that
for purposes of this Section 2.8(s), “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.

 

(t)            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.

 

(u)           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 Initial Closing in substantially the same manner as currently
conducted.

 

(v)           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 execution, delivery and performance of
the Investment Agreements and the consummation of the transactions contemplated
hereby or thereby (including the Recapitalization and the Proforma Acquisition)
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 lien, charge or encumbrance
would not have a Company Material Adverse Effect.

 

(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)           Section 2.10 of the Disclosure Schedule sets forth
the following agreements or commitments (whether written or oral), other than
the Investment Agreements, to 

 

10

 

which either the Company or any of its Subsidiaries is a party or by
which any of them is bound, and which is, in each case, currently in effect: (i) any
agreement which requires future expenditures by the Company or any of its
Subsidiaries in excess of $50,000 per annum, (ii) any employment and
consulting agreements, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase and similar plans and arrangements, (iii) any
agreement pursuant to which the Company is granted any, or has granted to any
other Person any rights with respect 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), (iv) any agreements involving the grant of rights to
manufacture, produce, assemble, license, market or sell the Company’s or its
Subsidiaries’ products to any other person or that restrict the exclusive right
of the Company or any of its Subsidiaries to develop, manufacture, assemble,
distribute, market or sell its products, (v) any agreement between the
Company and any current or former stockholder, officer or director of either
the Company or any of its Subsidiaries, or any “affiliate” or “associate” of
such persons (as such terms are defined in the rules and regulations
promulgated under the Securities Act), including without limitation any
agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such Person, (vi) any agreement under which either the Company or any
of its Subsidiaries is restricted from carrying on any business anywhere in the
world, (vii) any agreement relating to indebtedness for borrowed money, (viii) any
agreement for the disposition of a material portion of either the Company’s or
any of its Subsidiaries’ assets (other than for the sale of products to
customers in the ordinary course of business), or (ix) other than any
agreement relating to the Proforma Acquisition, any agreement for the
acquisition of the business or securities or other ownership interests of
another party, which acquisition has not been consummated (collectively, the “Material
Contracts”).  The Company has made
available to the Purchasers copies of the Material Contracts (or an accurate
summary of any oral agreement).

 

(b)           All of the Material Contracts 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
Material Contract.

 

2.11    Absence of Liabilities. 
Neither the Company nor any of its Subsidiaries has any material
liability (whether absolute or contingent), except for (i) liabilities
shown on the Financial Statements (defined below), (ii) liabilities which
have arisen since May 31, 2007 in the ordinary course of business which
aggregate less than $100,000, and (iii) contractual liabilities which are
not required by GAAP to be reflected on a balance sheet.

 

2.12    Disclosure.  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 a Closing (when read together) contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading in light of
the circumstances under which they were made.

 

11

 

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    Investment Company Act. 
The Company is not, and after the receipt of the proceeds of the
financing contemplated by this Agreement, will not be, an “investment company”
as defined in the Investment Company Act of 1940, as amended.

 

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 CC
Preferred Stock as contemplated by this Agreement is exempt (and the issuance
of the Conversion Stock will be 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.

 

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

 

12

 

(b)           Except as set forth in Section 2.17(b) of the
Disclosure Schedule, (A) with respect to each Company Benefit Plan
identified in Section 2.17(a) 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) 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.

 

(c)           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.

 

(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.

 

13

 

(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 Initial 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 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,
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 

 

14

 

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)           The Company and its Subsidiaries have complied in all
material respects with all applicable laws relating to wages, hours, equal
opportunity, collective bargaining, workers’ compensation insurance and the
payment of social security and other Taxes.

 

(c)           Except as set forth on Section 2.18(c) of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has a
policy, practice, plan, or program of paying severance pay or any form of
severance compensation in connection with the termination of employment
services.

 

(d)           To the Company’s
knowledge, none of the officers or directors of the Company or any of its
Subsidiaries during the previous five (5) years has been (i) subject
to voluntary or involuntary petition under the federal bankruptcy laws or any
state insolvency law or the appointment of a receiver, fiscal agent or similar
officer by a court for his or her business or property; (ii) convicted in
a criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (iii) subject to
any order, judgment, or decree (not subsequently reversed, suspended, or
vacated) of any court of competent jurisdiction permanently or temporarily
enjoining him or her from engaging, or otherwise imposing limits or conditions
on his or her engagement in any securities, investment advisory, banking,
insurance, or other type of business or acting as an officer or director of a
public company; or (iv) found by a court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission or a state insurance
commission to have violated any federal or state securities, insurance, or
unfair trade practices law, which such judgment or finding has not been
subsequently reversed, suspended, or vacated

 

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.

 

2.22    Corporate Documents. 
The Sixth Articles and the Bylaws of the Company are in the forms
provided to the Purchasers.  A true and
complete copy of the minute books of the Company has been made available to the
Purchaser 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 May 31,
2002, and reflect 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; provided, however,
that minutes of meetings of, and actions of, the directors of the Company dated
after February 7, 2007 that are included in such minute books (if any)
have not been approved by the Company’s board of directors and, accordingly,
the foregoing representation and warranty is made subject to any changes that
the Company’s board of 

 

15

 

directors makes to such minutes and actions at or before the time they
are approved.  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.

 

(a)           The Company has furnished to the
Purchasers a complete and accurate copy of its (i) consolidated audited
financial statements as of, and for the fiscal year of the Company ended, December 31,
2006, and (ii) consolidated unaudited financial statements (including
balance sheet and income statement) as of, and for the 5-month period ended, May 31,
2007 (such financial statements identified in clauses (i) and (ii), the “Financial
Statements”).  The Financial
Statements are in accordance with the books and records of the Company, have
been prepared in accordance with GAAP consistently applied (except, with
respect to the financial statements identified in clause (ii) of the
preceding sentence, for the omission of footnotes and period end adjustments),
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.

 

2.25          Changes.  Except as set
forth in Section 2.25 of the
Disclosure Schedule, since May 31, 2007, 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 Company Material Adverse Effect

 

(b)           any material change in any method of
accounting or accounting practice by the Company or any of its Subsidiaries;

 

(c)           any damage, destruction or loss, whether
or not covered by insurance, having a Company Material Adverse Effect;

 

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

 

(e)           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 has not
had a Company Material Adverse Effect;

 

(f)            any material change to a Material
Contract by which the Company, any of its Subsidiaries or any of their assets
is bound or subject;

 

16

 

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

 

(h)           any material 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;

 

(i)            any sale, exchange or other disposition
of any material assets or rights (to the extent not covered by paragraph (h) above),
other than sales to customers in the ordinary course of business;

 

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

 

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

 

(l)            any incurrence of indebtedness for money
borrowed or incurrence of any other liabilities other than in the ordinary
course of business and in amounts and on terms consistent with past practices;

 

(m)          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;

 

(n)           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;

 

(o)           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;

 

(p)           any 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); or

 

(q)           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).

 

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 

 

17

 

properties and business of the kinds and in the amounts not less than
is customarily obtained by 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 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. 
To the Company’s knowledge, 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.

 

18

 

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 CC Preferred Stock
(and the Conversion Stock).  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 CC Preferred Stock (and the Conversion Stock) 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 Closing.  The obligations of the Purchasers to the
Company under this Agreement are subject to the fulfillment, concurrently with
or prior to the applicable Closing, of each of the following conditions, unless
otherwise waived in writing by the Purchasers purchasing a majority of the Series CC
Preferred Stock at such Closing:

 

4.1      Representations and Warranties.  (i) The
representations and warranties of the Company contained in Sections 2.1, 2.2,
2.4 and 2.5 shall be true, correct and complete in all respects, in each case
both when made and at and as of the applicable Closing Date, as if made at and
as of such time (except to the extent expressly made as of an earlier date, in
which case as of such date) and (ii) all other representations and
warranties of the Company set forth herein shall be true and correct in all
material respects both when made and at and as of the applicable Closing Date,
as if made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date) without giving effect to any
qualification or limitation 

 

19

 

as to “materiality”, “Company Material Adverse Effect” or words of
similar effect set forth therein.

 

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 applicable Closing.

 

4.3      Legal Investment.  No
Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any laws, statutes, ordinances, rules (including rules of
common law), regulations, codes, orders, judgments, injunctions, awards,
decrees, writs, executive orders or legally enforceable requirements (whether
temporary, preliminary or permanent) that enjoin or otherwise prohibit
consummation of the transactions contemplated by this Agreement.

 

4.4      Compliance Certificate. 
The President of the Company shall deliver to the Purchasers in the
Initial Closing a certificate certifying that the conditions specified in
Sections 4.1,  4.2, 4.14, 4.16,
4.17  and 4.20 have been fulfilled.

 

4.5      Good Standing Certificate. 
The Purchasers in the Initial Closing shall have received from the
Company a certificate dated as of a recent date from the SDAT certifying as to
the Company’s due incorporation and good standing in the State of Maryland.

 

4.6      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 CC
Preferred Stock pursuant to this Agreement shall be obtained and effective as
of the Closing.

 

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

 

4.8      Supporting Documents.  The
Purchasers in the Initial Closing shall have received the following:

 

(a)           A copy of
resolutions of the Board of Directors of the Company and stockholders of the
Company authorizing and approving (i) the Investment Agreements and the
transactions contemplated thereby, (ii) the Recapitalization, (iii) the
Proforma Acquisition and (iv) the adoption of the Sixth Articles 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 Sixth Articles and Bylaws of the
Company 

 

20

 

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.

 

4.9      Director Indemnification Agreements. 
The Company shall have executed and delivered to each person designated
by the Purchasers to the Company’s Board of Directors the Indemnification
Agreement in substantially the form attached as Exhibit E.

 

4.10    Management Rights Letters. 
The Company shall have executed and delivered to ABS Capital Partners V,
L.P. and ABS Capital Partners V-A, L.P. Management Rights Letters substantially
in the forms attached as Exhibits F-1
and F-2, respectively.

 

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

 

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

 

4.13    Sixth Articles. 
The Company shall have filed the Sixth Articles with the SDAT on or
prior to the date of the Initial Closing, which shall continue to be in full
force and effect as of the date of the applicable Closing.

 

4.14    Recapitalization. 
The Company shall have completed the Recapitalization prior to the
Initial Closing.

 

4.15    Proforma Acquisition. 
Concurrently with the Initial Closing, the Company shall complete the
Proforma Acquisition.

 

4.16    Amendment of Option Plan. 
The Company shall have amended and restated its 2004 Omnibus Stock Plan
in the form of the Amended and Restated 2004 Omnibus Stock Plan attached as Exhibit B to increase the
total number of shares of Common Stock authorized for issuance under the plan
to 12,770,232 shares.

 

4.17    Board Membership. 
The Company shall have fixed the membership of the Board of Directors at
seven (7) members and, effective upon the completion of the Initial
Closing, the following persons shall constitute the Board of Directors Robert
J. Farrell, Harry Copperman, Mike Zisman, Mike Forster, Adam Lichtenstein,
Matthew Meade and Laura Witt.

 

4.18    Payment of Expenses. 
The Company shall have paid in accordance with Section 7.9 the
expenses and disbursements of the Lead Investor.

 

21

 

4.19    No Material Adverse Effect.  Since May 31, 2007, no event,
change, effect, condition, fact or circumstance shall have occurred that,
individually or in the aggregate, would reasonably be expected to have a
Company Material Adverse Effect.

 

4.20    Updated Capitalization Table. 
The Company shall have delivered to each Purchaser a new version of Section 2.2
of the Disclosure Schedule, revised to reflect the actual elections made by
Proforma stockholders to receive shares of Series AA Preferred Stock in
the Proforma Acquisition.

 

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 applicable 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 the Purchasers in the applicable
Closing contained in Section 3 shall be true, correct and complete in all
respects, in each case both when made and at and as of the applicable Closing
Date, as if made at and as of such time (except to the extent expressly made as
of an earlier date, in which case as of such date).

 

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 applicable
Closing Date 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      Registration Rights Agreement. 
Such Purchaser shall have executed and delivered the Registration Rights
Agreement in substantially the form attached as Exhibit G.

 

5.4      Stockholders Agreement. 
Such Purchaser shall have executed and delivered the Stockholders
Agreement in substantially the form attached as Exhibit H.

 

6.             Other Agreements.

 

6.1      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 reasonably be expected to have a
Company Material Adverse Effect.

 

6.2      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 

 

22

 

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.

 

6.3      Conduct of Business Pending Additional
Closing.  From the date hereof until the earliest of (i) the
Additional Closing, (ii) fifteen (15) days after the Initial Closing Date
or (iii) the termination of this Agreement pursuant to Section 7.2,
the Company shall:

 

(a)           maintain its existence in good standing
and that of each of its material Subsidiaries;

 

(b)           conduct its business, and the business of
its material Subsidiaries, in the ordinary course of business, except as
expressly permitted by this Agreement;

 

(c)           maintain business and accounting records
consistent with past practices, except as required by GAAP or applicable laws;
and

 

(d)           give prompt notice to the Purchasers
after becoming aware of the occurrence of any event which would reasonably be
likely to cause (i) any representation or warranty of the Company
contained in this Agreement to be untrue or inaccurate in any material respect,
(ii) any covenant, condition or agreement contained in this Agreement not
to be complied with or satisfied, or (iii) any failure of the Company or
any of its Subsidiaries to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; and

 

(e)           use commercially reasonable efforts (i) to
preserve its, and its Subsidiaries’, businesses intact in all material
respects, (ii) to keep available to the Company and its Subsidiaries the
services of its current officers and key employees, and (iii) to preserve
in all material respects for the Company and its Subsidiaries the goodwill of
their suppliers, customers and others having business relations with the
Company or its Subsidiaries.

 

6.4      Prohibited Actions Pending Initial
Closing.  Except as contemplated by this Agreements
(including, for avoidance of doubt, as necessary to effectuate the adoption and
filing of the Sixth Articles, the Recapitalization and the Proforma
Acquisition), unless otherwise necessary in order to comply with applicable
laws or the Company’s or its Subsidiaries’ obligations hereunder or approved by
the Purchasers in writing, including, without limitation, by electronic mail
(which approval shall not be unreasonably withheld or delayed), from the date
hereof until the Initial Closing or the earlier termination of this Agreement
pursuant to Section 7.2, the Company and each of its Subsidiaries shall
operate in the ordinary course of business and shall not:

 

(a)           amend or otherwise change its articles of
incorporation or bylaws;

 

(b)           other than grants of options, restricted
stock and/or restricted stock units as set forth on Schedule 6.4(b), issue or
sell or authorize for issuance or sale, or grant any options or restricted
stock or make other agreements with respect to, any shares of its capital stock
or any other of its securities;

 

23

 

(c)           declare, set aside, make or pay any
dividend or other distribution, payable in cash, stock, property or otherwise
with respect to any of its capital stock;

 

(d)           reclassify, combine, split, subdivide or
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock;

 

(e)           incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person or
entity, or make any loans or advances, except in the ordinary course of
business, consistent with past practice;

 

(f)            acquire (including, without limitation,
by merger, consolidation or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets;

 

(g)           enter into any contract or agreement
other than in the ordinary course of business that would constitute a Material
Contract;

 

(h)           authorize any capital commitment or
capital lease in an amount in excess of $50,000, individually or $100,000, in
the aggregate;

 

(i)            mortgage, pledge or subject to
encumbrance any of its assets or properties or agree to do so other than in the
ordinary course of business;

 

(j)            assume, guarantee or otherwise become
responsible for the obligations of any other person or entity, or agree to so
do;

 

(k)           hire any executive officer or senior
member of management, or enter into or agree to enter into any employment
agreement with any such Person;

 

(l)            increase the compensation payable or to
become payable to its officers or key employees, or grant any severance or
termination pay to, or enter into any severance agreement with any director,
officer or key employee, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any such director, officer or key employee;

 

(m)          take any material action to change in any
respect its accounting policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivables), except as required by GAAP or applicable law;

 

(n)           make any material change to any tax
election or settle or compromise any federal, state, local or foreign income
material tax liability;

 

(o)           settle or compromise, or initiate against
any third party, any pending or threatened action, suit, proceeding or
investigation;

 

24

 

 

(p)           pay,
discharge or satisfy any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business and consistent
with past practice, of liabilities reflected or reserved against in the
Financial Statements or subsequently incurred in the ordinary course of
business and consistent with past practice in amounts not in excess of $50,000,
individually or $100,000, in the aggregate;

 

(q)           sell,
assign, transfer, license or sublicense, pledge or otherwise encumber any of
its right in Intellectual Property (other than in the ordinary course of
business and consistent with past practice); or

 

(r)            agree
to do any of the foregoing.

 

7.             Miscellaneous.

 

7.1      Survival
of Warranties.  Except for the
representations and warranties set forth in Sections 2.1, 2.2, 2.3, 2.4
and  2.5 of the Agreement, which shall
survive the execution and delivery of this Agreement and the applicable 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 applicable Closing
for a period of eighteen (18) months after the date hereof.

 

7.2      Termination.

 

(a)           This
Agreement may be terminated by the Lead Investor or the Company in the event
the Initial Closing has not occurred by September 30, 2007 (the “Termination
Date”), except that the right to terminate this Agreement under this Section will
not be available to any party to this Agreement whose failure to fulfill any of
its obligations under this Agreement has been a principal cause of, or resulted
in, the failure to consummate the Initial Closing by such date.

 

(b)           In
the event of the termination of this Agreement, this Agreement shall be of no
further force or effect; provided, however, that the provisions
of Section 7 shall survive the termination of this Agreement and shall
remain in full force and effect.

 

7.3      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.

 

7.4      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 

 

25

 

ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

 

7.5      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.

 

7.6      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.

 

7.7      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
hereto, or as subsequently modified by written notice, and

 

if to the Company at:

 

Metastorm Inc.

500 East Pratt Street, Suite 1250

Baltimore, MD 
21202

Attention: 
Robert J. Farrell

Facsimile: 
(443) 874-1337

 

with a copy to:

 

Venable LLP

Two Hopkins Plaza, Suite 1800

Baltimore, MD  21201

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

Telecopier:  (410) 244-7742

 

7.8      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.

 

7.9           Expenses.  Each party shall bear its own costs and
expenses incident to this Agreement and the transactions contemplated
hereunder, provided, however, that the 

 

26

 

Company shall pay and be responsible for all out-of-pocket expenses of
the Lead Investor and the reasonable fees of the counsel for the Lead Investor
incurred with respect to this Agreement, the documents referred to herein and
the transactions contemplated hereby, in an amount not to exceed $75,000 in the
aggregate, promptly (a) upon the Initial Closing, (b) upon request by
the Lead Investor in the event this Agreement is terminated by the Lead
Investor pursuant to Section 7.2, provided that the Company’s failure to
satisfy any one or more of the conditions to the Initial Closing set forth in Section 4.1
or 4.15 hereof has been a primary cause of, or has resulted in, the failure of
the parties to consummate the Initial Closing prior to the Termination Date.

 

7.10    Amendments
and Waivers.  Any term of this
Agreement may be amended or waived with the written consent of the Company and
Purchasers purchasing at least 75% of the Series CC Preferred Stock
pursuant to this Agreement.  Any
amendment or waiver effected in accordance with this Section 7.10 shall be
binding upon the Purchasers and each transferee of the Series CC Preferred
Stock, each future holder of all such securities, and the Company.

 

7.11    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.

 

7.12    Delays or Omissions.  No delay or omission to exercise any right,
power or remedy accruing to any holder of any of the Series CC Preferred
Stock (or the Conversion Stock) 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.

 

7.13    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.

 

7.14    Right
to Conduct Business.  The Company hereby acknowledges that the
Purchasers invest in numerous companies, some of which may be competitive with
the Company’s business.  The Purchasers
shall not be liable for any claim arising out of, related to or based upon (i) the
investment by the Purchasers in any entity competitive to the Company, or (ii) actions
taken by any partner, officer or other representative of the Purchasers to
assist any such competitive company, whether or not such action was taken as a
board member of such competitive company or otherwise, and whether or not such
action has a detrimental effect on the Company.

 

[signatures
on following pages]

 

27

 

IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or have
caused this Agreement to be duly executed on their behalf, as of the day and
year first above written.

 

	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Robert J.
  Farrell

  
	
   

  	
  Name: 

  	
  Robert J.
  Farrell

  
	
   

  	
  Title: 

  	
  President

  
	
   

  	
   

  
	
   

  	
  ABS
  CAPITAL PARTNERS V, L.P.

  
	
   

  	
  By: ABS Partners V, L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V, L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Laura L. Witt

  
	
   

  	
  Name: Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  ABS CAPITAL PARTNERS V-A, L.P.

  
	
   

  	
  By: ABS Partners V,
  L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V, L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Laura L. Witt

  
	
   

  	
  Name: Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  ABS CAPITAL PARTNERS V
  OFFSHORE, L.P.

  
	
   

  	
  By: ABS Partners V,
  L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V, L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Laura L. Witt

  
	
   

  	
  Name: Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
					

 

 

	
   

  	
  ICG HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Walter W. Buckley

  
	
   

  	
  Name: 

  	
  Walter W. Buckley

  
	
   

  	
  Title: 

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAYFLOWER LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ John Russell Hogg

  
	
   

  	
  Name:

  	
  John Russell Hogg

  
	
   

  	
  Title: 

  	
  Duly Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDUSTRY VENTURES FUND IV, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Hans Swildens

  
	
   

  	
  Name:

  	
  Hans Swildens

  
	
   

  	
  Title: 

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GOLDMAN SACHS PRIVATE EQUITY

  
	
   

  	
  OPPORTUNITIES, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Jennifer Barbetta

  
	
   

  	
  Name:

  	
  Jennifer Barbetta

  
	
   

  	
  Title: 

  	
  Authorized Signatory

  
						

 

 

	
   

  	
  IRONSIDE VENTURES, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Myles P. Gilbert

  
	
   

  	
  Name: 

  	
  Myles P. Gilbert

  
	
   

  	
  Title: 

  	
  Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AXIOM VENTURE PARTNERS II, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ William Wilcoxson

  
	
   

  	
  Name: 

  	
  William Wilcoxson

  
	
   

  	
  Title: 

  	
  Partner

  
							

 

 

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.

 

“Common Stock”
means the Company’s common stock, par value $0.01 per share.

 

“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 agreement; 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.

 

“Company Material
Adverse Effect” means any material adverse effect on the business, results
of operations, financial condition, properties, assets or liabilities of the
Company and its Subsidiaries, taken as a whole.

 

“Company’s knowledge”
or the phrase “knowledge of the Company” or words of similar effect mean
the actual knowledge of the officers of the Company and its Subsidiaries.

 

“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.

 

“Indemnification
Agreement” means the Indemnification Agreement in the form attached hereto
as Exhibit E.

 

“Intellectual Property”
means, interchangeably and collectively as the 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.

 

“Investment Agreements”
means the Agreement, the Stockholders Agreement, the Registration Rights
Agreement, the Management Rights Letters, and the Indemnification Agreement.

 

“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.

 

“Lead Investor”
means ABS Capital Partners V, L.P.

 

 

“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.

 

“Management Rights
Letters” means the management rights letters in the forms attached as Exhibits F-1 and F-2.

 

“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); and (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.

 

“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.

 

“Proforma” means
Proforma Corporation, a Michigan corporation.

 

“Proforma Acquisition”
means the acquisition of Proforma substantially on the terms of the form of
Agreement and Plan of Merger attached hereto as Exhibit G.

 

“Recapitalization”
means (i) the conversion of (A) all of the Company’s outstanding
shares of Series BB Preferred Stock into shares of Series AA
Preferred Stock in the ration of 1.8339403 shares of Series AA Preferred
Stock for each share of Series BB Preferred Stock, rounded, in the case of
each holder of Series BB Preferred Stock, to the nearest whole number of
shares of Series AA Preferred Stock, and (B) all of the Company’s
outstanding warrants to purchase shares of Series BB Preferred Stock into
shares of Series AA Preferred Stock in the ratio of one share of Series AA
Preferred Stock for each warrant to purchase a share of Series BB
Preferred Stock and (ii) the subsequent elimination of the Series BB
Preferred Stock as an authorized series of preferred stock of the Company, as a
result of which all of the Company’s preferred stock outstanding immediately
prior to the Initial Closing (excluding the effect of the Proforma Acquisition)
shall have a maximum liquidation preference pursuant to the terms of the Sixth
Articles of no greater than $75 million, assuming that a Liquidation (as
defined in the Sixth Articles) were to occur immediately prior to the Initial
Closing (excluding the effect of the Proforma Acquisition).

 

“Registration Rights
Agreement” means the Fourth Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit H.

 

“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.

 

 

“Series AA
Preferred Stock” means the Company’s Series AA Convertible Preferred
Stock, par value $0.01 per share.

 

“Series BB
Preferred Stock” means the Company’s Series BB Convertible Preferred
Stock, par value $0.01 per share.

 

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

 

“Stockholders
Agreement” means the Fifth Amended and Restated Stockholders Agreement in
the form attached hereto as Exhibit I.

 

“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.

 

As used herein, the terms “delivered,” “provided
to,” “furnished,” “made available” and words of similar
meaning when used to describe the provision of any information, documents or
other materials to the Purchasers in Section 2 hereof, means either (i) the
actual delivery of such materials (either in hardcopy or electronic form) to
the Purchasers or their legal counsel or (ii) the setting forth by the
Company of such materials in any “dataroom” available for access and review by
the Purchasers or their legal counsel and the contents of which were reasonably
identified to the Purchasers or their legal counsel from a date that is at
least ten (10) days prior to the Initial Closing until the last Additional
Closing Date.

 

 

Schedule 1

 

Purchasers,
Shares Purchased and Purchase Price

 

	
  Purchaser

  	
   

  	
  Shares
  of Series CC

  Preferred Stock 

  Purchased

  	
   

  	
  Purchase
  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ABS Capital
  Partners V, L.P.

  	
   

  	
  11,289,657

  	
   

  	
  $

  	
  17,973,133

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ABS Capital
  Partners V-A, L.P.

  	
   

  	
  584,344

  	
   

  	
  $

  	
  930,275

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ABS Capital
  Partners V Offshore, L.P.

  	
   

  	
  688,814

  	
   

  	
  $

  	
  1,096,591

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ICG
  Holdings, Inc.

  	
   

  	
  3,128,656

  	
   

  	
  $

  	
  4,980,820

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mayflower LP

  	
   

  	
  1,244,097

  	
   

  	
  $

  	
  1,980,603

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Industry
  Ventures Fund IV, L.P.

  	
   

  	
  298,078

  	
   

  	
  $

  	
  474,540

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Goldman Sachs
  Private Equity Opportunities, L.P.

  	
   

  	
  411,632

  	
   

  	
  $

  	
  655,318

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ironside
  Ventures, L.P.

  	
   

  	
  72,236

  	
   

  	
  $

  	
  115,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Axiom Venture
  Partners II, L.P.

  	
   

  	
  153,635

  	
   

  	
  $

  	
  244,587

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Totals

  	
   

  	
  17,871,149

  	
   

  	
  $

  	
  28,450,867

  	
   

  

 

 

Exhibit A

 

Form of Sixth Articles of Amendment and Restatement

 

 

METASTORM INC.

 

SIXTH ARTICLES OF AMENDMENT AND
RESTATEMENT

 

Metastorm Inc., a Maryland corporation having its principal office in
Baltimore City, Maryland (hereinafter called the “Corporation”), hereby
certifies to the State Department of Assessments and Taxation of the State of
Maryland that:

 

FIRST: 
The Charter of the Corporation currently in effect is hereby amended and
restated by striking out in its entirety the existing Charter and inserting in
lieu thereof the following:

 

FIRST: The name of the corporation (which is hereinafter
called the “Corporation”) is:

 

Metastorm Inc.

 

SECOND: The purpose or purposes of the Corporation are to
engage in any or all lawful acts or activities for which corporations may be
organized under the Maryland General Corporation Law.

 

THIRD:  The address
of the principal office of the Corporation in Maryland is 500 East Pratt
Street, Suite 1250, Baltimore, Maryland 21202.  The name of the resident agent is Allison
McCann, whose address is 500 East Pratt Street, Suite 1250, Baltimore,
Maryland 21202.  Said resident agent is a
citizen of the State of Maryland residing therein.

 

FOURTH:  (a)  The
amount of the total authorized capital stock of this Corporation shall be up to
216,657,212 shares, divided as follows:  (i) 120,000,000
shares of Common Stock, par value $0.01 per share (the “Common Stock”),
and (ii) 96,657,212 shares of Preferred Stock, par value $0.01 per share
(the “Preferred Stock”), of which:

 

(i)            71,012,991 shares shall be designated as “Series AA
Convertible Preferred Stock” (the “Series AA Preferred Stock”);

 

(ii)           6,800,000 shares shall be designated as “Series BB
Convertible Preferred Stock” (the “Series BB Preferred Stock”); and

 

(iii)          18,844,221
shares shall be designated as “Series CC Convertible Preferred Stock” (the
“Series CC Preferred Stock”).

 

The aggregate par value of all shares of capital stock having a par
value is $2,166,572.12.

 

(b)           Common Stock. 
Each share of the Common Stock authorized for issuance by the
Corporation shall be entitled to one vote.

 

 

(c)           Preferred Stock. 
The Preferred Stock authorized hereby may be divided and issued from
time to time in series.  Except as
otherwise provided in the Corporation’s Charter, or as may be provided in that
certain Fifth Amended and Restated Stockholders Agreement by and among the
Corporation and certain of the holders of the Corporation’s Series AA
Preferred Stock and the holders of the Corporation’s Series CC Preferred
Stock (as such may be amended from time to time, the “Stockholders Agreement”),
and subject to limitations and requirements prescribed by law, the Board of
Directors of the Corporation (the “Board”) is expressly authorized, by a
vote of at least a majority of the Board then in office or by a unanimous
written consent of the Board then in office, to provide for the issuance of the
Preferred Stock in one or more series, each with such designations,
preferences, voting powers (or no voting powers), relative, participating, option
or other special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions
adopted by the Board to create such series. 
The authority of the Board with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may be:

 

(i)            subject to redemption at such time or
times and at such price or prices;

 

(ii)           entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series;

 

(iii)          entitled
to such rights upon the dissolution of, or upon any distribution of the assets
of, the Corporation;

 

(iv)          convertible into, or exchangeable for,
shares of any other class or classes of capital stock, or of any other series
of the same or any other class or classes of stock of the Corporation at such
price or prices or at such rates of exchange and with such adjustments, if any;

 

(v)           entitled to the benefit of such
limitations, if any, on the issuance of additional shares of such series or
shares of any other series of Preferred Stock; or

 

(vi)          entitled to such other preferences,
powers, qualifications, rights and privileges, all as the Board may deem
advisable and as are not inconsistent with law and the provisions of the
Corporation’s Charter.

 

The Board is also authorized to decrease the number of
shares of any series, subsequent to the issuance of that series, but not below
the number of shares of such series then outstanding.  In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.

 

2

 

(d)           Conversion.

 

(i)            The Corporation shall, at all times when
any series of convertible Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of such Preferred Stock, such number of its duly
authorized shares of Common Stock (and Series AA Preferred Stock, with
respect to the conversion of Series BB Preferred Stock contemplated by Article Fifth
(together with the Common Stock, the “Conversion Shares”)) as shall from
time to time be sufficient to effect the conversion of all outstanding shares
of such Preferred Stock.  The Corporation
covenants that all Conversion Shares  which shall be so issued shall be duly and
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time
to time take all such action as may be requisite to assure that the par value
per share of all Conversion Shares is at all times equal to or less than the
lowest of the Series AA Conversion Price and the Series CC Conversion
Price in effect at the time.  The
Corporation will take all such action as may be necessary to assure that all
Conversion Shares may be so issued without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon
which any Conversion Shares may be listed.

 

(ii)           All shares of Preferred Stock which shall
have been converted to another class or series of capital stock as herein
provided (notwithstanding any failure of the holder or holders thereof to
surrender certificates therefor) shall no longer be deemed to be outstanding
and all rights with respect to such shares shall immediately cease and
terminate upon the applicable conversion date, except only the right of the
holders thereof to receive Conversion Shares in exchange therefor.  Any shares of Preferred Stock so converted,
and all certificates representing such shares, shall be retired and canceled
and shall not be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce accordingly the number of
authorized shares of the series of Preferred Series so converted.

 

(iii)          The issuance of certificates for Conversion Shares
upon conversion of Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate 

 

3

 

in a name other than that of the holder of
the Preferred Stock which is being converted.

 

(iii)          The Corporation will at no time close its transfer
books against the transfer of any Preferred Stock or of any Conversion Shares
in any manner which interferes with the timely conversion of any Preferred
Stock in accordance herewith, except as may otherwise be required to comply
with applicable securities laws.

 

(e)           Voting.  In addition to the voting preferences of the
Preferred Stock set forth herein, with respect to all matters on which the holders of
Common Stock are entitled to vote, the holders of the Series AA Preferred
Stock (voting on an “as-converted” basis, as adjusted from time to time in
accordance herewith), the holders of Series CC Preferred Stock (voting on
an “as converted” basis, as adjusted from time to time in accordance herewith)
and the holders of the Common Stock shall vote together as a single class.

 

FIFTH:  Upon the
effectiveness of this Charter (the “Effective Time”), each outstanding
share of Series BB Preferred Stock shall be automatically reclassified and
converted into 1.8339403 validly issued, fully paid and nonassessable shares of
Series AA Preferred Stock. 
Immediately following the Effective Time, each certificate that immediately prior to the
Effective Time represented outstanding shares of Series BB Preferred Stock
(“Old Certificates”) shall represent the right to receive in exchange
therefor, as soon as reasonably practicable following the surrender by the
holder of such Old Certificate, a new certificate representing the number of
whole shares of Series AA Preferred Stock into which the shares of Series BB
Preferred Stock so surrendered have been reclassified and converted as of the
Effective Time.  If so required by the
Corporation, Old Certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing.

 

SIXTH:  For purposes
of Article Seventh below, the following terms shall have the respective
meanings indicated:

 

“Additional Shares of Common Stock” means all
shares of Common Stock issued (or, pursuant to Section 4(c)(ii) of Article Seventh,
deemed to be issued) by the Corporation after the Series AA Original Issue
Date, other than (a) shares of Common Stock issued or issuable upon the
conversion of shares of the Series AA Preferred Stock or Series CC
Preferred Stock; (b) shares of Common Stock issued or issuable by reason
of a dividend, stock split or other distribution that is covered by Section 4(d),
4(e) or 4(f) of Article Seventh below; (c) shares of Common
Stock issued as consideration (and not as financing) for any business
combination between the Corporation and another corporation or entity approved
by the Board of Directors; (d) shares of Common Stock or Series AA
Preferred Stock issued or issuable to employees, directors or consultants of
the Corporation pursuant to a compensation plan or arrangement approved by the
Board (provided that the Board shall also approve the grant of shares of Common
Stock or Series AA Preferred Stock or other securities 

 

4

 

exercisable for such shares of Common Stock or Series AA Preferred
Stock in connection therewith); (e) shares of Common Stock issued in a
Liquidation approved in accordance with Article Twelfth; (f) shares
of Common Stock issued or issuable to commercial banking or equipment lease
financing entities in connection with banking or lease financing transactions
approved by the Board; and (g) shares of Common Stock issued or issuable
upon the conversion of shares of Series AA Preferred Stock issued in
exchange for shares of Series BB Preferred Stock or warrants to purchase
shares of Series BB Preferred Stock.

 

“Convertible Securities” means any stock,
evidences of indebtedness or other securities of the Corporation directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.

 

“Liquidation” has the meaning set forth in Article Eleventh.

 

“Options” means rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.

 

“Qualified Initial Public Offering” means the
closing of a firm commitment underwritten public offering, pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the “Securities Act”), covering the offer and sale of Common Stock to
the public that raises gross proceeds for the Corporation of at least
$75,000,000  and at an initial price per share
to the public at least equal to two and one-half (21⁄2) times the then-applicable
Series CC Conversion Price (as defined in Article Eighth).

 

“Qualified Sale Transaction” has the meaning
set forth in Article Eleventh.

 

“Recapitalization Events” means stock splits,
stock dividends, combinations, recapitalizations, reclassifications, mergers,
consolidations and other similar events affecting the Corporation’s capital
stock.

 

“Series AA Conversion Date” shall have the
meaning set forth in Section 4(b) of Article Seventh.

 

“Series AA Conversion Price” means
$1.38572 per share (subject to adjustment as provided in Section 4 of Article Seventh).

 

“Series AA
Conversion Ratio” shall have the meaning set forth in Section 4(a) of
Article Seventh.

 

“Series AA Conversion Value” means the
original Series AA Stated Value.

 

“Series AA
Original Issue Date” means the date on which the Corporation first issued
any shares of Series AA Preferred Stock.

 

“Series AA
Stated Value” means $1.38572 per share (subject to appropriate 

 

5

 

adjustment for any
Recapitalization Event).

 

SEVENTH: 
The Series AA Preferred Stock shall be subject to all of the
provisions of the Corporation’s Charter relating to the capital stock of the
Corporation generally and shall have the following preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption (section references below
are to the corresponding sections in this Article Seventh):

 

Section 1.              Rank.  The Series AA Preferred Stock will, with
respect to dividend rights and rights upon Liquidation, rank:  (a) senior to the Common Stock, and (b) junior
to the Series CC Preferred Stock.

 

Section 2.              Dividend Rate; Series AA Dividend Payment
Date.

 

(a)           Subject to the preferential rights of the holders of
the Series CC Preferred Stock as to dividends, the holders of shares of
the Series AA Preferred Stock shall be entitled to receive, when, as and
if authorized by the Board of Directors and declared by the Corporation, out of
funds legally available for the payment of dividends, cumulative dividends at
the rate of 8.00% per annum.  Unless
otherwise waived in writing by holders of at least two-thirds (2/3) of the then
outstanding Series AA Preferred Stock, dividends on each share of Series AA
Preferred Stock shall accrue monthly and be cumulative from and including the
date on which such share of Series AA Preferred Stock was first issued; provided,
however, that dividends shall be deemed to accrue beginning January 1,
2006 with respect to all shares of Series AA Preferred Stock that were
outstanding as of October 5, 2005 and with respect to all shares of Series AA
Preferred Stock issued upon conversion of Series BB Preferred Stock or in
lieu of warrants to purchase shares of Series BB Preferred Stock.

 

(b)           Notwithstanding anything
contained herein to the contrary, dividends on the Series AA Preferred
Stock shall accrue whether or not the Corporation has earnings, whether or not
there are funds legally available for the payment of such dividends, and
whether or not such dividends are authorized or declared.

 

(c)           No dividends shall be declared or
paid or set apart for payment and no other distribution of cash or other
property may be declared or made, directly or indirectly, on or with respect to
any shares of Common Stock (other than a dividend paid in shares of Common
Stock) for any period, nor shall any shares of capital stock be redeemed,
purchased or otherwise acquired for any consideration (other than the
repurchase of shares of capital stock from former employees in connection with
the termination of their employment and other than as set forth in Article Tenth)
and no other distribution of cash or other property may be made, directly or
indirectly, on or with respect thereto by the Corporation, unless full cumulative
dividends on:

 

(i)            first, the Series CC Preferred
Stock shall have been or contemporaneously are declared and paid; and

 

6

 

(iii)          second, the Series AA
Preferred Stock shall have been or contemporaneously are declared and paid.

 

(d)           Any dividend payment made on the Series AA
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividends due with respect to such shares which remains payable.

 

(e)           In the event
the Corporation shall
declare, pay or set aside any dividends with respect to any Common Stock, the
holders of the Series AA Preferred Stock then outstanding shall first
receive, or contemporaneously receive, a dividend on each outstanding share of Series AA
Preferred Stock equal to the product of (i) the dividend payable on each
share of Common Stock, multiplied by (ii) the number of shares of Common
Stock then issuable upon conversion of a share of Series AA Preferred
Stock, in each case calculated on the record date for determination of holders
entitled to receive such dividend.

 

Section 3.              Voting Rights.

 

(a)           The Corporation shall not take, and shall
not permit any subsidiary of the Corporation to take, whether by merger,
consolidation or otherwise, any of the following actions without the written
consent or affirmative vote of stockholders representing at least two-thirds (2/3) of the
then outstanding shares of Series AA Preferred Stock voting as a single
class:

 

(i)            amend, alter, modify or repeal the
charter, bylaws or other organic or organizational documents of the Corporation
or any of its subsidiaries, whether by merger, consolidation or otherwise, in
any manner that would have an adverse effect on the rights, powers, preferences
or privileges of the Series AA Preferred Stock;

 

 (ii)          issue, authorize or sell any preferred stock (or any
options, warrants or similar participation rights to purchase such preferred
stock) ranking senior to or on parity with the Series AA Preferred Stock
as to dividend rights, voting rights and/or rights upon a Liquidation;

 

 (iii)         increase the size of the Board, except as contemplated
by Article 3 of the Stockholder’s Agreement;

 

(iv)          take any action that would adversely
affect, in any material respect, the preferences, special rights, privileges or
powers of the Series AA Preferred Stock;

 

(v)           take any action that would increase or
decrease the number of authorized shares of Series AA Preferred Stock;

 

7

 

	
   

  	
  (vi)

  	
  substantially
  change the business in which the Corporation or any of its subsidiaries
  engages as of the Series CC Original Issue Date (as defined in Article Ninth);

  
	
   

  	
   

  	
   

  
	
   

  	
  (vii)

  	
  issue any equity
  securities of the Corporation within a fiscal year having an aggregate fair
  market value (as determined in good faith by the Board of Directors of the
  Corporation) in excess of $10,000,000;

  
	
   

  	
   

  	
   

  
	
   

  	
  (viii)

  	
  redeem,
  purchase, retire or otherwise acquire for value, any shares of the capital
  stock of the Corporation or any shares of the capital stock of any subsidiary
  of the Corporation (other than the payment of dividends or distributions, or
  other payments in redemption, made by such subsidiary solely to the
  Corporation and other than the repurchase of shares of capital stock from
  former employees in  connection
  with the termination of their employment or other than pursuant to Article Tenth);

  
	
   

  	
   

  	
   

  
	
   

  	
  (ix)

  	
  declare or distribute any dividends with respect to the Common Stock,
  except for dividends or distributions payable solely in additional shares of
  Common Stock;

  
	
   

  	
   

  	
   

  
	
   

  	
  (x)

  	
  incur
  indebtedness for borrowed money, individually or in the aggregate, in excess
  of $10,000,000; or

  
	
   

  	
   

  	
   

  
	
   

  	
  (xi)

  	
  issue any shares
  of Series BB Preferred Stock.

  

 

(b)           The Corporation shall not permit any of
its subsidiaries to take any action which, if taken by the Corporation, would
require the consent of the holders of at least two-thirds (2/3) of the then
outstanding Series AA Preferred Stock in accordance with the preceding
subsection.

 

Section 4.              Conversion.  The holders of the Series AA Preferred
Stock shall have conversion rights as follows (the “Series AA
Conversion Rights”):

 

(a)           Right to Convert. Each share of
Series AA Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, into such number of fully
paid and nonassessable shares of Common Stock as determined by dividing the Series AA
Conversion Value by the Series AA Conversion Price (subject to appropriate
adjustment in accordance with this Section 4) (the “Series AA
Conversion Ratio”).  No additional
consideration shall be paid by a holder of Series AA Preferred Stock upon
exercise of the Series AA Conversion Rights.  Upon any such conversion, no adjustment to the Series AA
Conversion Price shall be made for any accrued and unpaid dividends on the Series AA
Preferred Stock converted.

 

8

 

(b)           Mechanics of Conversion.  In order for a holder of Series AA
Preferred Stock to convert shares of Series AA Preferred Stock into shares
of Common Stock, such holder shall surrender the certificate or certificates
for such shares of Series AA Preferred Stock, at the office of the
transfer agent for the Series AA Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of Series AA Preferred Stock represented by such
certificate or certificates.  If required
by the Corporation, certificates surrendered for conversion shall be endorsed
or accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. 
The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date (“Series AA Conversion Date”).  The Corporation shall, as soon as practicable
after the Series AA Conversion Date, issue and deliver at such office to
such holder of Series AA Preferred Stock a certificate or certificates for
the number of whole shares of Common Stock to which such holder shall be
entitled.  As of the Series AA
Conversion Date, the person entitled to receive certificates of Common Stock
shall be regarded for all corporate purposes as the holder of the number of
whole shares of Common Stock to which he or it is entitled upon the conversion.

 

(c)           Adjustments to Conversion
Price for Diluting Issues.

 

(i)            No Adjustment of Conversion Price. 
No adjustment in the number of shares of Common Stock into which the Series AA
Preferred Stock is convertible shall be made, by adjustment in the applicable Series AA
Conversion Price thereof:  (A) unless
the consideration per share (determined pursuant to Section 4(c)(iv)) for
an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series AA Conversion Price in
effect on the date of, and immediately prior to, the issuance of such
Additional Share of Common Stock, (B) upon the issuance of any shares of Series BB
Preferred Stock or shares of Series AA Preferrred Stock issuable upon the
conversion thereof;  (C) upon
the issuance of any shares of Series CC Preferred Stock or shares of
Common Stock issuable upon the conversion thereof, or (D) if prior to such
issuance, the Corporation receives written notice from the holders of at least
two-thirds (2/3)
of the then outstanding shares of Series AA Preferred Stock agreeing that
no such adjustment shall be made as the result of the issuance of such
Additional Shares of Common Stock.

 

(ii)           Issuance of Securities Deemed Issuance of
Additional Shares of Common Stock.  If the
Corporation at any time or from time to time after the Series AA Original
Issue Date shall issue any Convertible Securities or Options (excluding Options
or Convertible Securities which, upon exercise, conversion or exchange thereof,
would entitle the holder thereof to receive shares of Common Stock which are 

 

9

 

specifically excepted from the definition of Additional Shares of
Common Stock) or shall fix a record date for the determination of holders of
any class of securities entitled to receive any such Convertible Securities or
Options, then the maximum number of shares of Common 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 Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common 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 Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 4(c)(iv)) of such Additional Shares of Common Stock
would be less than the Series AA Conversion Price in effect on the date of
and immediately prior to such issuance, or such record date, as the case may
be, and provided that in any such case in which Additional Shares of Common
Stock are deemed to be issued:

 

(1)           no further adjustment in the Series AA
Conversion Price shall be made upon the subsequent issuance of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;

 

(2)           if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof,
the Series AA Conversion 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 recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;

 

(3)           no readjustment pursuant to clause (2) above
shall have the effect of increasing the Series AA Conversion Price to an
amount which exceeds the Series AA Conversion Price on the original
adjustment date; and

 

10

 

(4)           in the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any
Option or 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 Series AA Conversion Price then in effect shall forthwith be
readjusted to such Series AA Conversion Price as would have been obtained
had the adjustment which was made upon the issuance of such Options or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change, but no further adjustment shall be made for the
actual issuance of Common Stock upon the exercise or conversion of any such
Option or Convertible Security.

 

Upon the expiration of
any such Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series AA Conversion
Price computed upon the issuance thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:

 

(x)           in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the Corporation upon such exercise of such Options; or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus
the additional consideration, if any, actually received by the Corporation upon
such conversion or exchange; and

 

(y)           in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised.

 

11

 

(iii)          Adjustment
of Conversion Price Upon Issuance of Additional Shares of Common Stock. 
In the event the Corporation shall at any time after the Series AA
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 4(c)(ii)),
without consideration or for a consideration per share (determined pursuant to Section 4(c)(iv) hereof)
less than the Series AA Conversion Price in effect on the date of and
immediately prior to such issuance, then and in each such case, such Series AA
Conversion Price shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest hundredth of a cent) determined by multiplying the Series AA
Conversion Price by a fraction:

 

(1)           the numerator of which is the amount of Common Stock
outstanding immediately before such issuance plus the amount of Common
Stock that the aggregate consideration received by the Corporation for the
Additional Shares of Common Stock would purchase at the Series AA
Conversion Price in effect immediately before such issuance; and

 

(2)           the denominator of which is the Common Stock
outstanding immediately before such issuance plus the number of such
Additional Shares of Common Stock;

 

provided, that for purposes of this Section 4(c)(iii),
all shares of Common Stock issuable upon exercise of options and warrants
outstanding immediately prior to such issuance or upon conversion of the Series AA
Preferred Stock and Series CC Preferred Stock shall be deemed to be
outstanding.

 

(iv)          Determination of Consideration. 
For purposes of this Section 4(c), the consideration received by
the Corporation for the issuance of any Additional Shares of Common Stock shall
be computed as follows:

 

(1)           Cash and Property.  Such consideration shall:

 

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

 

(b)           insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time 

 

12

 

of such issuance, as determined in good faith by the
Board; and

 

(c)           in the event Additional Shares of Common Stock are
issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (a) and (b) above,
as determined in good faith by the Board.

 

(2)           Options and Convertible Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section 4(c)(ii), relating to Options and Convertible
Securities, shall be determined by dividing:

 

(a)           the total amount, if any,
received or receivable by the Corporation as consideration for the issuance of
such Options or 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 Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible Securities,
by

 

(b)           the maximum number of shares
of Common 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 Convertible Securities.

 

(d)           Adjustment for Stock Splits
and Combinations.  If the
Corporation shall at any time or from time to time after the Series AA
Original Issue Date effect a subdivision of the outstanding Common Stock, the Series AA
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased.  If the
Corporation shall at any time or from time to time after the Series AA
Original Issue Date combine the outstanding shares of Common Stock, the Series AA
Conversion Price then in effect immediately before the combination shall be
proportionately increased.  Any
adjustment under this paragraph 

 

13

 

shall become effective at
the close of business on the date the subdivision or combination becomes
effective.

 

(e)           Adjustment for Certain
Dividends and Distributions.  In the event the Corporation at any time or
from time to time after the Series AA Original Issue Date, shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Series AA
Conversion Price 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 Series AA
Conversion Price for the Series AA Preferred Stock then in effect by a
fraction:

 

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

 

(ii)           the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common 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 Series AA Conversion Price for the Series AA
Preferred Stock shall be recomputed accordingly as of the close of business on
such record date and thereafter the Series AA Conversion Price for the Series AA
Preferred Stock shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions.

 

(f)            Adjustments for Other
Dividends and Distributions.  In the event the Corporation at any time or
from time to time after the Series AA Original Issue Date shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series AA Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had their Series AA Preferred
Stock been converted into Common 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 Series AA
Preferred Stock.

 

(g)           Adjustment for
Reclassification, Exchange, or Substitution.  If the Common Stock issuable upon the
conversion of the Series AA Preferred Stock shall be changed into 

 

14

 

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 such share of Series AA Preferred Stock
shall have the right thereafter to convert such 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 Common Stock into which such shares of Series AA Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.

 

(h)           Adjustment for Merger or
Reorganization.  In case of
any consolidation or merger of the Corporation with or into another corporation
which does not cause a Liquidation, each share of Series AA Preferred
Stock 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 Common Stock of the Corporation deliverable upon conversion of such Series AA
Preferred Stock 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 4
set forth with respect to the rights and interest thereafter of the holders of
the Series AA Preferred Stock, to the end that the provisions set forth in
this Section 4 (including provisions with respect to changes in and other
adjustments of the Conversion 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 conversion of the Series AA Preferred
Stock.

 

(i)            No Impairment.  The Corporation will not, by amendment of its
Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in order
to protect the Series AA Conversion Rights of the holders of Series AA
Preferred Stock against impairment.

 

(j)            Notice of Record Date.  In the event:

 

(i)            that the Corporation declares a dividend
(or any other distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;

 

(ii)           that the Corporation subdivides or
combines its outstanding shares of Common Stock;

 

(iii)          of
any reclassification of the Common Stock of the Corporation (other than a
subdivision or combination of its outstanding shares of 

 

15

 

Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another
corporation; or

 

(iv)          of the Liquidation of the Corporation;

 

then the Corporation shall cause to be filed at its
principal office or at the office of the transfer agent of the Series AA
Preferred Stock, and shall cause to be mailed to the holders of the Series AA
Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the
record date specified in (A) below or twenty (20) days before the date
specified in (B) below, a notice stating:

 

(A)          the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or

 

(B)          the date on which such reclassification,
consolidation, merger, or Liquidation is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, or
Liquidation.

 

(k)           Certificate as to
Adjustments.  Upon the
occurrence of each adjustment or readjustment pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of Series AA
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based.  The Corporation shall, upon the
written request at any time of any holder of Series AA Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments; (ii) the Series AA
Conversion Price then in effect; and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then would be received
upon the conversion of Series AA Preferred Stock.

 

Section 5.              Exclusion of Other Rights.  Except as set forth in the Charter and the
Stockholders Agreement, the Series AA Preferred Stock shall not have any
preferences or other rights, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption.

 

16

 

Section 6.              Mandatory Conversion of Series AA
Preferred Stock.

 

(a)           (i)  Upon written request of the
holders of more than two-thirds (2/3) of the then outstanding shares of the Series AA
Preferred Stock, voting together as a single class, the Corporation shall
convert all of the outstanding shares of Series AA Preferred Stock into
shares of Common Stock in accordance with Section 4 and (ii) upon the
closing of a Qualified Initial Public Offering, all of the Series AA
Preferred Stock then outstanding shall automatically be converted into shares
of Common Stock at the Series AA Conversion Price (subject to appropriate
adjustment in accordance with Section 4) in accordance with Section 4.

 

(b)           If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing.  As soon as
practicable after the date of such conversion and the surrender of the
certificate or certificates for Series AA Preferred Stock, the Corporation
shall cause to be issued and delivered to such holder, or on his or its written
order, a certificate or certificates for the number of shares of Common Stock
issuable on such conversion in accordance with the provisions hereof.  Upon any such conversion, no adjustment to
the Series AA Conversion Price shall be made for any accrued and unpaid
dividends on the Series AA Preferred Stock converted.

 

EIGHT:  For purposes
of Article Ninth below, the following terms shall have the respective
meanings indicated:

 

“Additional Shares of
Common Stock” means all shares of Common Stock issued (or, pursuant to Section 4(c)(ii) of
Article Ninth, deemed to be issued) by the Corporation after the Series CC
Original Issue Date, other than (a) shares of Common Stock issued or
issuable upon the conversion of shares of the Series AA Preferred Stock or
Series CC Preferred Stock; (b) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution that is
covered by Section 4(d), 4(e) or 4(f) of Article Ninth
below; (c) (c) shares of Common Stock issued as consideration (and
not as financing) for any business combination between the Corporation and
another corporation or entity approved by the Board of Directors; (d) shares
of Common Stock or Series AA Preferred Stock issued or issuable to
employees, directors or consultants of the Corporation pursuant to a plan or
arrangement approved by the Board (provided that the Board shall also approve
the grant of shares of Common Stock or Series AA Preferred Stock or other
securities exercisable for such shares of Common Stock or Series AA
Preferred Stock in connection therewith); (e) shares of Common Stock
issued in connection with a Liquidation approved in accordance with Article Twelfth;
(f) shares of Common Stock issued or issuable to commercial banking or
equipment lease financing entities in connection with banking or lease financing
transactions approved by the Board; and (g) shares of Common Stock issued
or issuable upon the conversion of shares of Series AA Preferred Stock
issued in exchange for shares of Series BB Preferred Stock or warrants to
purchase shares of Series BB Preferred Stock.

 

17

 

“Convertible
Securities” means any stock, evidences of indebtedness or other securities
of the Corporation directly or indirectly convertible into or exchangeable for
Additional Shares of Common Stock.

 

“Liquidation” has
the meaning set forth in Article Eleventh.

 

“Options” means
rights, options or warrants to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.

 

“Qualified Initial
Public Offering” means the closing of a firm commitment underwritten public
offering, pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the “Securities Act”), covering the offer and
sale of Common Stock to the public that raises gross proceeds for the
Corporation of at least $75,000,000  and at an
initial price per share to the public at least equal to two and one-half (21⁄2)
times the then-applicable Series CC Conversion Price.

 

“Qualified Sale
Transaction” has the meaning set forth in Article Eleventh.

 

“Recapitalization
Events” means stock splits, stock dividends, combinations,
recapitalizations, reclassifications, mergers, consolidations and other similar
events affecting the Corporation’s capital stock.

 

“Series CC
Conversion Price” means  $1.592 per
share (subject to adjustment as provided in Section 4 of Article Ninth).

 

“Series CC
Conversion Value” means the original Series CC Stated Value.

 

“Series CC
Conversion Date” shall have the meaning set forth in Section 4(b) of
Article Ninth.

 

“Series CC
Conversion Ratio” shall have the meaning set forth in Section 4(a) of
Article Ninth.

 

“Series CC
Original Issue Date” means the date on which the Corporation first issued
any shares of Series CC Preferred Stock.

 

“Series CC Stated
Value” means $1.592 per share (subject to appropriate adjustment for any
Recapitalization Event).

 

NINTH: 
The Series CC Preferred Stock shall be subject to all of the
provisions of the Corporation’s Charter relating to the capital stock of the
Corporation generally and shall have the following preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption (section references below
are to the corresponding sections in this Article Ninth):

 

18

 

Section 1.              Rank.  The Series CC Preferred Stock will, with
respect to dividend rights and rights upon Liquidation, rank:  (a) senior to (i) the Common Stock
and (ii) the Series AA Preferred Stock.

 

Section 2.              Dividend Rate; Series CC
Dividend Payment Date.

 

(a)           The holders of shares of the Series CC
Preferred Stock shall be entitled to receive, when, as and if authorized by the
Board of Directors and declared by the Corporation, out of funds legally
available for the payment of dividends, cumulative dividends at the rate of
8.00% per annum. Dividends on each share of Series CC Preferred Stock
shall accrue monthly and be cumulative from and including the date on which
such share of Series CC Preferred Stock was first issued.

 

(b)           Notwithstanding anything
contained herein to the contrary, dividends on the Series CC Preferred
Stock shall accrue whether or not the Corporation has earnings, whether or not
there are funds legally available for the payment of such dividends, and
whether or not such dividends are authorized or declared.

 

(c)           No
dividends shall be declared or paid or set apart for payment and no other
distribution of cash or other property may be declared or made, directly or
indirectly, on or with respect to any shares of Common Stock or shares of Series AA
Preferred Stock (other than a dividend paid in shares of Common Stock) for any
period, nor shall any shares of capital stock be redeemed, purchased or
otherwise acquired for any consideration (other than the repurchase of shares
of capital stock from former employees in connection with the termination of
their employment and other than as set forth in Article Tenth) and no
other distribution of cash or other property may be made, directly or
indirectly, on or with respect thereto by the Corporation, unless full
cumulative dividends on the Series CC Preferred Stock shall have been or
contemporaneously are declared and paid.

 

(d)           Any dividend
payment made on the Series CC Preferred Stock shall first be credited
against the earliest accrued but unpaid dividends due with respect to such
shares which remains payable.

 

(e)           In the event
the Corporation shall declare, pay or set aside any dividends with respect to
any Common Stock, the holders of the Series CC Preferred Stock then
outstanding shall first receive, or contemporaneously receive, a dividend on
each outstanding share of Series CC Preferred Stock equal to the product
of (i) the dividend payable on each share of Common Stock, multiplied by (ii) the
number of shares of Common Stock then issuable upon conversion of a share of Series CC
Preferred Stock, in each case calculated on the record date for determination
of holders entitled to receive such dividend.

 

Section 3.              Voting Rights.

 

(a)           The Corporation shall not take, and shall not permit
any subsidiary of the Corporation to take, whether by merger, consolidation or
otherwise, any of the following 

 

19

 

actions without the
written consent or affirmative vote of stockholders representing a majority of
the then outstanding shares of Series CC Preferred Stock voting together
as a single class:

 

(i)            amend, alter, modify or repeal the
articles of incorporation, bylaws or other organic or organizational documents
of the Corporation or any of its subsidiaries, whether by merger, consolidation
or otherwise, in any manner that would have an adverse effect on the rights,
powers, preferences or privileges of the Series CC Preferred Stock;

 

 (ii)          issue, authorize or sell any preferred stock (or any
options, warrants or similar participation rights to purchase such preferred
stock) ranking senior to or on parity with the Series CC Preferred Stock
as to dividend rights, voting rights and/or rights upon a Liquidation;

 

(iii)          increase
the size of the Board, except as contemplated by Article 3 of the
Stockholders Agreement;

 

(iv)          any action, whether by merger,
consolidation or otherwise, that would adversely affect, in any material
respect, the preferences, special rights, privileges or powers of the Series CC
Preferred Stock;

 

(v)           take any action that would increase or
decrease the number of authorized shares of Series CC Preferred Stock;

 

(vi)          substantially change the business in
which the Corporation or any of its subsidiaries engages as of the Series CC
Original Issue Date;

 

(vii)         issue
any equity securities of the Corporation within a fiscal year having an
aggregate fair market value (as determined in good faith by the Board of
Directors of the Corporation) in excess of $10,000,000;

 

(viii)        redeem,
purchase, retire or otherwise acquire for value, any shares of the capital
stock of the Corporation or any shares of the capital stock of any subsidiary
of the Corporation (other than the payment of dividends or distributions, or
other payments in redemption, made by such subsidiary solely to the Corporation
and other than the repurchase of shares from former employees in connection
with the termination of their employment or other than pursuant to Article Tenth);

 

(ix)           declare or
distribute any dividends with respect to the Common Stock, except for dividends
or distributions payable solely in additional shares of Common Stock;

 

20

 

(x)            incur indebtedness for borrowed money,
individually or in the aggregate, in excess of $10,000,000; or

 

(xi)           issue any shares of Series BB
Preferred Stock.

 

(b)           The Corporation shall not permit any of its
subsidiaries to take any action which, if taken by the Corporation, would
require the consent of the holders of at least a majority of the then
outstanding Series CC Preferred Stock in accordance with the subsection (a) of
this Section 3.

 

(c)           Notwithstanding anything herein to the contrary, the
Corporation shall not engage in any Liquidation at any time between the Series CC
Original Issue Date and the second anniversary of the Series CC Original
Issue Date (inclusive), if

 

(i)            the amount of proceeds to paid in respect of a share
of Series CC Preferred Stock in connection with such Liquidation is less
than two (2) times the Series CC Stated Value; and

 

(ii)           stockholders representing at least seventy-five
percent (75%) of the then outstanding shares of Series CC Preferred Stock
vote against the approval of such Liquidation or otherwise provide written
notice to the Corporation of their opposition to the consummation of such
Liquidation.

 

Section 4.              Conversion.  The holders of the Series CC Preferred
Stock shall have conversion rights as follows (the “Series CC
Conversion Rights”):

 

(a)           Right to Convert. Each share of
Series CC Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, into such number of fully
paid and nonassessable shares of Common Stock as determined by dividing the Series CC
Conversion Value by the Series CC Conversion Price (subject to appropriate
adjustment in accordance with this Section 4) (the “Series CC
Conversion Ratio”).  No additional
consideration shall be paid by a holder of Series CC Preferred Stock upon
exercise of the Series CC Conversion Rights.  Upon any such conversion, no adjustment to
the Series CC Conversion Price shall be made for any accrued and unpaid
dividends on the Series CC Preferred Stock converted.

 

(b)           Mechanics of
Conversion.  In order
for a holder of Series CC Preferred Stock to convert shares of Series CC
Preferred Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Series CC Preferred Stock,
at the office of the transfer agent for the Series CC Preferred Stock (or
at the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to
convert all or any number of the shares of Series CC Preferred Stock represented
by such certificate or certificates.  If
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written 

 

21

 

instrument
or instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized in
writing.  The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date (the
“Series CC Conversion Date”). 
The Corporation shall, as soon as practicable after the Series CC
Conversion Date, issue and deliver at such office to such holder of Series CC
Preferred Stock a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled.  As of the Series CC Conversion Date, the
person entitled to receive certificates of Common Stock shall be regarded for
all corporate purposes as the holder of the number of whole shares of Common
Stock to which he or it is entitled upon the conversion.

 

(c)           Adjustments to
Conversion Price for Diluting Issues.

 

(i)            No Adjustment of Conversion Price. 
No adjustment in the number of shares of Common Stock into which the Series CC
Preferred Stock is convertible shall be made, by adjustment in the applicable Series CC
Conversion Price thereof:  (A) unless
the consideration per share (determined pursuant to Section 4(c)(iv)) for
an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series CC Conversion Price in
effect on the date of, and immediately prior to, the issuance of such
Additional Share of Common Stock, or (B) if prior to such issuance, the
Corporation receives written notice from the holders of at least a majority of
the then outstanding shares of Series CC Preferred Stock agreeing that no
such adjustment shall be made as the result of the issuance of such Additional
Shares of Common Stock.

 

(ii)           Issuance of Securities Deemed Issuance of Additional
Shares of Common Stock.  If the Corporation at any time
or from time to time after the Series CC Original Issue Date shall issue
any Convertible Securities or Options (excluding Options or Convertible
Securities which, upon exercise, conversion or exchange thereof, would entitle
the holder thereof to receive shares of Common Stock which are specifically
excepted from the definition of Additional Shares of Common Stock) or shall fix
a record date for the determination of holders of any class of securities
entitled to receive any such Convertible Securities or Options, then the
maximum number of shares of Common 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 Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common 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 

 

22

 

that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 4(c)(iv)) of such Additional
Shares of Common Stock would be less than the Series CC Conversion Price
in effect on the date of and immediately prior to such issuance, or such record
date, as the case may be, and provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:

 

(1)           no further adjustment in the Series CC
Conversion Price shall be made upon the subsequent issuance of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;

 

(2)           if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof,
the Series CC Conversion 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 recomputed to reflect such increase or decrease insofar as
it affects such Options or the rights of conversion or exchange under such
Convertible Securities;

 

(3)           no readjustment pursuant to clause (2) above
shall have the effect of increasing the Series CC Conversion Price to an
amount which exceeds the Series CC Conversion Price on the original
adjustment date; and

 

(4)           in the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any
Option or 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 Series CC Conversion Price then in effect shall
forthwith be readjusted to such Series CC Conversion Price as would have
been obtained had the adjustment which was made upon the issuance of such
Options or Convertible Security not exercised or converted prior to such change
been made upon the basis of such change, but no further adjustment shall be
made for the actual issuance of Common Stock upon the 

 

23

 

exercise or conversion of any such Option or
Convertible Security.

 

Upon the
expiration of any such Options or any rights of conversion or exchange under
such Convertible Securities which shall not have been exercised, the Series CC
Conversion Price computed upon the issuance thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:

 

(x)            in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock issued were the shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation
upon such exercise of such Options; or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the additional consideration,
if any, actually received by the Corporation upon such conversion or exchange;
and

 

(y)           in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised.

 

(iii)          Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.  In the event
the Corporation shall at any time after the Series CC Original Issue Date
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 4(c)(ii)), without
consideration or for a consideration per share (determined pursuant to Section 4(c)(iv) hereof)
less than the Series CC Conversion Price in effect on the date of and
immediately prior to such issuance, then and in each such case, such Series CC
Conversion Price shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest hundredth of a cent) determined by multiplying the Series CC

 

24

 

Conversion
Price by a fraction:

 

(1)           the numerator of which is the amount of Common Stock
outstanding immediately before such issuance plus the amount of Common
Stock that the aggregate consideration received by the Corporation for the
Additional Shares of Common Stock would purchase at the Series CC
Conversion Price in effect immediately before such issuance; and

 

(2)           the denominator of which is the Common Stock
outstanding immediately before such issuance plus the number of such
Additional Shares of Common Stock;

 

provided, that for purposes of this Section 4(c)(iii),
all shares of Common Stock issuable upon exercise of options and warrants
outstanding immediately prior to such issuance or upon conversion of the Series AA
Preferred Stock and Series CC Preferred Stock shall be deemed to be
outstanding.

 

(iv)          Determination of Consideration. 
For purposes of this Section 4(c), the consideration received by
the Corporation for the issuance of any Additional Shares of Common Stock shall
be computed as follows:

 

(1)           Cash and Property.  Such consideration shall:

 

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

 

(b)           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

 

(c)           in the event Additional Shares of Common Stock are
issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (a) and (b) above,
as determined in good faith by the Board.

 

(2)           Options and Convertible Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to 

 

25

 

Section 4(c)(ii), relating to Options and
Convertible Securities, shall be determined by dividing:

 

(a)           the total amount, if any, received or receivable by
the Corporation as consideration for the issuance of such Options or
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 Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by

 

(b)           the maximum number of shares of Common 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 Convertible
Securities.

 

(d)           Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time or from
time to time after the Series CC Original Issue Date effect a subdivision
of the outstanding Common Stock, the Series CC Conversion Price then in
effect immediately before that subdivision shall be proportionately decreased.  If the Corporation shall at any time or from
time to time after the Series CC Original Issue Date combine the
outstanding shares of Common Stock, the Series CC Conversion 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.

 

(e)           Adjustment for
Certain Dividends and Distributions.  In the event the Corporation at any time or
from time to time after the Series CC Original Issue Date, shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Series CC
Conversion Price 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 Series CC
Conversion Price for the Series CC Preferred Stock then in effect by a
fraction:

 

(i)            the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to
the time 

 

26

 

of such issuance
or the close of business on such record date, and

 

(ii)           the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common 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 Series CC Conversion Price for the Series CC
Preferred Stock shall be recomputed accordingly as of the close of business on
such record date and thereafter the Series CC Conversion Price for the Series CC
Preferred Stock shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions.

 

(f)            Adjustments for Other Dividends and
Distributions.  In the
event the Corporation at any time or from time to time after the Series CC
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that
the holders of the Series CC Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation that they would have
received had their Series CC Preferred Stock been converted into Common
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 Series CC
Preferred Stock.

 

(g)           Adjustment for
Reclassification, Exchange, or Substitution.  If the Common Stock issuable upon the
conversion of the Series CC Preferred Stock 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 such share of Series CC
Preferred Stock shall have the right thereafter to convert such 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 Common Stock into which such shares of Series CC
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.

 

(h)           Adjustment for
Merger or Reorganization.  In
case of any consolidation or merger of the Corporation with or into another
corporation which does not cause a Liquidation, each share of Series CC
Preferred Stock shall thereafter be convertible into the 

 

27

 

kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series CC Preferred Stock 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 4 set forth with respect to the rights and
interest thereafter of the holders of the Series CC Preferred Stock, to
the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
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 conversion of the Series CC Preferred Stock.

 

(i)            No Impairment.  The Corporation will not, by amendment of its
Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Series CC Conversion Rights of the holders of Series CC
Preferred Stock against impairment.

 

(j)            Notice of
Record Date.  In the
event:

 

(i)            that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities
of the Corporation;

 

(ii)           that the Corporation subdivides or combines its outstanding
shares of Common Stock;

 

(iii)          of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation; or

 

(iv)          of the Liquidation of the Corporation;

 

then
the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series CC Preferred Stock, and shall
cause to be mailed to the holders of the Series CC Preferred Stock at
their last addresses as shown on the records of the Corporation or such
transfer agent, at least ten (10) days prior to the record date specified
in (A) below or twenty (20) days before the date specified in (B) below,
a notice stating:

 

(A)          the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the 

 

28

 

holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined,
or

 

(B)           the date on which such reclassification,
consolidation, merger, or Liquidation is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, or
Liquidation.

 

(k)           Certificate as
to Adjustments.  Upon the
occurrence of each adjustment or readjustment pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of Series CC
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based.  The Corporation shall, upon the
written request at any time of any holder of Series CC Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments; (ii) the Series CC
Conversion Price then in effect; and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then would be received
upon the conversion of Series CC Preferred Stock.

 

Section 5.              Exclusion of Other Rights.  Except as set forth in the Charter and the
Stockholders Agreement, the Series CC Preferred Stock shall not have any
preferences or other rights, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption.

 

Section 6.              Mandatory Conversion of Series CC
Preferred Stock.

 

(a)           All of the Series CC Preferred Stock then
outstanding shall be converted into shares of Common Stock at the Series CC
Conversion Price (as adjusted) in accordance with Section 4:

 

(i)            automatically upon the closing of a Qualified Initial
Public Offering; or

 

(ii)           by the Corporation upon written request of the holders
of a majority of the then outstanding shares of the Series CC Preferred
Stock.

 

(b)           If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly
authorized in writing.  As soon as
practicable after the date of such conversion and the surrender of the
certificate or certificates for Series CC Preferred Stock, the Corporation
shall cause to be issued and delivered to such holder, or on his or its written
order, a certificate or 

 

29

 

certificates for the
number of shares of Common Stock issuable on such conversion in accordance with
the provisions hereof.  Upon any such
conversion, no adjustment to the Series CC Conversion Price shall be made
for any accrued and unpaid dividends on the Series CC Preferred Stock
converted.

 

TENTH. Redemption.

 

Section 1.              Series CC Preferred
Stock.

 

(a)           Redemption Price.  As used
herein, “Series CC Redemption Price” means, for each share of Series CC
Preferred Stock, an amount equal to the Series CC Liquidation Preference
(as defined in Article Eleventh) as of the Series CC Redemption Date
(as defined below).  For purposes of
calculating the Series CC Liquidation Preference as of the Series CC
Redemption Date, clause (ii) of the definition of Series CC
Liquidation Preference shall be determined by multiplying (A) the Series CC
Conversion Ratio (as defined in Article Ninth) and (B)  the fair
market value of the Common Stock as of the Series CC Redemption Date,
assuming all shares of Preferred Stock were converted into shares of Common
Stock pursuant to the terms of these Sixth Articles of Amendment and
Restatement immediately prior to the Series CC Redemption Date.  The fair market value of the shares of Common
Stock shall be determined by an independent appraiser selected by the
Corporation and approved by a majority of the holders of the Series CC
Preferred Stock.

 

(b)           Redemption Option.  At any time
after the fifth (5th) anniversary of the Series CC Original Issue Date (as
defined in Article Eighth), upon the written request (a “Series CC
Redemption Request”) of any holder of Series CC Preferred Stock, the Corporation shall redeem from such
holders all, but not less than all, of the then issued and outstanding shares
of Series CC Preferred Stock held by such holder ( “Series CC
Redemption Shares”) at the Series CC Redemption Price.  Upon its receipt of a Series CC
Redemption Request, the Corporation shall, within ten (10) days of its
receipt of such request, send to (i) each holder of Series CC
Preferred Stock, with respect to whose shares no Series CC Redemption
Request has been delivered to the Company, and (ii) each holder of Series AA
Preferred Stock written notice indicating that a Series CC Redemption
Request has been received by the Company and listing the number of shares of Series CC
Preferred Stock subject to the Series CC Redemption Request (each such
notice, a “Series CC Redemption Request Notice”).  If the Company subsequently receives, within
twenty (20) days following delivery of the relevant Series CC Redemption
Request Notice (an “Applicable Redemption Request Deadline”), a Series CC
Redemption Request from any holder of Series CC Preferred Stock or a Series AA
Redemption Request from a requisite number of holders of Series AA
Preferred Stock pursuant to Section 2(b) of this Article Tenth,
then all such Series CC Redemption Requests and such Series AA
Redemption Request shall be treated by the Corporation as if the Corporation
had received all such requests simultaneously (the redemption of all shares of Series AA
Preferred Stock and Series CC Preferred Stock pursuant to such requests
(including the initial Series CC Redemption Request) is hereinafter
referred to as an “Applicable Redemption”).  The date of redemption shall be on a date
selected by the Corporation that is no later than 180 days after receipt by the
Corporation of 

 

30

 

the initial Series CC
Redemption Request (an “Applicable Redemption Date”).

 

(c)           Manner of Redemption.  In the event
the Corporation becomes obligated to redeem any Series CC Redemption
Shares pursuant to subsection (b) above, or any Series AA Redemption
Shares pursuant to Section 2(b) of this Article Tenth, the
Corporation shall send written notice of such obligation to each holder of
record of such shares following the Applicable Redemption Request Deadline and
at least thirty (30) days prior to the Applicable Redemption Date, which notice
shall set forth the following: (i) the number of shares to be redeemed by
the Corporation from such stockholder; (ii) the aggregate number of Series CC
Redemption Shares  and Series AA
Redemption Shares, as applicable, to be redeemed from all the holders thereof; (iii) the
Applicable Redemption Date; (iv) the Series CC Redemption Price or Series AA
Redemption Price, as applicable, per share; and (v) instructions to the
holders thereof to surrender all certificates evidencing the Series CC
Redemption Shares and Series AA Redemption Shares, as applicable, to the
Corporation at its principal office (or such other place as may be designated
in the notice by the Corporation); provided, however, that the
failure of the Corporation to deliver such notice shall not relieve the
Corporation of its obligation to redeem the Series CC Redemption Shares
and Series AA Redemption Shares, as applicable, pursuant to the terms of
this Article Tenth.

 

Section 2.              Series AA Preferred
Stock.

 

(a)           Redemption Price.  As used
herein, “Series AA Redemption Price” means, for each share of Series AA
Preferred Stock, an amount equal to the Series AA Liquidation Preference
(as defined in Article Eleventh) as of the Series AA Redemption Date
(as defined below).  For purposes of
calculating the Series AA Liquidation Preference as of the Series AA
Redemption Date, clause (ii) of the definition of Series AA Liquidation
Preference shall be determined by multiplying (A) the Series AA
Conversion Ratio (as defined in Article Seventh) and (B)  the fair
market value of the Common Stock as of the Series AA Redemption Date,
assuming all shares of Preferred Stock were converted into shares of Common
Stock pursuant to the terms of these Sixth Articles of Amendment and
Restatement immediately prior to the Series AA Redemption Date.  The fair market value of the shares of Common
Stock shall be determined by an independent appraiser selected by the
Corporation and approved by a majority of the holders of the Series AA
Preferred Stock; provided, however, that in the event that shares
of Series CC Preferred Stock are to be redeemed on the same Applicable
Redemption Date, the independent appraiser shall be selected by the Corporation
and approved by a majority of the holders of the Series CC Preferred
Stock.

 

(b)           Redemption
Option.  At any time after the fifth
(5th) anniversary of the Series CC Original Issue Date, upon the written
request of the
holders of more than sixty-six percent (66%) of the then outstanding shares of
the Series AA Preferred Stock (a “Series AA
Redemption Request”), the Corporation shall redeem from the holders thereof all, but not less
than all, of the then issued and outstanding shares of Series AA Preferred
Stock (collectively, the “Series AA Redemption Shares”) at the Series AA
Redemption Price.  Upon its receipt of a Series AA
Redemption Request from a requisite number of holders of Series AA
Preferred Stock pursuant to Section 2(b) of this Article Tenth,
the Corporation 

 

31

 

shall, within ten (10) days
of its receipt of such request, send to each holder of Series CC Preferred
Stock, with respect to whose shares no Series CC Redemption Request has
been delivered to the Company, written notice indicating that a Series AA
Redemption Request has been received by the Company (each such notice, a “Series AA
Redemption Request Notice”).  If the
Company subsequently receives, within twenty (20) days following delivery of
the Series AA Redemption Request notice (an “Applicable Redemption
Request Deadline”), a Series CC Redemption Request from any holder of Series CC
Preferred Stock, then the Series AA Redemption Request and all such Series CC
Redemption Requests shall be treated by the Corporation as if the Corporation
had received all such requests simultaneously (the redemption of all shares of Series AA
Preferred Stock and Series CC Preferred Stock pursuant to such requests
(including the initial Series AA Redemption Request) is hereinafter
referred to as an “Applicable Redemption”). The date of redemption shall
be on a date selected by the Corporation that is no later than 180 days after
receipt by the Corporation of the Series AA Redemption Request (an “Applicable
Redemption Date”).

 

(c)           Manner of Redemption.  In the event
the Corporation becomes obligated to redeem the Series AA Redemption
Shares pursuant to subsection (b) above, the Corporation shall send
written notice of its intent or obligation to do so to each holder of record of
such shares in accordance with Section 1(c) of this Article Tenth.

 

Section 3.              Rank. 
Notwithstanding
anything herein to the contrary, the Corporation shall not pay any portion of
the redemption price in respect of any Series AA Redemption Shares
redeemed in an Applicable Redemption unless all unpaid amounts the Corporation
is then obligated to pay in respect of all Series CC Redemption Shares
redeemed in such Applicable Redemption or any redemption occurring prior to
such Applicable Redemption (including the total amount of principal and
interest then outstanding under any Redemption Notes (as defined below) issued
in respect of Series CC Redemption Shares) are first paid in full.

 

Section 4.              Effect of Redemption.  Upon receipt
of notice of redemption from the Corporation pursuant to Section 1(c) of
this Article Tenth, as applicable (in each case, a “Redemption Notice”),
each holder of Series AA Redemption Shares or Series CC Redemption Shares,
as applicable (in each case, “Redemption Shares”) shall surrender to the
Corporation all certificates evidencing the shares to be redeemed as
instructed, and, thereupon, the Corporation shall pay the Series AA
Redemption Price or Series CC Redemption Price, as applicable (in each
case, the “Redemption Price”) for each such share to the order of the
holder of the shares so redeemed and each such certificate and the shares
evidenced thereby shall be canceled and retired.  No Redemption Shares redeemed by the
Corporation shall be reissued by the Corporation.  From and after the Redemption Date set forth
in the Corporation’s Redemption Notice, no further dividends shall accrue upon
any of the Redemption Shares covered thereby, subject to the redemption thereof
on such date.

 

Section 5.              Funds Insufficient to
Effect Redemptions.  If, at any time, the Corporation shall be
required to redeem any Redemption Shares, and the Corporation shall not have
assets or funds legally available for the redemption of all of the shares
required to 

 

32

 

be redeemed in an
Applicable Redemption, then the Corporation shall (after giving effect to Section 3
of this Article Tenth) redeem ratably from the holders of the applicable
Redemption Shares such number of shares as it shall have funds legally
available therefore and shall issue to the holders of the Redemption Shares for
which the full Redemption Price has not been paid one-year notes (“Redemption
Notes”) bearing interest at 8.0% per annum with such other terms and
conditions as the holders of a majority of the holders of the Redemption Shares
and the Corporation shall reasonably agree, each with a principal amount equal
to the Redemption Price for the Redemption Shares for which the note is
delivered.

 

ELEVENTH: This Article Eleventh sets forth rights,
privileges preferences, terms and conditions applicable to (i) the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation; or (ii)
any Qualified Sale Transaction (as defined below) (any of the foregoing, a “Liquidation”);
provided, however, that a reincorporation or like transaction
untaken for the sole purpose of changing the Corporation’s domicile shall not
be deemed to be a Liquidation.  When used
in this Charter: (x) “Acquisition” means a consolidation or merger of
the Corporation with or into any other corporation or other entity or person,
or an acquisition of assets or other corporate reorganization, in which
stockholders of the Corporation immediately prior to such consolidation,
merger, acquisition of assets or reorganization, own less than a majority of
the common stock, on an as converted, fully-diluted basis of the surviving
entity immediately after such consolidation, merger, acquisition of assets or
reorganization; (y) “Asset Transfer” means a sale, lease or other
disposition of all or substantially all of the assets of the Corporation, in
one or more related transactions; and (z) “Qualified Sale Transaction”
means an Acquisition or Asset Transfer.

 

Section 1.              Series CC Liquidation
Preference.

 

(a)           Upon any Liquidation, before any distribution or
payment of any Proceeds (defined below) shall be made to holders of shares of
Common Stock or Series AA Preferred Stock, the holders of shares of Series CC
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation legally available for distribution to its stockholders or any
consideration or proceeds payable to the Corporation’s stockholders as a result
of such Liquidation (collectively, “Proceeds”), an amount of cash or
other property per share of Series CC Preferred Stock (the “Series CC
Liquidation  Preference”), valued in accordance with Section 5
of this Article Eleventh, equal to the greater of:

 

(i)            the Series CC Stated Value (as
defined in Article Eighth), plus the amount of any accrued and unpaid
dividends (whether or not declared) on such share of Series CC Preferred
Stock; or

 

(ii)           the amount per share of Series CC
Preferred Stock the holder of such share of Series CC Preferred Stock
would be entitled to receive if all shares of Preferred Stock were converted
into shares of Common Stock pursuant to the terms of these Sixth Articles of
Amendment and Restatement immediately prior to such Liquidation.

 

33

 

(b)             In the event that,
upon such Liquidation, the Proceeds available for distribution or payment to
the Corporation’s stockholders are insufficient to pay the holders of Series CC
Preferred Stock the full amount to which they shall be entitled, then the holders
of the Series CC Preferred Stock shall share ratably in any such
distribution or payment of Proceeds in proportion to the full preferential
payment rights upon a Liquidation to which they would otherwise be respectively
entitled.

 

Section 2.              Series AA
Liquidation Preference.

 

(a)           Upon any Liquidation,
after all payments have been made to the holders of the Series CC
Preferred Stock pursuant to Section 2 above, but before any distribution
or payment of any Proceeds shall be made to holders of shares of Common Stock,
the holders of shares of Series AA Preferred Stock shall be entitled to be
paid out of the remaining Proceeds, if any, available for distribution to the
Corporation’s stockholders an amount of cash or other property per share of Series AA
Preferred Stock (the “Series AA Liquidation Preference”), valued in
accordance with Section 5 of this Article Eleventh, equal to the
greater of (i) the Series AA Stated Value, plus the amount of any
accrued and unpaid dividends (whether or not declared) on such share of Series AA
Preferred Stock and (ii) the amount per share of Series AA Preferred
Stock that the holder of such share of Series AA Preferred Stock would be
entitled to receive if all shares of Preferred Stock were converted to shares
of Common Stock pursuant to the terms of these Sixth Articles of Amendment and
Restatement immediately prior to such Liquidation.

 

(b)           In the event that, upon
such Liquidation, the remaining Proceeds, if any, available for distribution or
payment to the Corporation’s stockholders are insufficient to pay the holders
of Series AA Preferred Stock the full amount to which they shall be
entitled, then the holders of the Series AA Preferred Stock shall share
ratably in any such distribution or payment of Proceeds in proportion to the
full preferential payment rights upon a Liquidation to which they would
otherwise be respectively entitled.

 

Section 4.  Common Stock Liquidation Payment.  Upon any Liquidation, after all payments have
been made to the holders of the Series CC Preferred Stock pursuant to Section 2
above, to the holders of Series AA Preferred Stock pursuant to Section 3
above, the holders of shares of Common Stock shall be entitled to be paid out
of the remaining Proceeds, if any, available for distribution to the
Corporation’s stockholders for each share of Common Stock, an amount equal to
all remaining Proceeds, if any, ratably.

 

Section 5.  Valuation of Proceeds.  The amount deemed paid or
distributed to the holders of capital stock of the Corporation in respect of
such capital stock upon any Liquidation shall be the amount of cash or the fair
market value of the property, rights or securities paid or distributed to such
holders by the Corporation or by the acquiring person, firm or other entity.  Any securities shall be valued as follows:

 

(a)           Securities not subject
to investment letter or other similar restrictions on free marketability:

 

34

 

(i)            If traded on a securities exchange or The Nasdaq Stock
Market, the value shall be based on a formula approved by the Board of
Directors and derived from the closing prices of the securities on such
exchange or The Nasdaq Stock Market over the 30-day period ending 3 days
prior to the closing of such transaction;

 

(ii)           If (i) above does not apply but the securities
are actively traded over-the-counter, the value shall be based on a formula
approved by the Board of Directors and derived from the closing bid or sales
prices (whichever is applicable) of such securities over the 30-day
period ending 3 days prior to the closing of such transaction; and

 

(iii)          If there is no active public market, the value shall
be the fair market value thereof, as determined in good faith by the Board of
Directors;

 

(b)           The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder’s status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market value
determined as specified above in Section 5(a) to reflect the
approximate fair market value thereof, as determined in good faith by the Board
of Directors.

 

(c)           Notwithstanding Sections 5(a) and (b) of
this Article Eleventh, in the event such securities are paid or
distributed to the holders of capital stock of the Corporation by an entity
that is not an affiliate (as defined in Regulation 12B-2 promulgated under the
Securities Exchange Act of 1934, as amended) of the Corporation pursuant to a
definitive transaction agreement (such as a merger agreement) in which the
aggregate value of such securities is determined pursuant to an express formula
set forth in such definitive transaction agreement, then the fair market value
of such securities shall instead be determined in accordance with the express
formula set forth in such definitive transaction agreement.

 

Section 5.  Notice of Liquidation.  Written notice of any Liquidation stating the
payment date or dates when, and the place or places where, the amounts
distributable in such circumstances shall be payable, shall be given by first
class mail, postage pre-paid, not less than 10 nor more than 90 days prior to
the payment date stated therein, to each record holder of shares of Series AA
Preferred Stock and each record holder of shares of shares of Series CC
Preferred Stock at the respective addresses of such holders as the same shall
appear on the stock transfer records of the Corporation.  After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series AA
Preferred Stock and Series CC Preferred Stock (as the case may be) will
have no right or claim to any of the remaining assets of the Corporation.

 

Section 6.  Treatment of Liquidation Obligations.  In determining whether a distribution (other
than upon Liquidation), by dividend, redemption or other acquisition of shares
of stock of the Corporation or otherwise, is permitted under the Maryland
General Corporation Law, amounts that would be needed, if the Corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of holders of 

 

35

 

shares of Series AA
Preferred Stock and Series CC Preferred Stock shall not be added to the
Corporation’s total liabilities.

 

TWELFTH:  Preferred Protective Provisions

 

(a)           The Corporation shall
not take, and shall not permit any subsidiary of the Corporation to take,
whether by merger, consolidation or otherwise, any of the following actions
without the written consent or affirmative vote of stockholders representing at
least sixty percent (60%) of the then outstanding shares of Series CC
Preferred Stock and Series AA Preferred Stock voting together as a single
class on an as-converted basis:

 

(i)            amend, alter, modify,
waive or repeal the articles of incorporation, bylaws or other organic or
organizational documents of the Corporation or any of its subsidiaries, whether
by merger, consolidation or otherwise;

 

(ii)           effect a Liquidation
(as defined in Article Eleventh);

 

(iii)          sell, transfer, lease or
dispose of any assets of the Corporation with a value (individually or in the
aggregate) in excess of $10,000,000 in one transaction or a series of related
transactions; or

 

(iv)          make, or cause any of
its subsidiaries to make, any loan, advance or payment to, or transfer any
assets or property to, enter into any contract or amendment of any agreement
with, or engage in any other transaction with, any person or entity in which
any stockholder, director or other officer of the Corporation, or any of their
respective immediate family members or affiliates, has an any interest in
excess of $50,000.

 

(b)           Notwithstanding
anything herein to the contrary, the Corporation may, from time to time,
without obtaining any prior consent of any stockholder of the Corporation (i) cause
any of its wholly-owned subsidiaries to merge into the Corporation, with the
Corporation as the surviving corporation, provided, that any such merger
shall only be permitted in accordance with the terms of Section 3-106 of
the Maryland General Corporation Law and in no event shall such merger
adversely affect the preferences, special rights, privileges or powers of the Series AA
Preferred Stock or the Series CC Preferred Stock; or (ii) cause any
of its wholly-owned subsidiaries to distribute all of such subsidiary’s assets
to the Corporation and thereafter terminate the existence of such subsidiary.

 

THIRTEENTH:  The Corporation shall have seven (7) directors,
which number may be increased by the Board pursuant to the bylaws of the
Corporation and the Stockholders Agreement. 
Robert J. Farrell, Harry Copperman, Mike Zisman, Mike Forster, Adam
Lichtenstein and Matthew Mead constitute the current directors of the
Corporation.

 

36

 

FOURTEENTH:   Indemnification; Limitation of Liability

 

Section 1.              Mandatory
Indemnification.  The Corporation
shall indemnify its directors and officers (including its former directors and
officers) against any and all liabilities and expenses incurred in connection
with their services in such capacities to the maximum extent permitted by the
Maryland General Corporation Law, as from time to time amended.

 

Section 2.              Discretionary
Indemnification.  If approved by
the Board, the Corporation may indemnify its employees, agents and persons who
serve and have served, at its request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture or other
enterprise to the extent determined to be appropriate by the Board.

 

Section 3.              Advancing
Expenses Prior to a Decision. 
The Corporation shall advance expenses to its directors and officers
entitled to mandatory indemnification to the maximum extent permitted by the
Maryland General Corporation Law and may in the discretion of the Board advance
expenses to employees, agents and others who may be granted indemnification.

 

Section 4.              Other Provisions
for Indemnification.  The Board
may, by bylaw, resolution or agreement, make further provision for
indemnification of directors, officers, employees and agents.

 

Section 5.              Limitation of
Liability of Directors and Officers. 
To the maximum extent that limitations on the liability of directors and
officers are permitted by the Maryland General Corporation Law, as from time to
time amended, no director or officer of the Corporation shall have any
liability to the Corporation or its stockholders for money damages.  This limitation on liability applies to
events occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.

 

Section 6.              Effect of
Amendment or Repeal.  No
amendment or repeal of any section of this Article, or the adoption of any
provision of the Corporation’s Articles of Incorporation inconsistent with this
Article, shall apply to or affect in any respect the rights to indemnification
or limitation of liability of any director or officer of the Corporation with
respect to any alleged act or omission which occurred prior to such amendment,
repeal or adoption.

 

FIFTEENTH:   Notwithstanding any provision of law
requiring any action to be taken or authorized by the affirmative vote of the
holders of a greater proportion of the votes of all classes or of any class of
stock of the Corporation, such action shall be effective and valid if taken or
authorized by the affirmative vote of a majority of the total number of votes
entitled to be cast thereon, except as otherwise provided in the Corporation’s
Charter, or as may otherwise be provided in any contract between the
Corporation and any of its stockholders.

 

37

 

SIXTEENTH:  Subject to the requirements of the
Corporation’s Charter and the Maryland General Corporation Law with respect to
the approval of amendments to the Corporation’s Charter, the Corporation
reserves the right to make, from time to time, any amendments of its Charter
which now or hereafter be authorized by law, including any amendments which
alter the contract rights of any class of outstanding stock as expressly set
forth in the Charter.

 

SEVENTEENTH:  Any action required or permitted to be taken
at any meeting of stockholders may be taken without a meeting (a) if a
unanimous consent setting forth the action is given in writing or by electronic
transmission by each stockholder entitled to vote on the matter and filed with
the minutes of proceedings of the stockholders or (b) if the action is
advised, and submitted to the stockholders for approval, by the Board and a
consent in writing or by electronic transmission of stockholders entitled to
cast not less than the minimum number of votes that would be necessary to
authorize or take the action at a meeting of stockholders is delivered to the
Corporation in accordance with the Maryland General Corporation Law.  The Corporation shall give notice of any
action taken by less than unanimous consent to each stockholder not later than
ten days after the effective time of such action.

 

EIGHTTEENTH:  The duration of the Corporation shall be
perpetual.

 

NINETEENTH:  For the purposes of all applicable
legislation and regulation, each of the stockholders, officers and directors of
the Corporation authorize Mayflower L.P., 3i Group plc and affiliates of 3i
Group plc (both within and outside the United States) to process (but only
amongst such entities and their advisors and only within the meaning of
European Directive 95/46/EC) any data or information concerning them which is
obtained in the course of its and their due diligence and other investment
business.  The data and information which
may be processed for such purposes shall include any information which may have
a bearing on the prudence or commercial merits of investing or disposing of any
stock (or other investment or security) in the Corporation.  Nothing in this authority shall entitle
Mayflower L.P., 3i Group plc or any affiliate of 3i Group plc to make any
unauthorized disclosure of such data or information to third parties.

 

SECOND:  The Corporation desires to amend and restate
its Charter as currently in effect.  The
provisions set forth in the above Sixth Articles of Amendment and Restatement
are all of the provisions of the Corporation’s Charter currently in effect as
hereby amended and restated.

 

THIRD:  The Board of Directors of the Corporation
deemed the amendment and restatement of the Charter of the Corporation as
hereinabove set forth advisable and directed the amendment be submitted to the
stockholders of the Corporation for consideration at a meeting duly convened
and held on July 18, 2007.  The
amendment and restatement of the Charter of the Corporation was approved by the
stockholders of the Corporation by written consent in lieu of meeting dated July     ,
2007 in accordance with Section 2-505 of the Maryland General Corporation
Law.

 

38

 

FOURTH:  The address of the principal office of the
Corporation in Maryland is 500 East Pratt Street, Suite 1250, Baltimore,
Maryland 21202.  The name of the resident
agent is Allison McCann, whose address is 500 East Pratt Street, Suite 1250,
Baltimore, Maryland 21202.

 

FIFTH:  The number of directors of the Corporation
and the names of those directors currently in office is as set forth in Article Thirteenth
above.

 

SIXTH:
These Sixth Articles of Amendment and Restatement increase the par value of the
authorized stock of the Corporation. 
Immediately before the amendment, the total number of shares of all
classes of stock of the Corporation heretofore authorized and the number and
par value of the shares of each class were 101,979,000 shares, of the par value
of $0.01 each, of which 55,179,000 shares were designated Common Stock and
46,800,000 shares were designated Preferred Stock.  The aggregate par value of all shares having
par value was $1,019,790.  As amended and
restated, the total number of shares of all classes of stock of the Corporation
as increased, and the par value of such shares, are 216,657,212 shares, of the
par value of $0.01 each, of which 120,000,000 shares are designated Common
Stock and 96,657,212 shares are designated Preferred Stock.  The aggregate par value of all shares having
par value is $2,166,572.12.

 

[Signatures follow
on the next page]

 

39

 

IN
WITNESS WHEREOF, the Corporation has caused these Sixth
Articles of Amendment and Restatement to be signed in its name and on its
behalf by its President and attested to by its Secretary on this
       day of
                              ,
2007.

 

THE
UNDERSIGNED, President acknowledges these Sixth Articles of
Amendment and Restatement to be the corporate act of the Corporation; and as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that, to the best of his knowledge, information, and
belief, these matters and facts are true in all material respects, and that
this statement is made under the penalties for perjury.

 

 

	
  WITNESS/ATTEST:

  	
   

  	
  METASTORM INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
  (SEAL)

  
	
  Swata J. Gandhi

  	
   

  	
  Robert J.
  Farrell

  
	
  Secretary

  	
   

  	
  President

  

 

 

Exhibit B

 

Form of Amended and Restated 2004 Omnibus Stock Plan

 

 

METASTORM INC.

 

Form of Amended and Restated

 

2004 OMNIBUS STOCK PLAN

 

Effective:                      

 

 

METASTORM INC.

FORM OF AMENDED AND RESTATED 

2004 OMNIBUS STOCK PLAN

 

1.             Establishment, Purpose and Types
of Awards

 

Metastorm
Inc. hereby establishes the METASTORM INC. AMENDED AND RESTATED 2004 OMNIBUS
STOCK PLAN (the “Plan”).  The purpose of
the Plan is to promote the long-term growth and profitability of Metastorm Inc.
(the “Corporation”) by (i) providing key people with incentives to improve
stockholder value and to contribute to the growth and financial success of the
Corporation, and (ii) enabling the Corporation to attract, retain and
reward the best available persons for positions of substantial responsibility.

 

The
Plan permits the granting of stock options (including nonqualified stock
options and incentive stock options qualifying under Section 422 of the
Code), restricted and unrestricted stock and restricted stock units (collectively,
“Awards”).

 

The
Plan is a compensatory benefit plan within the meaning of Rule 701 under
the Securities Act of 1933 (the “Securities Act”).  Except to the extent any other exemption from
the Securities Act is expressly relied upon in connection with any agreement
entered into pursuant to the Plan or the securities issuable hereunder are
registered under the Securities Act, or the securities issuable hereunder are
registered under the Securities Act, the issuance of Common or Preferred Stock pursuant
to the Plan is intended to qualify for the exemption from registration under
the Securities Act provided by Rule 701. 
To the extent that an exemption from registration under the Securities
Act provided by Rule 701 is unavailable, all unregistered offers and sales
of Awards and shares of Common or Preferred Stock issuable upon exercise of an
Award are intended to be exempt from registration under the Securities Act in
reliance upon the private offering exemption contained in Section 4(2) of
the Securities Act, or other available exemption, and the Plan shall be so
administered.

 

2.             Definitions

 

Under
this Plan, except where the context otherwise indicates, the following
definitions apply:

 

(a)           “Board” shall mean the Board of Directors of the Corporation.

 

(b)           “Change in Control” shall mean:

 

(i)            The consummation of a merger or consolidation of the
Corporation with or into another entity or any other reorganization of the
Corporation, if more than fifty percent (50%) of the combined voting power of
the continuing or surviving entity’s securities outstanding immediately after
such merger, 

 

 

consolidation or other
reorganization is not owned directly or indirectly (via ownership of another
entity) by persons who were holders of the Corporation’s then-outstanding
voting securities  immediately prior to
such merger, consolidation or other reorganization;

 

(ii)           The sale, transfer or other disposition of all or
substantially all of the Corporation’s assets to an entity that is not a Parent
or a Subsidiary of the Corporation; or

 

(iii)          Any transaction as a result of which any person
becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing at least fifty percent (50%) of the total voting power represented
by the Corporation’s then-outstanding voting securities.  For purposes of this subsection, the term “person”
shall have the same meaning as when used in sections 13(d) and 14(d) of
the Exchange Act but shall exclude:  (A) any
Parent or Subsidiary of the Corporation, (B) any employee benefit plan (or
related trust) sponsored or maintained by the Corporation, a Parent, or any
Subsidiary, and (C) any underwriter temporarily holding securities
pursuant to an offering of such securities.

 

(c)           “Code” shall mean the Internal Revenue Code of
1986, as amended, and any regulations issued thereunder.

 

(d)           “Committee” shall mean the Board or committee of Board members
appointed pursuant to Section 3 of the Plan to administer the Plan.

 

(e)           “Common Stock” shall  mean shares of
the Corporation’s common stock.

 

(f)            “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended.

 

(g)           “Fair Market Value” of a share of the Corporation’s Common or
Preferred Stock for any purpose on a particular date shall be determined in a
manner such as the Committee shall in good faith determine to be appropriate.

 

(h)           “Grant Agreement” shall mean a written agreement between the
Corporation and a grantee memorializing the terms and conditions of an Award
granted pursuant to the Plan.

 

(i)            “Grant Date” shall mean the date on which the Committee formally
acts to grant an Award to a grantee or such other date as the Committee shall
so designate at the time of taking such formal action.

 

(j)            “Parent” shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of “parent corporation” provided
in Section 424(e) of 

 

2

 

the Code, or any
successor thereto of similar import.

 

(k)           “Preferred Stock” means shares of the Corporation’s Class AA
Preferred Stock.

 

(l)            “Restricted Stock Units” mean Awards granted under Section 7
providing for the issuance of Preferred Stock to Participants at a specified
future date, in such amounts and subject to such vesting requirements and other
restrictions and conditions as the Committee determines.

 

(m)          “Restricted Stock” means Awards granted under Section 7 providing
for the issuance of Preferred Stock to Participants, in such amounts and
subject to such vesting requirements and other restrictions and conditions as
the Committee determines.

 

(n)           “Rule 16b-3” shall mean Rule 16b-3 as in effect under the
Exchange Act on the effective date of the Plan, or any successor provision
prescribing conditions necessary to exempt the issuance of securities under the
Plan (and further transactions in such securities) from Section 16(b) of
the Exchange Act.

 

(o)           “Stock Options” means Awards granted under Section 6 providing
for the right of a Participant to purchase Common Stock in such amounts, at
such exercise price, for such term and subject to such vesting requirements and
other restrictions and conditions as the Committee determines.

 

(p)           “Subsidiary” and “subsidiaries” shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of “subsidiary corporation” provided in Section 424(f) of
the  Code, or any successor thereto of
similar import.

 

(q)           “Unrestricted Stock” means Awards granted under Section 7 providing
for the issuance of Preferred Stock to Participants, in such amounts and
subject to such conditions as the Committee determines.

 

3.             Administration

 

(a)           Procedure.  The Plan shall be administered by the
Board.  In the alternative, the Board may
appoint a Committee consisting of not less than two (2) members of the
Board to administer the Plan on behalf of the Board, subject to such terms and
conditions as the Board may prescribe. 
Once appointed, the Committee shall continue to serve until otherwise
directed by the Board.  From time to
time, the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all
members of the Committee and, thereafter, directly administer the Plan.  In the event that the Board is the
administrator of the Plan in lieu of a Committee, the term “Committee” as used
herein shall be deemed to mean the 

 

3

 

Board.

 

Members
of the Board or Committee who are either eligible for Awards or have been
granted Awards may vote on any matters affecting the administration of the Plan
or the grant of Awards pursuant to the Plan, except that no such member shall
act upon the granting of an Award to himself or herself, but any such member
may be counted in determining the existence of a quorum at any meeting of the
Board or the Committee during which action is taken with respect to the
granting of an Award to him or her.

 

The
Committee shall meet at such times and places and upon such notice as it may
determine.  A majority of the Committee
shall constitute a quorum.  Any acts by
the Committee may be taken at any meeting at which a quorum is present and
shall be by majority vote of those members entitled to vote.  Additionally, any acts reduced to writing or
approved in writing by all of the members of the Committee shall be valid acts
of the Committee.

 

(b)           Procedure After Registration of Common or Preferred
Stock.  Upon and after the point in time that the
Common or Preferred Stock or any other capital stock of the Corporation becomes
registered under Section 12 of the Exchange Act, the Board shall take all
action necessary to cause the Plan to be administered in accordance with the
then effective provisions of Rule 16b-3, provided that any amendment to
the Plan required for compliance with such provisions shall be made in
accordance with Section 11  of the Plan.

 

(c)           Powers of the Committee. 
The Committee shall have all the powers vested in it by the terms of the
Plan, such powers to include authority, in its sole and absolute discretion, to
grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards
and establish programs for granting Awards. 
The Committee shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to:

 

(i)            determine the eligible persons to whom,
and the time or times at which Awards shall be granted,

 

(ii)           determine the types of Awards to be
granted,

 

(iii)          determine
the number of shares to be covered by or used for reference purposes for each
Award,

 

(iv)          impose such terms, limitations, restrictions
and conditions upon any such Award as the Committee shall deem appropriate,

 

(v)           modify, extend or renew outstanding
Awards, accept the surrender of outstanding Awards and substitute new Awards, 

 

4

 

provided
that no such action shall be taken with respect to any outstanding Award which
would adversely affect the grantee without the grantee’s consent,

 

(vi)          accelerate or otherwise change the time
in which an Award may be exercised or becomes payable and to waive or
accelerate the lapse, in whole or in part, of any restriction or condition with
respect to such Award, including, but not limited to, any restriction or
condition with respect to the vesting or exercisability of an Award following
termination of any grantee’s employment, and

 

(vii)         to
establish objectives and conditions, if any, for earning Awards and determining
whether Awards will be paid after the end of a performance period.

 

The Committee shall have
full power and authority to administer and interpret the Plan and to adopt such
rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Committee
deems necessary or advisable and to interpret same, all within the Committee’s
sole and absolute discretion.

 

(d)           Limited Liability. 
To the
maximum extent permitted by law, no member of the Board or Committee shall be
liable for any action taken or decision made in good faith relating to the Plan
or any Award thereunder.

 

(e)           Indemnification.  To the
maximum extent permitted by law, the members of the Board and Committee shall
be indemnified by the Corporation in respect of all their activities under the
Plan.

 

(f)            Effect of Committee’s Decision. 
All actions taken and decisions and determinations made by the Committee
on all matters relating to the Plan pursuant to the powers vested in it
hereunder shall be in the Committee’s sole and absolute discretion and shall be
conclusive and binding on all parties concerned, including the Corporation, its
stockholders, any participants in the Plan and any other employee of the
Corporation, and their respective successors in interest.

 

4.             Shares Available for the Plan

 

Subject
to adjustments as provided in  Section 10
of the Plan, the shares of stock that may be delivered or purchased with
respect to Stock Options, including incentive stock options intended to qualify
under Section 422 of the Code, shall not exceed an aggregate of 12,770,232
shares of Common Stock and the shares of stock that may be delivered or
purchased with respect to Restricted and Unrestricted Stock and Restricted
Stock Units shall not exceed an aggregate of 1,436,080 shares of Preferred
Stock.  The Corporation shall reserve
said number of shares for Awards under the Plan, subject to 

 

5

 

adjustments as provided
in  Section 10 of the Plan.  If any Award, or portion of an Award, under
the Plan expires or terminates unexercised, becomes unexercisable or is
forfeited or otherwise terminated, surrendered or canceled as to any shares
without the delivery of shares or other consideration, the shares subject to
such Award shall thereafter be available for further Awards under the Plan.

 

5.             Participation

 

Participation
in the Plan shall be open to all employees, officers, directors and consultants
of the Corporation, or of any Parent or Subsidiary of the Corporation, as may
be selected by the Committee from time to time. 
Notwithstanding the foregoing, participation in the Plan with respect to
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation.

 

Awards
may be granted to such eligible persons and for or with respect to such number
of shares of Common or Preferred Stock as the Committee shall determine,
subject to the limitations in Section 4 of the Plan.  A grant of any type of Award made in any one
year to an eligible person shall neither guarantee nor preclude a further grant
of that or any other type of Award to such person in that year or subsequent
years.

 

6.             Stock Options

 

Subject
to the other applicable provisions of the Plan, the Committee may from time to
time grant to eligible participants Awards of nonqualified stock options or
incentive stock options as that term is defined in Section 422 of the
Code.  The Stock Option Awards granted
shall be subject to the following terms and conditions.

 

(a)           Grant of Option. 
The grant
of a Stock Option shall be evidenced by a Grant Agreement, executed by the
Corporation and the grantee, stating the number of shares of Common Stock
subject to the Stock Option evidenced thereby and the terms and conditions of
such Stock Option, in such form as the Committee may from time to time
determine.

 

(b)           Price.  The price per
share payable upon the exercise of each Stock Option (“exercise price”) shall
be determined by the Committee.

 

(c)           Payment.  Stock Options may be exercised in whole
or in part by payment of the exercise price of the shares to be acquired in
accordance with the provisions of the Grant Agreement, and/or such rules and
regulations as the Committee may have prescribed, and/or such determinations,
orders, or decisions as the Committee may have made.  Payment may be made in cash (or cash
equivalents acceptable to the Committee) or, if approved by the Committee, in
shares of Common Stock or a combination of cash and shares of Common Stock, or
by such other means as the Committee may prescribe.  The Fair Market Value of shares of Common
Stock delivered on exercise of Stock 

 

6

 

Options shall be
determined as of the date of exercise. 
Shares of Common Stock delivered in payment of the exercise price may be
previously owned shares or, if approved by the Committee, shares acquired upon
exercise of the Stock Option.  Any
fractional share will be paid in cash. 
If approved by the Board of Directors, the Corporation may make or
guarantee loans to grantees to assist grantees in exercising Stock Options and
satisfying any related withholding tax obligations.

 

If the
Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, the Committee, subject to such limitations as it may determine,
may authorize payment of the exercise price, in whole or in part, by delivery
of a properly executed exercise notice, together with irrevocable instructions,
to:  (i) a brokerage firm designated
by the Corporation to deliver promptly to the Corporation the aggregate amount
of sale or loan proceeds to pay the exercise price and any withholding tax
obligations that may arise in connection with the exercise, and (ii) the
Corporation to deliver the certificates for such purchased shares directly to
such brokerage firm.

 

(d)           Terms of Options. 
The term
during which each Stock Option may be exercised shall be determined by the
Committee; provided, however, that in no event shall a Stock Option be
exercisable more than ten years from the date it is granted.  Prior to the exercise of the Stock Option and
delivery of the shares certificates represented thereby, the grantee shall have
none of the rights of a stockholder with respect to any shares represented by
an outstanding Stock Option.

 

(e)           Restrictions on Incentive Stock Options. 
Incentive stock option Awards granted under the Plan shall comply in all
respects with Code Section 422 and, as such, shall meet the following
additional requirements:

 

(i)            Grant Date. 
An incentive stock option must be granted within 10 years of the earlier
of the Plan’s adoption by the Board of Directors or approval by the Corporation’s
shareholders.

 

(ii)           Exercise Price and Term. 
The exercise price of an incentive stock option shall not be less than
100% of the Fair Market Value of the shares on the date the Stock Option is
granted and the term of the Stock Option shall not exceed ten years.  Also, the exercise price of any incentive
stock option granted to a grantee who owns (within the meaning of Section 422(b)(6) of
the Code, after the application of the attribution rules in Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
shares of the Corporation or its Parent or Subsidiary corporations (within the
meaning of Sections 422 and 424 of the Code) shall be not less than 110% of the
Fair Market Value of the Common Stock on the grant date and the term of such
Stock Option shall not exceed five years.

 

(iii)          Maximum Grant.  The aggregate Fair Market
Value (determined as of the Grant Date) of shares of Common Stock with respect
to which all incentive 

 

7

 

stock
options first become exercisable by any grantee in any calendar year under this
or any other plan of the Corporation and its Parent and Subsidiary corporations
may not exceed $100,000 or such other amount as may be permitted from time to
time under Section 422 of the Code. 
To the extent that such aggregate Fair Market Value shall exceed
$100,000, or other applicable amount, such Stock Options shall be treated as
nonqualified stock options.  In such
case, the Corporation may designate the shares of Common Stock that are to be
treated as stock acquired pursuant to the exercise of an incentive stock option
by issuing a separate certificate for such shares and identifying the
certificate as incentive stock option shares in the stock transfer records of
the Corporation.

 

(iv)          Grantee. 
Incentive stock options shall only be issued to employees of the
Corporation, or of a Parent or Subsidiary of the Corporation.

 

(v)           Designation. 
No Stock Option shall be an incentive stock option unless so designated
by the Committee at the time of grant or in the Grant Agreement evidencing such
Stock Option.

 

(vi)          Stockholder Approval. 
No Stock Option issued under the Plan shall be an incentive stock option
unless the Plan is approved by the shareholders of the Corporation within 12
months of its adoption by the Board in accordance with the Bylaws and Articles
of the Corporation and governing law relating to such matters.

 

(f)            Other Terms and Conditions. 
Stock Options may contain such other provisions, not inconsistent with
the provisions of the Plan, as the Committee shall determine appropriate from
time to time.

 

7.             Stock Awards (including
Restricted and Unrestricted Stock and Restricted Stock Units).

 

(a)           In General.  Subject to the other applicable
provisions of the Plan and applicable law, the Committee may at any time and
from time to time grant Restricted or Unrestricted Stock or Restricted Stock
Units to Participants, in such amounts and subject to such vesting requirements
and other restrictions and conditions as it determines.  Unless determined otherwise by the Committee,
Participants receiving Restricted or Unrestricted Stock or Restricted Stock
Units are not required to pay the Corporation cash consideration for such units
(except as may be required for applicable tax withholding).

 

(b)           Vesting Conditions and Other  Restrictions.  Each Award for Restricted Stock or
Restricted Stock Units shall be evidenced by a Grant Agreement that specifies
the applicable vesting conditions and other restrictions, if any, on such
Award, the duration of such restrictions, and the time or times at which such
restrictions shall lapse with respect to all or a specified number of the
shares of Preferred Stock that are part of the Award.  Notwithstanding the foregoing, the Committee
may reduce or shorten the 

 

8

 

duration of any vesting
or other restriction applicable to any Restricted Stock or Restricted Stock
Units awarded to any grantee under the Plan.

 

(c)           Stock Issuance and Stockholder Rights.

 

(i)            Restricted Stock. 
Stock certificates with respect to shares of Preferred Stock granted
pursuant to a Restricted Stock Award shall be issued, and/or Preferred Stock
shall be registered, at the time of grant of the Restricted Stock Award,
subject to forfeiture if the Restricted Stock does not vest or other
restrictions do not lapse.  Any Preferred
Stock certificates shall bear an appropriate legend with respect to the
restrictions applicable to such Restricted Stock Award and the grantee may be
required to deposit the certificates with the Corporation during the period of
any restriction thereon and to execute a blank stock power or other instrument
of transfer therefor.  Except as
otherwise provided by the Committee, during the period of restriction following
issuance of Restricted Stock certificates, the grantee shall have all of the
rights of a holder of Preferred Stock, including but not limited to the rights
to receive dividends (or amounts equivalent to dividends) and to vote with
respect to the Restricted Stock.  The
Committee, in its discretion, may provide that any dividends or distributions
paid with respect to Preferred Stock subject to the unvested portion of a
Restricted Stock Award will be subject to the same restrictions as the
Restricted Stock to which such dividends or distributions relate.

 

(ii)           Restricted Stock Units. 
Stock certificates for the shares of Preferred Stock subject to a
Restricted Stock Unit shall be issued, and/or Preferred Stock shall be
registered, upon vesting and lapse of any other restrictions or conditions with
respect to the issuance of Preferred Stock under such Award.  The grantee will not be entitled to vote such
Preferred Stock or to any of the other rights of stockholders during the period
prior to issuance of the certificates for such Preferred Stock and/or the
registration of the Preferred Stock.  An
Award of Restricted Stock Units shall provide the Participant with the right to
receive amounts equivalent to dividends and distributions paid with respect to
Preferred Stock subject to the Award while the Award is outstanding, which
payments may, in the Committee’s discretion, either be made currently or
credited to an account for the Participant, and may be settled in cash or
Preferred Stock, all as determined by the Committee.  Unless otherwise determined by the Committee
with respect to a particular Award, each outstanding Restricted Stock Unit
shall accrue such dividend equivalents, deferred as equivalent amounts of
additional Restricted Stock Units, which amounts will be paid only when and if
the Restricted Stock Unit (on which such dividend equivalents were accrued)
vests and becomes payable.  To the extent
that a Restricted Stock Unit does not vest or is otherwise forfeited, any
accrued and unpaid dividend equivalents shall be forfeited.

 

9

 

8.             Withholding of Taxes

 

The
Corporation may require, as a condition to the grant of any Award under the
Plan or exercise pursuant to such Award or to the delivery of certificates for
shares issued or payments of cash to a grantee pursuant to the Plan or a Grant
Agreement (hereinafter collectively referred to as a “taxable event”), that the
grantee pay to the Corporation, in cash or, if approved by the Corporation, in
shares of stock, including shares that would otherwise be issued upon exercise
of or payment under the Award, valued at Fair Market Value on the date as of
which the withholding tax liability is determined, any federal, state or local
taxes of any kind required by law to be withheld with respect to any taxable
event under the Plan.  The Corporation,
to the extent permitted or required by law, shall have the right to deduct from
any payment of any kind (including salary or bonus) otherwise due to a grantee
any federal, state or local taxes of any kind required by law to be withheld
with respect to any taxable event under the Plan, or to retain or sell without
notice a sufficient number  of the shares
to be issued to such grantee to cover any such taxes.

 

9.             Transferability

 

No
Award granted under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution.  Unless otherwise determined by the Committee
in accord with the provisions of the immediately preceding sentence, an Award
may be exercised during the lifetime of the grantee, only by the grantee or,
during the period the grantee is under a legal disability, by the grantee’s
guardian or legal representative.

 

10.          Adjustments; Business Combinations

 

In the
event of a reclassification, recapitalization, stock split, reverse stock
split, stock dividend, combination of shares, or other similar event, involving
the Common or Preferred Stock, the maximum number and kind of shares reserved
for issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 shall be adjusted to reflect such event, and the
Committee shall make such adjustments as it deems appropriate and equitable in
the number, kind and price of shares covered by outstanding Awards made under
the Plan, and in any other matters which relate to Awards and which are
affected by the changes in the Common or Preferred Stock referred to above.

 

In the
event of any proposed Change in Control, the Committee shall take such action
as it deems appropriate and equitable to effectuate the purposes of this Plan
and to protect the grantees of Awards, which action may include, but without
limitation, any one or more of the following: 
(i) acceleration or change of the exercise and/or expiration dates
of any Award to require that exercise be made, if at all, prior to the Change
in Control; (ii) cancellation of any Award upon payment to the holder in
cash of the Fair Market Value of the Common or Preferred Stock subject to such
Award as of the date of (and, to the extent applicable, as established for
purposes of) the Change in Control, less 

 

10

 

the aggregate exercise
price, if any, of the Award; and (iii) in any case where equity securities
of another entity are proposed to be delivered in exchange for or with respect
to Common or Preferred Stock of the Corporation, arrangements to have such
other entity replace the Awards granted hereunder with awards with respect to
such other securities, with appropriate adjustments in the number of shares
subject to, and the exercise prices under, the award.

 

The
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events (including, without limitation, the events described in the preceding
two paragraphs of this Section 10) affecting the Corporation, or the
financial statements of the Corporation or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan.

 

In the
event the Corporation dissolves and liquidates (other than pursuant to a plan
of merger or reorganization), then notwithstanding any restrictions on exercise
set forth in this Plan or any Grant Agreement, or other agreement evidencing a
Stock Option or Restricted Stock Unit Award: (i) each grantee shall have
the right to exercise his Stock Option or to require delivery of share
certificates under any such Restricted Stock Unit Award, at any time up to ten (10) days
prior to the effective date of such liquidation and dissolution; and (ii) the
Committee may make arrangements with the grantees for the payment of
appropriate consideration to them for the cancellation and surrender of any
Stock Option or Restricted Stock Unit Award that is so canceled or surrendered
at any time up to ten (10) days prior to the effective date of such
liquidation and dissolution.  The
Committee may establish a different period (and different conditions) for such
exercise, delivery, cancellation, or surrender to avoid subjecting the grantee
to liability under Section 16(b) of the Exchange Act.  Any Stock Option not so exercised, canceled,
or surrendered shall terminate on the last day for exercise prior to such
effective date; and any Restricted Stock Unit as to which there has not been
such delivery of share certificates or that has not been so canceled or
surrendered, shall be forfeited on the last day prior to such effective
date.  The Committee shall give to each
grantee written notice of the commencement of any proceedings for such
liquidation and dissolution of the Corporation and the grantee’s rights with
respect to his outstanding Award.

 

Except
as hereinbefore expressly provided, issuance by the Corporation of shares of
stock of any class or securities convertible into shares of stock of any class,
for cash, property, labor or services, upon direct sale, upon the exercise of
rights or warranty to subscribe therefore, or upon conversion of shares or
obligations of the Corporation convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
of shares of Common or Preferred Stock subject to Awards theretofore granted or
the purchase price per share of Common or Preferred Stock subject to Awards.

 

11

 

11.          Termination and Modification of the Plan

 

The
Board, without further approval of the stockholders, may modify or terminate
the Plan or any portion thereof at any time, except that no modification shall
become effective without prior approval of the stockholders of the Corporation
to increase the number of shares of Common or Preferred Stock subject to the
Plan or if stockholder approval is necessary to comply with any tax or
regulatory requirement or rule of any exchange or Nasdaq System upon which
the Common or Preferred Stock is listed or quoted (including for this purpose
stockholder approval that is required for continued compliance with Rule 16b-3
or stockholder approval that is required to enable the Committee to grant
incentive stock options pursuant to the Plan).

 

The
Committee shall be authorized to make minor or administrative modifications to
the Plan as well as modifications to the Plan that may be dictated by
requirements of federal or state laws applicable to the Corporation or that may
be authorized or made desirable by such laws. 
The Committee may amend or modify the grant of any outstanding Award in
any manner to the extent that the Committee would have had the authority to
make such Award as so modified or amended. 
No modification may be made that would materially adversely affect any
Award previously made under the Plan without the approval of the grantee.

 

12.          Non-Guarantee of Employment

 

Nothing
in the Plan or in any Grant Agreement thereunder shall confer any right on an
employee to continue in the employ of the Corporation or shall interfere in any
way with the right of the Corporation to terminate an employee at any time.

 

13.          Termination of Employment

 

For
purposes of maintaining a grantee’s continuous status as an employee and
accrual of rights under any Award, transfer of an employee among the
Corporation and the Corporation’s Parent or Subsidiaries shall not be considered
a termination of employment.  Nor shall
it be considered a termination of employment for such purposes if an employee
is placed on military or sick leave or such other leave of absence which is
considered as continuing intact the employment relationship; in such a case,
the employment relationship shall be continued until the date when an employee’s
right to reemployment shall no longer be guaranteed either by law or contract.

 

14.          Written Agreement

 

Each
Grant Agreement entered into between the Corporation and a grantee with respect
to an Award granted under the Plan shall incorporate the terms of this Plan and
shall contain such provisions, consistent with the provisions of the Plan, as
may be 

 

12

 

established by the
Committee.

 

15.          Non-Uniform Determinations

 

The
Committee’s determinations under the Plan (including without limitation
determinations of the persons to receive Awards, the form, amount and time of
such Awards, the terms and provisions of such Awards and the agreements
evidencing same) need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, Awards under the Plan, whether
or not such persons are similarly situated.

 

16.          Limitation on Benefits

 

With
respect to persons subject to Section 16 of the Exchange Act, transactions
under this Plan are intended to comply with all applicable conditions of Rule 16b-3.  To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.

 

17.          Listing and Registration

 

If the
Corporation determines that the listing, registration or qualification upon any
securities exchange or upon any listing or quotation system established by the
National Association of Securities Dealers, Inc. (“Nasdaq System”) or
under any law, of shares subject to any Award is necessary or desirable as a
condition of, or in connection with, the granting of same or the issue or
purchase of shares thereunder, no such Award may be exercised in whole or in
part and no restrictions on such Award shall lapse, unless such listing,
registration or qualification is effected free of any conditions not acceptable
to the Corporation.

 

18.          Compliance with Securities Law

 

The
Corporation may require that a grantee, as a condition to exercise of an Award,
and as a condition to the delivery of any share certificate, provide to the
Corporation, at the time of each such exercise and each such delivery, a
written representation that the shares of Common or Preferred Stock being
acquired shall be acquired by the grantee solely for investment and will not be
sold or transferred without registration or the availability of an exemption
from registration under the Securities Act and applicable state securities
laws.  The Corporation may also require
that a grantee submit other written representations which will permit the
Corporation to comply with federal and applicable state securities laws in
connection with the issuance of the Common or Preferred Stock, including
representations as to the knowledge and experience in financial and business
matters of the grantee and the grantee’s ability to bear the economic risk of
the grantee’s investment.  The
Corporation may require that the grantee obtain a “purchaser representative” as
that term is defined in applicable federal and state securities laws.  The stock certificates for any shares of
Common or Preferred 

 

13

 

Stock issued pursuant to
this Plan may bear a legend restricting transferability of the shares of Common
or Preferred Stock unless such shares are registered or an exemption from
registration is available under the Securities Act and applicable state
securities laws.  The Corporation may
notify its transfer agent to stop any transfer of shares of Common or Preferred
Stock not made in compliance with these restrictions.  Common or Preferred Stock shall not be issued
with respect to an Award granted under the Plan unless the exercise of such
Award and the issuance and delivery of share certificates for such Common or
Preferred Stock pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any national
securities exchange or Nasdaq System upon which the Common or Preferred Stock
may then be listed or quoted, and shall be further subject to the approval of
counsel for the Corporation with respect to such compliance to the extent such
approval is sought by the Committee.

 

19.          No Trust or Fund Created

 

Neither
the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Corporation
and a grantee or any other person.  To
the extent that any grantee or other person acquires a right to receive
payments from the Corporation pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Corporation.

 

20.          No Limit on Other Compensation Arrangements

 

Nothing
contained in the Plan shall prevent the Corporation or its Parent or Subsidiary
corporations from adopting or continuing in effect other compensation
arrangements (whether such arrangements be generally applicable or applicable
only in specific cases) as the Committee in its discretion determines
desirable, including without limitation the granting of stock options or
restricted stock units otherwise than under the Plan.

 

21.          No Restriction of Corporate Action

 

Nothing
contained in the Plan shall be construed to prevent the Corporation or any
Parent or Subsidiary from taking any corporate action which is deemed by the
Corporation or such Parent or Subsidiary to be appropriate or in its best
interest, whether or not such action would have an adverse effect on the Plan
or any Award issued under the Plan.  No
employee, beneficiary or other person shall have any claim against the
Corporation or any Parent or Subsidiary as a result of such action.

 

22.          Governing Law

 

The
validity, construction and effect of the Plan, of Grant Agreements entered into
pursuant to the Plan, and of any rules, regulations, determinations or
decisions made by 

 

14

 

the Board or Committee
relating to the Plan or such Grant Agreements, and the rights of any and all
persons having or claiming to have any interest therein or thereunder, shall be
determined exclusively in accordance with applicable federal laws and the laws
of the State of Maryland, without regard to its conflict of laws rules and
principles.

 

23.          Plan Subject to Charter and By-Laws

 

This
Plan is subject to the Articles and By-Laws of the Corporation, as they may be
amended from time to time.

 

24.          Effective Date; Termination Date

 

The
Plan is effective as of the date on which the Plan was adopted by the Board;
provided that no Stock Options issued hereunder shall be treated as incentive
stock options, regardless of the designation in the Grant Agreement, unless the
Plan is approved by the shareholders of the Corporation as provided in Section 6(e)(vi).  No Award shall be granted under the Plan
after the close of business on the day immediately preceding the tenth
anniversary of the effective date of the Plan. 
Subject to other applicable provisions of the Plan, all Awards made
under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.

 

Date Approved by the
Board:                                 

 

Date Approved by the
Shareholders:                                    

 

15

 

Exhibit C

 

Stockholder List

 

 

METASTORM INC.

 

SERIES
AA CONVERTIBLE PREFERRED STOCK

 

	
  Cert.
  

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  1-AA

  	
   

  	
  Bruce Grisewood

  	
   

  	
  69

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  2-AA

  	
   

  	
  Michael Jackson

  	
   

  	
  115

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  3-AA

  	
   

  	
  Jonathan Summers Tim
  and Tyde

  	
   

  	
  6,075.54

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  4-AA

  	
   

  	
  David Riz

  	
   

  	
  40

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  5-AA

  	
   

  	
  Thomas Thomason

  	
   

  	
  373.76

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  6-AA

  	
   

  	
  James Hooper

  	
   

  	
  365.88

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  7-AA

  	
   

  	
  Brian R. McNeill

  	
   

  	
  45.44

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  8-AA

  	
   

  	
  Jeffrey Whipple

  	
   

  	
  21.18

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  9-AA

  	
   

  	
  Sandra Brucker

  	
   

  	
  3.32

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  10-AA

  	
   

  	
  Paul Bartlett

  	
   

  	
  .66

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  11-AA

  	
   

  	
  Stuart E. Davey

  	
   

  	
  250

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  12-AA

  	
   

  	
  Scott Rodgers

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  13-AA

  	
   

  	
  Van N. Nguyen

  	
   

  	
  200

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  14-AA

  	
   

  	
  Dave J. Christensen

  	
   

  	
  250

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  15-AA

  	
   

  	
  Dan Dorton

  	
   

  	
  250

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  16-AA

  	
   

  	
  Melanie O’Toole

  	
   

  	
  100

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  17-AA

  	
   

  	
  Amanda Silkman

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  18-AA

  	
   

  	
  Jaeho Brian Song

  	
   

  	
  200

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  19-AA

  	
   

  	
  Michael Johnson

  	
   

  	
  120

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  20-AA

  	
   

  	
  UBS Capital Americas
  II, LLC

  	
   

  	
  4,738,347.32

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  

 

 

	
  Cert.
  

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  21-AA

  	
   

  	
  Sandler Capital
  Partners IV, L.P.

  	
   

  	
  1,386,659.30

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  22-AA

  	
   

  	
  Sandler Capital
  Partners IV FTE, L.P.

  	
   

  	
  568,312.38

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible

  Preferred Stock

  
	
  23-AA

  	
   

  	
  Sandler Technology
  Partners, L.P.

  	
   

  	
  (550,198.01)

  Cancelled

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  24-AA

  	
   

  	
  Wall Street Technology
  Partners, LP

  	
   

  	
  4,440,370.17

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  25-AA

  	
   

  	
  Axiom Venture Partners
  II, L.P.

  	
   

  	
  756,229.30

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  26-AA

  	
   

  	
  J. Allen Dougherty,
  Trustee FBO Peter Wetherill

  	
   

  	
  47,106.95

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  27-AA

  	
   

  	
  Gail Dougherty

  	
   

  	
  11,776.52

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  28-AA

  	
   

  	
  Mark T. Cannon

  	
   

  	
  7,065.74

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  29-AA

  	
   

  	
  Nancy Walker

  	
   

  	
  11,776.52

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  30-AA

  	
   

  	
  Pennstone, LLC

  	
   

  	
  (43,391.47)

  Cancelled

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  31-AA

  	
   

  	
  Riggs Capital Partners,
  LLC

  	
   

  	
  520,695.96

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  32-AA

  	
   

  	
  Morgan Stanley DW Inc.
  C/F J. Allen Dougherty, IRA Rollover

  	
   

  	
  11,776.52

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  33-AA

  	
   

  	
  Paul E. Ambrose and
  Paula J. Ambrose

  	
   

  	
  5,888.38

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  34-AA

  	
   

  	
  Michael Savage

  	
   

  	
  3,533.02

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  35-AA

  	
   

  	
  David R. Schaeffer

  	
   

  	
  5,888.38

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  36-AA

  	
   

  	
  Stephen Todd Walker

  	
   

  	
  7,066.05

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  37-AA

  	
   

  	
  Stephen Todd Walker

  	
   

  	
  43,391.47

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  38-AA

  	
   

  	
  Riggs Capital Partners
  II, LLC

  	
   

  	
  385,518.38

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  39-AA

  	
   

  	
  Sandler Technology
  Partners Subsidiary, LLC

  	
   

  	
  479,176.89

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  40-AA

  	
   

  	
  M&M Capital
  Partners

  	
   

  	
  6,942.12

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  

 

2

 

	
  Cert.
  

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  41-AA

  	
   

  	
  Eric Luftig CIBC World
  Markets

  	
   

  	
  1,735.60

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  42-AA

  	
   

  	
  Mayflower LP

  	
   

  	
  6,123,747.04

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  43-AA

  	
   

  	
  Sandler Co-Investment
  Partners, L.P.

  	
   

  	
  102,894.45

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  44-AA

  	
   

  	
  Ironside Ventures, L.P.

  	
   

  	
  811,244.43

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  45-AA

  	
   

  	
  Ironside Venture
  Partners II, LLC

  	
   

  	
  520,666.42

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  46-AA

  	
   

  	
  Gregory Carter

  	
   

  	
  498.93

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  47-AA

  	
   

  	
  Mark O’Neill

  	
   

  	
  3,533.02

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  48-AA

  	
   

  	
  Sandler Technology
  Partners Subsidiary, LLC

  	
   

  	
  550,198.01

  	
   

  	
  12/09/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  49-AA

  	
   

  	
  CommerceQuest, Inc.

  	
   

  	
  (14,014,000) 

  Cancelled

  	
   

  	
  10/05/2005

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  50-AA

  	
   

  	
  CommerceQuest UK
  Limited

  	
   

  	
  (1,386,000)

  Cancelled

  	
   

  	
  10/05/2005

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  51-AA

  	
   

  	
  ICG Holdings, Inc.

  	
   

  	
  15,400,000

  	
   

  	
  10/05/2005

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  

 

3

 

Uncertificated — Stockholders
(Never Returned Stock Certificates for Exchange into Series AA Convertible
Preferred Stock)

 

	
  Cert.

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  —

  	
   

  	
  Walter Maull

  	
   

  	
  1,735.60

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Melissa B. Eisenstat

  	
   

  	
  1,735.60

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Avi Hoffer

  	
   

  	
  73,740.79

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Michael Philip Vieyra

  	
   

  	
  4,076.26

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Stephen Miles Brown

  	
   

  	
  4,082.95

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  V-Sys, Ltd.

  	
   

  	
  4,600

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Stuart Frost

  	
   

  	
  437

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Mark O’Hare

  	
   

  	
  115

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Bharat Patel

  	
   

  	
  287.50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Brian McPhee

  	
   

  	
  770.50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Craig Belliston

  	
   

  	
  250

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Thomas Rogan

  	
   

  	
  100

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  David Holliday

  	
   

  	
  2,828.50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Stephen Morse

  	
   

  	
  25.32

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Andrew Nuckols

  	
   

  	
  19.62

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Richard Drumm

  	
   

  	
  17.01

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Monica Mirestean

  	
   

  	
  17.65

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Robert Aung

  	
   

  	
  14.30

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Won Kim

  	
   

  	
  4.32

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  James Davis

  	
   

  	
  5.53

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Eve Dellett

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Kimberly Lewis

  	
   

  	
  4.75

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible
  Preferred Stock

  
	
  —

  	
   

  	
  Susan Tufts

  	
   

  	
  4.34

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  

 

4

 

	
  Cert.

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  —

  	
   

  	
  Alin Mirestean

  	
   

  	
  4.15

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Carol L. Katz

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Jonathan Rottenberg

  	
   

  	
  10

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Greg M. Smith

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Tim D. Eversole

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Alan Clarke

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Douglas B. Clark

  	
   

  	
  250

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Christopher J.
  Caramanico

  	
   

  	
  172.23

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Jerome Pearce

  	
   

  	
  100

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Jane Hedges

  	
   

  	
  200

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Gregory A. Hall

  	
   

  	
  50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Michael Brian
  Rademacher

  	
   

  	
  85.18

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  
	
  —

  	
   

  	
  Christopher Justin Kim

  	
   

  	
  82.50

  	
   

  	
  09/15/2004

  	
   

  	
  Series AA
  Convertible 

  Preferred Stock

  

 

5

 

METASTORM INC.

 

SERIES
BB CONVERTIBLE PREFERRED STOCK

 

	
  Cert.
  

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  1-BB

  	
   

  	
  IIIIII ICG
  Holdings, Inc.

  	
   

  	
  2,140,138

  	
   

  	
  10/05/2005

  	
   

  	
  Series BB
  Convertible 

  Preferred Stock

  
	
  2-BB

  	
   

  	
  Mayflower LP

  	
   

  	
  851,017

  	
   

  	
  10/05/2005

  	
   

  	
  Series BB
  Convertible 

  Preferred Stock

  
	
  3-BB

  	
   

  	
  Wall Street Technology
  Partners, LP

  	
   

  	
  617,078

  	
   

  	
  10/05/2005

  	
   

  	
  Series BB
  Convertible 

  Preferred Stock

  
	
  4-BB

  	
   

  	
  Ironside Ventures, L.P.

  	
   

  	
  78,991

  	
   

  	
  11/09/2005

  	
   

  	
  Series BB
  Convertible 

  Preferred Stock

  
	
  5-BB

  	
   

  	
  Axiom Venture Partners
  II, LP

  	
   

  	
  105,093

  	
   

  	
  11/09/2005

  	
   

  	
  Series BB
  Convertible 

  Preferred Stock

  

 

6

 

METASTORM INC. - COMMON STOCK

 

	
  Cert.

  No.

  	
   

  	
  Owner

  	
   

  	
  No. of Shares

  	
   

  	
  Date Issued

  	
   

  	
  Class

  
	
  73

  	
   

  	
  Michael Malaure

  	
   

  	
  28,125

  	
   

  	
  01/31/2007

  	
   

  	
  Common Stock

  

 

7

 

Exhibit D

 

Form of Opinion of Venable LLP

 

 

July 31, 2007

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

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 July 31, 2007 (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 4.7 of the Stock Purchase Agreement which provides that
the obligation of the Purchasers to purchase the Series CC Convertible
Preferred Stock, $0.01 par value per share (the “Series CC 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 Fourth Amended and Restated Registration
Rights Agreement dated as of July 31, 2007, by and among the Company, the
Purchasers, 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, and other persons that from time to
time execute joinders thereto (the “Registration Rights Agreement”), and (c) the
Fifth Amended and Restated Stockholders Agreement dated as of July 31,
2007, by and among the Company, the Purchasers, the holders of the Company’s Series AA
Preferred Stock listed on Schedule A thereto, and other persons that
from time to time execute joinders thereto (the “Stockholders Agreement” and,
together with the Stock Purchase Agreement and the Registration Rights
Agreement, the “Principal Agreements”);

 

(ii)             the Sixth Articles of Amendment and
Restatement of the Company (the “Restated Articles”), filed with the Maryland
State Department of Assessments and Taxation (the “SDAT”) on July [      ],
2007, 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;

 

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

(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 July [      ],
2007 with respect to the existence and good standing of the Company as of such
date;

 

(v)             a certificate dated July [      ],
2007 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
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 

 

2

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

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.

 

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.

 

3

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

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 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, constitutes the legal, valid and
binding obligation of the Company 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 120,000,000 shares of Common Stock, $0.01 par value
per share and 96,657,212 shares of preferred stock, $0.01 par value per share,
of which 71,012,991
shares have been designated Series AA Preferred Stock and
6,800,000  shares have
been designated Series BB Preferred Stock and 18,844,221  shares have been designated Series CC
Preferred Stock (collectively, the “Authorized Stock”); (ii) there are currently 28,125
shares of Common Stock, 54,449,488 shares of Series AA Preferred Stock, no
shares of Series BB Preferred Stock, and
[                    ]
shares of Series CC Preferred Stock which are issued and outstanding as of
the date hereof; (iii) no shares of stock are held in treasury; and (iv) except
(x) for the warrants to purchase an aggregate of 39,155 shares of Common
Stock, (y) for the outstanding warrants to purchase an aggregate of 12,597
shares of Series AA Preferred Stock (each of such warrants being set forth
on Section 2.2 of the Disclosure Schedule to the Stock 

 

4

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

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 CC 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.

 

8.             Upon issuance and delivery of the Series CC
Preferred Stock to each Purchaser pursuant to the Stock Purchase Agreement,
such Purchaser will be the record owner of the Series CC Preferred Stock,
and such shares of Series CC Preferred Stock will be free of any liens or
encumbrances created by the Company; provided, however, that the Series CC
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 CC Preferred Stock issued to the Purchasers (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 CC 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 CC Preferred Stock and concerning certain other
matters set forth in the Principal Agreements, the offer and sale of the Series CC
Preferred Stock (and the Underlying Shares issuable upon conversion of such Series CC
Preferred Stock) to the Purchasers in conformity with the terms of the Stock
Purchase Agreement are exempt (and in the case of the Underlying Shares upon
conversion of the Series CC Preferred Stock, will be exempt) from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(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 CC
Preferred Stock 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

 

5

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

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:

 

(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.

 

6

 

To the Several Purchasers
Listed

on Schedule 1 to
the Stock Purchase

Agreement, dated July 31,
2007

 

(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.

 

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,

 

* * *

 

7

 

Exhibit E

 

Form of Indemnification Agreement

 

 

INDEMNIFICATION AGREEMENT

 

THIS
INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into
this            day of
                        ,
2007, by and between Metastorm Inc., a Maryland corporation (the “Company”),
and
                            
(“Indemnitee”).

 

WHEREAS,
at the request of the Company, Indemnitee currently serves as a director of the
Company and may, therefore, be subjected to claims, suits or proceedings
arising as a result of his service; and

 

WHEREAS,
as an inducement to Indemnitee to continue to serve as such director, the
Company has agreed to indemnify and to advance expenses and costs incurred by
Indemnitee in connection with any such claims, suits or proceedings, to the fullest
extent permitted by law; and

 

WHEREAS,
the parties by this Agreement desire to set forth their agreement regarding
indemnification and advance of expenses;

 

NOW,
THEREFORE, in consideration of the premises and the covenants contained herein,
the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.               Definitions.  For purposes of this Agreement:

 

(a)           “Change in Control”
means any of the following events or series of events occurring after the
Effective Date: (i) any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the “Act”)) is or
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company’s then outstanding securities; (ii) there
occurs a proxy contest, or the Company is a party to a merger, consolidation,
sale of assets, plan of liquidation or other reorganization, as a consequence
of which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (iii) during any period of two consecutive years, other
than as a result of an event described in clause (a)(ii) of this Section 1,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company’s stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.

 

(b)           “Corporate Status”
means the status of a person who is or was a director, trustee, officer,
employee or agent of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person is or was serving at the request of the Company.

 

(c)           “Disinterested Director”
means a director of the Company who is not and was not a party to the
Proceeding in respect of which indemnification is sought by Indemnitee.

 

 

(d)           “Effective Date”
means the date set forth in the first paragraph of this Agreement.

 

(e)           “Expenses” shall
include all reasonable attorneys’ fees, retainers, court costs, transcript
costs, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
and all other disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a Proceeding.

 

(f)            “Independent Counsel”
means a law firm, or a member of a law firm, that is experienced in matters of
corporation law and neither presently is, nor in the past five years has been,
retained to represent: (i) the Company or Indemnitee in any matter
material to either such party, or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term “Independent Counsel” shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee’s rights under this Agreement. If a Change of
Control has not occurred, Independent Counsel shall be selected by the Board of
Directors, with the approval of Indemnitee, which approval will not be
unreasonably withheld. If a Change of Control has occurred, Independent Counsel
shall be selected by Indemnitee, with the approval of the Board of Directors,
which approval will not be unreasonably withheld.

 

(g)           “Proceeding” includes
any threatened, pending or completed action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding, whether civil, criminal, administrative or investigative (including
on appeal), except one (i) initiated by an Indemnitee pursuant to Section 11
of this Agreement to enforce his rights under this Agreement or (ii) pending
or completed on or before the Effective Date, unless otherwise specifically
agreed in writing by the Company and Indemnitee.

 

Section 2.               Services by Indemnitee.  Indemnitee will serve as a director of the
Company. However, this Agreement shall not impose any obligation on Indemnitee
or the Company to continue Indemnitee’s service to the Company beyond any
period otherwise required by law or by other agreements or commitments of the
parties, if any.

 

Section 3.               Indemnification - General.  The Company shall indemnify, and advance
Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise
to the fullest extent permitted by Maryland law in effect on the date hereof
and as amended from time to time; provided, however, that no change in Maryland
law shall have the effect of reducing the benefits available to Indemnitee
hereunder based on Maryland law as in effect on the date hereof. The rights of
Indemnitee provided in this Section 3 shall include, without limitation,
the rights set forth in the other sections of this Agreement, including any
additional indemnification permitted by Section 2-418(g) of the
Maryland General Corporation Law (“MGCL”).

 

Section 4.               Proceedings Other Than
Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4 if,
by 

 

2

 

reason
of his Corporate Status, he is, or is threatened to be, made a party to or a
witness in any threatened, pending, or completed Proceeding, other than a
Proceeding by or in the right of the Company. Pursuant to this Section 4,
Indemnitee shall be indemnified against all judgments, penalties, fines and
amounts paid in settlement and all Expenses actually and reasonably incurred by
him or on his behalf in connection with a Proceeding by reason of his Corporate
Status unless  it is established that (i) the
act or omission of Indemnitee was material to the matter giving rise to the
Proceeding and (a) was committed in bad faith or (b) was the result
of active and deliberate dishonesty, (ii) Indemnitee actually received an
improper personal benefit in money, property or services, or (iii) in the
case of any criminal Proceeding, Indemnitee had reasonable cause to believe
that his conduct was unlawful.

 

Section 5.               Proceedings by or in the
Right of the Company. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 5 if, by reason of his Corporate
Status, he is, or is threatened to be, made a party to or a witness in any
threatened, pending or completed Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 5,
Indemnitee shall be indemnified against all amounts paid in settlement and all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding unless it is established that (i) the act or omission
of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was
committed in bad faith or (b) was the result of active and deliberate
dishonesty or (ii) Indemnitee actually received an improper personal
benefit in money, property or services.

 

Section 6.               Court-Ordered
Indemnification. Notwithstanding any other provision of this
Agreement, a court of appropriate jurisdiction, upon application of Indemnitee
and such notice as the court shall require, may order indemnification in the
following circumstances:

 

(a)           if it determines Indemnitee
is entitled to reimbursement under Section 2-418(d)(l) of the MGCL,
the court shall order indemnification, in which case Indemnitee shall be
entitled to recover the expenses of securing such reimbursement; or

 

(b)           if it determines that
Indemnitee is fairly and reasonably entitled to indemnification in view of all
the relevant circumstances, whether or not Indemnitee (i) has met the
standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has
been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of
the MGCL, the court may order such indemnification as the court shall deem
proper. However, indemnification with respect to any Proceeding by or in the
right of the Company or in which liability shall have been adjudged in the
circumstances described in Section 2-418(c) of the MGCL shall be
limited to Expenses.

 

Section 7.               Indemnification for Expenses
of a Party Who is Wholly or Partly Successful. Notwithstanding any other
provision of this Agreement, and without limiting any such provision, to the
extent that Indemnitee is, by reason of his Corporate Status, made a party to
and is successful, on the merits or otherwise, in the defense of any
Proceeding, he shall be indemnified for all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or 

 

3

 

matters
in such Proceeding, the Company shall indemnify Indemnitee under this Section 7
for all Expenses actually and reasonably incurred by him or on his behalf in
connection with each successfully resolved claim, issue or matter. For purposes
of this Section and without limitation, the termination of any claim,
issue or matter in such a Proceeding by dismissal, with or without prejudice, shall
be deemed to be a successful result as to such claim, issue or matter.

 

Section 8.               Advance of Expenses. The Company
shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in
connection with any Proceeding to which Indemnitee is, or is threatened to be,
made a party or a witness, within ten days after the receipt by the Company of
a statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by a written
affirmation by Indemnitee of Indemnitee’s good faith belief that the standard
of conduct necessary for indemnification by the Company as authorized by law
and by this Agreement has been met and a written undertaking by or on behalf of
Indemnitee, in substantially the form attached hereto as Exhibit A or in
such form as may be required under applicable law as in effect at the time of
the execution thereof, to reimburse the portion of any Expenses advanced to
Indemnitee relating to claims, issues or matters in the Proceeding as to which
it shall ultimately be established that the standard of conduct has not been
met and which have not been successfully resolved as described in Section 7.  To the extent that Expenses advanced to
Indemnitee do not relate to a specific claim, issue or matter in the
Proceeding, such Expenses shall be allocated on a reasonable and proportionate
basis. The undertaking required by this Section 8 shall be an unlimited
general obligation by or on behalf of Indemnitee and shall be accepted without
reference to Indemnitee’s financial ability to repay such advanced Expenses and
without any requirement to post security therefor.

 

Section 9.               Procedure for Determination
of Entitlement to Indemnification.

 

(a)           To obtain indemnification
under this Agreement, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has
requested indemnification.

 

(b)           Upon written request by
Indemnitee for indemnification pursuant to the first sentence of Section 9(a) hereof,
a determination, if required by applicable law, with respect to Indemnitee’s
entitlement thereto shall promptly be made in the specific case: (i) if a
Change in Control shall have occurred, by Independent Counsel in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by
the Board of Directors (or a duly authorized committee thereof) by a majority
vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if
a quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee, or

 

4

 

(c)           if so directed by a majority
of the members of the Board of Directors, by the stockholders of the Company;
and, if it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within ten days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee’s entitlement to indemnification, including
providing to such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected
from disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or Expenses (including  reasonable attorneys’ fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Company (irrespective of the
determination as to Indemnitee’s entitlement to indemnification) and the
Company hereby agrees to indemnify and hold Indemnitee harmless therefrom.

 

Section 10.             Presumptions and Effect of
Certain Proceedings.

 

(a)           In making a determination
with respect to entitlement to indemnification hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled
to indemnification under this Agreement if Indemnitee has submitted a request
for indemnification in accordance with Section 9(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making of any determination contrary to that
presumption.

 

(b)           The termination of any
Proceeding by judgment, order, settlement, conviction, a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, does not create a presumption that Indemnitee did not meet the
requisite standard of conduct described herein for indemnification.

 

Section 11.             Remedies of Indemnitee.

 

(a)           If (i) a determination
is made pursuant to Section 9 of this Agreement that Indemnitee is not
entitled to indemnification under this Agreement, (ii) advance of Expenses
is not timely made pursuant to Section 8 of this Agreement, (iii) no
determination of entitlement to indemnification shall have been made pursuant
to Section 9(b) of this Agreement within 90 days after receipt by the
Company of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Section 7 of this Agreement within
ten days after receipt by the Company of a written request therefor, or (v) payment
of indemnification is not made within ten days after a determination has been
made that Indemnitee is entitled to indemnification, Indemnitee shall be
entitled to an adjudication in an appropriate court of the State of Maryland,
or in any other court of competent jurisdiction, of his entitlement to such
indemnification or advance of Expenses. Alternatively, Indemnitee, at his option,
may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this Section 11
(a); provided, however, that the foregoing clause shall not apply in respect of
a proceeding brought by Indemnitee to enforce his rights under Section 7
of this Agreement.

 

5

 

(b)           In any judicial proceeding
or arbitration commenced pursuant to this Section 11 the Company shall
have the burden of proving that Indemnitee is not entitled to indemnification
or advance of Expenses, as the case may be.

 

(c)           If a determination shall
have been made pursuant to Section 9(b) of this Agreement that
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section 11, absent a misstatement by Indemnitee of a material fact,
or an omission of a material fact necessary to make Indemnitee’s statement not
materially misleading, in connection with the request for indemnification.

 

(d)           In the event that
Indemnitee, pursuant to this Section 11, seeks a judicial adjudication of
or an award in arbitration to enforce his rights under, or to recover damages
for breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company for, any and all Expenses
actually and reasonably incurred by him in such judicial adjudication or
arbitration. If it shall be determined in such judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advance of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall
be appropriately prorated.

 

Section 12.             Defense of the Underlying
Proceeding.

 

(a)           Indemnitee shall notify the
Company promptly upon being served with or receiving any summons, citation,
subpoena, complaint, indictment, information, notice, request or other document
relating to any Proceeding which may result in the right to indemnification or
the advance of Expenses hereunder; provided, however, that the failure to give
any such notice shall not disqualify Indemnitee from the right, or otherwise
affect in any manner any right of Indemnitee, to indemnification or the advance
of Expenses under this Agreement unless the Company’s ability to defend in such
Proceeding or to obtain proceeds under any insurance policy is materially and
adversely prejudiced thereby, and then only to the extent the Company is
thereby actually so prejudiced.

 

(b)           If, at the time of the
receipt by the Company of a notice of any summons, citation, subpoena,
complaint, indictment, information, notice, request or other document relating
to any Proceeding pursuant to Section 12(a) hereof, the Company has
liability insurance in effect which may cover the Proceeding, the Company shall
give prompt notice of the commencement of the Proceeding to the insurers in
accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all
necessary or desirable action to cause the insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of the Proceeding in accordance
with the terms of the policies.

 

(c)           Subject to the provisions of
the last sentence of this Section 12(c) and of Section 12(d) below,
the Company shall have the right to defend Indemnitee in any Proceeding which
may give rise to indemnification hereunder; provided, however, that the Company
shall notify Indemnitee of any such decision to defend within 15 calendar days
following receipt of notice of any such Proceeding under Section 12(a) above.
The Company shall not, without the 

 

6

 

prior
written consent of Indemnitee, which shall not be unreasonably withheld or
delayed, consent to the entry of any judgment against Indemnitee or enter into
any settlement or compromise which (i) includes an admission of fault of
Indemnitee or (ii) does not include, as an unconditional term thereof, the
full release of Indemnitee from all liability in respect of such Proceeding,
which release shall be in form and substance reasonably satisfactory to
Indemnitee. This Section 12(c) shall not apply to a Proceeding,
brought by Indemnitee under Section 11 above or Section 18 below.

 

(d)           Notwithstanding the
provisions of Section 12(c) above, if in a Proceeding to which
Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee
reasonably concludes, based upon an opinion of counsel approved by the Company,
which approval shall not be unreasonably withheld, that he may have separate
defenses or counterclaims to assert with respect to any issue which may not be
consistent with other defendants in such Proceeding, (ii) Indemnitee
reasonably concludes, based upon an opinion of counsel approved by the Company,
which approval shall not be unreasonably withheld, that an actual or apparent
conflict of interest or potential conflict of interest exists between
Indemnitee and the Company, or (iii) if the Company fails to assume the
defense of such Proceeding in a timely manner, Indemnitee shall be entitled to
be represented by separate legal counsel of Indemnitee’s choice, subject to the
prior approval of the Company, which shall not be unreasonably withheld, at the
expense of the Company. In addition, if the Company fails to comply with any of
its obligations under this Agreement or in the event that the Company or any
other person takes any action to declare this Agreement void or unenforceable, or
institutes any Proceeding to deny or to recover from Indemnitee the benefits
intended to be provided to Indemnitee hereunder, Indemnitee shall have the
right to retain counsel of Indemnitee’s choice, subject to the prior approval
of the Company, which shall not be unreasonably withheld, at the expense of the
Company (subject to Section 1l(d)), to represent Indemnitee in connection
with any such matter.

 

Section 13.             Non-Exclusivity; Survival of
Rights; Insurance; Subrogation.

 

(a)           The rights of indemnification
and advance of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Charter or Bylaws of the Company, any agreement or a
resolution of the stockholders entitled to vote generally in the election of
directors or of the Board of Directors, or otherwise. No amendment, alteration
or repeal of this Agreement or of any provision hereof shall limit or restrict
any right of Indemnitee under this Agreement in respect of any action taken or
omitted by such Indemnitee in his Corporate Status prior to such amendment,
alteration or repeal.

 

(b)           In the event of any payment
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall execute all
papers required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring
suit to enforce such rights.

 

7

 

(c)           The Company shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee has otherwise
actually received such payment under any insurance policy, contract, agreement
or otherwise.

 

Section 14.             Insurance.  The Company will use its reasonable best
efforts to acquire directors and officers liability insurance, on terms and
conditions deemed appropriate by the Board of Directors of the Company, with
the advice of counsel, covering Indemnitee or any claim made against Indemnitee
for service as a director or officer of the Company and covering the Company
for any indemnification or advance of expenses made by the Company to Indemnitee
for any claims made against Indemnitee for service as a director or officer of
the Company. Without in any way limiting any other obligation under this
Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee
arising out of the amount of any deductible or retention and the amount of any
excess of the aggregate of all judgments, penalties, fines, settlements and
reasonable expenses incurred by Indemnitee in connection with a Proceeding over
the coverage of any insurance referred to in the previous sentence.

 

Section 15.             Indemnification for Expenses
of a Witness. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a witness in any Proceeding, whether instituted by the Company or any other
party, and to which Indemnitee is not a party, he shall be advanced all
reasonable Expenses and indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.

 

Section 16.             Duration of Agreement;
Binding Effect.

 

(a)           This Agreement shall
continue until and terminate ten years after the date that Indemnitee shall
have ceased to serve as a director, trustee, officer, employee, or agent of the
Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee served at the
request of the Company; provided, that the rights of Indemnitee hereunder shall
continue until the final termination of any Proceeding then pending in respect
of which Indemnitee is granted rights of indemnification or advance of Expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11
of this Agreement relating thereto.

 

(b)           The indemnification and
advance of Expenses provided by, or granted pursuant to, this Agreement shall
be binding upon and be enforceable by the parties hereto and their respective
successors and assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company), shall continue as to an Indemnitee who has ceased to
be a director, trustee, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company, and shall inure to the benefit of Indemnitee and his or her spouse,
assigns, heirs, devisees, executors and administrators and other legal
representatives.

 

(c)           The Company shall require
and cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all or a substantial 

 

8

 

part,
of the business and/or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place.

 

Section 17.             Severability.  If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of
any section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of any section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.

 

Section 18.             Exception to Right of
Indemnification or Advance of Expenses. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to
indemnification or advance of Expenses under this Agreement with respect to any
Proceeding brought by Indemnitee, unless (a) the Proceeding is brought to
enforce indemnification under this Agreement or otherwise or (b) the
Company’s Bylaws, as amended, the Charter, a resolution of the stockholders
entitled to vote generally in the election of directors or of the Board of
Directors or an agreement approved by the Board of Directors to which the
Company is a party expressly provide otherwise.

 

Section 19.             Identical Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. One such
counterpart signed by the party against whom enforceability is sought shall be
sufficient to evidence the existence of this Agreement.

 

Section 20.             Headings.  The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.

 

Section 21.             Modification and Waiver.  No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

 

Section 22.             Notices.  All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been directed, or (ii) mailed
by certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:

 

9

 

(a)           If to Indemnitee, to: The
address set forth on the signature page hereto

 

(b)           If to the Company to:

 

Metastorm, Inc.

500
East Pratt Street

Suite 1250

Baltimore,
Maryland 21202

Attn:
Chief Financial Officer

 

or
to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.

 

Section 23.             Governing Law.  The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Maryland, without regard to its conflicts of laws rules.

 

Section 24.             Miscellaneous.  Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.

 

[SIGNATURE PAGE FOLLOWS]

 

10

 

EXHIBIT A

 

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED

 

The
Board of Directors of Metastorm, Inc.

 

Re:
Undertaking to Repay Expenses Advanced

 

Ladies
and Gentlemen:

 

This
undertaking is being provided pursuant to that certain Indemnification
Agreement dated the        day of
                      ,
200     by and between Metastorm, Inc. (the “Company”)
and the undersigned Indemnitee (the “Indemnification Agreement”),
pursuant to which I am entitled to advance of expenses in connection with
[Description of Proceeding] (the “Proceeding”).

 

Terms
used herein and not otherwise defined shall have the meanings specified in the
Indemnification Agreement.

 

I
am subject to the Proceeding by reason of my Corporate Status or by reason of
alleged actions or omissions by me in such capacity. I hereby affirm that at
all times, insofar as I was involved as a director of the Company, in any of
the facts or events giving rise to the Proceeding, I (1) acted in good
faith and honestly, (2) did not receive any improper personal benefit in
money, property or services and (3) in the case of any criminal proceeding,
had no reasonable cause to believe that any act or omission by me was unlawful.

 

In
consideration of the advance of expenses by the Company for reasonable attorney’s
fees and related expenses incurred by me in connection with the Proceeding (the
“Advanced Expenses”), I hereby agree that if, in connection with the
Proceeding, it is established that (1) an act or omission by me was
material to the matter giving rise to the Proceeding and (a) was committed
in bad faith or (b) was the result of active and deliberate dishonesty or (2) I
actually received an improper personal benefit in money, property or services
or (3) in the case of any criminal proceeding, I had reasonable cause to
believe that the act or omission was unlawful, then I shall promptly reimburse
the portion of the Advanced Expenses relating to the claims, issues or matters
in the Proceeding as to which the foregoing findings have been established and
which have not been successfully resolved as described in Section 7 of the
Indemnification Agreement. To the extent that Advanced Expenses do not relate
to a specific claim, issue or matter in the Proceeding, I agree that such
Expenses shall be allocated on a reasonable and proportionate basis.

 

IN
WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this
       day of
                    ,
200    .

 

WITNESS:

 

 

	
   

  	
   

  	
   

  	
  (SEAL)

  

 

 

Exhibit F-1

 

Form of Management Rights Letter (ABS V)

 

 

 

Metastorm
Inc.

500 East Pratt Street, Suite 1250

Baltimore, Maryland 21202

 

[Closing Date]

 

ABS Capital Partners V-A, L.P.

400 East Pratt Street, Suite 910

Baltimore, Maryland 21202

Attention:  Jeff Elburn

 

Re:  Management Rights

 

Ladies and Gentlemen:

 

This letter will confirm our agreement that pursuant
to and effective as of your purchase of
                                
shares of Series CC Convertible Preferred Stock, par value $0.01 per share
of Metastorm Inc., a Maryland corporation (the “Company”),
ABS Capital Partners V-A, L.P. (the “Investor”)
shall be entitled to the following contractual management rights, in addition
to any rights to non-public financial information, inspection rights, and other
rights specifically provided to all investors in the current financing:

 

1.             Investor shall be entitled to consult with and advise
management of the Company on significant business issues, including
management’s proposed annual operating plans, and management will meet with
Investor regularly during each year at the Company’s facilities at mutually
agreeable times for such consultation and advice and to review progress in
achieving said plans.

 

2.             Investor may examine the books and records of the
Company and its subsidiaries and inspect their facilities and may request
information at reasonable times and intervals concerning the general status of
the Company’s and its subsidiaries’ financial condition and operations,
provided that access to highly confidential proprietary information and
facilities need not be provided.  The
Investor will have access to the Company’s and its subsidiaries’ records and
will receive financial statements, as such rights are described in
Sections 5.2 and 5.3 of the Fifth Amended and Restated Stockholders
Agreement dated as of the date hereof (the “Stockholders
Agreement”) regardless of whether (i) the Investor meets the
criteria for receiving financial statements under Sections 5.2 and 5.3 of the
Stockholders Agreement or (ii) the Stockholders Agreement is terminated.

 

3.             If Investor does not have contractual right to appoint a
representative to the Company’s Board of Directors, the Company shall,
concurrently with delivery to the Board of Directors, give a representative of
Investor copies of all notices, minutes, consents and other material that the
Company provides to its directors, except that the representative may be
excluded from access to any material or meeting or portion thereof if the Board
of

 

 

Directors determines in
good faith, upon advice of counsel, that such exclusion is reasonably necessary
to preserve the attorney-client privilege or to protect highly confidential
proprietary information.  Upon reasonable
notice and at a scheduled meeting of the Board or such other time, if any, as
the Board may determine in its sole discretion, such representative may address
the Board with respect to Investor’s concerns regarding significant business
issues facing the Company.

 

The Investor agrees to (i) hold in confidence all
confidential information and materials of the Company that it may receive or be
given access to (“Confidential Information”),
and (ii) not disclose such Confidential Information to any third parties
that are not either (A) employed by Investor or (B) Investor’s
professional advisers, including Investor’s lawyers, accountants, and auditors,
and, in the case of clauses (A) and (B) of this sentence, have signed
a confidentially agreement or are otherwise bound by confidentiality obligations
at least as restrictive as those contained herein.

 

The rights described herein shall terminate and be of
no further force or effect upon (a) such time as no shares of the
Company’s stock are held by the Investor or its affiliates; (b) the
consummation of the sale of the Company’s securities pursuant to a registration
statement filed by the Company under the Securities Act of 1933, as amended, in
connection with the firm commitment underwritten offering of its securities to
the general public or (c) the consummation of a merger or consolidation of
the Company that is effected (i) for independent business reasons
unrelated to extinguishing such rights and (ii) for purposes other than
(A) the reincorporation of the Company in a different state or (B) the
formation of a holding company that will be owned exclusively by the Company’s
stockholders and will hold all of the outstanding shares of capital stock of
the Company’s successor.  Subject to the
prior sentence, if the Company engages in a restructuring or a similar transaction
(such as the formation of a holding company structure) the resulting entities
(including any entity that holds the Company’s securities) shall be subject to
the terms of this Agreement in the same manner as the Company.  The confidentiality obligations referenced
herein will survive any such termination.

 

Very truly yours,

 

METASTORM INC.

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

2

 

ACKNOWLEDGED AND ACCEPTED:

 

ABS CAPITAL PARTNERS V, L.P.

 

By:  ABS PARTNERS V, LP

Its General Partner

 

By:  ABS Partners V, LLC

Its General Partner

 

 

	
  By:

  	
   

  	
   

  
	
  Name:  Laura L. Witt

  	
   

  	
   

  
	
  Title:   Managing Member

  	
   

  	
   

  
				

 

3

 

Exhibit F-2

 

Form of Management Rights Letter (ABS V-A)

 

 

Metastorm
Inc.

500 East Pratt Street, Suite 1250

Baltimore, Maryland 21202

 

[Closing Date]

 

ABS Capital Partners V-A, L.P.

400 East Pratt Street, Suite 910

Baltimore, Maryland 21202

Attention:  Jeff Elburn

 

Re:  Management
Rights

 

Ladies and Gentlemen:

 

This letter will confirm our
agreement that pursuant to and effective as of your purchase of
                                
shares of Series CC Convertible Preferred Stock, par value $0.01 per share
of Metastorm Inc., a Maryland corporation (the “Company”),
ABS Capital Partners V-A, L.P. (the “Investor”)
shall be entitled to the following contractual management rights, in addition
to any rights to non-public financial information, inspection rights, and other
rights specifically provided to all investors in the current financing:

 

1.             Investor shall be entitled to consult with and advise
management of the Company on significant business issues, including
management’s proposed annual operating plans, and management will meet with
Investor regularly during each year at the Company’s facilities at mutually
agreeable times for such consultation and advice and to review progress in
achieving said plans.

 

2.             Investor may examine the books and records of the
Company and its subsidiaries and inspect their facilities and may request
information at reasonable times and intervals concerning the general status of
the Company’s and its subsidiaries’ financial condition and operations,
provided that access to highly confidential proprietary information and
facilities need not be provided.  The
Investor will have access to the Company’s and its subsidiaries’ records and
will receive financial statements, as such rights are described in
Sections 5.2 and 5.3 of the Fifth Amended and Restated Stockholders
Agreement dated as of the date hereof (the “Stockholders
Agreement”) regardless of whether (i) the Investor meets the
criteria for receiving financial statements under Sections 5.2 and 5.3 of the
Stockholders Agreement or (ii) the Stockholders Agreement is terminated.

 

3.             If Investor does not have contractual right to appoint a
representative to the 

 

 

Company’s Board of Directors, the Company
shall, concurrently with delivery to the Board of Directors, give a representative
of Investor copies of all notices, minutes, consents and other material that
the Company provides to its directors, except that the representative may be
excluded from access to any material or meeting or portion thereof if the Board
of Directors determines in good faith, upon advice of counsel, that such
exclusion is reasonably necessary to preserve the attorney-client privilege or
to protect highly confidential proprietary information.  Upon reasonable notice and at a scheduled
meeting of the Board or such other time, if any, as the Board may determine in
its sole discretion, such representative may address the Board with respect to
Investor’s concerns regarding significant business issues facing the Company.

 

The Investor agrees to (i) hold
in confidence all confidential information and materials of the Company that it
may receive or be given access to (“Confidential Information”),
and (ii) not disclose such Confidential Information to any third parties
that are not either (A) employed by Investor or (B) Investor’s
professional advisers, including Investor’s lawyers, accountants, and auditors,
and, in the case of clauses (A) and (B) of this sentence, have signed
a confidentially agreement or are otherwise bound by confidentiality
obligations at least as restrictive as those contained herein.

 

The rights described herein
shall terminate and be of no further force or effect upon (a) such time as
no shares of the Company’s stock are held by the Investor or its affiliates; (b) the
consummation of the sale of the Company’s securities pursuant to a registration
statement filed by the Company under the Securities Act of 1933, as amended, in
connection with the firm commitment underwritten offering of its securities to
the general public or (c) the consummation of a merger or consolidation of
the Company that is effected (i) for independent business reasons
unrelated to extinguishing such rights and (ii) for purposes other than (A) the
reincorporation of the Company in a different state or (B) the formation
of a holding company that will be owned exclusively by the Company’s
stockholders and will hold all of the outstanding shares of capital stock of
the Company’s successor.  Subject to the
prior sentence, if the Company engages in a restructuring or a similar transaction
(such as the formation of a holding company structure) the resulting entities
(including any entity that holds the Company’s securities) shall be subject to
the terms of this Agreement in the same manner as the Company.  The confidentiality obligations referenced
herein will survive any such termination.

 

Very truly yours,

 

METASTORM INC.

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

2

 

ACKNOWLEDGED AND ACCEPTED:

 

ABS CAPITAL PARTNERS V, L.P.

 

By: 
ABS PARTNERS V, LP

Its General Partner

 

By:  ABS Partners V, LLC

Its General Partner

 

 

	
  By:

  	
   

  	
   

  
	
  Name:   Laura
  L. Witt

  	
   

  	
   

  
	
  Title:   Managing Member

  	
   

  	
   

  
				

 

3

 

Exhibit G

 

Form of Agreement and Plan of Merger

 

 

 

AGREEMENT
AND PLAN OF MERGER

 

between

 

METASTORM INC.,

SOUNDVIEW, INC.

 

and

 

PROFORMA CORPORATION

 

Dated as
of July 31, 2007

 

 

 

CONTENTS

 

	
  ARTICLE I DEFINITIONS;
  INTERPRETATION

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Definitions

  	
  1

  
	
  1.2

  	
  Terms Defined Elsewhere

  	
  10

  
	
  1.3

  	
  Interpretation

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE II THE MERGER AND THE
  CLOSING

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  The Merger

  	
  12

  
	
  2.2

  	
  Effective Time

  	
  12

  
	
  2.3

  	
  Effects of the Merger

  	
  12

  
	
  2.4

  	
  The Closing

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE III MERGER CONSIDERATION

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Conversion of Stock

  	
  14

  
	
  3.2

  	
  Procedures; Limits onAllocation of
  Consideration

  	
  15

  
	
  3.3

  	
  Working Capital Adjustment

  	
  16

  
	
  3.4

  	
  Release of Escrowed Cash and Escrowed
  Shares

  	
  17

  
	
  3.5

  	
  Post-Closing Audit

  	
  19

  
	
  3.6

  	
  Accounts Receivable

  	
  20

  
	
  3.7

  	
  Lost, Stolen or Destroyed Certificates

  	
  21

  
	
  3.8

  	
  Closing of Company Transfer Books

  	
  21

  
	
  3.9

  	
  Dissenting Shares

  	
  21

  
	
  3.10

  	
  Allocation of Consideration

  	
  22

  
	
  3.11

  	
  Joinders

  	
  22

  
	
  3.12

  	
  Fractional Shares

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND
  WARRANTIES OF THE COMPANY

  	
  22

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Organization and Good Standing

  	
  22

  
	
  4.2

  	
  Corporate Power; Authority

  	
  23

  
	
  4.3

  	
  Capitalization

  	
  23

  
	
  4.4

  	
  No Conflict

  	
  24

  
	
  4.5

  	
  Financial and Recordkeeping Matters

  	
  25

  
	
  4.6

  	
  Absence of Certain Changes

  	
  25

  
	
  4.7

  	
  Material Contracts

  	
  25

  
	
  4.8

  	
  Intellectual Property Matters

  	
  27

  
	
  4.9

  	
  Litigation

  	
  30

  
	
  4.10

  	
  Compliance with Laws

  	
  30

  
	
  4.11

  	
  Taxes

  	
  31

  
	
  4.12

  	
  Environmental Matters

  	
  33

  
	
  4.13

  	
  Insurance

  	
  33

  
	
  4.14

  	
  Plans

  	
  34

  
	
  4.15

  	
  Labor and Employment Matters

  	
  36

  
	
  4.16

  	
  Property

  	
  37

  
	
  4.17

  	
  Broker, Finder or Advisor Fees

  	
  37

  
	
  4.18

  	
  Related Party Transactions

  	
  37

  

 

i

 

	
  4.19

  	
  Acquisitions

  	
  38

  
	
  4.20

  	
  Securities Law Matters

  	
  38

  
	
  4.21

  	
  Status of Series AA Stock

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE V REPRESENTATIONS AND
  WARRANTIES OF THE PURCHASER AND THE MERGER SUB

  	
  38

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Organization and Good Standing

  	
  38

  
	
  5.2

  	
  Corporate Power and Authority

  	
  39

  
	
  5.3

  	
  No Conflict

  	
  40

  
	
  5.4

  	
  Capitalization

  	
  40

  
	
  5.5

  	
  Purchaser Financial Statements

  	
  42

  
	
  5.6

  	
  Litigation

  	
  42

  
	
  5.7

  	
  Compliance With Laws

  	
  42

  
	
  5.8

  	
  Broker, Finder or Advisor Fees

  	
  42

  
	
  5.9

  	
  Taxes

  	
  42

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI COVENANTS OF THE
  PARTIES

  	
  44

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Conduct of the Company’s Business

  	
  44

  
	
  6.2

  	
  Approvals

  	
  46

  
	
  6.3

  	
  Stockholder Approvals

  	
  46

  
	
  6.4

  	
  Delivery of Information to Stockholders;
  “Blue Sky” Matters.

  	
  47

  
	
  6.5

  	
  No Solicitation

  	
  47

  
	
  6.6

  	
  Access to Information

  	
  48

  
	
  6.7

  	
  Stockholders’ Agent

  	
  48

  
	
  6.8

  	
  Confidentiality

  	
  49

  
	
  6.9

  	
  Publicity

  	
  49

  
	
  6.10

  	
  Expenses

  	
  49

  
	
  6.11

  	
  Other Actions

  	
  50

  
	
  6.12

  	
  Intentionally reserved

  	
  50

  
	
  6.13

  	
  Summary of Consideration

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII CONDITIONS TO THE
  OBLIGATIONS OF THE PURCHASER AND THE MERGER SUB

  	
  50

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Representations and Warranties of the
  Company

  	
  50

  
	
  7.2

  	
  Performance of Covenants

  	
  50

  
	
  7.3

  	
  Stockholder Approvals

  	
  50

  
	
  7.4

  	
  Approvals

  	
  50

  
	
  7.5

  	
  No Legal Obstruction

  	
  51

  
	
  7.6

  	
  Opinion of Counsel

  	
  51

  
	
  7.7

  	
  Intentionally reserved.

  	
  51

  
	
  7.8

  	
  Dissenters’ Rights

  	
  51

  
	
  7.9

  	
  Payment of Company Transaction Costs

  	
  51

  
	
  7.10

  	
  Financing

  	
  51

  
	
  7.11

  	
  Conversion of Existing Series BB
  Shares

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII CONDITIONS TO THE
  OBLIGATIONS OF THE COMPANY

  	
  51

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Representations and Warranties of the
  Purchaser and Merger Sub

  	
  51

  
	
  8.2

  	
  Performance of Covenants

  	
  51

  

 

ii

 

	
  8.3

  	
  Stockholder Approvals

  	
  51

  
	
  8.4

  	
  Approvals

  	
  52

  
	
  8.5

  	
  No Legal Obstruction

  	
  52

  
	
  8.6

  	
  Opinion of Counsel

  	
  52

  
	
  8.7

  	
  Form of Sixth Articles of Amendment and
  Restatement of Purchaser

  	
  52

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX TERMINATION, AMENDMENT &
  WAIVER

  	
  52

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Termination of Agreement

  	
  52

  
	
  9.2

  	
  Effect of Termination

  	
  53

  
	
  9.3

  	
  Amendment

  	
  53

  
	
  9.4

  	
  Extension; Waiver

  	
  53

  
	
   

  	
   

  	
   

  
	
  ARTICLE X INDEMNIFICATION

  	
  54

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  By Purchaser

  	
  54

  
	
  10.2

  	
  By The Company and Company Stockholders

  	
  54

  
	
  10.3

  	
  Waiver of Contribution

  	
  55

  
	
  10.4

  	
  Notice of Claims

  	
  55

  
	
  10.5

  	
  Procedure for Third Party Claims

  	
  55

  
	
  10.6

  	
  Satisfaction of Claims

  	
  57

  
	
  10.7

  	
  Claims Period; Limitations

  	
  58

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI MISCELLANEOUS

  	
  61

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Entire Agreement; Schedules and Exhibits

  	
  61

  
	
  11.2

  	
  Governing Law

  	
  62

  
	
  11.3

  	
  Notices

  	
  62

  
	
  11.4

  	
  Headings

  	
  63

  
	
  11.5

  	
  Severability

  	
  63

  
	
  11.6

  	
  Counterparts

  	
  63

  
	
  11.7

  	
  Assignment; No Third Party Beneficiaries

  	
  63

  
	
  11.8

  	
  Enforcement of Agreement

  	
  63

  
	
  11.9

  	
  Notices of Certain Events

  	
  64

  
	
  11.10

  	
  Conflict of Interest Waiver

  	
  64

  

 

	
  APPENDICES:

  
	
   

  
	
   

  	
  Appendix A

  	
  Company’s Knowledge

  
	
   

  	
  Appendix B

  	
  Purchaser’s Knowledge

  
	
   

  	
  Appendix C

  	
  Form of New Registration Rights
  Agreement

  
	
   

  	
  Appendix D

  	
  Form of Escrow Agreement

  
	
   

  	
  Appendix E

  	
  Form of Certificate of Non-U.S. Real
  Property Interest Status

  
	
   

  	
  Appendix F

  	
  Form of Lost Certificate Affidavit and
  Indemnity Agreement

  
	
   

  	
  Appendix G

  	
  Form of Joinder to New Purchaser
  Stockholders Agreement

  
	
   

  	
  Appendix H

  	
  Form of Joinder to New Registration
  Rights Agreement

  
	
   

  	
  Appendix I

  	
  Company Disclosure Schedule

  
	
   

  	
  Appendix J

  	
  Purchaser Disclosure Schedule

  
	
   

  	
  Appendix K

  	
  Intentionally reserved

  
	
   

  	
  Appendix L

  	
  Intentionally reserved

  
	
   

  	
  Appendix M

  	
  Intentionally reserved

  
	
   

  	
  Appendix N

  	
  Form of Sixth Articles of Amendment
  and Restatement of Purchaser

  

 

iii

 

	
   

  	
  Appendix O

  	
  Merger Consideration Calculation
  Methodology

  
	
   

  	
  Appendix P

  	
  Summary of Consideration

  
	
   

  	
   

  	
   

  
	
  SCHEDULES:

  
	
   

  
	
   

  	
  Schedule 3.10

  	
  Allocation of Consideration

  
	
   

  	
   

  	
   

  
	
  COMPANY DISCLOSURE SCHEDULE

  
	
   

  
	
   

  	
  Section 4.1(a)

  	
  Foreign Jurisdictions

  
	
   

  	
  Section 4.1(b)

  	
  Company’s Subsidiaries

  
	
   

  	
  Section 4.1(d)

  	
  Directors and Officers

  
	
   

  	
  Section 4.3(b)

  	
  Capitalization

  
	
   

  	
  Section 4.4(a)

  	
  Company’s Approvals

  
	
   

  	
  Section 4.5(a)

  	
  Financial Statements

  
	
   

  	
  Section 4.5(b)

  	
  Certain Liabilities

  
	
   

  	
  Section 4.5(c)

  	
  Books and Records

  
	
   

  	
  Section 4.6

  	
  Absence of Changes

  
	
   

  	
  Section 4.7(a)

  	
  Personal Property Leases

  
	
   

  	
  Section 4.7(b)

  	
  Real Property Leases

  
	
   

  	
  Section 4.7(c)

  	
  Material Contracts

  
	
   

  	
  Section 4.7(e)

  	
  Breaches and Defaults

  
	
   

  	
  Section 4.8(a)

  	
  Copyrights, Trademarks and Patents

  
	
   

  	
  Section 4.8(b)

  	
  Inbound License Agreements

  
	
   

  	
  Section 4.8(c)

  	
  Outbound License Agreements

  
	
   

  	
  Section 4.8(d)

  	
  Affiliate License Agreements

  
	
   

  	
  Section 4.8(e)

  	
  Owned Software

  
	
   

  	
  Section 4.8(f)

  	
  Owned Identifiers

  
	
   

  	
  Section 4.8(n)

  	
  Escrow Arrangements

  
	
   

  	
  Section 4.8(o)

  	
  Open Source Materials

  
	
   

  	
  Section 4.8(q)

  	
  Support and Maintenance Obligations

  
	
   

  	
  Section 4.10(b)

  	
  Permits

  
	
   

  	
  Section 4.11(r)

  	
  Foreign Taxing Jurisdictions

  
	
   

  	
  Section 4.13

  	
  Insurance

  
	
   

  	
  Section 4.14(a)

  	
  Plans

  
	
   

  	
  Section 4.14(i)

  	
  Foreign Plans

  
	
   

  	
  Section 4.15(a)

  	
  Employees

  
	
   

  	
  Section 4.15(b)

  	
  Contractors

  
	
   

  	
  Section 4.15(c)

  	
  Personnel Policies

  
	
   

  	
  Section 4.19

  	
  Acquisitions

  
	
   

  	
   

  	
   

  
	
  PURCHASER DISCLOSURE SCHEDULE

  
	
   

  
	
   

  	
  Section 5.1(b)

  	
  Purchaser’s Subsidiaries

  
	
   

  	
  Section 5.3(a)

  	
  Purchaser’s Approvals

  
	
   

  	
  Section 5.4(d)

  	
  Purchaser Equity Plans

  
	
   

  	
  Section 5.4(e)

  	
  Options

  
	
   

  	
  Section 5.4(f)

  	
  Restricted Stock and RSUs

  
	
   

  	
  Section 5.4(g)

  	
  Warrants

  
	
   

  	
  Section 5.5

  	
  Purchaser Financial Statements

  

 

iv

 

AGREEMENT
AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER
(the “Agreement”), dated as of July 31,
2007 (the “Execution Date”), is made between
METASTORM INC., a Maryland corporation (the “Purchaser”),
SOUNDVIEW, INC., a Maryland corporation and a wholly-owned subsidiary of
Purchaser (the “Merger Sub”), and PROFORMA
CORPORATION, a Michigan corporation (the “Company” and,
together with Purchaser and Merger Sub, the “Parties”).

 

WHEREAS, the
Purchaser Board and the Company Board have each (i) determined that it is
fair to and in the best interests of their respective corporations and their
respective stockholders to consummate the business combination transaction
provided for herein, in which the Company will, subject to the terms and
conditions set forth herein, merge with and into the Merger Sub (the “Merger”),
with the Merger Sub as the surviving corporation in the Merger (sometimes
referred to herein as the “Surviving Corporation”),
and (ii) approved, and declared the advisability of, and recommended this
Agreement; and

 

WHEREAS,
contemporaneously with the execution of this Agreement, Ron Pellegrino and
Jerry Huchzermeier (collectively, the “Principal Stockholders”)
are each entering into a Support Agreement with Purchaser, pursuant to which
each of them is agreeing, among other things, to vote shares of Company Common
Stock in favor of the Merger; provided that the terms and conditions of this
Agreement are complied with by the parties.

 

NOW, THEREFORE, in
consideration of the mutual covenants, representations and warranties contained
herein, intending to be legally bound hereby, the Parties agree as follows:

 

ARTICLE I

DEFINITIONS; INTERPRETATION

 

1.1          Definitions.  When used in this Agreement, each of the
following capitalized terms shall have the meaning specified below:

 

(a)           “2007 Financial Statements”
means the unaudited, consolidated, internally prepared, balance
sheet of the Acquired Companies as of June 30, 2007 and the
related consolidated statements of operations, stockholders’ equity and cash
flows of the Acquired Companies for the year then ended.

 

(b)           “Acquired
Companies” means the Company and all of its Subsidiaries.

 

(c)           “Action” means
any action, claim, demand, proceeding, arbitration or suit (whether civil,
criminal, administrative or judicial), or any appeal therefrom.

 

(d)           “Affiliate”
means with respect to any Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person.  For purposes of this
definition, the term “control” or any form thereof includes, with respect to
any Person, the possession directly or indirectly, of the power to direct or
cause the direction of the management policies of such Person through the
ownership of voting securities,

 

 

by contract or otherwise, and,
with respect to natural persons, “Affiliate” shall include members of such
Person’s immediate family.

 

(e)           “Agreement”
means this Agreement and Plan of Merger, including all of the Schedules,
Appendices and Exhibits attached hereto.

 

(f)            “Annual Financial
Statements” means the audited balance sheets of the Company as of June 30,
2006 and 2005 and the related statements of operations, stockholders’ equity
and cash flows for the years then ended, together with the report thereon of
VK.

 

(g)           “Approval” means
any approval, authorization, consent, license, franchise, order, registration
or permit of or by, or filing with, any Person.

 

(h)           “Benchmark Revenue”
means the amount set forth in the “Value” column on Line “C” of Appendix O.

 

(i)            “Benchmark
Working Capital” means Five Hundred Thousand Dollars ($500,000).

 

(j)            “Business”
means, with respect to each Acquired Company, the business of such Acquired
Company individually, and with respect to any or all of the Acquired Companies
together, the business of such Acquired Companies collectively, in each case as
operated by the applicable Acquired Company(ies) prior to the Effective Time.

 

(k)           “Business Day”
means any day other than a Saturday, a Sunday, a legal holiday in the State of
Maryland or the State of Michigan, or a day on which commercial banks in the
State of Maryland or the State of Michigan are permitted or authorized to
close.

 

(l)            “Cash Election Percentage”
means the quotient, expressed as a percentage, obtained by dividing the number
of Cash Election Shares by the Final Share Count.

 

(m)          “Cash Election Share”
means a share of Company Common Stock deemed to be a Cash Election Share
pursuant to Section 3.2(a) or (b)(i).

 

(n)           “Certificate”
means a certificate representing shares of Company Common Stock.

 

(o)           “Collection Deadline” means
the ninetieth (90th) day following the Closing Date.

 

(p)           “Company Board”  means the board of directors of the Company.

 

(q)           “Company Common Stock”
means the common stock, par value $1.00 per share, of the Company.

 

(r)            “Company
Stockholder” means a holder of Company Common Stock.

 

2

 

(s)           “Company Transaction Costs” means the transaction costs and
expenses of the Acquired Companies relating to the Merger, including all legal
and accounting fees, brokerage fees, commissions and finders’ fees payable to
brokers or finders that were employed by any Acquired Company or any of its
agents, officers, directors or employees or agents thereof.

 

(t)            “Company’s
Knowledge” means all facts which are actually known after due
inquiry, in each case, within the scope of their respective responsibilities,
by any of those individuals listed on Appendix A.

 

(u)           “Contractor”
means an individual engaged by any Acquired Company to provide services to an
Acquired Company, or an entity engaged by any Acquired Company to provide
services to an Acquired Company where such entity is owned entirely or
substantially by an individual that actually performs, or is expected to
perform, such services.

 

(v)           “Copyrights”
means all material unregistered copyrights, copyrights registered with any
Government Entity, applications for the foregoing, and the right to sue for
past infringement thereof.

 

(w)          “Damages” means
any loss, Liability, cost or expense (including, without limitation, reasonable
attorneys’ fees, costs and expenses) or damage of any kind or nature
whatsoever.

 

(x)            “Dissenting
Shares” means a share of Company Common Stock held by any Person who
exercises dissenters’ rights pursuant to Section 762 of the MBCA.

 

(y)           “Employee”
means an individual employed on a full-time or part-time basis by any Acquired
Company (including those who are actively employed or on leave, disability or
other absence from employment, and including officers of Acquired Companies).

 

(z)            “Environmental
Laws” means all currently existing Laws relating to pollution or protection
of the environment or human health and safety, including, without limitation,
Laws relating to releases or threatened releases of Hazardous Materials into
the indoor or outdoor environment (including, without limitation, ambient air,
surface water, groundwater, land, surface and subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
release, transport or handling of Hazardous Materials and all Laws with regard
to record keeping, notification, disclosure and reporting requirements
respecting Hazardous Materials, and all Laws relating to endangered or
threatened species of fish, wildlife and plants and the management or use of
natural resources.

 

(aa)         “Equity Round”
means an equity financing by Purchaser, on terms acceptable to Purchaser,
resulting in net proceeds to Purchaser of at least $20,000,000.

 

(bb)         “Escrow Agent”
means any Person designated to act as escrow agent pursuant to the Escrow
Agreement.

 

(cc)         “Escrow Agreement”
means the escrow agreement in substantially the form attached hereto as Appendix
D, among the Purchaser, Stockholders’ Agent and the Escrow Agent, to be
entered into as of the Closing Date, which escrow agreement provides that (a) 

 

3

 

Company Stockholders will vote,
and receive any dividends on, the Escrowed Shares, such that they are treated
as the owners of such shares for income tax purposes; (b) the Escrowed
Cash will be maintained in an interest bearing account; and (c) each
distribution of Escrowed Cash to the Purchaser or any Company Stockholder shall
include the actual amount of interest accrued on such distribution.

 

(dd)         “Escrowed Cash”
means, interchangeably and collectively, the First Tranche of Escrowed Cash and
the Second Tranche of Escrowed Cash.

 

(ee)         “Escrowed Shares”
means, interchangeably and collectively, the First Tranche of Escrowed Shares
and the Second Tranche of Escrowed Shares.

 

(ff)           “Final Share Count”
means the number of shares of Company Common Stock that are issued and
outstanding immediately before the Effective Time.

 

(gg)         “Financial Statements”
means, collectively, the Annual Financial Statements, the 2007 Financial
Statements.

 

(hh)         “First Release Date”
means the date that is the later of five (5) Business Days after (i) the
date on which the Post-Closing Audit has been completed and the results thereof
have been delivered by VK to both the Purchaser and the Stockholders Agent, or (ii) the
Collection Deadline.

 

(ii)           “First Tranche of Escrowed
Cash” means an amount of cash equal to the product obtained by
multiplying (i) five percent (5%) by (ii) the product obtained by
multiplying the number of Cash Election Shares by the Per-Share Cash
Consideration.

 

(jj)           “First Tranche of Escrowed
Shares” means a number of shares of Series AA Stock equal to
the product obtained by multiplying (i) five percent (5%) by (ii) the
product obtained by multiplying the number of Stock Election Shares by the
Per-Share Stock Consideration.

 

(kk)         “GAAP” means
United States generally accepted accounting principles consistently applied.

 

(ll)           “Government Entity”
means any United States federal, state or other governmental, administrative or
regulatory authority, body, agency, court, tribunal or similar entity.

 

(mm)       “Hazardous Materials”
means all substances defined as “Hazardous Substances,” “Oils,” “Pollutants” or
“Contaminants” in the National Oil and Hazardous Substances Pollution
Contingency Plan, 40 C.F.R. § 300.5, toxic mold, or defined as such by, or
regulated as such under, any Environmental Law.

 

(nn)         “Holder” means
a holder of record of shares of Company Common Stock.

 

(oo)         “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, 

 

4

 

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; (d) Software
code signing certificates; and (e) telephone numbers and telephone
directory listings.

 

(pp)         “Inbound License Agreement”
means any License Agreement pursuant to which any Acquired Company is granted
any rights in any Intellectual Property, other than Mass-Market Licenses.

 

(qq)         “Initial Cash
Consideration” means (i)an amount equal to the product obtained by
multiplying the number of Cash Election Shares by the Per-Share Cash
Consideration, (ii)less the Escrowed Cash.

 

(rr)           “Initial Stock
Consideration” means (i)a number of shares of Series AA Stock
equal to the product obtained by multiplying the number of Stock Election
Shares by the Per-Share Stock Consideration, (ii)less the Escrowed Shares.

 

(ss)         “Initial Per-Share Cash
Consideration” means the quotient obtained by dividing the Initial
Cash Consideration by the number of Cash Election Shares.

 

(tt)           “Initial Per-Share Stock
Consideration” means the quotient obtained by dividing the Initial
Stock Consideration by the number of Stock Election Shares.

 

(uu)         “Intellectual
Property” means, interchangeably and collectively as context
requires, the following: (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 Identifiers, to the extent
not otherwise embodied in the foregoing clauses (a)-(e); and (h) all moral
rights and/or rights of attribution and/or integrity in any of the foregoing.

 

(vv)         “July Financial
Statements” means the unaudited, consolidated, internally prepared,
balance sheet of the Acquired Companies as of July 31, 2007 and
the related consolidated statements of operations, stockholders’ equity and
cash flows of the Acquired Companies for the thirteen (13) months then ended.

 

(ww)       “Law” means any
foreign or United States federal, state or local law, statute, rule,
regulation, ordinance, standard, requirement, administrative ruling, order,
judgment, decree or process (including any Environmental Law, securities, stock
exchange, blue sky, banking, privacy, civil rights, employment, labor or
occupational health and safety law or regulation) or administrative
interpretation thereof, any arbitrator’s order, judgment, ruling or process,
any settlement agreement entered or approved by any Government Entity.

 

(xx)          “Liability”
means any debt, liability, commitment or obligation of any kind, character or
nature whatsoever, secured or unsecured, accrued, fixed, absolute, contingent
or otherwise, and whether due or to become due.

 

5

 

(yy)         “License Agreement”
means any agreement (including, without limitation, any outstanding decrees,
orders, judgments, settlement agreements and stipulations) 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.

 

(zz)          “Licensed Intellectual
Property” means Intellectual Property under which any Acquired
Company is granted rights under a License Agreement.

 

(aaa)       “Lien” means any
lien, statutory lien, pledge, mortgage, security interest, charge, encumbrance,
easement, right of way, covenant, claim, restriction, right, option,
conditional sale or other title retention agreement of any kind or nature,
except for (i) statutory liens for current Taxes which are not yet due or
which are within the period during which they may be paid without penalty or
interest; (ii) liens (A) arising in the Ordinary Course, (B) that
do not materially interfere with the operation of the Business, and (C) that
have not been incurred in connection with the purchase of goods or assets or
the borrowing of money or delinquency in the payment or performance of an
obligation, and (iii) liens that are otherwise disclosed in the Company
Disclosure Schedule.

 

(bbb)      “Mass-Market License”
means a License Agreement (a) under which an Acquired Company is granted
any rights in non-customized, commercial off-the-shelf Software made generally
available to the public and that requires recurring fees and royalties in any
year, or a one-time fee or royalty, in an amount less than Ten Thousand Dollars
($10,000); or (b) that is a “shrink-wrap” or “click-wrap” license
agreement and that requires recurring fees and royalties in any year, or a
one-time fee or royalty, in an amount less than Ten Thousand Dollars ($10,000).

 

(ccc)       “Material Adverse Effect”
means, with respect to a Party, any change, effect, circumstance or event that
is, or is reasonably likely to be, (i) materially adverse to the
business,  financial condition, results
of operations, or assets of the Party, taken as a whole, or (ii) materially
adversely affects the ability of the Party to perform its obligations under
this Agreement or timely consummate the transactions contemplated by this
Agreement, in each case which is not caused by (a) the occurrence and
continuance of any disruption of, or adverse change in, the financial, banking
or capital markets since the Execution Date, which does not disproportionately
affect such Party, or (b) compliance with the terms of this
Agreement.

 

(ddd)      “MBCA” means the
Michigan Business Corporation Act.

 

(eee)       “MGCL” means the
Maryland General Corporation Law, as amended.

 

(fff)         “Michigan Department”
means the Michigan Department of Labor & Economic Growth.

 

(ggg)      “New Purchaser
Stockholders Agreement” means the Fifth Amended and Restated
Stockholders Agreement of Purchaser.

 

(hhh)      “New Registration Rights
Agreement” means the Fourth Amended and Restated Registration Rights
Agreement of Purchaser, in substantially the form attached hereto as Appendix
C.

 

6

 

(iii)          “Ordinary Course”
means the ordinary course of the Acquired Companies’  business, consistent with past practice in
nature, scope and magnitude; provided, that (i) the
term “magnitude,” as used in this definition, shall be determined taking into
consideration the Acquired Companies’ overall revenues; and (ii) the
definition of “Ordinary Course” excludes any and all actions requiring any
Approval of the Company Stockholders or the board of directors (or any
committee thereof), manager(s), stockholders, members or partners of any
Acquired Company.

 

(jjj)          “Organizational Documents”
means (i) with respect to a corporation, the corporation’s articles or
certificate of incorporation and by-laws; or (ii) with respect to a
limited liability company, the limited liability company’s articles or
certificate of organization or formation and operating agreement; (iii) with
respect to a partnership, the partnership’s certificate of partnership and
partnership agreement; (iv) with respect to a trust, the trust’s
certificate or declaration of trust and other governing instruments; (v) with
respect to any other form of entity, the documents that are reasonably similar
to the documents described in the preceding clauses (i) through (iv); and (vi) all
amendments and supplements to the foregoing.

 

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

 

(lll)          “Owned Intellectual
Property” means Intellectual Property owned in whole or in part by
any Acquired Company, but does not include any Licensed Intellectual Property.

 

(mmm)    “Owned Software”
means Software included in the Owned Intellectual Property.

 

(nnn)      “Patents” means
all patents, industrial designs and invention disclosures, 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.

 

(ooo)      “Per-Share Cash
Consideration” means the amount of cash set forth on line “M” of Appendix
O.

 

(ppp)      “Per-Share Stock
Consideration” means the number of shares of Series AA Stock
set forth on line “L” of Appendix O.

 

(qqq)      “Permits” means
licenses, permits (including environmental, construction and operation
permits), governmental franchises, registrations, certificates, approvals,
exemptions, classifications, registrations and other similar documents, rights
and authorizations issued by any Government Entity, other than any patents,
copyrights and trademarks.

 

(rrr)         “Person” means
any individual, partnership, corporation, limited liability company,
association, business trust, joint venture, governmental entity, business
entity or other entity of any kind or nature, including any business unit of
such Person.

 

(sss)       “Purchaser Board”  means the board of directors of Purchaser.

 

(ttt)         “Purchaser
Companies” means Purchaser and all of its Subsidiaries.

 

7

 

(uuu)      “Purchaser Financial
Statements” means the audited consolidated balance sheets and the
related audited consolidated statements of income, cash flows and stockholders’
equity of the Purchaser Companies as of and for the twelve (12) month periods
ended December 31, 2004, 2005 and 2006, together with the report thereon
of (x) Ernst & Young LLP, independent public accountants, with
respect to 2004 and 2005, and (y) Grant Thornton LLP, independent public
accountants, with respect to 2006.

 

(vvv)      “Purchaser Stockholders
Agreement” means the Fourth Amended and Restated Stockholders
Agreement of Purchaser, dated as of October 5, 2005.

 

(www)    “Purchaser’s Knowledge”
means all facts which are actually known or, within the scope of their
respective responsibilities, reasonably should have been known, by any of those
individuals listed on Appendix B.

 

(xxx)        “Related Software” means  any Software other than Owned Software that, in the
Ordinary Course, any Acquired Company has incorporated into, redistributes
with, or has used to develop, any Software licensed under any Outbound License
Agreement.

 

(yyy)      “Representatives”
means with respect to any Person, its stockholders, employees, officers,
directors, investment bankers, attorneys, agents, representatives or
Affiliates.

 

(zzz)        “SDAT” means the
Maryland State Department of Assessments and Taxation.

 

(aaaa)     “Second Release Date”
means the date that is twelve (12) months after the Closing Date.

 

(bbbb)    “Second Tranche of
Escrowed Cash” means an amount of cash equal to the product obtained
by multiplying (i) ten percent (10%) by (ii) the product obtained by
multiplying the number of Cash Election Shares by the Per-Share Cash
Consideration.

 

(cccc)     “Second Tranche of
Escrowed Shares” means a number of shares of Series AA Stock
equal to the product obtained by multiplying (i) ten percent (10%) by (ii) the
product obtained by multiplying the number of Stock Election Shares by the
Per-Share Stock Consideration.

 

(dddd)    “Series AA Stock”
means Series AA Convertible Preferred Stock, par value $0.01 per share, of
Purchaser.

 

(eeee)     “Share Value”
means the number set forth on line “N” of Appendix O.

 

(ffff)        “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.

 

8

 

(gggg)    “Source Code”
means the source code for Owned Software.

 

(hhhh)    “Stock Election Percentage”
means the quotient, expressed as a percentage, obtained by dividing
the number of Stock Election Shares by the Final Share Count.

 

(iiii)         “Stock Election Share”
means a share of Company Common Stock deemed to be a Stock Election Share
pursuant to Section 3.2(b)(ii).

 

(jjjj)         “Stockholder Cash
Percentage” means, with respect to each Company Stockholder, the
number, expressed as a percentage, equal to (x) the number of shares of
Company Common Stock owned by the Company Stockholder that are Cash Election
Shares, divided by (y) the total number of Cash Election Shares.

 

(kkkk)     “Stockholder Stock
Percentage” means, with respect to each Company Stockholder, the
number, expressed as a percentage, equal to (x) the number of shares of
Company Common Stock owned by the Company Stockholder that are Stock Election
Shares, divided by (y) the total number of Stock Election Shares.

 

(llll)         “Subsidiary”
when used with respect to any Person means any other Person, whether
incorporated or unincorporated, of which (a) more than fifty percent of
the securities or other ownership interests or (b) securities or other
interests having by their terms ordinary voting power to elect more than fifty
percent of the board of directors or others performing similar functions with
respect to such corporation or other organization, is directly owned or
controlled by such Person or by any one or more of its Subsidiaries.

 

(mmmm) “Tax” means any foreign or United States federal, state or
local taxes or other like charges and assessments imposed by any Governmental
Entity, including any income, gross receipts, license, severance, occupation,
premium, environmental, customs, duties, profits, disability, registration,
alternative or add-on minimum, estimated, withholding, payroll, employment,
unemployment insurance, social security (or similar), excise, sales, use,
value-added, occupancy, franchise, real property, personal property, business
and occupation, windfall profits, capital stock, stamp, transfer, workmen’s
compensation or other tax, fee or imposition of any kind whatsoever, including
any interest, penalties, additions, assessments or deferred liability with
respect thereto, whether disputed or not.

 

(nnnn)    “Tax Return”
means any foreign or United States federal, state or, local return,
declaration, report, claim for refund, amended return, declaration of estimated
Tax or information return or statement relating to Taxes, and any Schedule,
exhibit, attachment or other materials submitted with any of the foregoing, and
any amendment thereto.

 

(oooo)    “Third Party Software”
means Software not owned by any Acquired Company.

 

(pppp)    “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.

 

9

 

(qqqq)    “Trade Secrets”
means any and all forms and types of technology, trade secrets and other
confidential information, know-how, customer lists, prospect lists, business
plans, inventions, proprietary processes, formulae, algorithms, models and
methodologies, in each case that meets the requirements for protection as a
trade secret under the Uniform Trade Secrets Act.

 

(rrrr)        “VK” means  Virchow, Krause & Company, LLP, independent public
accountants.

 

(ssss)     “Wire” means a
wire transfer of immediately available funds to a bank account in the United
States specified in advance by the recipient of such wire transfer.

 

(tttt)        “Working Capital”
means, as of a given date, the total amount of the Acquired Companies’ current
assets, less the total amount of the Acquired Companies’ current liabilities.

 

1.2          Terms Defined
Elsewhere.  In addition to the terms defined in Section 1.1,
certain other terms are defined elsewhere in this Agreement, and, whenever such
terms are used in this Agreement, they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires.  For convenience, the table
below sets forth the sections in which such terms are defined:

 

	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Accredited Holder

  	
   

  	
  3.2(b)

  
	
  Alternative Transaction

  	
   

  	
  6.5(a)

  
	
  Audited Revenue Number

  	
   

  	
  3.5

  
	
  Audits

  	
   

  	
  4.11(e)

  
	
  Cash Consideration

  	
   

  	
  3.1(b)(i)(B)

  
	
  Cash Portion of Final Loss

  	
   

  	
  10.6(a)(i)

  
	
  Claim Notice

  	
   

  	
  10.4

  
	
  Claims Period

  	
   

  	
  10.7(b)

  
	
  Closing

  	
   

  	
  2.4

  
	
  Closing Date

  	
   

  	
  2.4

  
	
  Code

  	
   

  	
  4.11(b)

  
	
  Company Disclosure Schedule

  	
   

  	
  ARTICLE IV

  
	
  Company Insurance Policies

  	
   

  	
  4.13(a)

  
	
  Company Stockholder Approval

  	
   

  	
  6.3(a)

  
	
  Company Stockholder Meeting

  	
   

  	
  6.3(a)

  
	
  Confidentiality Agreement

  	
   

  	
  6.8

  
	
  Document Period

  	
   

  	
  10.9

  
	
  Documents

  	
   

  	
  10.9

  
	
  Effective Time

  	
   

  	
  2.2

  
	
  ERISA

  	
   

  	
  4.14(a)

  
	
  ERISA Affiliate

  	
   

  	
  4.14(a)

  
	
  Estimated Closing Date Balance Sheet

  	
   

  	
  3.3(a)

  
	
  Facility

  	
   

  	
  4.12(a)

  
	
  Final Losses

  	
   

  	
  10.5(e)

  
	
  Final Balance Sheet

  	
   

  	
  3.3(e)

  
	
  Final Working Capital

  	
   

  	
  3.3(e)

  

 

10

 

	
  Honigman

  	
   

  	
  11.10

  
	
  Investor Questionnaire

  	
   

  	
  6.4(c)

  
	
  July Audit

  	
   

  	
  3.5(a)

  
	
  Leased Real Property

  	
   

  	
  4.7(b)

  
	
  Maryland Articles

  	
   

  	
  2.2

  
	
  Material Contracts

  	
   

  	
  4.7(c)

  
	
  Merger

  	
   

  	
  Recitals

  
	
  Merger Consideration

  	
   

  	
  3.1(b)

  
	
  Michigan Certificate

  	
   

  	
  2.2

  
	
  Negative Revenue Adjustment Cash

  	
   

  	
  3.5(b)(ii)(A)

  
	
  Negative Revenue Adjustment Shares

  	
   

  	
  3.5(b)(ii)(B)

  
	
  Negative Working Capital Adjustment

  	
   

  	
  3.3(e)

  
	
  Negative Working Capital Adjustment Cash

  	
   

  	
  3.3(e)

  
	
  Negative Working Capital Adjustment Shares

  	
   

  	
  3.3(e)

  
	
  Non-Accredited Holder

  	
   

  	
  3.2(a)

  
	
  Open Source Materials

  	
   

  	
  4.8(o)

  
	
  Personal Property Leases

  	
   

  	
  4.7(a)

  
	
  Plans

  	
   

  	
  4.14(a)

  
	
  Positive Revenue Adjustment Cash

  	
   

  	
  3.5(b)(iii)(A)

  
	
  Positive Revenue Adjustment Shares

  	
   

  	
  3.5(b)(iii)(B)

  
	
  Positive Working Capital Adjustment

  	
   

  	
  3.3(g)

  
	
  Post-Closing Audit

  	
   

  	
  3.5(a)

  
	
  Potential Acquirer

  	
   

  	
  6.5(b)

  
	
  Principal Stockholders

  	
   

  	
  Recitals

  
	
  Proxy Materials

  	
   

  	
  6.4(a)

  
	
  Purchaser Claims Period

  	
   

  	
  10.7(b)

  
	
  Purchaser Disclosure Schedule

  	
   

  	
  ARTICLE V

  
	
  Purchaser Equity Plans

  	
   

  	
  5.4(d)

  
	
  Purchaser Party

  	
   

  	
  10.2

  
	
  Purchaser Stockholder Approval

  	
   

  	
  6.3(b)

  
	
  Real Property Leases

  	
   

  	
  4.7(b)

  
	
  Retained Account

  	
   

  	
  3.3(f)(i)

  
	
  Revenue Procedures

  	
   

  	
  3.5(a)

  
	
  Revised Appendix O

  	
   

  	
  3.5(b)(i)(B)

  
	
  Revised Per-Share Cash Consideration

  	
   

  	
  3.5(b)(i)(B)

  
	
  Revised Per-Share Stock Consideration

  	
   

  	
  3.5(b)(i)(B)

  
	
  RSU

  	
   

  	
  5.4(f)

  
	
  Stock Consideration

  	
   

  	
  3.1(b)(ii)(B)

  
	
  Stock Portion of Final Loss

  	
   

  	
  10.6(a)(ii)

  
	
  Stockholder Claims Period

  	
   

  	
  10.7(a)

  
	
  Stockholder Party

  	
   

  	
  10.1

  
	
  Stockholders’ Agent

  	
   

  	
  6.7(a)

  
	
  Surviving Corporation

  	
   

  	
  Recitals

  
	
  Tangible Assets

  	
   

  	
  4.16(b)

  
	
  Third Party Action

  	
   

  	
  10.5(a)

  
	
  Third Party Indemnity Amount

  	
   

  	
  10.5(b)

  

 

11

 

	
  Threshold Amount

  	
   

  	
  10.7(e)(i)

  
	
  TPA Notice

  	
   

  	
  10.5(a)

  
	
  Treasury Regulations

  	
   

  	
  4.11(g)

  
	
  Uncollected Account

  	
   

  	
  3.3(e)

  

 

1.3          Interpretation.  The terms “hereof,” “herein” and “hereunder”
and terms of similar import are references to this Agreement as a whole and not
to any particular provision of this Agreement. 
The term “including” as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term
or provision contained herein.  As used
in this Agreement, unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, and words denoting any
gender shall include all genders and vice versa.  Article, Section, Appendix, clause and
Schedule references contained in this Agreement are references to Articles,
Sections, Appendix, clauses and Schedules in or to this Agreement, unless
otherwise specified.  All accounting
terms not specifically defined in this Agreement shall be construed in
accordance with GAAP.  Information
disclosed in any section of the Company Disclosure Schedule or the Purchaser
Disclosure Schedule will be deemed disclosed for purposes of all sections of
such Disclosure Schedules; but only to the extent the applicability of such
information to other sections of such Disclosure Schedules is reasonably
apparent.

 

ARTICLE II

THE MERGER AND THE CLOSING

 

2.1          The Merger.  Subject to the terms and conditions of this
Agreement, and in accordance with the MGCL and the MBCA, at the Effective Time,
the Company shall be merged with and into the Merger Sub.  The Parties intend that the Merger will
constitute and qualify as a reorganization within the meaning of Section 368
of the Code.  None of the Parties shall
file any Tax Return in a manner inconsistent with such intention.

 

2.2          Effective Time.
The Merger shall become effective at such time as is agreed upon by the Parties
(the “Effective
Time”) and set forth in each of the articles of merger filed
with SDAT in accordance with the MGCL (the “Maryland Articles”)
and the certificate of merger filed with the Michigan Department in accordance
with the MBCA (the “Michigan Certificate”).

 

2.3          Effects of the
Merger.  At the Effective Time, (a) the Merger
shall have the effects set forth in Section 724 of the MBCA and Section 3-114
of the MGCL; and (b) the by-laws of Merger Sub in effect immediately prior
to the Effective Time shall be the by-laws of the Surviving Corporation unless
and until amended as provided by Law and such by-laws.

 

2.4          The Closing.  Subject to the satisfaction or waiver of the
conditions set forth in Articles VII and VIII, the closing of the
Merger (the “Closing”) shall take place at
10:00 a.m., Baltimore, Maryland time, on a date (the “Closing
Date”) and at a place specified by the Parties, which date shall be
no later than ten (10) Business Days after the satisfaction or waiver of
all the conditions in Articles VII and VIII (excluding conditions
that, by their terms, are to be satisfied on the Closing Date), unless extended
by the mutual written agreement of the Parties. 
At the Closing:

 

12

 

(a)           the Purchaser shall deliver:

 

(i)                                     to
each Company Stockholder listed on Appendix P, by check or Wire (at the
election of each Company Stockholder), the amount of Initial Cash Consideration
set forth opposite such Company Stockholder’s name on Appendix P;

 

(ii)                                  to
the Stockholders’ Agent, the Initial Stock Consideration, for further
distribution to the Company Stockholders in accordance herewith; and

 

(iii)                               to
the Stockholders’ Agent, a certificate signed by the President of Purchaser as
to the satisfaction of the conditions in Sections 8.1 and 8.2;

 

(iv)                              to
the Stockholders’ Agent, a copy of the Organizational Documents of Purchaser,
certified by the Secretary of Purchaser;

 

(v)                                 to
the Stockholders’ Agent a copy of the Organizational Documents of Merger Sub,
certified by the Secretary of Merger Sub;

 

(vi)                              to
the Stockholders’ Agent, a copy of all resolutions of the Purchaser Board and
Purchaser’s stockholders related to the Merger, certified by the Secretary of
Purchaser;

 

(vii)                           to
the Stockholders’ Agent, a copy of all resolutions of the board of directors of
Merger Sub and the sole stockholder of Merger Sub related to the Merger,
certified by the Secretary of Merger Sub;

 

(viii)                        to
the Stockholders’ Agent, a good standing certificate issued by SDAT with respect
to each of Purchaser and Merger Sub no more than five (5) days prior to
the Closing Date;

 

(ix)                                to
the Stockholders’ Agent and the Escrow Agent, the Escrow Agreement duly
executed by the Purchaser;

 

(x)                                   to
the Stockholders’ Agent, a copy of the New Registration Rights Agreement, as
duly executed by the Purchaser;

 

(b)           the Company shall execute (as
applicable) and deliver to the Purchaser:

 

(i)                                     all
Certificates and lost Certificate affidavits tendered by Company Stockholders;

 

(ii)                                  a
certificate signed by the President of the Company as to the satisfaction of
the conditions in Sections 7.1 and 7.2;

 

(iii)                               a
Certificate of Non-United States Real Property Interest Status in the form
attached hereto as Appendix E;

 

13

 

(iv)                              copies
of the Organizational Documents of each Acquired Company, in each case
certified by the Secretary of such Acquired Company;

 

(v)                                 copies
of all resolutions of the Company Board and the Company Stockholders related to
the Merger, certified by the Secretary of the Company;

 

(vi)                              good
standing certificates issued by the Michigan Department and the applicable
Government Entity in each jurisdiction listed in Section 4.1(a) of
the Company Disclosure Schedule with respect to the Company no more than five (5) days
prior to the Closing Date; and

 

(vii)                           a
good standing certificate issued by the applicable Government Entity in each
jurisdiction listed in Section 4.1(b) of the Company Disclosure
Schedule with respect to Acquired Companies other than the Company no more than
five (5) days prior to the Closing Date;

 

(viii)                        the
Escrow Agreement duly executed by the Company; and

 

(ix)                                a
complete and accurate aging report listing all Company Receivables as of the
Closing Date;

 

(c)           the Purchaser will deliver to the
Escrow Agent:

 

(i)                                     by
Wire, the Escrowed Cash; and

 

(ii)                                  the
Escrowed Shares; and

 

(d)           the Company will deliver to the
Escrow Agent, for each Company Stockholder receiving Stock Consideration, five (5) assignments
of stock separate from certificate, each executed in blank.

 

ARTICLE III

MERGER
CONSIDERATION

 

3.1          Conversion of
Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the
Purchaser, the Merger Sub, the Company or any holder of any of the following securities:

 

(a)           each share of common stock, no par
value per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding and shall not be affected by
the Merger;

 

(b)           each share of Company Common Stock
(other than Dissenting Shares) issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive, without interest
(collectively, the “Merger Consideration”):

 

(i)                                     for
each Cash Election Share:

 

14

 

(A)                              the Initial Per-Share
Cash Consideration; and

 

(B)                                a pro rata portion of
the remaining Escrowed Cash, if any, at the time of its distribution pursuant
to the Escrow Agreement (the consideration described in the preceding clauses
(A)-(B) is called the “Cash Consideration”).

 

(ii)                                  subject
to Section 3.11, for each Stock Election Share:

 

(A)                              the Initial Per-Share
Stock Consideration;

 

(B)                                a pro rata portion of
the remaining Escrowed Shares, if any, at the time of their distribution
pursuant to the Escrow Agreement (the consideration described in the preceding
clauses (A)-(B) is called the “Stock Consideration”);
and

 

(c)           each Company Stockholder, upon
surrender to the Purchaser of one or more Certificates in valid form (or, if
applicable, a Lost Certificate Affidavit and Indemnity Agreement), with all
required stock transfer tax stamps affixed, shall be entitled to receive the
consideration set forth in Section 3.1(b) in respect of the
shares of Company Common Stock represented by such Certificates; provided, that until so surrendered, each such Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such consideration as set forth in Section 3.1(b) or
to receive payment for Dissenting Shares in accordance with Section 762 of
the MBCA.

 

3.2          Procedures;
Limits onAllocation of Consideration.

 

(a)           Notwithstanding anything herein to
the contrary, all shares of Company Common Stock owned by any Holder described
in either of the following clauses (i) or (ii) (each, a “Non-Accredited Holder”) shall be deemed to be Cash Election
Shares:

 

(i)                                     any
Holder who delivers an Investor Questionnaire to the Company and, based on such
Investor Questionnaire, the Purchaser determines that such Holder is not an
accredited investor (as defined in Rule 501 under the Securities Act of
1933, as amended); or

 

(ii)                                  any
Holder who fails to deliver an Investor Questionnaire prior to the Closing
Date.

 

(b)           With respect to the shares of Company
Common Stock owned each Holder who is not a Non-Accredited Holder (each, an “Accredited Holder”):

 

(i)                                     57.2353%
of such Accredited Holder’s shares of Company Common Stock shall be deemed to
be Cash Election Shares; and

 

(ii)                                  the
remainder of such Accredited Holder’s shares of Company Common Stock shall be
deemed to be Stock Election Shares.

 

15

 

(c)           For avoidance of doubt:

 

(i)            the aggregate amount of
Initial Cash Consideration and Escrowed Cash to be paid by Purchaser hereunder
shall not exceed Twenty-Five Million Thirteen Dollars ($25,000,013); and

 

(ii)           the aggregate amount of
Initial Stock Consideration and Escrowed Shares to be paid by Purchaser
hereunder shall not exceed ten million two hundred forty-two thousand
thirty-two (10,242,032) shares of Series AA Stock.

 

3.3          Working Capital Adjustment. (a) Within
five (5) Business Days after the Closing Date, the Stockholders’ Agent
shall deliver to the Purchaser (i) a consolidated balance sheet of the
Acquired Companies, prepared in accordance with GAAP applied on a basis
consistent with the preparation of the Annual Financial Statements and 2007 Financial
Statements and using assumptions and estimates which are consistent with those
used in the preparation of the Annual Financial Statements and 2007 Financial
Statements, as of 11:59 p.m. on  the
Closing Date (the “Estimated Closing Date
Balance Sheet”); and (ii) written certification of the
Stockholders’ Agent that the Estimated Closing Date Balance Sheet, to the
Company’s Knowledge, fairly presents in all material respects the financial
position of the Acquired Companies as of the date of such balance sheet.

 

(b)           Intentionally reserved.

 

(c)           Intentionally reserved.

 

(d)           Intentionally reserved:

 

(e)           The balance sheet included
in the July Financial Statements, as audited by VK pursuant to the July Audit
is herein called the “Final Balance Sheet”.  The amount of Working Capital, determined
based on the Final Balance Sheet, less the amount of all accounts receivable
that were reflected on the balance sheet included in the July Financial
Statements but not collected by the Collection Deadline (each, an “Uncollected Account”), is herein called the “Final Working Capital”.

 

(f)            If the Final Working Capital
is less than the Benchmark Working Capital,

 

(i)            Purchaser may, within five (5) Business
Days after the Final Balance Sheet is delivered by VK, deliver to the
Stockholders’ Agent a written notice setting forth a list of Uncollected
Accounts, if any, that Purchaser will not transfer back to the Company
Stockholders (each, a “Retained Account”);

 

(ii)           the consideration payable
hereunder shall be adjusted to account for the amount of the difference between
(x) the Final Working Capital plus the aggregate dollar amount of Retained
Accounts, less (y) the Benchmark Working Capital (a “Negative
Working Capital Adjustment”) as follows:

 

16

 

(A)          the Purchaser shall be paid,
out of the First Tranche of Escrowed Cash, an amount equal to the Negative
Working Capital Adjustment multiplied by the Cash Election Percentage (“Negative Working Capital Adjustment Cash”), and such amount
of the First Tranche of Escrowed Cash shall be deemed to have been fully and
forever forfeited by the Company Stockholders; and

 

(B)           the Company Stockholders
shall be deemed to have fully and forever forfeited the right to receive the
portion of the First Tranche of Escrowed Shares (“Negative
Working Capital Adjustment Shares”) equal to (x) the Negative
Working Capital Adjustment multiplied by the Stock Election Percentage divided
by (y) the Share Value; and

 

(iii)          contemporaneously with the
release of cash and stock from escrow pursuant to the preceding clause (ii),
Purchaser shall transfer to the Stockholder’s Agent on behalf of the Company
Stockholders each Uncollected Account that is not a Retained Account.

 

(g)           If the sum of the Final
Working Capital plus the Retained Accounts is greater than the Benchmark
Working Capital (such excess a “Positive Working Capital
Adjustment”), (i) the Purchaser shall deliver to the
Stockholders’ Agent cash in the amount of the Positive Working Capital
Adjustment by Wire, as an adjustment of the consideration payable hereunder,
for further distribution to each Company Stockholder (pro rata based upon the
number of shares of Company Common Stock held by each on the Closing Date) and
(ii), Purchaser shall transfer to the Stockholders’ Agent on behalf of the
Company Stockholders each Uncollected Account that is not a Retained
Account.  Notwithstanding the foregoing,
in the event the transfer of cash to the Stockholder’s Agent under clause (i) above
would cause the amount of cash consideration payable hereunder to exceed 59.95%
of the aggregate consideration payable hereunder, the amount of cash so paid
will be reduced by the amount necessary to cause the amount of cash
consideration payable hereunder to be equal to 59.95% of the aggregate
consideration payable hereunder, and the Purchaser will issue to the
Stockholders’ Agent for further distribution to the Company Stockholders (pro
rata based upon the number of shares of Company Common Stock held by each on
the Closing Date) a number of shares of Series AA Stock equal to the
result obtained by dividing the amount of the reduction in the cash payment
made as a result of the application of this sentence by the Share Value.

 

3.4          Release of Escrowed Cash and Escrowed
Shares.

 

(a)           On the First Release Date:

 

(i)            The Purchaser and the
Stockholders’ Agent shall instruct the Escrow Agent to pay to the Stockholders’
Agent out of the First Tranche of Escrowed Cash (and out of the Second Tranche
of Escrowed Cash, if the First Tranche of Escrowed Cash would be insufficient),
for further distribution to the Company Stockholders in accordance with their

 

17

 

respective Stockholder Cash
Percentages, an amount equal to the First Tranche of Escrowed Cash, less:

 

(A)          the Negative Working Capital
Adjustment Cash, if any; and

 

(B)           the Negative Revenue
Adjustment Cash, if any; and

 

(ii)           The Purchaser and the
Stockholders’ Agent shall instruct the Escrow Agent to deliver to the
Stockholders’ Agent out of the First Tranche of Escrowed Shares (and out of the
Second Tranche of Escrowed Shares, if the First Tranche of Escrowed Shares
would be insufficient), for further distribution to the Company Stockholders in
accordance with their respective Stockholder Stock Percentages, a number of
shares  amount equal to the number of
First Tranche of Escrowed Shares (together with the associated assignments
separate from certificate deposited with the Escrow Agent), less:

 

(A)          the Negative Working Capital
Adjustment Shares, if any; and

 

(iii)          the Negative Revenue
Adjustment Shares, if any.

 

(b)           On the Second Release Date:

 

(i)            The Purchaser and the
Stockholders’ Agent shall instruct the Escrow Agent to pay to the Stockholders’
Agent out of the Second Tranche of Escrowed Cash, for further distribution to
the Company Stockholders in accordance with their respective Stockholder Cash
Percentages, an amount equal to the Second Tranche of Escrowed Cash, less:

 

(A)          the aggregate of all Cash
Portions of Final Losses; and

 

(B)           all amounts that are the
subject of unresolved indemnity claims asserted prior to the Second Release
Date pursuant to and in compliance with ARTICLE X, multiplied by the
Cash Election Percentage.

 

(ii)           The Purchaser and the
Stockholders’ Agent shall instruct the Escrow Agent to deliver to the
Stockholders’ Agent out of the Second Tranche of Escrowed Shares, for further
distribution to the Company Stockholders in accordance with their respective
Stockholder Stock Percentages, a number of shares  amount equal to the number of Second Tranche
of Escrowed Shares together with the associated assignments separate from
certificate deposited with the Escrow Agent, less:

 

(A)          the aggregate of all Stock
Portions of Final Losses; and

 

(B)           the aggregate of all amounts
that are the subject of unresolved indemnity claims asserted prior to the
Second Release Date

 

18

 

pursuant to and in
compliance with ARTICLE X, multiplied by the Stock Election Percentage,
divided by the Share Value.

 

3.5          Post-Closing Audit.  (a) The Purchaser shall use best efforts
to engage VK within seven (7) Business Days following the Closing Date to (i) perform
agreed-upon procedures, as requested by Purchaser, with respect to the Company’s
revenue as reflected in the 2007 Financial Statements (the “Revenue
Procedures”), and (ii) audit the July Financial Statements
(the “July Audit” and, together with
the Revenue Procedures, the “Post-Closing Audit”).  Purchaser shall use best efforts to cause VK
to complete the Post-Closing Audit and deliver the results thereof to Purchaser
and the Stockholders’ Agent no later than one hundred twenty (120) days after
the Closing Date.

 

(b)           If the Company’s revenue for
the twelve (12) month period ending June 30, 2007, as determined pursuant
to the Revenue Procedures (the “Audited Revenue Number”),
is more than one percent (1%) less, or more than one percent (1%) greater, than
the Benchmark Revenue:

 

(i)            Appendix O shall be
deemed to be amended by:

 

(A)          deleting the number in the “Value”
column of Line “B” and inserting in lieu thereof the lesser of (x) the
Audited Revenue Number or (y) Twenty Million Dollars ($20,000,000) and

 

(B)           recalculating the numbers in
the “Value” column of the other line items of Appendix O to reflect the
effect of changing Line “B” pursuant to the preceding clause (A) (Appendix
O, as amended pursuant to this Section 3.5(b)(i), is called “Revised Appendix O” and the Per-Share Cash Consideration,
as set forth on Revised Appendix O, is called the “Revised
Per-Share Cash Consideration” and the Per-Share Stock Consideration,
as set forth on Revised Appendix O, is called the “Revised
Per-Share Stock Consideration”);

 

(ii)           if the Audited Revenue
Number is more than one percent (1%) less than the Benchmark Revenue, the
consideration payable hereunder shall be adjusted as follows:

 

(A)          the Purchaser shall be paid,
out of the First Tranche of Escrowed Cash, an amount of cash (“Negative Revenue Adjustment Cash”) equal to the product
obtained by multiplying (A) the number of Cash Election Shares, by (B) the
difference obtained by subtracting (x) the Revised Per-Share Cash
Consideration from (y) the Per-Share Cash Consideration, and such amount
of the First Tranche of Escrowed Cash shall be deemed to have been fully and
forever forfeited by the Company Stockholders; and

 

(B)           the Company Stockholders
shall be deemed to have fully and forever forfeited the right to receive the
portion of the First Tranche of Escrowed Shares (“Negative
Revenue Adjustment

 

19

 

Shares”) equal to the
product obtained by multiplying (A) the number of Stock Election Shares,
by (B) the difference obtained by subtracting (x) the Revised
Per-Share Stock Consideration from (y) the Per-Share Stock Consideration;
and

 

(iii)          if the Audited Revenue
Number is more than one percent (1%) greater than the Benchmark Revenue, within
five (5) Business Days after the VK issues its final report with respect
to the Revenue Procedures, in order to adjust the consideration payable
hereunder, the Purchaser shall deliver to the Stockholders’ Agent:

 

(A)          by Wire, for further
distribution to each Company Stockholder who made a Cash Election (pro rata,
based on the amount of Initial Cash Consideration that was payable to each of
them), an amount of cash (“Positive Revenue
Adjustment Cash”) equal to the product obtained by multiplying (A) the
number of Cash Election Shares, by (B) the difference obtained by
subtracting (x) the Per-Share Cash Consideration from (y) the Revised
Per-Share Cash Consideration; and

 

(B)           for further distribution to
each Company Stockholder who made a Stock Election (pro rata, based on the
amount of Initial Stock Consideration that was payable to each of them), a
number of shares of Series AA Preferred Stock (“Positive
Revenue Adjustment Shares”) equal to (A) the number of Stock
Election Shares, by (B) the difference obtained by subtracting (x) the
Per-Share Stock Consideration from (y) the Revised Per-Share Stock
Consideration.

 

(c)           The cost of the Post-Closing
Audit will be paid as follows:

 

(i)            the Company Stockholders
shall bear the portion of the cost of the Post-Closing Audit that is directly
related to the Revenue Procedures;

 

(ii)           the cost of the Post-Closing
Audit in excess of the amount described in the preceding clause (i) shall
be borne twenty-five percent (25%) by the Company Stockholders and seventy-five
percent (75%) by Purchaser; and

 

(iii)          the portions of the costs of
the Post-Closing Audit that are payable by the Company Stockholders may be paid
out of the Escrowed Cash or set off against Positive Revenue Adjustment Cash,
if any.

 

3.6          Accounts Receivable.  After the Effective Time, Purchaser shall
control the collection of all accounts receivable of the Acquired Companies
that are outstanding as of the Effective Time, and shall attempt to collect
such accounts receivable using the same degree of effort it uses to collect its
own accounts receivable; provided in no event shall it use less than
commercially reasonable efforts to collect such accounts receivable. After the
determination of the Final Balance Sheet, as between the Company Stockholders
and the Purchaser, (x) the Company

 

20

 

Stockholders (through the
Stockholders’ Agent) shall control the collection of Uncollected Accounts that
are not Retained Accounts, and (y) all Retained Accounts shall remain the
property of the Surviving Corporation and, for avoidance of doubt, the
Purchaser shall control the collection thereof. 
In the event the Purchaser or Merger Sub receive any payments whatsoever
with respect to, or from any of the Persons which are an account debtor or
other obligor under, or guarantor of (irrespective of how such account debtor,
obligor or guarantor classifies such payments), any of the Uncollected Accounts
which are not Retained Accounts, the Purchaser and/or Merger Sub shall, as
promptly as practicable (but in no event less than ten (10) Business Days
after receipt by Purchaser and/or Merger Sub), remit such payments to
Stockholders’ Agent.

 

3.7          Lost, Stolen or Destroyed Certificates.  If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Purchaser, an indemnity agreement against any claim that may be made
against it with respect to such Certificate (each in the respective form
attached hereto as Appendix F, the Surviving Corporation will pay to the
holder of such lost, stolen or destroyed Certificate, in exchange for the
shares of Company Common Stock represented thereby, the applicable
consideration set forth in Section 3.1(b).

 

3.8          Closing of Company Transfer Books.  At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of shares of Company
Common Stock shall thereafter be made. If, after the Effective Time,
Certificates (other than Certificates representing Dissenting Shares) are
presented to the Surviving Corporation, they shall be cancelled and, as
applicable, exchanged for Merger Consideration.

 

3.9          Dissenting Shares. (a) Notwithstanding
anything to the contrary contained in this Agreement, to the extent that the
provisions of Section 762 of the MBCA are applicable to the Merger, any
shares of Company Common Stock that, as of the Effective Time are or may
entitle the holder thereof to appraisal rights under Section 762 of the
MBCA shall not be converted into or represent the right to receive a portion of
the Merger Consideration, and the holder or holders of such shares shall be
entitled only to such rights as may be granted to such holder or holders to
receive payment of the appraised value of such shares in accordance with the
provisions of Section 762 of the MBCA; provided, however,
that if the status of any such shares as shares carrying appraisal rights shall
not be perfected, or if any such shares shall lose their status as shares
carrying appraisal rights, then as of the later of the Effective Time or the
time of the failure to perfect such status or the loss of such status, such
shares shall automatically be converted into and shall represent only the right
to receive the per-share Merger Consideration applicable to such shares of
Company Common Stock in accordance with Section 3.1(b).

 

(b)           The Company shall give the
Purchaser (i) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other demands served pursuant to Section 762
of the MBCA to require Company to purchase shares of Company Common Stock
pursuant to Section 762 of the MBCA and of any other demand, notice or
instrument delivered to the Company prior to the Effective Time pursuant to the
MBCA and (ii) the opportunity to participate in all negotiations and
proceedings with respect to any such demand, notice or instrument.  The Company shall not make any payment or
settlement offer with respect to any

 

21

 

such demand unless the
Purchaser shall have consented in writing to such payment or settlement offer.

 

3.10        Allocation of Consideration.  The Parties agree that the Merger
Consideration paid by the Purchaser pursuant to the Merger shall be allocated
among the assets of the Company for all purposes (including Tax and financial
accounting) in the manner set forth on Schedule 3.10.

 

3.11        Joinders.  Each Company Stockholder receiving any Stock
Consideration shall execute a joinder to the New Purchaser Stockholders
Agreement in the form attached hereto as Appendix G and a joinder to the
New Registration Rights Agreement in the form attached hereto as Appendix H.  Purchaser shall not be required to deliver
Stock Consideration to any Person who has not executed both such joinders.

 

3.12        Fractional Shares.  To the extent any Merger Consideration
consists of fractional shares of Series AA Stock, the Purchaser shall be
permitted to issue cash in lieu of thereof based on the Share Value.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF
THE COMPANY

 

Information disclosed in the
Company Disclosure Schedule is not necessarily limited to the information
required to be disclosed so that the representations and warranties of the
parties are true, but may also contain other information provided informational
purposes only.  The inclusion of such
additional information shall not be construed to imply that other similar
information is also included or as an admission that such information is
material. The Company hereby represents and warrants to the Purchaser that,
except as set forth in the Company Disclosure Schedule attached hereto as Appendix
I (the “Company Disclosure Schedule”) the
following statements contained in this Article IV are true as of
the Execution Date (or, if made as of a specified date, as of such date) and as
of the Closing Date, as follows:

 

4.1          Organization and Good Standing. (a) The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Michigan and has the requisite power
and authority to own, operate and lease its properties and assets and to
conduct its business as it is now being owned, operated, leased and
conducted.  The Company is duly qualified
or licensed to do business as a foreign corporation, and is in good standing as
a foreign corporation, in every jurisdiction in which its ownership of property
or the character of its business requires such qualification, except where the
failure to so qualify or to be in good standing would not have a Material
Adverse Effect.  Section 4.1(a) of
the Company 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.

 

(b)           Section 4.1(b) of the
Company Disclosure Schedule sets forth a complete, true and correct list of all
Subsidiaries of the Company, along with the jurisdiction of incorporation or
organization of each.  Each Subsidiary
listed in Section 4.1(b) of the Company Disclosure Schedule:

 

(i)            is duly incorporated or
organized (as applicable), validly existing and in good standing under the laws
of its jurisdiction of incorporation or 

 

22

 

organization, and has the
requisite authority and all Permits and Approvals required to own, operate and
lease its properties and assets and to conduct its business as it is now being
owned, operated, leased and conducted; and

 

(ii)           is duly qualified or
licensed to do business as a foreign entity, and is in good standing as a
foreign entity, in every jurisdiction in which its ownership of property or the
character of its business requires such qualification, except where the failure
to so qualify or to be in good standing would not have a Material Adverse
Effect, and all such jurisdictions are listed in Section 4.1(b) of
the Company Disclosure Schedule.

 

(c)           The Company has heretofore
delivered to Purchaser true and complete copies of the Organizational Documents
and stock ledgers of all Acquired Companies. 
No Acquired Company is in material violation of any provision of its
Organizational Documents.

 

(d)           Section 4.1(d) of the
Company Disclosure Schedule sets forth a true and complete list of all officers
and directors of each Acquired Company.

 

4.2          Corporate Power; Authority.

 

(a)           The Company has the
requisite power and authority to execute and deliver this Agreement, perform
its obligations hereunder and consummate the transactions contemplated hereby.

 

(b)           Except for the Company
Stockholder Approval, the execution and delivery of this Agreement by the
Company, the performance by it of its obligations hereunder and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate actions on the part of the Company.  This Agreement and each other agreement
contemplated hereby to which the Company is a party constitutes the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as limited by bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance or other similar laws relating to
or affecting the enforcement of creditors’ rights generally, and subject to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity or in an action for specific
performance.

 

4.3          Capitalization. (a) The
authorized capital stock of the Company consists solely of 50,000 shares of
Company Common Stock, of which 21,674 shares are outstanding as of the
Execution Date.  No shares of Company
Common Stock are held as treasury shares.

 

(b)           Section 4.3(b) of the
Company Disclosure Schedule sets forth, as of the Execution Date, a true and
complete list of (i) the holders of the Company Common Stock, and (ii) the
holders of all issued and outstanding shares and other securities of all
Acquired Companies other than the Company, in each case, with the known
domicile addresses of, and the number of such securities held by, such holders.

 

(c)           All of the issued and
outstanding equity securities of each Acquired Company are validly issued,
fully paid and nonassessable and free of preemptive rights and were issued in 

 

23

 

compliance with all
applicable Laws concerning the issuance of securities.  Except as set forth in Sections 4.3(a) and
4.3(b) above, there are not any equity securities of any Acquired
Company issued or outstanding or any options, warrants, subscriptions, calls,
rights, convertible securities or other agreements or commitments obligating
any Acquired Company to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock or securities.  There are not any notes, bonds, debentures or
other indebtedness of any Acquired Company having the right to vote (or
convertible into or exchangeable for securities having the right to vote) on
any matters upon which holders of any equity securities of such Acquired
Company may vote.  There are no
outstanding contractual obligations, commitments, understandings or
arrangements of such Acquired Company to repurchase, redeem or otherwise
acquire or make any payment in respect of or measured or determined based on
the value or market price of any shares of capital stock of such Acquired
Company, and there are no irrevocable proxies with respect to shares of capital
stock of any Acquired Company.  There are
no agreements or arrangements pursuant to which any Acquired Company is or
could be required to register shares of Company Common Stock or any other
securities under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

4.4          No Conflict. (a) Except
as set forth in Section 4.4(a) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company,
the performance by the Company of its obligations hereunder, nor the
consummation by the Company of the transactions contemplated hereby, will:

 

(i)            assuming receipt of the
Company Stockholder Approval, contravene any provision of the Organizational
Documents of any Acquired Company;

 

(ii)           assuming receipt of the
Company Stockholder Approval and the respective filings of the Maryland
Articles and Michigan Certificate, violate any Law applicable to any Acquired
Company;

 

(iii)          result in the creation or
imposition of any Lien on any of the property held by any Acquired Company; or

 

(iv)          require any consent or other
action by any Person under, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or give
rise to any right of termination, change of control rights (including any
obligation to pay any amount on account of any third party consent or the
occurrence of the change in control of any Acquired Company), cancellation,
modification or acceleration of any right or obligation of any Acquired Company
or a loss of any benefit to which any Acquired Company is entitled under, any
Material Contract.

 

(b)           Except for the respective
filings of the Maryland Articles and Michigan Certificate, no declaration,
filing or registration with, notice to, nor Approval of, any Government Entity
is required to be made, obtained or given by or with respect to the Company in
connection with the execution and delivery by the Company of this Agreement,
the performance by the Company of its obligations hereunder or the consummation
by the Company of the transactions contemplated hereby.

 

24

 

4.5          Financial and Recordkeeping Matters. (a) A true and complete copy of the Annual Financial Statements is
attached as Section 4.5(a) of the Company Disclosure
Schedule.  The Annual Financial
Statements have been prepared in accordance with GAAP, consistently applied
throughout the periods indicated.  Each
of the balance sheets included in the Annual Financial Statements fairly
presents in all material respects the financial position of the Acquired
Companies as of the date of such balance sheet, and each of the statements of
income and statements of cash flows included in the Annual Financial Statements
fairly presents in all material respects the results of operations of the
Acquired Companies for the periods set forth therein.

 

(b)           Except for liabilities,
commitments or obligations (i) individually less than Fifty Thousand
Dollars ($50,000), (ii) reflected in the Financial Statements, or (iii) disclosed
in Section 4.5(b) of the Company Disclosure Schedule, since the date of the balance sheets
included in the 2007 Financial Statements, no Acquired Company has incurred any
Liability that would be required to be reflected or reserved against on a
consolidated balance sheet of any Acquired Company prepared in accordance with
GAAP.

 

(c)           Except as set forth in Section 4.5(c) of
the Company Disclosure Schedule, the books and records, minute books, stock
record books and other records of the Acquired Companies, all of which have
been heretofore made available to Purchaser by the Company, have been
maintained in accordance with sound business practices.

 

(d)           Intentionally reserved.

 

(e)           No Acquired Company holds
any inventory.

 

4.6          Absence of Certain Changes.  Except as set forth in Section 4.6
of the Company Disclosure Schedule, since December 31, 2006, (a) each
Acquired Company has conducted its business in the Ordinary Course; (b) there
has not been any event, occurrence or development which, individually or in the
aggregate, would have a Material Adverse Effect; and (c) there has not
occurred any action, event or failure to act, that if it had occurred after the
Execution Date, would have required the consent of the Purchaser under any of Sections
6.1(a)-(k), (m)-(p) or (r)-(x), or Section 6.1(y) (except,
solely for purposes of this Section 4.6, Section 6.1(y) shall
be deemed to apply only to the clauses of Section 6.1 referenced in
this Section 4.6).

 

4.7          Material Contracts. (a) Section 4.7(a) of
the Company Disclosure Schedule sets forth a true and complete list of each
lease of personal property to which any Acquired Company is a party or by which
any Acquired Company or any of its properties or assets are bound, which lease
provides for payments in excess of $25,000 per annum and which has a remaining
term in excess of one year (collectively, the “Personal Property Leases”).

 

(b)           Section 4.7(b) of the
Company Disclosure Schedule sets forth a true and complete list of all leases,
subleases, licenses and other agreements (collectively, the “Real
Property Leases”) under which any Acquired Company uses or
occupies or has the right to use or occupy any real property (the land,
buildings and other improvements covered by the Real Property Leases being
herein called the “Leased Real Property”).  With respect to all Leased Real Property
except as set forth in Section 4.7(b) of the Company
Disclosure Schedule,

 

25

 

(i)            The Acquired Company that is
the lessee of such property has quiet possession thereof, and has a valid
leasehold interest providing legally enforceable rights to use such Leased Real
Property;

 

(ii)           No Acquired Company has
subleased any of the Leased Real Property or given any third party any license
or other right to occupy any portion of the Leased Real Property leased by it;

 

(iii)          Neither an Acquired Company
nor, to the Company’s Knowledge, any other party to any Real Property Lease has
waived any term or condition thereof, and all covenants to be performed by the
Company prior to the Closing, or any other party to any Real Property Lease,
have been performed in all material respects;

 

(iv)          The Acquired Companies are
current (and not late) with respect to all 
rental payments (and other payments, if any) due under Real Property
Leases;

 

(v)           No security deposit or
portion thereof deposited with respect to any Real Property Lease has been
applied in respect of a breach or default under any Real Property Lease which
has not been redeposited in full;

 

(vi)          No Acquired Company has
collaterally assigned or granted any security interest in any Real Property
Lease or any interest therein; and

 

(vii)         No Acquired Company is
obligated under or a party to, any option, right of first refusal or other
contractual right to purchase any Leased Real Property or any portion thereof
or interest therein.

 

(c)           Section 4.7(c) of the
Company Disclosure Schedule sets forth a true and complete list of all
executory agreements to which any Acquired Company is a party or by which any
Acquired Company or any of its properties or assets are bound, of the following
types (the contracts identified below in this Section 4.7(c),
together with the Real Property Leases, the Personal Property Leases, the
Inbound License Agreements and the Outbound License Agreements, are herein
collectively called the “Material Contracts”):

 

(i)            Any contract involving an
investment by any Acquired Company in any partnership, limited liability
company or joint venture (other than any other Acquired Company);

 

(ii)           Any contract of any Acquired
Company which involves a financing arrangement in excess of $50,000;

 

(iii)          Employment agreements (including without limitation, agreements for a term of employment,
stock option agreements, stock purchase agreement, bonus agreements, and
covenants not to compete);

 

26

 

(iv)          Loan agreements, notes,
mortgages, indentures, security agreements and other agreements and instruments
relating to the borrowing of money;

 

(v)           Agreements with any Affiliate;

 

(vi)          Any contract involving
noncompetition or any other restriction with respect to the geographical area
of operations or scope or type of business of any Acquired Company;

 

(vii)         Any contract relating to any
acquisition or disposition of any capital stock or equity interest of any
Acquired Company;

 

(viii)        Contracts that involve
aggregate payments in excess of $50,000 per annum;

 

(ix)           Contracts under which any
Acquired Company is obligated to share any revenue, profit, income or cash flow
with any third Person; and

 

(x)            Contracts, the termination
of which, could result in any fee or penalty in excess of $25,000.

 

(d)           The Company has delivered or
made available to the Purchaser a true and complete copy of each of the
Material Contracts.

 

(e)           Except as set forth in Section 4.7(e) 
of the Company Disclosure Schedule:

 

(i)            each Material Contract is in
full force and effect and is legal, valid, binding and enforceable by the
applicable Acquired Company(ies) in accordance with its terms, subject to (A) applicable
bankruptcy, insolvency, reorganization, moratorium, and other Laws affecting
the rights of creditors generally, and (B) the exercise of judicial
discretion in accordance with general principles of equity;  and

 

(ii)           there does not exist under any
Material Contract any default or condition or event that, after notice or lapse
of time or both, would constitute a default on the part of any Acquired Company
or, to the Company’s Knowledge, any other party to such Material Contract.

 

4.8          Intellectual Property Matters. (a) Section 4.8(a) of
the Company Disclosure Schedule sets forth a complete and correct list of all
Copyrights, Patents and Trademarks included in the Owned Intellectual Property,
identifying for each, as applicable, the serial number, registration number or
application number.

 

(b)           Section 4.8(b) of the
Company Disclosure Schedule sets forth a complete and correct list of all
Inbound License Agreements, identifying for each: (i) the licensor(s) thereunder;
and (ii) the Intellectual Property licensed thereunder.

 

27

 

(c)           Section 4.8(c) of the
Company Disclosure Schedule sets forth a complete and correct list of all
Outbound License Agreements, identifying for each: (i) the licensee(s) thereunder;
(ii) the date thereof; and (iii) the Owned Intellectual Property
licensed thereunder, to the extent such Owned Intellectual Property is not
ProVision.

 

(d)           Section 4.8(d) of the
Company Disclosure Schedule sets forth a complete and correct list of all
License Agreements pursuant to which any rights in Intellectual Property are
granted by an Acquired Company to any other Acquired Company, identifying for
each: (i) the licensor(s) and the licensee(s) thereunder; (ii) the
date thereof; and (iii) the Intellectual Property licensed thereunder.

 

(e)           Section 4.8(e) of the
Company Disclosure Schedule sets forth a complete and correct list of all Owned
Software, identifying for each all Third Party Software other than Mass-Market
Software that is (i) 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 (ii) otherwise used by any Acquired Company in
conjunction with such Owned Software in the Ordinary Course.

 

(f)            Section 4.8(f) of the
Company Disclosure Schedule sets forth a complete and correct list of all
Identifiers 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) any Acquired Company.

 

(g)           An Acquired Company owns all
right, title and interest in and to the Owned Intellectual Property, free and
clear of all Liens.  The Owned
Intellectual Property and the Licensed Intellectual Property have been duly
maintained, is valid and subsisting, is in full force and effect and has not
been cancelled, expired or abandoned.

 

(h)           All Owned Software and other
works protectable by Copyright that are included in the Owned Intellectual
Property were created, developed and authored by either (i) Employees
within the scope of their employment; or (ii) Contractors who have
assigned all of their rights to an Acquired Company pursuant to a written
agreement.  No material Owned Software
was jointly developed with any third Person who has not assigned all of his,
her or its rights to an Acquired Company pursuant to a written agreement.

 

(i)            None of the Owned
Intellectual Property, and no other product, service or technology sold,
licensed, offered for sale or license, or, to the Company’s Knowledge, under
development by any Acquired Company, infringes, violates or dilutes, or
interferes with, any Intellectual Property rights of any Person.

 

(j)            There is no pending or, to
the Company’s Knowledge, threatened claim alleging that any Acquired Company,
any Owned Intellectual Property, any Licensed Intellectual Property, or any
other product, service or technology used, sold, licensed, offered for sale or
license, or proposed to be developed, used, sold, licensed or offered for sale
or license by any Acquired Company, infringes, violates, misappropriates or
dilutes, or interferes with, any Intellectual Property rights of any Person
and, to the Company’s Knowledge, there are no facts or circumstances that would
reasonably be expected to provide a basis for any such claim.

 

28

 

(k)           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 would reasonably
be expected to provide a basis for any such claim.

 

(l)            No Acquired Company has
brought or threatened a claim against any Person (i) alleging
infringement, violation, misappropriation, or dilution of, or interference
with, any Intellectual Property or any License Agreement; (ii) challenging
any Person’s ownership or use of, or the validity or enforceability of, any
Intellectual Property; or (iii) challenging the validity or enforceability
of any License Agreement and, to the Company’s Knowledge, there are no facts or
circumstances that would reasonably be expected to provide a basis for any
claim described in the foregoing clauses (i)-(iii).

 

(m)          To the Company’s Knowledge,
all Trademarks included in the Owned Intellectual Property 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).

 

(n)           Section 4.8(n) of the
Company Disclosure Schedule sets forth a complete and accurate description of
the measures undertaken by the Acquired Companies to protect the
confidentiality of the Source Code and the Trade Secrets included in the Owned
Intellectual Property and the Licensed Intellectual Property, including
requiring all Employees, Contractors 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 by any Person authorized to act on behalf any
Acquired Company or, to the Company’s Knowledge, any other Person, other than
pursuant to a written non-disclosure agreement; and, to the Company’s
Knowledge, no third Person that is a party to any non-disclosure agreement with
any Acquired Company is in breach or default thereof.  Except for third party escrow agents holding
Source Code pursuant to written escrow agreements, a true and complete list of
which are set forth on Section 4.8(n) of the Company Disclosure
Schedule, no Person other than an Acquired Company is in possession of any
Source Code as a result of disclosure of such Source Code by any Person
authorized to act on behalf any Acquired Company or, to the Company’s
Knowledge, any other Person.  No Acquired
Company is bound by any agreement that will, or would reasonably be expected
to, result in or require the disclosure or release of any Source Code to a
third Person by any Acquired Company, any escrow agent(s), Purchaser or the
Surviving Corporation.

 

(o)           Except as set forth on Section 4.8(o) of
the Company Disclosure Schedule, no Owned Software is, includes, or is a
derivative of, and no Related Software is, Software (i) for which the
source code is in the public domain, or (ii) 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 (any of the
foregoing, “Open Source Materials”).  No Acquired Company has (A) incorporated Open Source Materials into, or
combined Open Source Materials with, any of the Owned Software, except as
otherwise specifically described in Section 4.8(o) of the
Company Disclosure Schedule; (B) distributed Open Source Materials in conjunction
with any of the Company’s software or other intellectual property, except as
otherwise specifically

 

29

 

described in Section 4.8(o) of the
Company Disclosure Schedule; or (C) used Open Source Materials in a manner that has
given rise to any legally enforceable obligation on any Acquired Company to (x) disclose
or distribute the source code of any Owned Software, (ii) grant any
license for the purpose of making derivative works of any Owned Software, or (iii) redistribute
at no charge any of the Owned Software.

 

(p)           In each Outbound License
Agreement, no Acquired Company has made any warranty or representation in
writing (other than as set forth in each Outbound License Agreement) as to the
performance, functionality or capability of the Software licensed thereunder,
except to state that such Software would perform in accordance with its
published specifications and/or written documentation.

 

(q)           Except as set forth in Section 4.8(q) of
the Company Disclosure Schedule, no Acquired Company has any obligation to
provide any technical support or Software maintenance services to any third
Person.

 

(r)            No current or former
shareholder, partner, member, director, officer, Employee or Contractor of any
Acquired 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 4.8(r),
“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.

 

4.9          Litigation. There is no
Action pending or, to the Company’s Knowledge, threatened against any Acquired
Company or its properties (tangible or intangible) or any of  its directors, officers or Employees in their
capacities as such.  At no time in the
last five years has any Government Entity provided any Acquired Company with a
written notice challenging or questioning the legal right of any Acquired
Company to conduct its operations as conducted at that time or as presently
conducted.  No Acquired Company is
subject to any outstanding judgment, order, settlement or decree.  To the Company’s Knowledge, no investigation
of any Acquired Company by any Government Entity is pending or threatened.

 

4.10        Compliance with Laws.  (a)Each Acquired Company is in material
compliance with, and conducts its business in all material respects in
accordance with, all Laws applicable thereto. 
No Acquired Company is at present charged with or, to the Company’s
Knowledge, threatened with any charge concerning or, to the Company’s
Knowledge, under any investigation with respect to, any violation of any
provision of any Law.  No Acquired Company
is in violation of or in default under, and no event has occurred which, with
the lapse of time or the giving of notice or both, would result in the
violation of or default under, the terms of any judgment, order, settlement or
decree.

 

(b)           Section 4.10(b) of the
Company Disclosure Schedule lists all Permits required for the operation of the
Business.  The Acquired Companies have
obtained and maintained all such Permits, all of which are in full force and
effect.

 

30

 

4.11        Taxes. (a)Each
Acquired Company has (i) duly and timely filed (or there has been filed on
its behalf) with the appropriate Government Entities all Tax Returns required
to be filed by such Acquired Company prior to the date hereof, and all such Tax
Returns are true, correct and complete in material all respects; and (ii) timely
paid (or provided adequate reserves in accordance with GAAP, consistently
applied, on the applicable Acquired Company’s most recent books), or there has
been paid on its behalf, all Taxes due from such Acquired Company.

 

(b)           Each Acquired
Company has complied in all respects with all applicable Tax Laws relating to
the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Internal Revenue
Code of 1986, as amended (the “Code”) and employment withholding Taxes) and has, within the time
and in the manner prescribed by law withheld and paid over to the proper
Government Entity all amounts required to be withheld and paid over under all
applicable Tax Laws.

 

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

 

(d)           No Acquired Company
has requested any extension of time within which to file any 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 Taxes or Tax Returns has been given by or on
behalf of any Acquired Company.

 

(e)           No federal, state,
local or foreign audits, review, or other Actions (“Audits”) exist or,
to the Company’s Knowledge, have been initiated with regard to any Taxes or Tax
Returns of any Acquired Company, and no Acquired Company has received any
notice of such an Audit.

 

(f)            All Tax
deficiencies which have been claimed, proposed or asserted against any Acquired
Company by any Government Entity have been fully paid or accrued on the Interim
Balance Sheet or the Final Balance Sheet, and, to the Company’s Knowledge, there
are no other Audits by any Government Entity in progress relating to any
Acquired Company or the business of any Acquired Company, nor has any Acquired
Company or, to the Company’s Knowledge, any stockholder, director or officer of
any Acquired Company received any notice from any Government Entity that it
intends to conduct such an Audit.  No
Acquired Company is subject to any private letter ruling of the Internal
Revenue Service or any comparable ruling of any other Government Entity.

 

(g)           No Acquired Company
is required to include in income for any period beginning after the Closing
Date any adjustment (other than any adjustment the Tax on which is accrued
(reserved) on the Final Balance Sheet) pursuant to (A) Section 481(a) of
the Code (or any corresponding or similar provision of state, local or foreign
income Tax Law), by reason of any voluntary or involuntary change in accounting
method (nor has any Government Entity proposed any such adjustment or change of
accounting method); (B) any “closing agreement” as described in Section 7121
of the Code (or any corresponding or similar provision of state, local or
foreign income Tax Law); (C) any deferred intercompany gain or any excess
loss account described in the treasury regulations promulgated under Section 1502
of the Code (the “Treasury Regulations”) (or any
corresponding or similar provision of state, local or foreign income Tax Law); (D) any
installment sale or open transaction disposition made on or prior to the
Closing 

 

31

 

Date;
(E) any prepaid amount received on or prior to the Closing Date; or (F) the
application of Section 263A of the Code (or any corresponding or similar
provision of state, local or foreign income Tax Law) with respect to a Tax
period ending on or prior to the Closing Date.

 

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

 

(i)            No Acquired Company
is a party to any agreement, contract or arrangement that could result,
separately or in the aggregate, in any payments by any of the Acquired Company,
Purchaser, Merger Sub or any of their respective Affiliates that will not be
fully deductible as a result of the provisions set forth in Sections 162(m) or
280G of the Code (or any corresponding provisions of state, local or foreign
Tax Law) or would result in an excise Tax to the recipient of any such payment
under Section 4999 of the Code.

 

(j)            No Acquired Company
has requested or received a ruling or determination from any Government Entity
or signed a closing or other agreement with any Government Entity, in either
case with respect to Taxes.

 

(k)           No Acquired Company
is a party to, bound by, or has any obligation under, any Tax sharing
agreement, Tax indemnification agreement or similar contract or arrangement
and, no Acquired Company has any potential Liability to any Person as a result
of, or pursuant to, any such contract or agreement, other than tax
indemnification obligations arising under an ordinary commercial contract such
as a lease.

 

(l)            The Company has
previously delivered or made available to the Purchaser complete and accurate
copies of each of (i) all audit reports, letter rulings, technical advice
memoranda and similar documents issued by a Government Entity relating to any
Taxes due from or with respect to any Acquired Company; (ii) all income
Tax Returns filed by every Acquired Company (or on its behalf) in the last
three (3) years; and (iii) any closing agreements entered into by any
Acquired Company with any Government Entity with respect to Taxes.  The Company will deliver to the Purchaser all
materials with respect to the foregoing for all matters arising after the date
hereof.

 

(m)          No Acquired Company
has been included in any “consolidated,” “unitary” or “combined” Tax Return
with any Person other than another Acquired Company.

 

(n)           Since December 31,
2006, up to the Effective Time, no Acquired Company has incurred any liability
for Taxes other than in the Ordinary Course.

 

(o)           No Acquired Company
has taken any position on any Tax Return that could give rise to an
understatement of United States federal income Tax liability within the meaning
of Section 6662(d) of the Code.

 

(p)           No claim has been
made by a Government Entity in a jurisdiction where any Acquired Company does
not file Tax Returns to the effect that such Acquired Company is subject to
taxation by that jurisdiction.

 

32

 

(q)           No Acquired Company
is, nor has it at any time in the last five (5) years been, a “United
States real property holding corporation” within the meaning of Section 897
of the Code.

 

(r)            Section 4.11(r) of
the Company Disclosure Schedule discloses all jurisdictions outside the United
States in which any Acquired Company has a permanent establishment, or, to the
Company’s Knowledge, is subject to Tax.

 

(s)           No Acquired Company
has distributed stock of another Person, nor has stock of any Acquired Company
been distributed by another Person, in a transaction that was purported or intended
to be governed in whole or in part by Section 355 or Section 361 of
the Code.

 

(t)            This Section 4.11
contains all representations and warranties of the Company with respect to all
matters involving Taxes or Laws with respect to Taxes; provided, however, that this Section 4.11(t) shall
not limit in any way the representations and warranties set forth in Section 4.5.

 

(u)           The Company has not
made a distribution of its assets that would cause the Merger to fail the “substantially
all” test found in Code Section 368(a)(2)(D).

 

4.12        Environmental
Matters. (a) No written
notice, notification, demand, request for information, citation, summons,
complaint or order has been received by, and no Action is pending or, to the
Company’s Knowledge, threatened by any Person against, any Acquired Company,
and in the last five years no penalty has been assessed against any Acquired
Company with respect to any matters relating to or arising out of any
Environmental Law or the presence of any Hazardous Materials at or on any real
property owned or leased at any time by any Acquired Company (“Facility”).  Each
Acquired Company is in compliance with all Environmental Laws, there are no
Liabilities of or relating to any Acquired Company that relate to or arise out
of any Environmental Law, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
Liability.

 

(b)           No Facility is being
used or, to the Company’s Knowledge, has been used by any Acquired Company for
the production, deposit, generation, transportation, storage, treatment, or
disposal of any toxic, dangerous, or hazardous substances or pollutants in
violation of applicable Law, including, but not limited to, nuclear fuel or
waste and any Hazardous Materials.  No
Hazardous Materials were disposed of on, in, or at any Facility by any Acquired
Company in violation of applicable Law.

 

(c)           This Section 4.12
contains all representations and warranties of the Company with respect to all
matters involving environmental conditions or Environmental Laws; provided, however, that this Section 4.12(c) shall
not limit in any way the representations and warranties set forth in Section 4.5.

 

4.13        Insurance.  (a) Section 4.13 of the Company Disclosure Schedule sets forth
a true and complete list of all insurance policies or binders maintained by or
for the benefit of any Acquired Company and its directors, officers, Employees,
Contractors or agents (collectively, the “Company Insurance Policies”).  The Company has delivered or made available
to the Purchaser true and complete copies of the Company Insurance Policies.

 

33

 

(b)           The Acquired
Companies have complied in all material respects with the provisions of the
Company Insurance Policies.  All Company
Insurance Policies are in full force and effect and no premiums due and payable
thereon are delinquent.  No Company
Insurance Policy provides for or is subject to any currently enforceable
retroactive rate or premium adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
arising prior to the date hereof.

 

(c)           There exist no
material claims under any Company Insurance Policy that have not been properly
and timely submitted by an Acquired Company to its insurers.  There are no pending material claims against
any Company Insurance Policy by any Acquired Company as to which the insurers
have denied liability.

 

(d)           The Company
Insurance Policies are in amounts and have coverages required by any Material
Contract.  The insurance coverage
provided by the Company Insurance Policies will not terminate or lapse by
reason of the transactions contemplated by this Agreement and, immediately
following the Closing Date, the Acquired Companies will continue to be covered
under such policies for events occurring prior to the Closing Date.

 

4.14        Plans. (a) Section 4.14(a) of the Company Disclosure
Schedule contains a true and complete list of each deferred compensation and
each incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; each severance or
termination pay, medical, surgical, hospitalization, life insurance and other “welfare”
plan, fund or program (within the meaning of section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”));
each profit-sharing, stock bonus or other “pension” plan, fund or program
(within the meaning of section 3(2) of ERISA); and each other employee
benefit plan, fund, program, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to during
the preceding six (6) years by any Acquired Company or by any trade or
business, whether or not incorporated (an “ERISA Affiliate”),
that together with any Acquired Company would be deemed a “single employer”
within the meaning of section 4001(b) of ERISA or Section 414(b),
(c), (m) or (o) of the Code, or to which any Acquired Company or an
ERISA Affiliate is party, whether written or oral, for the benefit of any
Employee or former Employee (collectively, the “Plans”).  Neither any Acquired Company nor any ERISA
Affiliate has any commitment or formal plan, whether legally binding or not, to
create any additional employee benefit plan or modify or change any existing
Plan that would affect any Employee or former Employee.

 

(b)           With respect to each
Plan, the Company has heretofore delivered to the Purchaser true and complete
copies of the Plan and any amendments thereto
(or if the Plan is not a written Plan, a description thereof), any related
trust or other funding vehicle, and any reports or summaries required under
ERISA or the Code created or in effect within the past six (6) years.  The Company has also heretofore delivered to
the Purchaser the most recent determination letter received from, or opinion
letter issued by, the Internal Revenue Service with respect to each Plan
intended to qualify under section 401 of Code, and nothing has occurred that
reasonably could result in the revocation of the qualified status of any such
Plan or reasonably cause any trust maintained under any such Plan to fail to be
exempt from taxation under section 501(a) of the Code. Each Plan intended
to satisfy the requirements of section 501(c)(9) has satisfied such
requirements.

 

34

 

(c)           None of the Plans is
a “multiemployer plan,” as such term is defined in section 3(37) of ERISA, nor
is any Plan subject to section 302 or Title IV of ERISA or section 412 of the
Code.  No liability under Title IV or
section 302 of ERISA has been incurred by any Acquired Company or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that presents
a risk to any Acquired Company or any ERISA Affiliate of incurring any such
liability, other than liability for premiums due the Pension Benefit Guaranty
Corporation (which premiums have been paid when due).

 

(d)           Neither any Acquired
Company, any Plan, any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which any
Acquired Company, any Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Plan or any such trust could be subject
to either a civil penalty assessed pursuant to section 502(i) or 502(l) of
ERISA or a tax imposed pursuant to section 4975 or 4976 of the Code.  There are no excise Taxes payable with
respect to any Plan under Subtitle D of the Code.

 

(e)           Each Plan has been
operated and administered in all material respects in accordance with its terms
and applicable law, including but not limited to ERISA and the Code.  All annual reports required to be filed for
any Plan with any Government Entity have been timely filed and all disclosures
and notices to the participants and beneficiaries of any Plan required by Law
have been timely delivered.  All
contributions required to be made to any Plan have been timely made and all
benefits due under any Plan have been timely paid.

 

(f)            No Plan provides
medical, surgical, hospitalization, death or similar benefits (whether or not
insured) for Employees or former Employees for periods extending beyond their
retirement or other termination of service, other than (i) coverage
mandated by applicable law, including, but not limited to the requirements
under Part 6 of Subtitle B of Title I of ERISA and Section 4980B of
the Code; (ii) death benefits under any “pension plan”; or (iii) benefits
the full cost of which is borne by the current or former Employee (or his
beneficiary).

 

(g)           The consummation of
the transactions contemplated by this Agreement will not, either alone or in
combination with another event, (i) entitle any current or former Employee
or any ERISA Affiliate to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement; or (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due any
such Employee; or (iii) result in any payments or benefits that are not
fully deductible under Sections 162(a)(1), 162(m) and 280G of the Code, as
applicable.

 

(h)           There are no
pending, or, to the Company’s Knowledge, threatened or anticipated claims or
litigation by or on behalf of any Plan, by any Employee or beneficiary covered
under any such Plan, or otherwise involving any such Plan (other than routine
claims for benefits) for the benefit of any current or former Employee,
Contractor or director, nor are there any pending or, to the Company’s
Knowledge, threatened Actions by any Government Entity against any Plan.

 

(i)            Except as set forth
in Section 4.14(i) of the Company Disclosure Schedule, no
Acquired Company has, or has ever had, any obligation to maintain, establish,
sponsor,

 

35

 

participate
in, or contribute to any plan, program or arrangement for the benefit of any
Employee, former Employee, director or former director, or Contractor or former
Contractor any Acquired Company or any ERISA Affiliate who performs services
outside the United States.

 

(j)            Any Plan which is a
nonqualified deferred compensation plan subject to Code Section 409A has
been operated in good faith compliance with Code Section 409A, and the
transactions contemplated by this Agreement will not cause any such Plan to
violate Code Section 409A.

 

4.15        Labor and
Employment Matters. (a) Section 4.15(a) of
the Company Disclosure Schedule: (i) sets forth a true and complete list
of all Employees as of the Execution Date, (ii) identifies the Acquired
Company by whom each such Employee is employed, and (iii) states each such
Employee’s current rate of pay, 2006 bonus, current accrued leave, and other
compensation paid or payable in 2007.

 

(b)           Section 4.15(b) of
the Company Disclosure Schedule: (i) sets forth a true and complete list
of all Contractors engaged as of the Execution Date, (ii) identifies the
Acquired Company by whom each such Contractor is engaged, (iii) states
each such Contractor’s current rate of pay, and (iv) provides a brief
description of the services provided by such Contractor and, if such Contractor
is primarily assigned to provide services to particular Customer(s) of the
Business, the name(s) of such Customer(s).

 

(c)           There is/are no:

 

(i)            collective
bargaining agreements to which any Acquired Company is a party or otherwise
bound;

 

(ii)           labor unions
representing any employees of any Acquired Company;

 

(iii)          to the Company’s
Knowledge, overt organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened by employees of
any Acquired Company;

 

(iv)          unfair labor
practice complaints against any Acquired Company pending before the National
Labor Relations Board or other applicable regulatory agency;

 

(v)           labor disputes
currently subject to any grievance procedure, arbitration or litigation with
respect to any employee of any Acquired Company;

 

(vi)          pending or, to
the Company’s Knowledge, threatened strike, slowdown, work stoppage, lockout or
other collective labor action or dispute by or with respect to any employees of
any Acquired Company;

 

(vii)         pending or, to
the Company’s Knowledge, threatened claim, audit, litigation, government
investigation, administrative proceeding or arbitration against any Acquired
Company involving any matter related to employment including, but not limited
to, claims of discrimination, claims 

 

36

 

of
unpaid wages, claims of violations of the Family and Medical Leave Act, claims
of wrongful discharge, claims of unfair labor practices, workers’ compensation
claims, and claims related to occupational safety and health law; or

 

(viii)        written
personnel policy, rule or procedure applicable to employees of any
Acquired Company, except as set forth in Section 4.15(c) of
the Company Disclosure Schedule.

 

(d)           Each Acquired
Company has at all times properly classified its employees as employees and its
independent contractors as independent contractors, as applicable.  Each Acquired Company has at all times
properly classified its employees as exempt or non-exempt for purposes of the
Fair Labor Standards Act.  Each Acquired
Company has at all times for each of its employees properly withheld and paid
all applicable taxes and all other withholdings required by law.

 

(e)           All employment
terminations effectuated by any Acquired Company including, but not limited to,
layoffs, were effectuated in material compliance with all laws, statutes,
regulations or ordinances governing employment or separation from employment
including, but not limited to, the Age Discrimination In Employment Act (29
U.S.C. §§ 626 et  seq., “ADEA”), Title VII of the Civil Rights
Acts of 1964 and 1991 as amended (42 U.S.C. §§ 2000e et  seq.),
the Consolidated Omnibus Budget Reconciliation Act of 1985 (29 U.S.C. §§ 1161 et
seq.), the Americans With Disabilities Act (42 U.S.C. §§ 12101 et
seq.), the Rehabilitation Act of 1973 (29 U.S.C. §§ 701 et  seq.),
the Family and Medical Leave Act (29 U.S.C. §§ 2601 et  seq.),
the Fair Labor Standards Act (29 U.S.C. §§ 201 et  seq.),
ERISA and the Worker Adjustment and Retraining Act, Public Law 100-379, to the
extent applicable.

 

4.16        Property. (a) No
Acquired Company owns any interest in any real property except for the Leased
Real Property.

 

(b)           The Acquired
Companies own all the properties and assets that they purport to own
(collectively, the “Tangible Assets”).  The Acquired Companies have good and
marketable title to all of the Tangible Assets, free and clear of all Liens.

 

(c)           The Tangible Assets
are in good operating condition and repair, and are adequate for the uses to
which they are being put, normal wear and tear excepted.

 

4.17        Broker, Finder
or Advisor Fees.  There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of any Acquired Company, any holder of any equity securities of any
Acquired Company (individually or with others) who might be entitled to any fee
or commission in connection with the transactions contemplated by this
Agreement.

 

4.18        Related Party
Transactions. (a) No employee,
officer, director or stockholder of any Acquired Company or Affiliate of any
employee, officer, director or stockholder of any Acquired Company is currently
indebted to any Acquired Company, nor is any Acquired Company indebted (or
committed to make loans or extend or guarantee credit) to any of such
individuals.

 

37

 

(b)           Other than with any
Subsidiary of the Company, to the Company’s Knowledge, as of the date hereof,
no employee, officer, director or stockholder of any Acquired Company or
Affiliate of any employee, officer, director or stockholder of any Acquired
Company has any direct or indirect ownership interest in any firm or
corporation (i) with which any Acquired Company is affiliated, or (ii) with
which any Acquired Company has a material business relationship, provided, however, that the foregoing representation in this
Section 4.18(b) shall not apply in cases where an employee,
officer, director or stockholder of an Acquired Company or Affiliate of such
employee, officer, director or stockholder owns stock in an amount less than 1%
of the outstanding capital stock of a publicly traded company.

 

(c)           To the Company’s
Knowledge, no employee, officer, director or stockholder of any Acquired
Company or Affiliate of any employee, officer, director or stockholder of any
Acquired Company is directly or indirectly interested in any Material Contract
or has or claims to have any interest in the Company Intellectual Property.

 

4.19        Acquisitions.  Section 4.19 of the Company
Disclosure Schedule sets forth each acquisition, by means of asset purchase,
assignment, merger, consolidation or other similar transaction, of a Person or
a material portion of the assets of any Person, by any Acquired Company at any
time in the five (5) years immediately preceding the Execution Date.

 

4.20        Securities Law
Matters.  To the Company’s Knowledge, each Company
Stockholder is acquiring the shares of Series AA Stock included in the
Merger Consideration for his/her/its own account and not with a view toward
distribution within the meaning of Section 2(11) of the Securities Act of
1933, as amended.

 

4.21        Status of Series AA
Stock.  The Company and each of the Principal
Stockholders acknowledges that the securities Purchaser expects to issue to
investors in the Equity Round will have rights, privileges and preferences that
will be senior to the Series AA Stock with respect to, among other things,
dividends and rights upon liquidation.

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF THE PURCHASER AND THE MERGER SUB

 

Information disclosed in the
Purchaser Disclosure Schedule is not necessarily limited to the information
required to be disclosed so that the representations and warranties of the
parties are true, but may also contain other information provided informational
purposes only.  The inclusion of such
additional information shall not be construed to imply that other similar
information is also included or as an admission that such information is
material. The Purchaser and the Merger Sub hereby represent and warrant to the
Company that, except as set forth in the Purchaser Disclosure Schedule attached
hereto as Appendix J (the “Purchaser Disclosure
Schedule”) the following statements contained in this ARTICLE V are
true as of the date hereof (or, if made as of a specified date, as of such
date) and as of the Closing Date, as follows:

 

5.1          Organization
and Good Standing.  (a) Each of Purchaser and Merger Sub is
a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Maryland and has the requisite power and authority
and, to their Knowledge, all Permits

 

38

 

required
to own, operate and lease its properties and assets and to conduct its
respective business as it is now being owned, operated, leased and
conducted.  Each of Purchaser and Merger
Sub is duly qualified or licensed to do business as a foreign corporation, and
is in good standing as a foreign corporation, in every jurisdiction in which
its ownership of property or the character of its business requires such
qualification, except where the failure to so qualify or to be in good standing
would not reasonably be expected to have a Material Adverse Effect.

 

(b)           Section 5.1(b) of
the Purchaser Disclosure Schedule sets forth a complete, true and correct list
of all Subsidiaries of Purchaser (other than Merger Sub), along with the
jurisdiction of incorporation or organization of each.  Each Subsidiary listed in Section 5.1(b) of
the Purchaser Disclosure Schedule:

 

(i)            is duly
incorporated or organized (as applicable), validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
and has the requisite power and authority and all Permits and Approvals
required to own, operate and lease its properties and assets and to conduct its
business as it is now being owned, operated, leased and conducted; and

 

(ii)           is duly
qualified or licensed to do business as a foreign entity, and is in good
standing as a foreign entity, in every jurisdiction in which its ownership of
property or the character of its business requires such qualification, except
where the failure to so qualify or to be in good standing would not reasonably
be expected to have a Material Adverse Effect.

 

(c)           Purchaser has
heretofore made available to the Company a true and complete copy of the
Organizational Documents of Purchaser. 
No Purchaser Company is in material violation of any provision of its
Organizational Documents.

 

5.2          Corporate Power
and Authority.

 

                (a)           Each of the
Purchaser and the Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement, perform its obligations hereunder and
consummate the transactions contemplated hereby.

 

                (b)           The execution and delivery of this
Agreement by each of Purchaser and Merger Sub, the performance by Purchaser and
Merger Sub of their respective
obligations hereunder and the consummation by Purchaser and Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Purchaser and
Merger Sub.  This Agreement and each
other agreement contemplated hereby to which Purchaser is a party constitutes
the legal, valid and binding obligation of each of Purchaser and Merger Sub,
enforceable against Purchaser and Merger Sub in accordance with its terms,
except as limited by bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance or other similar laws relating to or affecting the
enforcement of creditors’ rights generally, and subject to general principles
of equity, regardless of whether such enforceability is considered in a
proceeding at law or in equity or in an action for specific
performance.

 

39

 

5.3          No Conflict. (a) Except
as set forth in Section 5.3(a) of the Purchaser Disclosure
Schedule, neither the execution and delivery of this Agreement by Purchaser or
Merger Sub, the performance by Purchaser or Merger Sub of their respective
obligations hereunder, nor the consummation by Purchaser or Merger Sub of the
transactions contemplated hereby, will

 

(i)                                     assuming
receipt of the Purchaser Stockholder Approval, contravene any provision of the
Organizational Documents of Purchaser or Merger Sub;

 

(ii)                                  assuming
receipt of the Purchaser Stockholder Approval and the respective filings of the
Maryland Articles and Michigan Certificate, violate any Law applicable to
Purchaser or Merger Sub;

 

(iii)                               result in the
creation or imposition of any Lien on any property held by Purchaser or Merger
Sub;

 

(iv)                              require any
consent or other action by any Person under, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or give rise to any right of termination, change of control rights,
cancellation, modification or acceleration of any right or obligation of
Purchaser or Merger Sub or a loss of any benefit to which Purchaser or Merger
Sub is entitled under any contract that is material to its business.

 

(b)           Except for the
respective filings of the Maryland Articles and Michigan Certificate, no
declaration, filing or registration with, notice to, nor Approval of, any
Government Entity is required to be made, obtained or given by or with respect
to Purchaser or Merger Sub in connection with the execution and delivery of
this Agreement by Purchaser and Merger Sub, the performance by Purchaser and
Merger Sub of their respective obligations hereunder or the consummation by
Purchaser and Merger Sub of the transactions contemplated hereby.

 

5.4          Capitalization.  (a) As of the Closing Date, the
authorized capital stock of Merger Sub consists solely of 100 shares of common
stock, no par value per share, all of which are outstanding and issued to
Purchaser.

 

(b)           As of the Closing
Date, the authorized capital stock of Purchaser will consist of: 216,657,212
shares, divided as follows (without regard to shares of Stock Consideration to
be issued pursuant to the Merger):

 

(i)                                     120,000,000
shares of common stock, par value $0.01 per share, of which 28,125 shares will
be issued and outstanding as of the Closing Date;

 

(ii)                                  96,657,212
shares of preferred stock, par value $0.01 per share, of which:

 

(A)                              71,012,991
shares are designated as Series AA Stock, of which 54,449,488 shares will
be issued and outstanding as of the Closing Date,

 

40

 

(B)                                6,800,000
shares are designated as Series BB Convertible Preferred Stock, none of
which will be issued and outstanding as of the Closing Date; and

 

(C)                                18,844,221
shares are designated as Series CC Convertible Preferred Stock, of which
17,902,010 shares will be issued and outstanding as of the Closing Date.

 

(c)           All of the issued
and outstanding equity securities of Purchaser are, and all shares of Series AA
Stock included in the Merger Consideration will be upon delivery by Purchaser,
validly issued, fully paid and nonassessable, issued in compliance with all
applicable Laws concerning the issuance of securities and free of preemptive
rights.  No shares of Purchaser’s capital
stock are held as treasury shares.

 

(d)           Section 5.4(d) of
the Purchaser Disclosure Schedule sets forth a true and complete list, as of
the Execution Date, of all stock purchase, stock option and other equity
compensation plans of Purchaser (each, a “Purchaser Equity Plan”).

 

(e)           Section 5.4(e) of
the Purchaser Disclosure Schedule sets forth a true and complete list, as of
the Execution Date, of each outstanding option to purchase shares of capital
stock of Purchaser, identifying for each (i) the name of the option
holder, (ii) the class/series of capital stock, and the number of shares,
such holder is entitled to purchase pursuant to such option, (iii) the
exercise price per share of such option, and (iv) if applicable, the
Purchaser Equity Plan under the option was granted.

 

(f)            Section 5.4(f) of
the Purchaser Disclosure Schedule sets forth a true and complete list, as of
the Execution Date, of all outstanding restricted stock and restricted stock
unit (“RSU”) awards under Purchaser Equity
Plans, identifying for each (i) the name of the awardee, (ii) the
number of shares of restricted stock or the number of RSUs, as applicable,
included in the award, and (iii) if applicable, the Purchaser Equity Plan
under the restricted stock or RSUs were granted.

 

(g)           Section 5.4(g) of
the Purchaser Disclosure Schedule sets forth a true and complete list, as of
the Execution Date, of each outstanding warrant to purchase shares of capital
stock of Purchaser, identifying for each (i) the name of the warrant
holder, (ii) the class/series of capital stock, and the number of shares,
such holder is entitled to purchase pursuant to such warrant, and (iii) the
stated exercise price per share of such warrant (without regard to any
adjustments thereto that may have occurred after the issuance of such warrant).

 

(h)           Except as set forth
in Sections 5.4(a) through 5.4(g) and except as set
forth in the Purchaser Stockholders Agreement, there are not any equity
securities of any Purchaser Company issued or outstanding or any options,
warrants, subscriptions, calls, rights, convertible securities or other
agreements or commitments obligating any Purchaser Company to issue, transfer,
sell, redeem, repurchase or otherwise acquire any shares of its capital stock
or securities, other than in connection with the Equity Round.

 

(i)            Except for the
Third Amended and Restated Registration Rights Agreement of Purchaser, dated as
of October 5, 2005, as amended, and the New Registration Rights

 

41

 

Agreement,
there are no agreements or arrangements pursuant to which any Acquired Company
is or could be required to register shares of Company Common Stock or any other
securities under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

(j)            The gross proceeds
of the Equity Round (after both the initial closing and the additional closing
thereof) will be no less than $30,000,000.

 

5.5          Purchaser
Financial Statements.  A true and complete copy of the Purchaser
Financial Statements is attached as Section 5.5 of the Purchaser
Disclosure Schedule.  The Purchaser
Financial Statements have been prepared in accordance with GAAP, consistently
applied throughout the periods indicated. 
Each of the balance sheets included in the Purchaser Financial
Statements fairly presents in all material respects the financial position of
the Purchaser Companies as of the date of such balance sheet, and each of the
statements of income and statements of cash flows included in the Purchaser
Financial Statements fairly presents in all material respects the results of
operations of the Purchaser Companies for the periods set forth therein.

 

5.6          Litigation. There is no
Action pending or, to Purchaser’s Knowledge, threatened against any Purchaser
Company or its properties (tangible or intangible) or any of  its directors, officers or employees in their
capacities as such.  At no time in the
last five years has any Government Entity provided any Purchaser Company with a
written notice challenging or questioning the legal right of any Purchaser
Company to conduct its operations as conducted at that time or as presently
conducted.  No Purchaser Company is subject
to any outstanding judgment, order, settlement or decree.  To the Purchaser’s Knowledge, no
investigation of any Purchaser Company by any Government Entity is pending or
threatened.

 

5.7          Compliance With
Laws.  Each Purchaser Company is in compliance in
all respects with, and conducts its business in all respects in accordance
with, all Laws applicable thereto.  No
Purchaser Company is at present charged with or, to Purchaser’s Knowledge,
threatened with any charge concerning or, to the Purchaser’s Knowledge, under
any investigation with respect to, any violation of any provision of any
Law.  No Purchaser Company is in
violation of or in default under, and no event has occurred which, with the
lapse of time or the giving of notice or both, would result in the violation of
or default under, the terms of any judgment, order, settlement or decree.  The Purchaser Companies have obtained and
maintained all Permits required for the operation of their business, all of
which are in full force and effect.

 

5.8          Broker, Finder
or Advisor Fees.  There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of any Purchaser Company, any holder of any equity securities of any
Purchaser Company (individually or with others) who might be entitled to any
fee or commission in connection with the transactions contemplated by this
Agreement.

 

5.9          Taxes.

 

(a)           Merger Sub is a corporation (i) newly
formed solely for the purpose of participating in the Merger and (ii) all
of the issued and outstanding stock of which is, has at all

 

42

 

times been, and will at all
times through the Date of the Merger be, owned by Parent.  There are no options or other rights to
acquire any shares of Merger Sub.  At no
time prior to the Merger has Merger Sub had assets (other than nominal assets
contributed upon the formation of Merger Sub, which assets will be held by
Merger Sub following the Merger) or business operations.

 

(b)           Following the Merger, Purchaser
intends to cause Merger Sub to continue the “historic business” of each of the
Acquired Companies or use a significant portion of the “historic business
assets” of each of the Acquired Companies in a business (as such terms are
defined in  Section 1.368-1(d) of
the Treasury Regulations).

 

(c)           Purchaser has no plan or intention,
as a part of any overall transaction which includes the Merger, to liquidate
Merger Sub, merge Merger Sub with or into another corporation which is the
survivor, sell or otherwise dispose of any of the stock of Merger Sub, cause or
allow Merger Sub either to issue stock or options, warrants, or other rights to
acquire stock in Merger Sub or to distribute to Purchaser or otherwise dispose
of any  assets held by any of the
Acquired Companies immediately before the Merger, or cause or allow Merger Sub
to sell or otherwise dispose of any of the assets held by any of the Acquired
Companies immediately before the Merger, except for dispositions made in the
ordinary course of business and transfers of assets permitted under Section 368(a)(2)(C) of
the Code or Treasury Regulation Section 1.368-2(k).  Purchaser may transfer the stock of Merger
Sub to a controlled subsidiary of Purchaser (as defined in Section 368(c) of
the Code) after the Merger in a manner permitted under Section 368(a)(2)(C) of
the Code or Treasury Regulation Section 1.368-2(k).

 

(d)           Purchaser has no plan or intention
to, and will not in connection with the Merger, acquire or redeem any of the
Stock Consideration issued in the Merger, either directly or through any
transaction, agreement or arrangement with any other person, provided however,
that Purchaser may adopt or continue an open market stock repurchase program
that satisfies the requirements of Revenue Ruling 99-58, 1999-2 C.B. 701.  To Purchaser’s Knowledge, no person related
to Purchaser (as defined in Treasury Regulation Section 1.368-1(e)) has a
plan or intention to, and no such person will, in connection with the Merger,
acquire or redeem any of the Stock Consideration issued in the Merger, either
directly or through any transaction, agreement or arrangement with any other
person.  A corporation is considered
related to the Purchaser under Treasury Regulation Section 1.368-1(e) if:
(i) Purchaser and the corporation in question are members of the same
affiliated group as defined in Section 1504 of the Code (determined
without regard to Section 1504(b)) or (ii) a purchase of the stock of
Purchaser by the corporation in question or the purchase of the stock of the
corporation in question by Purchaser would be treated as a distribution in
redemption of the stock of the first corporation under 

 

Section 304(a)(2) of
the Code (determined without regard to Treasury Regulation Section 1.1502-80(b)).  In addition, a corporation will be treated as
related to Purchaser if a relationship described in the preceding sentence: (i) exists
immediately before or immediately after the Merger or (ii) the
relationship is created in connection with the Merger.  For purposes of this Agreement, a person is
considered to own or acquire stock owned or acquired (as the case may be) by a
partnership in which such person is a partner in proportion to such person’s
interest in the partnership.

 

(f)            Immediately before the Effective
Time, Purchaser will not be an “investment company” within the meaning of Section 368(a)(2)(F)(iii) of
the Code.

 

43

 

(g)           Neither the Merger Sub nor Purchaser
is under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.  On the date of the Merger, the fair market
value of the assets of Merger Sub will exceed the sum of its liabilities, and
the fair market value of the assets of Purchaser will exceed the sum of its
liabilities.

 

(h)           The Purchaser will not use any cash
acquired from any of the Acquired Companies in the Merger to pay any of the
Cash Consideration or to pay any expenses incurred by Purchaser or Merger Sub
in the Merger and, except as otherwise specifically contemplated under this
Agreement, will use such cash to pay expenses, if any, incurred by any of the
Acquired Companies in connection with the Merger.

 

ARTICLE VI

COVENANTS OF THE PARTIES

 

6.1          Conduct of the
Company’s Business.  From the date of this Agreement until earlier
of the Closing or the termination of this Agreement, the Company shall conduct
its business (and cause each other Acquired Company to conduct its business) in
the Ordinary Course, except as otherwise specifically permitted by this
Agreement or as reasonably required in order to complete the transactions
contemplated by this Agreement or for the Company to perform its obligations
under this Agreement or any related agreement, and use commercially reasonable
efforts to preserve intact its business organizations and relationships with
third parties.  Without limiting the
generality of the foregoing, from the date of this Agreement until the earlier
of the Closing or the termination of this Agreement, except as otherwise
specifically permitted by this Agreement or as reasonably required in order to
complete the transactions contemplated by this Agreement or for the Company to
perform its obligations under this Agreement or any related Agreement, the
Company shall refrain from doing (and shall cause each other Acquired Company
not to do) any of the following (in the case of each Acquired Company other
than the Company, substituting “Acquired Company” for “Company” in the
following clauses) without the prior written consent of the Purchaser:

 

(a)           adopting or proposing
any change in any of the Organizational Documents of any Acquired Company;

 

(b)           adopting a plan or
agreement of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;

 

(c)           issuing or selling
any shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class or series of the Company;

 

(d)           (i) splitting,
combining, subdividing or reclassifying the Company’s outstanding shares of
capital stock, or (ii) declaring, setting aside or paying any dividend or
other distribution payable in stock or property with respect to the Company’s
capital stock (although nothing herein shall be deemed to preclude the Company
from declaring cash dividends through the day immediately prior to the Closing
Date);

 

44

 

(e)           redeeming,
purchasing or otherwise acquiring directly or indirectly any shares of capital
stock of the Company;

 

(f)            amending the terms
(including the terms relating to accelerating the vesting or lapse of
repurchase rights or obligations) of any employee or director stock options or
other stock-based awards;

 

(g)           (i) granting
any severance or termination pay to (or amend any such existing arrangement
with) any director, officer or employee of the Company, (ii) entering into
any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company, (iii) increasing any benefits payable under any
existing severance or termination pay policies or employment agreements, (iv) increasing
(or amending the terms of) any compensation, bonus or other benefits payable to
directors, officers or employees of the Company outside of the Ordinary Course,
or (v) permitting any director, officer or employee who is not already a
party to an agreement or a participant in a plan providing benefits upon or
following a “change in control” to become a party to any such agreement or a
participant in any such plan (although nothing herein shall be deemed to
preclude the Company from paying any bonuses or other compensation due and
owing to the employees of the Company prior to the Closing in the Ordinary
Course);

 

(h)           acquiring any
material assets or property of any other Person except in the Ordinary Course;

 

(i)            selling, leasing,
licensing or otherwise disposing of any material assets or property except
pursuant to existing contracts or commitments or except in the Ordinary Course;

 

(j)            except for any such
change which is required by reason of a concurrent change in GAAP, changing any
method of accounting or accounting practice used by the Company;

 

(k)           entering into any
joint venture, partnership or other similar arrangement;

 

(l)            taking any action
that would make any representation or warranty of the Company herein inaccurate
in any material respect at, or as of any time prior to, the Closing Date;

 

(m)          making or changing
any Tax election, settle any audit or file any amended Tax Returns unless
required by applicable Law or unless (x) the Company has given Purchaser
prior written notice of such settlement or amended Tax Return, which notice
shall include a reasonably complete description of all material terms of such
settlement or the reasons for filing such amended Tax Return, as the case may
be, and (y) doing so will not affect the Tax liability of any of the
Parties for any period commencing after the date of the Merger;

 

(n)           incurring, issuing
or assuming any indebtedness, other than ordinary trade payables incurred in
the Ordinary Course (it being understood and agreed that the accrual of
interest with respect to indebtedness in existence on the date of this Agreement
shall not be deemed to be incurrence of indebtedness);

 

(o)           terminating or
materially amending any of the Company’s Material Contracts, except in the
Ordinary Course;

 

45

 

(p)           entering into any
new Material Contract other than in the Ordinary Course;

 

(q)           incurring
any obligation, the terms of which would be violated by the consummation of the
transactions contemplated herein;

 

(r)            making,
authorizing or entering into any agreement with respect to any capital
expenditures other than capital expenditures not exceeding $50,000 individually
or in the aggregate;

 

(s)           making
any loans, advances or capital contributions to, or investments in, any other
Person other than in the Ordinary Course;

 

(t)            mortgaging
or pledging any of the Company’s assets or properties, tangible or intangible,
or creating any Lien with respect to any such asset or property;

 

(u)           entering
into any agreement or arrangement that could limit or otherwise restrict the
Company from engaging or competing in any line of business or in any geographic
area;

 

(v)           terminating
any employee or independent contractor of any Acquired Company without cause;

 

(w)          hiring
any Person as an employee, or engaging any Person as an independent contractor,
of any Acquired Company, except in the Ordinary Course (for purposes of this
clause (w), “Ordinary Course” includes by way of example, but not in
limitation, hiring an employee or engaging an independent contractor for the
purpose of replacing an Employee or independent contractor who has voluntarily
resigned);

 

(x)            distributing
any cash after the close of business on the day immediately preceding the
Closing Date; and

 

(y)           agreeing
or committing to do any of the foregoing.

 

6.2                               Approvals.  Prior to Closing, the Company shall use its
commercially reasonable efforts to obtain all Approvals listed in Section 4.4(a) of
the Company Disclosure Schedule in order to affirmatively (A) vest in
Merger Sub all of the Acquired Companies’ rights in such agreements, and (B) prevent,
as a result of the Merger, any termination rights, change of control rights or
other impairment of rights from arising under such agreements.

 

6.3                               Stockholder
Approvals. (a) The Company will, through the Company Board (but subject to its
fiduciary duties as determined in good faith by the Company Board in
consultation with outside counsel), recommend to the Company Stockholders
approval of the transactions contemplated by this Agreement and will not
rescind such recommendation unless required to do so to comply with its
fiduciary duties as determined in good faith by the Company Board in
consultation with outside counsel. 
Subject to its fiduciary duties as determined in good faith by the
Company Board in consultation with outside counsel, the Company shall cause a
special meeting of its Stockholders to be duly called and held as soon as
practicable after the date hereof (the “Company Stockholder
Meeting”), or take action by written consent, in each case in
accordance with the MBCA and the Organizational Documents of the Company, for
the purpose

 

46

 

of obtaining the affirmative
vote in favor of adoption of this Agreement, and the consummation of the Merger
and the transactions contemplated hereby of the holders of a
majority of the outstanding shares of Company Common Stock and, if required in order to comply with
the provisions of the MBCA or the
Organizational Documents of the Company, the waiver of each and every Company
Stockholder with respect to any notice required to be given in connection with
the actions described in this Section 6.3(a) (the “Company Stockholder Approval”).

 

(b)           Purchaser will, through the Purchaser
Board, recommend to Purchaser’s relevant stockholders approval of the
transactions contemplated by this Agreement and will not rescind such
recommendation.  Purchaser shall cause a
special meeting of its stockholders to be duly called and held as soon as
practicable after the date hereof, or take action by written consent, for the
purpose of obtaining the affirmative vote in favor of adoption of this
Agreement, and the consummation of the Merger and the transactions contemplated
hereby, in each case as required by the MGCL, the Organizational Documents of
Purchaser and the Purchaser Stockholders Agreement (the “Purchaser Stockholder Approval”).

 

6.4                               Delivery
of Information to Stockholders; “Blue Sky” Matters.  (a) The Company shall prepare such informational documents (the “Proxy Materials”) to solicit the proxies or written
consents of such Company Stockholders as are necessary to obtain the Company
Stockholder Approval.  The Company shall
provide to the Purchaser drafts of the Proxy Materials and any materials to be
delivered to Company Stockholders in connection herewith, and shall not deliver
any such materials to any Company Stockholder without the prior written consent
of Purchaser, which consent shall not be unreasonably withheld.  The Company shall incorporate into the Proxy
Materials such information as Purchaser shall provide for the purpose of
providing disclosure to Company Stockholders about the business and financial
condition of Purchaser.

 

(b)           Purchaser
shall obtain all necessary state securities law or “Blue Sky” Approvals
required to carry out the transactions contemplated hereby, and the Company
shall furnish all information about the Acquired Companies and the Company
Stockholders as may be reasonably requested by Purchaser in connection with
such action.

 

(c)           Prior
to the Closing, the Company shall obtain from each Company Stockholder, and
deliver to Purchaser, an Accredited Investor Questionnaire in form and
substance reasonably satisfactory to Purchaser and the Company (each, an “Investor Questionnaire”).

 

6.5                               No
Solicitation. (a) Neither the Company nor any
Principal Stockholder will permit or authorize any of its respective
Representatives to, directly or indirectly, take any of the following actions
with any Person other than the Purchaser without the prior written consent of
the Purchaser: (i) solicit, initiate, facilitate or encourage, or furnish
information with respect to the Company, in connection with any inquiry,
proposal or offer with respect to any merger, consolidation or other business
combination involving the Company or the acquisition of all or a substantial
portion of the assets of, or any securities of, the Company (an “Alternative
Transaction”); (ii) negotiate, discuss, explore or
otherwise communicate or cooperate in any way with any third Person with
respect to any Alternative Transaction; or (iii) enter into any agreement,
arrangement or understanding with respect to an Alternative Transaction or
requiring

 

47

 

the Company to abandon, terminate or refrain
from consummating a transaction with the Purchaser.

 

(b)           The
Company and each Principal Stockholder shall, and shall use its commercially
reasonable efforts to cause its Representatives to, notify the Purchaser orally
and in writing immediately upon receipt of any written offer with respect to an
Alternative Transaction, including the identity of the Person (a “Potential Acquirer”) making such offer and
stating the terms thereof, and shall thereafter immediately inform the
Purchaser of any change in the status of any discussions or negotiations with
such Potential Acquirer and any changes to the terms and conditions of such
Alternative Transaction and shall promptly give the Purchaser a copy of any
business or financial information related to the Company delivered to such Person
which has not previously been reviewed by the Purchaser.

 

(c)           The
Company and each Principal Stockholder shall immediately cease any discussions
or negotiations existing as of the date hereof with any third Person relating
to any proposed Alternative Transaction, and shall request that all
confidential information furnished on behalf of the Company to any such Persons
be returned.

 

(d)           The
Company Board shall not (i) withdraw or modify, or propose publicly to withdraw or modify,
in a manner adverse to the Purchaser, the approval or recommendation by such
Company Board of the transactions contemplated by this Agreement; (ii) approve
or recommend, or propose to
approve or recommend, any Alternative Transaction, or (iii) cause
the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to any Alternative Transaction.

 

6.6                               Access
to Information. 
At all times prior to the earlier of Closing Date or the termination of
this Agreement, the Company will permit the Purchaser and/or its
Representatives to perform due diligence, to examine the contracts, books,
records and other information of Company, including, without limitation, all
Material Contracts, and make copies thereof at such reasonable times as
Purchaser or its Representatives may request by reasonable prior notice to
Company (which notice may be oral) in a manner so as not to interfere with the
normal business operations of Company.

 

6.7                               Stockholders’
Agent. (a) By virtue of the approval of
this Agreement and the Merger by the requisite vote of the Company
Stockholders, each Company Stockholder (other than such Company Stockholder, if
any, holding Dissenting Shares) shall be deemed to have agreed to appoint Ron
Pellegrino as the agent of the Company Stockholders (the “Stockholders’
Agent”) for and on behalf of the Company Stockholders, and such
Stockholders’ Agent shall have such authority as granted herein, be constituted
and appointed as such to give and receive notices and communications, to
authorize delivery to any party of funds from the Escrowed Cash and/or shares
from the Escrowed Shares in satisfaction of claims by such party, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Stockholders’ Agent for the accomplishment
of the foregoing.  Such agency may be
changed from time to time upon prior written notice to Purchaser.  No bond shall be required of the Stockholders’
Agent, and the Stockholders’ Agent shall receive no compensation for his
services.  Notices or

 

48

 

communications to or from the Stockholders’
Agent shall constitute notice to or from each of the Company Stockholders.

 

(b)           The
Stockholders’ Agent shall not be liable to any Company Stockholder for any act
done or omitted hereunder as the Stockholders’ Agent while acting in good faith
and in the exercise of reasonable judgment, even though such act or omission
constitutes negligence on the part of the Stockholders’ Agent, and any act done
or omitted pursuant to the advice of counsel shall be conclusive evidence of
such good faith.  The Stockholders’ Agent
shall only have the duties expressly stated in this Agreement and shall have no
other duty, express or implied.  The
Stockholders’ Agent may engage attorneys, accountants and other professionals
and experts as it determines necessary. 
The Stockholders’ Agent may in good faith rely conclusively upon
information, reports, statements and opinions prepared or presented by such
professionals, and any action taken by the Stockholders’ Agent based on such
reliance shall be deemed conclusively to have been taken in good faith and in
the exercise of reasonable judgment.  The
Stockholders’ Agent will serve without compensation.

 

6.8                               Confidentiality.  Each Party agrees that all disclosures of
information by another Party in connection with this Agreement or the
transactions contemplated hereby shall be governed by that certain
Nondisclosure Agreement between the Company and Purchaser dated January 26,
2007 (the “Confidentiality Agreement”), which is
incorporated herein by reference.

 

6.9                               Publicity.  At the proper time, as determined by the
Parties in good faith consultation with each other, the Parties may issue a
press release or make a public statement concerning this Agreement and the
related transactions containing disclosure which is mutually agreeable to the
Parties; provided, that prior to the issuance of
a press release, no Party hereto shall make any announcement of such
transaction or disclose the existence of and/or particulars of any negotiations
related thereto, including, but not limited to, the terms, conditions,
consideration to be paid or other facts related to this Agreement and the
related transactions, except to the extent that, in the reasonable judgment of
the Purchaser upon advice of counsel, public disclosure is required by
applicable Law, in which case, to the extent practicable, the parties will use
their reasonable best efforts to reach mutual agreement on disclosure language
prior to making such disclosure

 

6.10                        Expenses.  The Purchaser and the Company shall each bear
their own expenses (including those of their Representatives, in accordance
with their separate agreements with their Representatives) incurred by any of
them in connection with this Agreement and the transactions contemplated
herein; provided, however that Purchaser will also bear all Taxes directly
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby (other than any Taxes incurred by the Company primarily as
a result of actions by the Company or any Company Stockholder prior to the
Effective Time in violation of this Agreement or which constitute a breach or
inaccuracy of any representation and warranty of the Company herein) in the
event that the transactions contemplated by this Agreement are
consummated.  Without limiting the
generality of the foregoing, all transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred by
the Purchaser or the Company in connection with the consummation of the
transactions contemplated by this Agreement shall be paid by Purchaser when
due, and Purchaser will, at its own expense, file all necessary Tax Returns and

 

49

 

other documentation with respect to all such Taxes, fees and charges,
and, if required by applicable law, the Parties will, and will cause their
Affiliates to, join in the execution of any such Tax Returns and other
documentation.

 

6.11                        Other
Actions. 
Subject, in the case of the
Company, to its fiduciary duties as determined in good faith by the Company
Board in consultation with outside counsel, each of the Parties shall
use their commercially reasonable efforts to cause the fulfillment at the
earliest practicable date of all of the conditions to the Parties’ respective
obligations to consummate the transactions contemplated by this Agreement and
to cause the Closing to occur.

 

6.12                        Intentionally
reserved.

 

6.13                        Summary
of Consideration.  Promptly after the Company Stockholders
Meeting, the Company shall deliver
to Purchaser a list of Company Stockholders, which shall be attached hereto as
Appendix P, setting forth for each (a) whether the Company Stockholder is
an Accredited Holder or a Non-Accredited Holder; (b) the number of shares
of Company Common Stock held by such Company Stockholder; (c) the amount
of Initial Cash Consideration, if any, to be paid to such Company Stockholder
in accordance herewith; and (d) the amount of Initial Stock Consideration,
if any, to be paid to such Company Stockholder in accordance herewith.

 

ARTICLE
VII

CONDITIONS
TO THE OBLIGATIONS

OF THE
PURCHASER AND THE MERGER SUB

 

The obligations of the Purchaser and the Merger Sub to consummate the
transactions contemplated by this Agreement at the Closing are subject to the
satisfaction, at or prior to the Closing, of the conditions set forth in this
ARTICLE VII, unless waived in writing by the Purchaser:

 

7.1                               Representations
and Warranties of the Company.  The representations and warranties contained
in ARTICLE IV hereof shall be true and accurate in all material respects as of
the date when made and shall be deemed to be made again at and as of the
Closing Date and shall then be true and accurate in all material respects
(except for changes contemplated by this Agreement and except for
representations and warranties that by their terms speak as of the date of this
Agreement or some other date which shall be true and correct in all material
respects only as of such date).

 

7.2                               Performance
of Covenants. 
The Company shall have performed and complied in all material respects
with the covenants and agreements required by this Agreement to be performed or
complied with by it prior to or on the Closing Date.

 

7.3                               Stockholder
Approvals. 
The Company Stockholder Approval and the Purchaser Stockholder Approval
shall each have been obtained.

 

7.4                               Approvals.
All authorizations of all Government Entities required for the consummation of
the Merger shall have been obtained and shall be in full force and effect and
all waiting periods required by Law shall have expired.  The Company shall have obtained all Approvals
required to be obtained by Section 6.2.

 

50

 

7.5                               No
Legal Obstruction. No Government Entity shall
have enacted, issued, promulgated, enforced or entered into any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and prohibits the consummation of
the transactions contemplated by this Agreement.

 

7.6                               Opinion
of Counsel. 
The Purchaser shall have received from Honigman Miller Schwartz and Cohn
LLP an opinion, dated the Closing Date, in form and substance reasonably
satisfactory to Purchaser and the Company.

 

7.7                               Intentionally
reserved.

 

7.8                               Dissenters’
Rights. 
Dissenters’ rights shall not have been exercised by Company Stockholders
owning, in the aggregate, more than five percent (5%) of the Company Common
Stock.

 

7.9                               Payment
of Company Transaction Costs.  The Company shall have paid all of the
Company Transaction Costs.

 

7.10                        Financing.  Purchaser shall have consummated the Equity
Round.

 

7.11                        Conversion
of Existing Series BB Shares.  The holders of all shares of Purchaser’s
issued and outstanding Series BB Convertible Preferred Stock, par value
$0.01 per share, shall have converted such shares to shares of Series AA
Stock.

 

ARTICLE
VIII

CONDITIONS TO THE OBLIGATIONS OF THE COMPANY

 

The obligations of the Company to consummate the transactions
contemplated by this Agreement at the Closing are subject to the satisfaction,
at or prior to the Closing, of the conditions set forth in this ARTICLE VIII,
unless waived in writing by the Company:

 

8.1                               Representations
and Warranties of the Purchaser and Merger Sub.  The representations and warranties contained
in ARTICLE V hereof shall be true and accurate in all material respects as of
the date when made and shall be deemed to be made again at and as of the
Closing Date and shall then be true and accurate in all material respects
(except for changes contemplated by this Agreement and except for
representations and warranties that by their terms speak as of the date of this
Agreement or some other date which shall be true and correct only as of such
date).

 

8.2                               Performance
of Covenants. 
The Purchaser and the Merger Sub shall have performed and complied in
all material respects with each and every covenant, agreement and condition
required by this Agreement to be performed or complied with by each of them
prior to or on the Closing Date.

 

8.3                               Stockholder
Approvals. 
The Company Stockholder Approval and the Purchaser Stockholder Approval
shall each have been obtained.

 

51

 

8.4                               Approvals.
All authorizations of all Government Entities required for the consummation of
the Merger shall have been obtained and shall be in full force and effect and
all waiting periods required by Law shall have expired.

 

8.5                               No
Legal Obstruction. No Government Entity shall
have enacted, issued, promulgated, enforced or entered into any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and prohibits the consummation of
the transactions contemplated by this Agreement.

 

8.6                               Opinion
of Counsel. 
The Stockholders’ Agent shall have received from Venable LLP an opinion,
dated the Closing Date and addressed to the Company Stockholders, in form and
substance reasonably satisfactory to Purchaser and the Company.

 

8.7                               Form of
Sixth Articles of Amendment and Restatement of Purchaser.  The Form of Sixth Articles of Amendment
and Restatement of Purchaser in substantially the form attached hereto as Appendix
N shall have been filed and be effective.

 

ARTICLE IX

TERMINATION,
AMENDMENT & WAIVER

 

9.1                               Termination
of Agreement. 
This Agreement may be terminated at any time prior to the Closing Date:

 

(a)                                  by
mutual, written consent of the Purchaser and the Company;

 

(b)                                 by
Purchaser, if:

 

(i)                                     there
has been a misrepresentation or breach on the part of the Company in the
representations, warranties or covenants set forth in this Agreement, that
would result in a failure to satisfy the closing conditions set forth in either
Section 7.1 or 7.2 which, in the case of a misrepresentation
or breach, is not cured within ten (10) Business Days after the Company
has been notified in writing by Purchaser of such misrepresentation or breach,
or

 

(ii)                                  the
Closing shall not have occurred on or before July 31, 2007, unless such
failure was within the control of Purchaser;

 

(c)                                  by
the Company, if:

 

(i)                                    there
has been a misrepresentation or breach on the part of the Purchaser in the
representations, warranties or covenants set forth in this Agreement that would
result in a failure to satisfy the closing conditions set forth in either Section 8.1
or 8.2, which is not cured within ten (10) Business Days after
Purchaser has been notified in writing by Purchaser of such misrepresentation
or breach, or

 

52

 

(ii)                                the
Closing shall not have occurred on or before July 31, 2007, unless such
failure was within the control of the Company;

 

(d)                                 by
either the Purchaser or the Company, if:

 

(i)                                   any
permanent injunction or action by any court or other Government Entity of
competent jurisdiction enjoining, or otherwise prohibiting consummation of any
of the transactions contemplated by this Agreement shall become final and
nonappealable;

 

(ii)                                the Company Stockholder Approval shall
not have been obtained solely
by reason of the failure to obtain the required vote at a duly held meeting of
Company Stockholders or any adjournment thereof;

 

(iii)                             the Purchaser Stockholder Approval shall
not have been obtained solely by reason of the failure to obtain the required
vote at a duly held meeting of Purchaser’s stockholders or any adjournment
thereof; or

 

(iv)                            dissenters’ rights are exercised by
Company Stockholders owning, in the aggregate, more than five percent (5%) of
the Company Common Stock.

 

9.2                               Effect
of Termination. (a) In the event of
termination of this Agreement as expressly permitted under Section 9.1,
this Agreement shall forthwith become void (except for this Section 9.2,
Sections 6.8, 6.9 and 6.10, and ARTICLE X (excluding 10.1(a) and
10.2(a)) and ARTICLE XI).  In the
event of termination hereunder prior to the Closing, the Purchaser and the
Company shall return promptly to the other, or destroy and certify such
destruction in writing, all documents, work papers and other material furnished
or made available to such Party or their Representatives and all copies
thereof, and no information received by such Party shall be revealed to any
third Person nor used for the advantage of any third Person.

 

9.3                               Amendment.  This Agreement may not be amended, except by
an instrument in writing signed on behalf of each of the Parties.  The Company and the Purchaser may amend this
Agreement at any time prior to the filing of the Maryland Articles with SDAT or
the filing of the Michigan Certificate with the Michigan Department.  After the Company Stockholder Approval or
Purchaser Stockholder Approval has been obtained, this Agreement may be amended
by the Parties by action taken or authorized by their respective boards of
directors, unless such amendment would alter or change the amount or form of
the Merger Consideration, or such change would materially adversely affect the
Company Stockholders.

 

9.4                               Extension;
Waiver. 
At any time prior to the Closing, the Parties may (a) extend the
time for the performance of any of the obligations or other acts of any other
Party; (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (c) waive
compliance with any of the agreements or conditions contained herein.  Any agreement on the part of a Party to any
such extension or waiver shall be valid only if set forth in writing in an
instrument signed by or on behalf of such Party.  The waiver by any Party of a breach of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.

 

53

 

ARTICLE X

INDEMNIFICATION

 

10.1                        By
Purchaser. 
The Purchaser shall, in accordance with this Article X,
indemnify, defend, protect and hold harmless the Company (prior to the
Effective Time) and the Company Stockholders and their respective assigns,
successors and Affiliates (each, a “Stockholder Party”) from, against
and in respect of all Damages suffered, sustained, incurred or paid by any
Stockholder Party in connection with, resulting from or arising out of:

 

(a)           any
inaccuracy of any representation or the breach of any warranty of the Purchaser
or Merger Sub set forth in this Agreement or any certificates delivered on the
part of the Purchaser in connection with the Closing (in each case, without regard to any
qualification or limitation with respect to “materiality,” whether by reference
to “in any material respect,” “Material Adverse Effect” or any other use of “material”);

 

(b)           the
nonfulfillment of any covenant or agreement on the part of the Purchaser or
Merger Sub set forth in this Agreement or in any agreement or certificate
executed and delivered by the Purchaser or Merger Sub pursuant to this
Agreement or in the transactions contemplated hereby; and/or

 

(c)           any
payment due to any investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of any Purchaser
Company, any holder of any equity securities of any Purchaser Company (individually
or with others) who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.

 

10.2                        By
The Company and Company Stockholders.  The Company (prior to the Effective Time) and
the Company Stockholders shall, jointly and severally, in accordance with this Article X,
indemnify, defend, protect and hold harmless the Purchaser, the Merger Sub and
their respective assigns, successors and Affiliates (each, a “Purchaser
Party”) from, against and in respect of all Damages suffered,
sustained, incurred or paid by any Purchaser Party in connection with,
resulting from or arising out of:

 

(a)           any
inaccuracy of any representation or the breach of any warranty of the Company
set forth in this Agreement or any certificates delivered on the part of the
Company in connection with the Closing (in each case, without regard to any
qualification or limitation with respect to “materiality,” whether by reference
to “in any material respect,” “Material Adverse Effect” or any other use of “material”);

 

(b)           the
nonfulfillment of any covenant or agreement on the part of the Company set
forth in this Agreement or in any agreement or certificate executed and
delivered by the Company pursuant to this Agreement or in the transactions contemplated
hereby;

 

(c)           Liabilities
arising from or relating to the failure of any Acquired Company to obtain any
workers’ compensation insurance as required by the Laws of the State of Ohio;
and/or

 

(d)           any
payment due to any investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of any Acquired
Company, any

 

54

 

holder of any equity securities of any Acquired Company (individually
or with others) who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement, including W.Y. Campbell &
Company.

 

10.3                        Waiver
of Contribution.  Notwithstanding anything herein to the
contrary, if the Closing occurs, (i) each Company Stockholder hereby
waives any right of contribution, reimbursement or other rights of recovery
that they might otherwise have against the Company in connection with any such
indemnification or other obligations, and (ii) the Company shall be deemed
to be a Purchaser Party as of the Effective Time.

 

10.4                        Notice
of Claims. 
The Purchaser shall notify the Stockholders’ Agent, or the Stockholders’
Agent shall notify the Purchaser, as the case may be, in writing within a
reasonable period of time after becoming aware of any Damages which a Purchaser
Party or Stockholder Party, as the case may be, shall have determined has given
or could give rise to a claim for indemnification under Article X
hereof.  Such written notice (a “Claim Notice”) shall make specific reference to Article X
of this Agreement and include an estimate of the Damages that such party has
determined may be incurred.  As soon as
practicable after the date of such Claim Notice, the delivering party shall
provide to the recipient all information and documentation necessary to support
the Damages so claimed and the indemnifying party and its agents shall be given
access to all books and records in the possession or control of the other party
which the indemnifying party reasonably determines to be related to such claim.

 

10.5                        Procedure
for Third Party Claims.  (a) If any third Person shall commence
an Action against any party with respect to any matter (a “Third Party
Action”) which may give rise to a claim for indemnification under
this Article X, such party shall notify the indemnifying party in
writing as soon as practicable (such notice being hereinafter called a “TPA Notice”).  It is
agreed that no delay on the part of the indemnified party in notifying the
indemnifying party of any Third Party Action will relieve the indemnifying
party thereby unless the indemnifying party is prejudiced by such failure to
give notice (and in such case the indemnifying party shall be relieved only the
extent of such prejudice).  The
indemnifying party will have thirty (30) days from the delivery of such TPA
Notice, to determine whether or not it will, at its sole cost and expense,
defend against such Third Party Action and/or (ii) the indemnifying party
is disputing the claim for indemnity hereunder.

 

(b)           If
the indemnifying party (i) does not respond to the TPA Notice by 5:00 p.m.,
Baltimore, Maryland time on the last day of the thirty (30) day period set
forth in Section 10.5(a), or (ii) responds to the TPA Notice
and does not dispute the claim for indemnity but elects not to assume the
defense, in each case within the period allowed after delivery of the TPA
Notice, the indemnified party shall have the right to defend against any such
Third Party Action or to settle or pay any such Third Party Action for such an
amount as the indemnified party shall deem appropriate (a “Third Party
Indemnity Amount”), which amount shall be paid by the indemnifying
party subject to the terms and conditions of Section 10.6.

 

(c)           If
the indemnifying party affirmatively disputes the right to indemnity,
regardless of whether the indemnifying party elects to defend against any such
Third Party Action or settle or pay any such Third Party Action, any right of
an indemnified party to recover from the

 

55

 

indemnifying party shall depend
on the resolution of the dispute as to the right of indemnity in accordance
with Section 10.2 hereof.

 

(d)           Notwithstanding
anything herein to the contrary, if the indemnifying party notifies the applicable
indemnified party that the indemnifying party will defend against or settle any
Third Party Action:

 

(i)                                     such
defense or settlement shall be at the sole cost and expense of the indemnifying
party, except for costs and expenses of the indemnified party’s counsel, if
any, pursuant to items (v) and (vi) below;

 

(ii)                                the
indemnifying party and its counsel shall conduct such defense or settlement in
a reasonably prudent manner to protect the indemnified party fully;

 

(iii)                             the
indemnifying party and its counsel shall keep the indemnified party fully
advised as to its conduct of such defense or settlement, and shall not
compromise or settle such Third Party Action without the prior written consent
of the indemnified party (not to be unreasonably withheld or delayed) unless
such settlement or compromise does not subject the indemnified party to any
monetary liability, includes a complete, unconditional release of the
indemnified party from all liability with respect to such Third Party Action,
and includes an express provision to the effect that the settlement or
compromise does not constitute an acknowledgement or acceptance by the
indemnified party of any fault, culpability, or responsibility of any kind;

 

(iv)                              the
indemnified party shall reasonably cooperate with the indemnifying party,
including making available pertinent documents and information and appropriate
personnel;

 

(v)                                 the
indemnified party may elect to employ its own counsel and participate in such
defense or settlement at the indemnified party’s sole cost and expense, but the
control of such defense or settlement shall rest with the indemnifying party;

 

(vi)                              notwithstanding
the indemnifying party’s election to defend against or settle the Third Party
Action, within forty-five (45) days of such indemnifying party’s election or
within forty-five (45) days of becoming aware of any new fact or circumstance
materially relevant to clauses (A), (B), (C) or (D) below, the
indemnified party may, upon written notice to the indemnifying party, elect to
employ its own counsel and assume control of such defense or settlement if (A) the
indemnifying party or any of its Affiliates is also a Person against whom the
Third Party Action is made and the indemnified party determines in good faith
that joint representation would be inappropriate; (B) the indemnified
party determines in good faith that the indemnified party may have available to

 

56

 

it one or more defenses or counterclaims that
are inconsistent with, different from, or in addition to one or more of those
that may be available to the indemnifying party or any of its Affiliates with
respect to such Third Party Action; (C) the indemnifying party fails to
provide reasonable assurance to the indemnified party of their financial
capacity to defend such Third Party Action; (D) the indemnifying party
shall not in fact have employed counsel reasonably satisfactory to the
indemnified party for the defense or settlement of such Third Party Action; provided, however, that the assumption of control of the
defense or settlement of a Third Party Action by the indemnified party pursuant
to this item (vi) shall not relieve the indemnifying party of its
obligation, if any, to indemnify and hold the indemnified party harmless; and

 

(e)                                  Subject
to the other provisions of this Section 10.5, if the indemnifying
party:

 

(i)                                   does
not respond to a TPA Notice by 5:00 p.m., Baltimore, Maryland time on the
last day of the thirty (30) day period set forth in Section 10.5(a);

 

(ii)                                does
not elect to defend against any Third Party Action for which the indemnifying
party does not dispute the indemnified party’s right to indemnity;

 

(iii)                             does
not elect to defend against any Third Party Action for which the indemnifying
party disputes the indemnified party’s right to indemnity, and such dispute is
resolved, in accordance with Section 10.2, in a manner affirming
the indemnified party’s right to indemnity;

 

(iv)                            elects
to defend against any Third Party Action for which the indemnifying party does
not dispute the indemnified party’s right to indemnity hereunder; or

 

(v)                               elects
to defend against any Third Party Action for which the indemnifying party
disputes the right to indemnity, to the extent the dispute is resolved, in
accordance with Section 10.2, in a manner affirming the indemnified
party’s right to indemnity; then:

 

the Damages resulting from the settlement or
the final, non-appealable adjudication of such Third Party Action, or that
portion thereof as to which the defense is unsuccessful (such Damages and Third
Party Indemnity Amounts, are interchangeably and collectively referred to
herein as “Final Losses”), shall be paid by the
indemnifying party in accordance with Section 10.6, subject to the
other limitations contained in this ARTICLE X, including under Section 10.7.

 

10.6                        Satisfaction
of Claims. 
The obligation of the Stockholder Parties to pay Final Losses shall be
satisfied as follows or any other claims under this ARTICLE X:

 

(a)           First,
if any portion of the Second Tranche of Escrowed Cash and Second Tranche of
Escrowed Shares have not been distributed to the Company Stockholders:

 

57

 

(i)                                     the
Purchaser shall be paid, out of the then-remaining Second Tranche of Escrowed
Cash, an amount (the “Cash Portion of Final
Loss”) equal to the Final Loss multiplied by the Cash Election
Percentage, and such amount of the Second Tranche of Escrowed Cash shall be
deemed to have been fully and forever forfeited by the Company Stockholders;
and

 

(ii)                                  the
Company Stockholders shall be deemed to have fully and forever forfeited the
right to receive a number of the then-remaining Second Tranche of Escrowed
Shares (the “Stock Portion of Final Loss”)
equal to (x) the amount of the Final Loss multiplied by the Stock Election
Percentage divided by (y) the Share Value.

 

(b)           Second,
if any amount of the Final Loss remains unsatisfied after the application of
Escrowed Cash and Escrowed Shares pursuant to Section 10.6(a),
subject to the limitations contained in this ARTICLE X, the Company
Stockholders shall be jointly and severally liable for paying such unsatisfied
portion of the Final Loss to Purchaser, with such payments being made in cash,
or, at the election of any Company Stockholder, a combination of cash and Series AA
Stock (valued for purposes of satisfying the Final Loss at the Share Value);
provided that the maximum number of Series AA Stock a Company Stockholder
may elect to transfer to Purchaser in satisfaction of the Final Loss may not
exceed the number of shares of Series AA Stock as equals the product of (i) the
unsatisfied portion of the Final Loss being paid by such Company Stockholder
divided by the Share Value (ii) multiplied by a fraction of the numerator
of which is the number of Stock Election Shares held by such Company
Stockholder on the Closing Date divided by the total number of Company Common
Shares held by the Company Stockholder on the Closing Date.

 

10.7                        Claims
Period; Limitations. (a) The period
during which a claim for breach of a representation or warranty or
indemnification may be asserted under this Agreement by a Stockholder Party
(the “Stockholder Claims Period”) shall
begin on the Closing Date and shall terminate on the date that is twelve (12)
months after the Closing Date after which time no such claim may be brought; provided,
however, that notwithstanding the foregoing, the Stockholder Claims
Period during which a claim for indemnification may be asserted with respect to
Section 5.9 (Taxes) 5.2 (Corporate Power and Authority) and 5.4
(Capitalization) shall begin on the Execution Date and shall terminate thirty
(30) days after the expiration of the statute of limitations applicable to the
subject matter thereof to which the claim for indemnification relate; and

 

(b)           The
period during which a claim for breach of a representation or warranty or
indemnification may be asserted under this Agreement by a Purchaser Party (the “Purchaser Claims Period” and together with the Stockholder
Claims Period, each a “Claims Period”)
shall begin on the Closing Date and shall terminate on the date that is twelve
(12) months after the Closing Date after which time no such claim may be
brought; provided, however, that notwithstanding the foregoing,
the Purchaser Claims Period during which a claim for indemnification may be
asserted with respect to:

 

(i)                                     Section 4.11
(Tax Matters) shall begin on the Execution Date and shall terminate thirty (30)
days after the expiration of the statute of limitations

 

58

 

applicable to the subject matter thereof to
which the claim for indemnification relate;

 

(ii)                                Section 4.8
(Intellectual Property) shall begin on the Execution Date and shall terminate
three (3) years after the Closing Date; and

 

(iii)                             Sections
4.2(a) (Corporate Power; Authority) and 4.3 (Capitalization)
shall begin on the Effective Date and shall continue indefinitely; provided,
that the parenthetical descriptions included after the Section references
in the foregoing clauses (i) and (ii), this clause (iii) and Section 10.7(a) are
included for convenience only and shall not be deemed to limit or affect any of
the provisions hereof.

 

(c)                                  Notwithstanding
the foregoing, if, prior to the close of business on the last day of the
applicable Claims Period, an Indemnifying Party shall have been properly
notified of a claim for indemnity hereunder and such claim shall not have been
finally resolved or disposed of at such date, such claim shall continue to
survive and shall remain a basis for indemnity hereunder until such claim is
finally resolved or disposed of in accordance with the terms hereof.  The intention of Sections 10.7(a) and
10.7(b) is to shorten the applicable statutes of limitations for
which to bring claims for indemnity under this Agreement.

 

(d)                                 Notwithstanding
anything herein to the contrary:

 

(i)                                   the
liability of the Company Stockholders pursuant to claims for indemnification
asserted under Section 10.2(a) (except for claims with respect
to breaches of Sections 4.1(a), 4.8 or 4.11) shall not exceed, in the
aggregate, the Second Tranche of Escrowed Cash and the Second Tranche of
Escrowed Shares, and the sole source for recovery and sole remedy of Purchaser
and the Merger Sub with respect to claims asserted under Section 10.2(a) (except
for claims with respect to breaches of Section 4.1(a) 4.8
or 4.11) shall be the Second Tranche of Escrowed Cash and the Second
Tranche of Escrowed Shares held in escrow pursuant to the Escrow Agreement;

 

(ii)                                the
aggregate liability of the Company Stockholders pursuant to claims for
indemnification asserted under Section 10.2(a) solely with
respect to breaches of Sections 4.8 shall not exceed an amount equal to
the sum of (x) the amount of the Second Tranche of Escrowed Cash, plus (y) the
product obtained by multiplying the number of shares in the Second Tranche of
Escrowed Shares by the Share Value;

 

(iii)                             the
liability of Purchaser pursuant to claims for indemnification asserted under Section 10.1(a) (except
for claims with respect to breaches of Sections 5.2, 5.4 and 5.9)
shall not exceed, in the aggregate, an amount equal to the sum of (x) the
amount of the Second Tranche of Escrowed Cash, plus (y) the product
obtained by multiplying the number of shares in the Second Tranche of Escrowed
Shares by the Share Value; and

 

59

 

(iv)                              In
no event shall the Purchaser or the Merger Sub be entitled to recover or make a
claim for any amounts in respect of consequential, special,  contingent, incidental or indirect damages,
lost profits or punitive damages and, in particular, no “multiple of profits,” “multiple
of revenues” or “multiple of cash flow” or similar valuation methodology shall
be used in calculating the amount of any Damages.

 

(v)                                 None of the Parties will have any
liability to another Party under this ARTICLE X for any Damages to the extent
such Damages relate to a liability or matter with respect to which the
aggrieved Party has made recovery from a Person other than another Party to
this Agreement.

 

(e)           Notwithstanding
anything herein to the contrary:

 

(i)                                   the
Company Stockholders will have no liability with respect to claims for
indemnification under Section 10.2(a) unless and until the
aggregate amount of such liability exceeds One Hundred Fifty Thousand Dollars
($150,000) (the “Threshold Amount”), at which time
the Company Stockholders shall be entitled to recover under Section 10.2(a) the
entire amount of such liability, including the Threshold Amount, subject the
cap set forth in Section 10.7(d)(i);

 

(ii)                                the
Purchaser Parties will have no liability with respect to claims for
indemnification under this Section 10.1(a) unless and until
the aggregate amount of such liability exceeds the Threshold Amount, at which
time the Purchaser shall be entitled to recover under Section 10.1(a) the
entire amount of such liability, including the Threshold Amount, subject the
cap set forth in Section 10.7(d)(ii);

 

(iii)                             the
Company Stockholders shall have no Liability under this Agreement and no claim
for indemnification under this Agreement may be made by any Purchaser Party
with respect to any claim that individually does not give rise to Damages
subject to indemnification hereunder which exceed Seven Thousand Five Hundred
($7,500) Dollars and no such claim shall be counted toward the Threshold
Amount; provided that in determining whether multiple events are
considered one claim or multiple claims for purposes of applying the foregoing,
multiple events which give rise to Damages shall be considered one claim, if
and only if, they arise from the same breach, facts, circumstances and action
or inaction.  By way of example, breaches
of a single representation regarding several Material Contracts could
constitute multiple claims.  Similarly, a
breach of several representations giving rise to distinct and different Damages
under one Material Contract could also constitute multiple claims.   However, various sources of Damages or
repeated reoccurrences of the same source of Damage arising out of a single
breach of a single representation regarding a single Material Contract could be
aggregated as part of the same claim;

 

60

 

(iv)                              the
Purchaser Parties shall have no Liability under this Agreement and no claim for
indemnification under this Agreement may be made by any Company Stockholder
with respect to any claim that individually does not give rise to Damages
subject to indemnification hereunder 
which exceed Seven Thousand Five Hundred ($7,500) Dollars; provided that
in determining whether multiple events are considered one claim or multiple
claims for purposes of applying the foregoing, multiple events which give rise
to Damages shall be considered one claim, if and only if, they arise from the
same breach, facts, circumstances and action or inaction.

 

10.8        Exclusive
Remedies. 
Excluding fraud, the remedies of the parties set forth in this Article X
are intended to be the sole and exclusive remedies and sole and exclusive
liabilities and remedies of the parties for all matters related to breaches of
this Agreement, or the transactions contemplated by this Agreement, regardless
of the legal theory pursuant to which liability is claimed, except for the
remedies of injunctive relief provided in Section 11.8 with respect
to the specific matters to which such Section relates.

 

10.9        Access
to Business Documents and Personnel; Defense of Claims.
After the Effective Time, Purchaser shall retain all Tax returns, related
schedules and work papers and all other material records and other documents
relating to the Company or the Business (the “Documents”)
for periods prior to, or including the Closing until December 31, 2014
(the “Document Period”) or any longer period
of time required by Law as applicable to the Purchaser or the Company or that
Purchaser is advised by the Stockholders’ Agent as being required by Law as
applicable to any Company Stockholder. 
During the Document Period, Purchaser will afford the Company
Stockholders and their respective Representatives, free and full access at appropriate
times reasonably acceptable to Purchaser, to all such Documents and will permit
such Representatives, at the expense of the party requesting such information,
to make abstracts from or to take copies of any such tax documents as may be
reasonably required by Company Stockholders. 
During the Document Period, the Purchaser will make the applicable
employees of the Surviving Corporation or the Purchaser, as the case may be,
available as reasonably requested by Company Stockholders for the purposes of
providing Company Stockholders information, witness preparation, depositions,
furnishing information, evidence, testimony and other assistance, in connection
with any Tax return or report, action, proceeding or investigation relating to
the Business or the defense or pursuit of any claim; provided that the
applicable Company Stockholder(s) shall reimburse the actual out-of-pocket
expenses incurred by the Purchaser and/or the Surviving Corporation in
connection therewith.  In no event shall
Purchaser (i) file (or allow Merger Sub to file) any amended Tax Return of
any of the Acquired Companies for any Pre-Closing Period or (ii) extend
(or allow Merger Sub to extend) the statute of limitations on assessment of any
Tax of any of the Acquired Companies for any Pre-Closing Period, without the
written consent of Stockholders’ Agent, which cannot be unreasonably withheld.

 

ARTICLE XI

MISCELLANEOUS

 

11.1        Entire
Agreement; Schedules and Exhibits.  This Agreement, including the documents and
instruments referred to herein, and the Confidentiality Agreement embody the
entire

 

61

 

agreement and understanding of the Parties with respect to the
transactions contemplated hereby and supersede all other prior commitments,
arrangements or understandings, both oral and written, between the parties with
respect to the subject matter hereof. 
There are no agreements, covenants, representations or warranties with
respect to the transactions contemplated hereby other than those expressly set
forth or incorporated herein.

 

11.2        Governing
Law.  This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Maryland
without regard to conflicts of laws principles.

 

11.3        Notices.  Any notices or other communications required
or permitted hereunder shall be in writing and sent to the appropriate
addresses designated below (or to such other address or addresses as may
hereafter be furnished by one Party to the other Party in compliance with the
terms hereof),  by hand delivery, by
facsimile transmission to the respective facsimile numbers designated below
(with electronic confirmation of delivery), by UPS or FedEx next-day service,
or by registered or certified mail, return receipt requested, postage prepaid:

 

If to the Company:

Proforma Corporation

26261 Evergreen Rd., Suite 200

Southfield, Michigan  48076

Facsimile: (248) 356-9025

Attn:  Ron Pellegrino

 

with a copy to:

Honigman Miller Schwartz and Cohn LLP

2290 First National Building

660 Woodward Avenue

Detroit, Michigan  48226-3506

Facsimile: (313) 465-7357

Attn:  Gregory J. DeMars, Esq.

 

If to the Stockholders’ Agent:

Ron Pellegrino

45701 Balfour Court

Novi, Michigan 48377

 

with a copy to:

Honigman Miller Schwartz and Cohn LLP

2290 First National Building

660 Woodward Avenue

Detroit, Michigan  48226-3506

Facsimile: (313) 465-7457

Attn: Gregory J. DeMars, Esq.

 

62

 

If to the Purchaser or Merger Sub:

Metastorm Inc.

500 East Pratt Street, Suite 1250

Baltimore, Maryland 21202

Facsimile: (443) 874-1336

Attn:  Swata J. Gandhi, Esq.

 

with a copy to:

Venable LLP

Two Hopkins Plaza, Suite 1800

Baltimore, Maryland 21201

Facsimile:  (410) 244-7742

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

 

11.4        Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

11.5        Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any Party.  Upon such a determination, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.

 

11.6        Counterparts.  This Agreement may be executed in any number of
counterparts (which may be by facsimile) each of which, when executed, shall be
deemed to be an original and all of which together shall be deemed to be one
and the same instrument.

 

11.7        Assignment;
No Third Party Beneficiaries.
This Agreement may not be assigned (whether by operation of law or otherwise)
by any Party without the prior written consent of the other Parties; provided, that the Purchaser may assign this Agreement to
any of its Affiliates without the prior written consent of the Company; provided, that such assignment shall not release the
Purchaser from its obligations under this Agreement.  Subject to the foregoing, this Agreement
shall be binding upon, and shall inure to the benefit of, the Parties and their
respective heirs, personal representatives successors and assigns.  Unless otherwise stated herein, this
Agreement shall not benefit or create any right of action in or on behalf of
any Person other than the parties hereto; provided, however, that this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and permitted assigns.

 

11.8        Enforcement
of Agreement.  Each of the parties hereto acknowledges,
understands and agrees that any breach or threatened breach by such Party or
such Party’s Affiliates of Sections 6.8, 6.9, 10.9 may
cause irreparable injury to the other Party and that money damages may not

 

63

 

provide an adequate remedy therefor. 
Accordingly, in the event of any such breach or threatened breach, a
non-breaching Party shall have the right and remedy (in addition to any other
rights or remedies available at law or in equity, including, money damages) to
have the provisions of such Sections 6.8, 6.9, or 10.9 specifically
enforced by, and to seek injunctive relief and other equitable remedies in, any
court having competent jurisdiction. 
Each Party further agrees to waive any requirement for the securing or
posting of any bond or other security in connection with seeking such remedies.

 

11.9        Notices
of Certain Events.  Each of the Parties shall promptly notify the
other Party of:  (a) any notice or
other communication from any Person alleging that the consent of such Person is
or may be required in connection with the transactions contemplated by this
Agreement if the failure of any of the parties hereto, as the case may be, to
obtain such consent would result in a Material Adverse Effect on any of the
parties hereto, as applicable; (b) any notice or other communication from
any Government Entity in connection with the transactions contemplated by this
Agreement; and (c) any Actions, suits, claims, investigations or
proceedings commenced or, to such Party’s Knowledge, threatened against,
relating to or involving or otherwise affecting such Party or any of its
Subsidiaries which relate to the consummation of the transactions contemplated
by this Agreement.

 

11.10      Conflict
of Interest Waiver.  Purchaser, the Merger Sub and the Company
agree that the law firm of Honigman Miller Schwartz and Cohn LLP (“Honigman”) may continue to represent the Company
Stockholders after the Closing in connection with matters related to the
transactions contemplated by this Agreement, notwithstanding its prior
representation of the Company in other unrelated matters.  Honigman’s representation of the Company
Stockholders after the Closing in connection with matters related to the
transactions contemplated by this Agreement may include, but shall not be
limited to, the assertion, defense or disposition of any and all claims under
this Agreement, even if such claims result in litigation, arbitration or other
dispute resolution proceedings. 
Purchaser, the Merger Sub and the Company waive any conflict of interest
arising from Honigman’s representation of the Company Stockholders and the
Company in connection with the transactions contemplated by this
Agreement.  To the extent the
communications between the Company Stockholders and Honigman or between the Company
and Honigman as they relate to the transactions contemplated by this Agreement
are privileged, only the Stockholders’ Agent shall have the right to assert or
waive such privilege on behalf of the Company. 
Nothing in this Section 11.10 is intended to prevent any officer or
director from testifying about his or her personal knowledge of any matter
other than the communications between him or her and Honigman respecting the
transactions contemplated by this Agreement. 
Nothing in this Section 11.10 is intended to limit any right of the
Company to assert any conflict of Honigman or privilege regarding any
communications with Honigman regarding matters which are unrelated to the
transactions contemplated by this Agreement or to limit any right of the
Company Stockholders to assert any privilege regarding any communications they
have or have had with Honigman

 

The remainder of this page has been left blank intentionally.

Signature page follows.

 

64

 

IN WITNESS WHEREOF, the Purchaser, the Merger
Sub and the Company have each caused this Agreement and Plan of Merger to be
executed by their respective officers thereunto duly authorized as of the
Execution Date.

 

	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SOUNDVIEW,  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PROFORMA CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

By signing below, Ron Pellegrino consents to his appointment herein as
the Stockholders’ Agent.

 

	
   

  	
   

  
	
   

  	
  Ron Pellegrino

  

 

Signature page to Agreement and Plan of
Merger

 

 

APPENDIX A

 

COMPANY’S KNOWLEDGE

 

Ron Pellegrino

Jerry Huchzermeier

Mike Szczerba

George Pateryn

Doug Emig

Kathy Repke

Brian James

Fred Yu

 

 

APPENDIX O

 

MERGER CONSIDERATION CALCULATION METHODOLOGY

 

	
  Line

  	
   

  	
  Item

  	
   

  	
  Formula

  	
   

  	
  Value

  	
   

  
	
  A

  	
   

  	
  Multiple

  	
   

  	
  —

  	
   

  	
  2.3

  	
   

  
	
  B

  	
   

  	
  Company revenue

  	
   

  	
  —

  	
   

  	
  $

  	
  19,643,000

  	
   

  
	
  C

  	
   

  	
  Company Working Capital

  	
   

  	
  —

  	
   

  	
  $

  	
   500,000

  	
   

  
	
  D

  	
   

  	
  Purchaser revenue

  	
   

  	
  —

  	
   

  	
  $

  	
  45,635,000

  	
   

  
	
  E

  	
   

  	
  Purchaser working capital, after completion of the
  initial closing and the additional closing of the Equity Round (without
  regard to the Merger)

  	
   

  	
  —

  	
   

  	
  $

  	
  30,000,000

  	
   

  
	
  F

  	
   

  	
  Company equity value

  	
   

  	
  (B * A)

  	
   

  	
  $

  	
  45,178,900

  	
   

  
	
  G

  	
   

  	
  Purchaser equity value

  	
   

  	
  (D * A)+ E

  	
   

  	
  $

  	
  134,960,500

  	
   

  
	
  H

  	
   

  	
  Metastorm portion of Surviving Corporation

  	
   

  	
  G  ̧ (F+ G)

  	
   

  	
  74.92

  	
  %

  
	
  I

  	
   

  	
  Number of shares of Purchaser preferred stock
  outstanding after completion of the initial closing and the additional
  closing of the Equity Round (without regard to the Merger)

  	
   

  	
  —

  	
   

  	
  73,293,709 shares

  	
   

  
	
  J

  	
   

  	
  Number of shares of Company Common Stock
  outstanding prior to Merger

  	
   

  	
  —

  	
   

  	
  21,674 shares

  	
   

  
	
  K

  	
   

  	
  Maximum number of shares of Series AA
  Preferred Stock issuable as Stock Consideration

  	
   

  	
  (I  ̧ H) – I

  	
   

  	
  24,535,543 shares

  	
   

  
	
  L

  	
   

  	
  Per-Share Stock Consideration

  	
   

  	
  K  ̧ J

  	
   

  	
  1,132 shares

  	
   

  
	
  M

  	
   

  	
  Per-Share Cash Consideration

  	
   

  	
  (F  ̧ J) * 0.95

  	
   

  	
  $

  	
  1,980

  	
   

  
	
  N

  	
   

  	
  Share Value

  	
   

  	
  (F  ̧ J)  ̧ L

  	
   

  	
  $

  	
  1.8414

  	
   

  

 

 

APPENDIX P

 

SUMMARY OF CONSIDERATION

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Escrowed Cash *

  	
   

  	
  Escrowed Shares

  	
   

  
	
  Company

  Stockholder

  	
   

  	
  Shares of

  Company

  Common

  Stock Held

  	
   

  	
  Accredited

  (A) or Non-

  Accredited

  (NA)

  	
   

  	
  Initial Cash

  Consideration

  (including cash in

  lieu of fractional

  shares)

  	
   

  	
  Initial Stock

  Consideration

  (whole

  Series AA

  shares)

  	
   

  	
  First Tranche

  	
   

  	
  Second Tranche

  	
   

  	
  First

  Tranche

  (whole

  Series AA

  shares)

  	
   

  	
  Second

  Tranche

  (whole

  Series AA

  shares)

  	
   

  
	
  Jerry Huchzemeier

  	
   

  	
  6,822

  	
   

  	
  A

  	
   

  	
  $

  	
  6,571,421.19

  	
   

  	
  2,807,134

  	
   

  	
  $

  	
  386,555.16

  	
   

  	
  $

  	
  773,110.33

  	
   

  	
  165,125

  	
   

  	
  330,250

  	
   

  
	
  Ron Pellegrino

  	
   

  	
  6,822

  	
   

  	
  A

  	
   

  	
  $

  	
  6,571,421.19

  	
   

  	
  2,807,134

  	
   

  	
  $

  	
  386,555.16

  	
   

  	
  $

  	
  773,110.33

  	
   

  	
  165,125

  	
   

  	
  330,250

  	
   

  
	
  Dave Ritter

  	
   

  	
  1,686

  	
   

  	
  A

  	
   

  	
  $

  	
  1,624,070.80

  	
   

  	
  693,760

  	
   

  	
  $

  	
  95,534.33

  	
   

  	
  $

  	
  191,068.67

  	
   

  	
  40,809

  	
   

  	
  81,618

  	
   

  
	
  Brian James

  	
   

  	
  1,363

  	
   

  	
  A

  	
   

  	
  $

  	
  1,312,935.15

  	
   

  	
  560,851

  	
   

  	
  $

  	
  77,231.91

  	
   

  	
  $

  	
  154,463.83

  	
   

  	
  32,991

  	
   

  	
  65,982

  	
   

  
	
  Fred Yu

  	
   

  	
  1,271

  	
   

  	
  A

  	
   

  	
  $

  	
  1,224,313.68

  	
   

  	
  522,995

  	
   

  	
  $

  	
  72,019.21

  	
   

  	
  $

  	
  144,038.42

  	
   

  	
  30,764

  	
   

  	
  61,528

  	
   

  
	
  Dave Holder

  	
   

  	
  901

  	
   

  	
  A

  	
   

  	
  $

  	
  867,904.98

  	
   

  	
  370,746

  	
   

  	
  $

  	
  51,054.32

  	
   

  	
  $

  	
  102,106.79

  	
   

  	
  21,808

  	
   

  	
  43,617

  	
   

  
	
  Hugh Mensch

  	
   

  	
  600

  	
   

  	
  A

  	
   

  	
  $

  	
  577,958.71

  	
   

  	
  246,891

  	
   

  	
  $

  	
  33,999.41

  	
   

  	
  $

  	
  67,996.98

  	
   

  	
  14,522

  	
   

  	
  29,045

  	
   

  
	
  Neal Rose

  	
   

  	
  459

  	
   

  	
  A

  	
   

  	
  $

  	
  442,141.38

  	
   

  	
  188,870

  	
   

  	
  $

  	
  26,008.32

  	
   

  	
  $

  	
  52,016.63

  	
   

  	
  11,110

  	
   

  	
  22,220

  	
   

  
	
  Ken Pellegrino

  	
   

  	
  344

  	
   

  	
  A

  	
   

  	
  $

  	
  331,362.70

  	
   

  	
  141,551

  	
   

  	
  $

  	
  19,492.90

  	
   

  	
  $

  	
  38,985.80

  	
   

  	
  8,326

  	
   

  	
  16,652

  	
   

  
	
  Mike Szczerba

  	
   

  	
  278

  	
   

  	
  A

  	
   

  	
  $

  	
  267,787.22

  	
   

  	
  114,393

  	
   

  	
  $

  	
  15,754.03

  	
   

  	
  $

  	
  31,506.22

  	
   

  	
  6,728

  	
   

  	
  13,457

  	
   

  
	
  Mike Anthony

  	
   

  	
  261

  	
   

  	
  NA

  	
   

  	
  $

  	
  439,263.00

  	
   

  	
  —

  	
   

  	
  $

  	
  25,839.00

  	
   

  	
  $

  	
  51,678.00

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Viru Patel

  	
   

  	
  232

  	
   

  	
  A

  	
   

  	
  $

  	
  223,478.32

  	
   

  	
  95,464

  	
   

  	
  $

  	
  13,146.76

  	
   

  	
  $

  	
  26,291.68

  	
   

  	
  5,615

  	
   

  	
  11,231

  	
   

  
	
  Mark Zemmin

  	
   

  	
  150

  	
   

  	
  A

  	
   

  	
  $

  	
  144,489.22

  	
   

  	
  61,723

  	
   

  	
  $

  	
  8,500.77

  	
   

  	
  $

  	
  16,999.71

  	
   

  	
  3,630

  	
   

  	
  7,261

  	
   

  
	
  Paul Gaffney

  	
   

  	
  120

  	
   

  	
  NA

  	
   

  	
  $

  	
  201,960.00

  	
   

  	
  —

  	
   

  	
  $

  	
  11,880.00

  	
   

  	
  $

  	
  23,760.00

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  John Golden

  	
   

  	
  100

  	
   

  	
  A

  	
   

  	
  $

  	
  96,325.53

  	
   

  	
  41,149

  	
   

  	
  $

  	
  5,667.18

  	
   

  	
  $

  	
  11,334.37

  	
   

  	
  2,420

  	
   

  	
  4,840

  	
   

  
	
  Doug Emig

  	
   

  	
  79

  	
   

  	
  A

  	
   

  	
  $

  	
  76,098.48

  	
   

  	
  32,507

  	
   

  	
  $

  	
  4,476.71

  	
   

  	
  $

  	
  8,953.41

  	
   

  	
  1,912

  	
   

  	
  3,824

  	
   

  
	
  Joe Touma

  	
   

  	
  60

  	
   

  	
  NA

  	
   

  	
  $

  	
  100,980.00

  	
   

  	
  —

  	
   

  	
  $

  	
  5,940.00

  	
   

  	
  $

  	
  11,880.00

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  George Pateryn

  	
   

  	
  50

  	
   

  	
  A

  	
   

  	
  $

  	
  48,163.69

  	
   

  	
  20,574

  	
   

  	
  $

  	
  2,833.59

  	
   

  	
  $

  	
  5,667.18

  	
   

  	
  1,210

  	
   

  	
  2,420

  	
   

  
	
  Kathy Repke

  	
   

  	
  46

  	
   

  	
  NA

  	
   

  	
  $

  	
  77,418.00

  	
   

  	
  —

  	
   

  	
  $

  	
  4,554.00

  	
   

  	
  $

  	
  9,108.00

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Adelle Rydman

  	
   

  	
  25

  	
   

  	
  NA

  	
   

  	
  $

  	
  42,075.00

  	
   

  	
  —

  	
   

  	
  $

  	
  2,475.00

  	
   

  	
  $

  	
  4,950.00

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Gerry Victoria

  	
   

  	
  5

  	
   

  	
  NA

  	
   

  	
  $

  	
  8,415.00

  	
   

  	
  —

  	
   

  	
  $

  	
  495.00

  	
   

  	
  $

  	
  990.00

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  TOTALS

  	
   

  	
  21,674

  	
   

  	
   

  	
   

  	
  $

  	
  21,249,983.25

  	
   

  	
  8,705,742

  	
   

  	
  $

  	
  1,250,012.77

  	
   

  	
  $

  	
  2,500,016.33

  	
   

  	
  512,095

  	
   

  	
  1,024,195

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Escrow deposit at Closing

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,750,029.11

  	
   

  	
   

  	
  1,536,290 shares

  	
   

  
																										

 

*
Including cash in lieu of fractional escrowed shares.

 

 

Exhibit H

 

Form of Fourth Amended and Restated Registration Rights Agreement

 

 

FOURTH AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

 

THIS FOURTH AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered
into as of July 31, 2007, by and among (i) Metastorm Inc., a Maryland corporation (the “Company”),
(ii) the purchasers (the “Series CC Investors”) of the Company’s
Series CC Convertible Preferred Stock, par value $0.01 per share (the “Series CC
Preferred Stock”), listed on Exhibit A hereto, (iii) the
other Persons listed on Exhibit A hereto, and (iv) the other
Persons that from time to time execute joinders to this Agreement.

 

WITNESSETH:

 

WHEREAS, the Company has
entered into a Series CC Convertible Preferred Stock Purchase Agreement
dated as of July 31, 2007 (the “Stock Purchase Agreement”) with the
Series CC Investors pursuant to which the Company has agreed to issue and
sell to the Series CC Investors shares of the Company’s Series CC
Preferred Stock; and

 

WHEREAS, the Company has
agreed to grant certain registration rights with respect to the shares of the
Company’s Common Stock issuable upon conversion of the Series CC Preferred
Stock sold to the Series CC Investors pursuant to the Stock Purchase
Agreement; and

 

WHEREAS, the holders of the
Company’s Series AA Convertible Preferred Stock, par value $0.01 per share
(the “Series AA Preferred Stock”), who were holders of the Company’s
Series BB Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”), prior to the conversion thereof on the date of this
Agreement (the “Converted
BB Investors”) have, concurrently with the execution and delivery of this
Agreement, (x) converted all of the issued and outstanding shares of the Series BB
Convertible Preferred Stock into shares of Series AA Preferred Stock at a conversion ratio of
1.8339403 shares of Series AA Preferred Stock for each share of Series BB
Preferred Stock , and (y) exchanged all of the outstanding warrants to
purchase Series BB Preferred Stock (the “Series BB Warrants”)
for Series AA Preferred Stock, at an exchange ratio of one share of Series AA
Preferred Stock for each warrant to purchase a share of Series BB
Preferred Stock; and

 

WHEREAS, the Company, the
Original Stockholders, the Converted BB Investors and the then-Series AA
Investors previously entered into that certain Third Amended and Restated
Registration Rights Agreement, dated as of October 4, 2005 (the “Prior
Registration Rights Agreement”), which Prior Registration Rights Agreement
is being amended, restated and superseded in its entirety by this Agreement;
and

 

WHEREAS, pursuant to Section 11.8
of the Prior Registration Rights Agreement, the Company and the holders of at
least two-thirds (2/3)
of the Registrable Securities (as that term was defined in the Prior
Registration Rights Agreement) have approved such amendment, which approval is
evidenced by such holder’s signature hereon;

 

 

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

 

ARTICLE 1

CERTAIN DEFINITIONS

 

As used herein, the
following terms shall have the following respective meanings:

 

1.1           “Commission” shall mean the Securities and
Exchange Commission, or any other successor federal agency at the time
administering the Securities Act.

 

1.2           “Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.

 

1.3           “Holders” shall mean and include
each of the Stockholders and any person or entity that shall have executed this
Agreement and whose name appears on the Schedule of Registration Rights Holders
attached hereto as Exhibit A or who shall, pursuant to Section 11.2
hereof, become a party hereto, and any permitted transferee under Article 9
hereof who holds Registrable Securities.

 

1.4           “Initial Public Offering” shall mean the first
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act, covering the offer
and sale of Common Stock to the public.

 

1.5           “Initiating Holders” shall mean Holders of
Registrable Securities representing at least 10% of the total Registrable
Securities then outstanding.

 

1.6           “Original Stockholders” shall mean the holders
of Series AA Preferred Stock, as listed on Exhibit A attached
hereto, who were among the holders of the Company’s previously outstanding
Common Stock prior to the conversion thereof to Series AA Preferred Stock
on September 1, 2004.

 

1.7           “Original Stockholder Shares” shall mean,
collectively, the shares of Series AA Preferred Stock held by the Original
Stockholders, if any, including shares of Common Stock issuable upon conversion
of any option, warrant or other convertible security granted or issued by the
Company, whether outstanding as of the date of this Agreement or granted or
issued thereafter.

 

1.8           “Person” means any
individual, corporation, partnership, limited liability company, limited
liability partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.

 

1.9           “Preferred Holders” shall mean the Holders
consisting solely of the Series AA Investors and the Series CC
Investors and any of their Permitted Transferees.

 

2

 

1.10         “Preferred Stock” shall mean the Series AA
Preferred Stock and the Series CC Preferred Stock treated together as one
class.

 

1.11         “Recapitalization Events” shall mean stock
splits, stock dividends, combinations, recapitalizations, reorganizations,
reclassifications, mergers, consolidations and other similar events which
affect the number of outstanding shares of the Series AA Preferred Stock
or the Series CC Preferred Stock.

 

1.12         The terms “register,” “registered” and “registration”
refer to a registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act, and the
declaration or ordering by the Commission of the effectiveness of such
registration statement.

 

1.13         “Registrable Preferred Securities” shall mean
the Registrable Securities, excluding the Original Stockholder Shares.

 

1.14         “Registrable Securities” shall mean (a) any
and all shares of Common Stock (i) issued or issuable with respect to the
Original Stockholder Shares held by the Original Stockholders and their
respective Permitted Transferees, and (ii) issued or issuable with respect
to the Original Stockholder Shares held by the Original Stockholders and any of
their respective Permitted Transferees upon any Recapitalization Event, (b) any
and all shares of Common Stock (i) issued or issuable upon conversion of
the Series AA Preferred Stock held by the Series AA Investors and any
of their respective Permitted Transferees, and (ii) issued or issuable
with respect to the Series AA Preferred Stock held by the Series AA
Investors and any of their respective Permitted Transferees upon any
Recapitalization Event, and (c) any and all shares of Common Stock (i) issued
or issuable upon conversion of the Series CC Preferred Stock held by the Series CC
Investors and their respective Permitted Transferees, and (ii) issued or
issuable with respect to the Series CC Preferred Stock held by the Series CC
Investors and their respective Permitted Transferees upon any Recapitalization
Event, excluding in all cases, however, Registrable Securities sold by a Holder
to the public or pursuant to Rule 144 promulgated under the Securities
Act.

 

1.15         “Registration Expenses” shall mean all expenses
incurred by the Company in complying with Articles 2 and 3 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of legal counsel for the Company,
fees and disbursements of one legal counsel for the selling Holders, blue sky
fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company).  Such fees and disbursement of a single legal
counsel for the selling Holders, to be paid for by the Company hereunder shall
in no event exceed $15,000 in the case of any single registration effected
under Article 2 or 3 hereof.

 

1.16         “S-3 Registration Expenses” shall mean all
expenses incurred by the Company in complying with Article 4 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of legal counsel for the
Company, 

 

3

 

fees and disbursements of one legal counsel for the
selling Holders, blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company). Such fees and disbursement of a single legal counsel for
the selling Holders to be paid for by the Company hereunder shall in no event
exceed $15,000 in the case of any single registration effected under Article 4
hereof.

 

1.17         “Series AA Investors”
means, collectively, the Holders of Series AA Preferred Stock other than
Original Stockholders (including, for the avoidance of doubt, the Converted BB
Investors), and the Permitted Transferees of such Holders of Series AA
Preferred Stock.

 

1.18         “Securities Act” shall mean the Securities Act
of 1933, as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.

 

1.19         “Selling Expenses” shall mean all underwriting
fees, discounts, selling commissions and stock transfer taxes applicable to the
Registrable Securities registered by the Holders.

 

1.20         The terms “Stockholders,” collectively, and a “Stockholder,”
individually, means the Series AA Investors and the Series CC
Investors.

 

ARTICLE 2

REQUESTED REGISTRATION

 

2.1           Request for Registration. 
At the earlier of (i) the six month anniversary of the effective
date of the Initial Public Offering, or (ii) the second anniversary of the
date of this Agreement, the Initiating Holders may request registration in
accordance with this Article 2.  In
the event the Company shall receive from the Initiating Holders a written
request that the Company effect any registration, qualification or compliance
with respect to Registrable Securities, the Company will:

 

(a)           promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and

 

(b)           use its best efforts to effect such registration,
qualification or compliance as soon as practicable (including, without
limitation, undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with applicable regulations issued under the Securities
Act, and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder
or Holders joining in such request as are specified in a written request
received by the Company within 15 days after the receipt of the written notice
from the Company described in Section 2.1(a); provided, however,
that 

 

4

 

the Company shall not be obligated to take any action
to effect any such registration, qualification or compliance pursuant to this Article 2:

 

(i)            in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required
by the Securities Act;

 

(ii)           during the period starting with the date immediately
preceding the Company’s anticipated date of filing of, and ending on the date
180 days immediately following the effective date of, any registration
statement pertaining to a firmly underwritten offering of securities of the
Company for its own account (or such lesser period as the managing underwriters
of such offering will allow);

 

(iii)          after the Company has effected four (4) such
requested registrations pursuant to this Article 2 (not including
registrations on Form S-3) on behalf of the Initiating Holders, with such
registrations having been declared or ordered effective, and the Registrable
Securities offered pursuant to each of such registrations having been sold, or
if the Company has effected any requested registration (other than a
registration for the Company’s Initial Public Offering) pursuant to this
Agreement during the previous six-month period (or such shorter period as the
managing underwriter of the Company’s most recent public offering will allow);
or

 

(iv)          if the Company then meets the eligibility requirements
applicable to the use of Form S-3 in connection with such registration and
is able to effect such requested registration pursuant to Article 4
hereof.

 

(c)           Subject to the foregoing clauses (i) through
(iv), the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt
of the request of the Initiating Holders; provided, however, that
if the Company shall furnish to such Holders a certificate signed by the
Chairman or Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, the registration and
distribution of the Registrable Securities covered or to be covered by such
registration statement, or the disclosure required by such registration
statement, would materially interfere with any pending material financing,
acquisition or corporate reorganization, or other material corporate
development involving the Company or its subsidiaries, or would require
premature disclosure thereof, and it is therefore essential to defer the filing
of such registration statement, the Company shall have the right to defer such
filing for a period of not more than 90 days, but in no event for a period
longer than 105 days after receipt of the request of the Initiating Holders;
and provided, further, that the Company shall not be permitted to
exercise such deferral right under this Section 2.1(c) or Section 4.1(c) hereof
more than once in any 360-day period.

 

5

 

2.2           Underwriting.

 

(a)           The distribution of the Registrable Securities covered
by the request of the Initiating Holders shall be effected by means of the
method of distribution selected by the Holders holding at least two-thirds (2/3) of the
Registrable Securities covered by such registration.  If such distribution is effected by means of
an underwriting, the right of any Holder to registration pursuant to this Article 2
shall be conditioned upon such Holder’s participation in such underwriting and
the inclusion of such Holder’s Registrable Securities in the underwriting
(unless otherwise agreed by the Initiating Holders) to the extent provided
herein.

 

(b)           If such distribution is effected by means of an
underwriting, the Company (together with all Holders proposing to distribute
their securities through such underwriting) shall enter into an underwriting
agreement in customary form with a managing underwriter of nationally
recognized standing selected for such underwriting by the Company and approved
by a majority in interest of the Initiating Holders, which approval shall not
be unreasonably withheld. Notwithstanding any other provision of this Article 2,
if the managing underwriter, if any, advises the Initiating Holders in writing
that marketing factors (including pricing) require a limitation of the number
of shares to be underwritten, then the Preferred Holders who have requested
registration of Registrable Preferred Securities together shall share pro
rata in the available portion of the registration in question, such
sharing to be based upon the number of shares of Registrable Preferred
Securities then held by such Preferred Holders. 
If after inclusion of such Registrable Preferred Securities, it is
possible to include additional shares in such registration, the Original
Stockholders who have requested registration together shall share pro  rata
in the remaining available portion of the registration in question, such
sharing to be based upon the number of shares of Original Stockholder Shares
then held by such Original Stockholders. 
No Registrable Securities excluded from the underwriting by reason of
the managing underwriter’s marketing limitation shall be included in such
registration.

 

(c)           If any Holder disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.  The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration; provided,
however, that if by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
(or requested to include) Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 2.2.

 

2.3           Inclusion of Shares by Company. 
If the distribution of Registrable Securities is being effected by means
of an underwriting and if the managing underwriter has not limited the number
of Registrable Securities to be underwritten, the Company may include
securities for its own account or for the account of others in such
registration if the managing underwriter so agrees.  The inclusion of such shares shall be on the
same terms as the registration of shares held by the Initiating Holders, as
applicable.  In the event that the
underwriters exclude some of the securities to be registered, the 

 

6

 

securities to be sold for the account of the Company
and any other holders shall be excluded in their entirety prior to the
exclusion of any Registrable Securities.

 

2.4           Cancellation of Registration. 
A majority in interest of the Initiating Holders, as applicable, shall
have the right to cancel a proposed registration of Registrable Securities
pursuant to Article 2 when, in their discretion, market conditions are so
unfavorable as to be seriously detrimental to an offering pursuant to such
registration.  Such cancellation of a
registration shall not be counted as one of the four (4) such requested
registrations pursuant to Section 2.1(b)(iii) for the Initiating
Holders so long as the Initiating Holders agree to pay the reasonable expenses
associated with such cancelled registration.

 

ARTICLE 3

COMPANY REGISTRATION

 

3.1           Notice of Registration to Holders. 
If at any time or from time to time the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder or holders (including pursuant to Article 4), other than (i) a
registration relating solely to employee benefit plans on Form S-8 (or any
successor form) or (ii) a registration relating solely to a Commission Rule 145
transaction on Form S-4 (or any successor form), the Company will:

 

(a)           promptly give to each Holder written notice thereof,
and

 

(b)           include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after delivery of such written notice from the
Company described in Section 3.1(a), by any Holder or Holders.

 

3.2           Underwriting.  If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Holders as
a part of the written notice given pursuant to Section 3.1(a).  In such event, the right of any Holder to
registration pursuant to this Article 3 shall be conditioned upon such
Holder’s participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting to the extent provided herein.  All Holders proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company.

 

(a)           Notwithstanding any other provision of this Article 3,
if the managing underwriter determines that marketing factors (including
pricing) require a limitation of the number of shares to be underwritten, the
Holders of Registrable Securities shall have priority as to sales over the
other holders of the Company’s securities, and the Company shall cause such
other holders to withdraw their shares from such offering to the extent
necessary to allow all requesting Holders of Registrable Securities to include
all shares so requested to be included in such registration.  Whenever the number of shares which may be
registered pursuant to Article 3 is still limited by this Section 3.2(a),
the Company shall have priority as to sales over the Holders of Registrable
Securities, 

 

7

 

and each Holder of Registrable Securities hereby
agrees that it shall withdraw its Registrable Securities from such registration
to the extent necessary to allow the Company to include all the shares which
the Company desires to sell for its own account to be included within such
registration. The Holders of Registrable Preferred Securities given rights by
this Article 3 and participating in an offering pursuant to Section 3.1
together shall share pro  rata in the available portion of the
registration in question, such sharing to be based upon the number of shares of
Registrable Preferred Securities then held by such participating Holders.  If after the inclusion of such Registrable
Preferred Securities, it is possible to include additional shares in such
registration, the Original Stockholders given rights by this Article 3 and
participating in an offering pursuant to Section 3.1 together shall share pro
rata in the remaining available portion of the registration in question,
such sharing based upon the number of shares of Original Stockholder Shares
then held by such participating Original Stockholders.  No Registrable Securities excluded from the
underwriting by reason of the underwriters’ marketing limitation shall be
included in such registration.

 

(b)           The Company shall so advise all Holders and the other
holders distributing their securities through such underwriting of any such
limitation, and the number of shares of Registrable Securities held by Holders
that may be included in the registration. 
If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
managing underwriter.  Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration, but the Holder shall continue to be bound by Section 11.10
hereof.  If by the withdrawal of such
securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed
by the underwriters), then the Company shall offer to all Holders who have
included (or requested to include) Registrable Securities in the registration
the right to include additional Registrable Securities in the same proportion
used in determining the underwriter limitation in this Section 3.2.

 

(c)           The Company shall have the right to terminate or
withdraw any registration initiated by it under this Article 3 prior to
the effectiveness of such registration, whether or not a Holder has elected to
include Registrable Securities in such registration.

 

ARTICLE 4

REGISTRATION ON FORM S-3

 

4.1           Request for Registration.

 

(a)           In addition to the rights set forth in Articles 2 and
3 hereof, if a Holder or Holders request that the Company file a registration
statement on Form S-3 (or any successor to Form S-3) for a public
offering of shares of Registrable Securities having an aggregate offering price
of at least $1,000,000 (based on the closing market price as of the trading day
immediately preceding the date of the request) and the Company is a registrant
entitled to use Form S-3 (or any successor form to Form S-3) to
register such shares for such an offering, the Company shall use its best
efforts to cause such shares to be registered for the offering as soon as
practicable on Form S-3 (or any such successor form to Form S-3); provided,
however, that the Company shall not be required to effect 

 

8

 

more than two such
registrations on behalf of the Holders pursuant to this Article 4.1(a) during
any consecutive 12 month period.

 

(b)           Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Article 4:

 

(i)            in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required
by the Securities Act;

 

(ii)           if the Company, within ten (10) days of the
receipt of the request of the Holder or Holders, gives notice of its bona
fide intention to effect the filing of a registration statement with the
Commission within forty-five (45) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145
transaction or an offering solely to employees);

 

(iii)          during the period starting with the date of filing of,
and ending on a date which is 180 days immediately following the effective date
of, a registration statement described in (ii) above or filed pursuant to
this Article 4 or Articles 2 or 3 hereof (or such shorter period as the
managing underwriter of the Company’s most recent public offering may agree),
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and provided,
further, that no other person or entity could require the Company to file a
registration statement in such period;

 

(c)           Subject to the foregoing clauses (b) (i) through
(iii), the Company shall file a registration statement on Form S-3
covering the Registrable Securities so requested to be registered within 90 days
after receipt of the request of the Holders; provided, however,
that if the Company shall furnish to such Holders a certificate signed by the
Chairman or Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, the registration and
distribution of the Registrable Securities covered or to be covered by such
registration, or the disclosure required by such registration statement, would
materially interfere with any pending material financing, acquisition or
corporate reorganization, or other material corporate development of the
Company or its subsidiaries, or would require premature disclosure thereof, and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer such filing for a period of not more
than 90 days, but in no event for a period longer than 105 days after receipt
of the request of the Initiating Holders; and provided, further
that the Company shall not be permitted to exercise such deferral right under
this Section 4.1(c) or Section 2.1(c) hereof more than once
in any 360-day period.

 

4.2           Underwriting.

 

(a)           The distribution of the Registrable Securities covered
by the registration on Form S-3 shall be effected by means of the method
of distribution selected by the Holders holding two-thirds (2/3) of the
Registrable Securities covered by such registration.  If such distribution is 

 

9

 

effected by means of an underwriting, the right of any
Holder to registration pursuant to this Article 4 shall be conditioned
upon such Holder’s participation in such underwriting, if any, and the
inclusion of such Holder’s Registrable Securities in such underwriting.

 

(b)           If the distribution of the Registrable Securities
pursuant to this Section 4.2 is effected by means of an underwriting, the
Company (together with all Holders proposing to distribute their securities
through such underwriting) shall enter into an underwriting agreement in customary
form with a managing underwriter of nationally recognized standing selected for
such underwriting by a majority in interest of the Holders requesting
registration on Form S-3 and approved by the Company, which approval shall
not be unreasonably withheld. 
Notwithstanding any other provision of this Article 4, if the
managing underwriter advises the Holders in writing that marketing factors
(including pricing) require a limitation of the number of shares to be
underwritten, then the Holders of Registrable Preferred Securities
participating in an offering pursuant to Section 4.1 together shall share pro
rata in the available portion of the registration in question, such
sharing to be based upon the number of shares of Registrable Preferred
Securities then held by such Holders.  If
after the inclusion of such Registrable Preferred Securities, it is possible to
include additional shares in such registration, the Original Stockholders
participating in an offering pursuant to Section 4.1 together shall share pro
rata in the remaining available portion of the registration in question,
such sharing based upon the number of shares of Original Stockholder Shares
then held by such participating Original Stockholders.  No Registrable Securities excluded from the
underwriting by reason of the managing underwriter’s marketing limitation shall
be included in such registration.

 

(c)           If the distribution of the Registrable Securities
pursuant to this Section 4.2 is effected by means of an underwriting and
if any Holder disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and  the Holders.  The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration; provided,
however, that if by the withdrawal of such securities a greater number
of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included (or requested to
include) Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used in determining
the underwriter limitation in this Section 4.2.

 

4.3           Inclusion of Shares by Company. 
If the distribution of the Registrable Securities pursuant to this Article 4
is effected by means of an underwriting and if the managing underwriter has not
limited the number of Registrable Securities to be underwritten, the Company
may include securities for its own account or for the account of others in such
registration if the managing underwriter so agrees and if the number of
Registrable Securities held by Holders requesting registration on Form S-3
which would otherwise have been included in such registration and underwriting
will not thereby be limited.  The
inclusion of such shares shall be on the same terms as the registration of
shares held by the Holders requesting such registration.  In the event that the underwriters exclude
some of the securities to be registered on Form S-3, the securities to be
sold for the account of the Company and any other holders shall be excluded in
their entirety prior to the exclusion of any Registrable Securities.

 

10

 

ARTICLE 5

EXPENSES OF REGISTRATION

 

All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Article 2, Article 3 and Article 4 hereof and all
S-3 Registration Expenses shall be borne by the Company.  All Selling Expenses relating to Registrable
Securities registered by the Holders shall be borne by the Holders of such
Registrable Securities pro  rata on the basis of the number of
shares so registered.

 

ARTICLE 6

REGISTRATION PROCEDURES

 

(a)           In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof.  The Company agrees
to use its best efforts to effect or cause such registration to permit the sale
of the Registrable Securities covered thereby by the Holders thereof in
accordance with the intended method or methods of distribution thereof
described in such registration statement. 
In connection with any registration of any Registrable Securities
pursuant to Article 2, 3 or 4 hereof, the Company shall, as soon as
reasonably possible:

 

(i)            use its best efforts to cause the
registration statement filed for purposes of such registration to become
effective as soon as reasonably possible thereafter;

 

(ii)           prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus included therein as may be necessary to effect and maintain the
effectiveness of such registration statement as may be required by the
applicable rules and regulations of the Commission and the instructions
applicable to the form of such registration statement, and furnish to the
holders of the Registrable Securities covered thereby copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission; and comply with the provisions of the Securities Act with respect
to the disposition of all the Registrable Securities to be included in such
registration statement;

 

(iii)          provide (A) the Holders of the
Registrable Securities to be included in such registration statement, (B) the
underwriters (which term, for purposes of this Agreement, shall include a
person deemed to be an underwriter within the meaning of Section 2(11) of
the Securities Act), if any, thereof, (C) the sales or placement agent, if
any, therefor, (D) one counsel for such underwriters or agent, and (E) not
more than one counsel for all the Holders of such Registrable Securities, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment or supplement thereto;

 

(iv)          for a reasonable period prior to the
filing of such registration statement, and throughout the period specified
above, make available for inspection by the parties

 

11

 

referred to in Section 6(a)(iii) above such
financial and other information and books and records of the Company, and cause
the officers, directors, employees, counsel and independent certified public
accountants of the Company to respond to such inquiries, as shall be reasonably
necessary, in the judgment of the respective counsel referred to in such Section 6(a)(iii),
to conduct a reasonable investigation within the meaning of the Securities Act;
provided, however, that each such party shall be required to
maintain in confidence and not disclose to any other person or entity any
information or records reasonably designated by the Company in writing as being
confidential, until such time as (a) such information becomes a matter of
public record (whether by virtue of its inclusion in such registration
statement or otherwise), or (b) such party shall be required so to
disclose such information pursuant to the subpoena or order of any court or
other governmental agency or body having jurisdiction over the matter, or (c) such
information is required to be set forth in such registration statement or the
prospectus included therein or in an amendment to such registration statement
or an amendment or supplement to such prospectus in order that such
registration statement, prospectus, amendment or supplement, as the case may
be, does not include an untrue statement of a material fact or omit to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and provided, further, that
the Company need not make such information available, nor need it cause any
officer, director or employee to respond to such inquiry, unless each such
Holder of Registrable Securities to be included in a registration statement
hereunder and such counsel, upon the Company’s request, execute and deliver to
the Company an undertaking to substantially the same effect contained in the
preceding proviso;

 

(v)           promptly notify the Holders of
Registrable Securities to be included in a registration statement hereunder,
the sales or placement agent, if any, therefor and the managing underwriter of
the securities being sold and confirm such advice in writing, (A) when
such registration statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been filed,
and, with respect to such registration statement or any post-effective
amendment, when the same has become effective, (B) of any comments by the
Commission and by the blue sky or securities commissioner or regulator of any
state with respect thereto or any request by the Commission for amendments or
supplements to such registration statement or the prospectus or for additional
information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or the initiation
of any proceedings for that purpose, (D) of the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (E) if it shall be the
case, at any time when a prospectus is required to be delivered under the
Securities Act, that such registration statement, prospectus, or any document
incorporated by reference, in any of the foregoing contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing;

 

(vi)          use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of such registration
statement or any post-effective amendment thereto at the earliest practicable
date;

 

12

 

(vii)         if requested by any managing
underwriter or underwriter, any placement or sales agent or any Holder of
Registrable Securities to be included in a registration statement, promptly
incorporate in a prospectus, prospectus supplement or post-effective amendment
such information as is required by the applicable rules and regulations of
the Commission and as such managing underwriter or underwriters, such agent or
such Holder may reasonably specify should be included therein relating to the
terms of the sale of the Registrable Securities included thereunder, including,
without limitation, information with respect to the number of Registrable
Securities being sold by such Holder or agent or to such underwriters, the name
and description of such Holder, the offering price of such Registrable
Securities and any discount, commission or other compensation payable in
respect thereof, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
prospectus; prospectus supplement or post-effective amendment promptly after
notification of the matters to be incorporated in such prospectus, prospectus
supplement or post-effective amendment;

 

(viii)        furnish to each Holder of Registrable
Securities to be included in such registration statement hereunder, each
placement or sales agent, if any, therefor, each underwriter, if any, thereof
and the counsel referred to in Section 6(a)(iii) an executed copy of
such registration statement, each such amendment and supplement thereto (in
each case excluding all exhibits and documents incorporated by reference) and
such number of copies of the registration statement (excluding exhibits thereto
and documents incorporated by reference therein unless specifically so
requested by such holder, agent or underwriter, as the case may be) of the
prospectus included in such registration statement (including each preliminary
prospectus and any summary prospectus), in conformity with the requirements of
the Securities Act, as such Holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Holder sold by such agent or underwritten by such
underwriter and to permit such Holder, agent and underwriter to satisfy the
prospectus delivery requirements of the Securities Act; and the Company hereby
consents to the use of such prospectus and any amendment or supplement thereto
by each such Holder and by any such agent and underwriter, in each case in the
form most recently provided to such party by the Company, in connection with
the offering and sale of the Registrable Securities covered by the prospectus
(including such preliminary and summary prospectus) or any supplement or
amendment thereto;

 

(ix)           use its best efforts to (A) register
or qualify the Registrable Securities to be included in such registration
statement under such other securities laws or blue sky laws of such
jurisdictions to be designated by the Holders of a majority of such Registrable
Securities participating in such registration and each placement or sales
agent, if any, therefor and underwriter, if any, thereof, as any Holder and
each underwriter, if any, of the securities being sold shall reasonably
request, (B) keep such registrations or qualifications in effect and
comply with such laws so as to permit the continuance of offers, sales and
dealings therein in such jurisdictions for so long as may be necessary to
enable such Holder, agent or underwriter to complete its distribution of the Registrable
Securities pursuant to such registration statement and (C) take any and
all such actions as may be reasonably necessary or advisable to enable such
Holder, agent, if any, and underwriter to consummate the disposition in such
jurisdictions of such Registrable Securities; provided, however,
that the Company shall not be required for any such purpose to (1) qualify
generally to do business as 

 

13

 

a foreign company or a broker-dealer in any
jurisdiction wherein it would not otherwise be required to qualify but for the
requirements of this Section 6(a)(ix), or (2) subject itself to
taxation in any such jurisdiction;

 

(x)            cooperate with the Holders of the
Registrable Securities to be included in a registration statement hereunder and
the managing underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall be printed, lithographed or engraved, or produced by any combination of
such methods, on steel engraved borders and which shall not bear any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of the Registrable
Securities;

 

(xi)           provide a CUSIP number for all
Registrable Securities, not later than the effective date of the registration
statement;

 

(xii)          enter into one or more underwriting
agreements, engagement letters, agency agreements, “best efforts” underwriting
agreements or similar agreements, as appropriate, and take such other actions
in connection therewith as the Holders of at least a majority of the
Registrable Securities being sold shall reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;

 

(xiii)         whether or not an agreement of the type
referred to in the preceding subsection is entered into and whether or not any
portion of the offering contemplated by such registration statement is an
underwritten offering or is made though a placement or sales agent or any other
entity, (A) make such representations and warranties to the Holders of
such Registrable Securities and the placement or sales agent, if any, therefor
and the underwriters, if any, thereof in form, substance and scope as are
customarily made in connection with any offering of equity securities pursuant
to any appropriate agreement and/or to a registration statement filed on the
form applicable to such registration statement; (B) obtain an opinion of
counsel to the Company in customary form and covering such matters, of the type
customarily covered by such an opinion, as the managing underwriters, if any,
and as the Holders of at least a majority of such Registrable Securities may
reasonably request, addressed to such Holders and the placement or sales agent,
if any, therefor and the underwriters, if any, thereof and dated the effective
date of such registration statement (and if such registration statement
contemplates an underwritten offering of a party or of all of the Registrable
Securities, dated the date of the closing under the underwriting agreement
relating thereto) (it being agreed that the matters to be covered by such
opinion shall include, without limitation, the due organization of the Company,
and its subsidiaries, if any; the qualification of the Company, and its
subsidiaries, if any, to transact business as foreign companies; the due
authorization, execution and delivery of this agreement and of any agreement of
the typed referred to in Section 6(a)(xii) hereof; the due authorization,
valid issuance, and the fully paid status of the capital stock of the Company;
the absence of pending or, to such counsel’s knowledge, threatened material
legal or governmental proceedings involving the Company; the absence to the
knowledge of such counsel of a breach by the Company or its subsidiaries of, or
a default under, material agreements binding the Company or any subsidiary; the
absence of governmental approvals required to be obtained in connection with
the registration statement, the offering and sale of the Registrable 

 

14

 

Securities, this Agreement or any agreement of the
type referred to in Section 6(a)(xii) hereof; the compliance as to form of
such registration statement and any documents incorporated by reference therein
with the requirements of the Securities Act; the effectiveness of such
registration statement under the Securities Act; and, as of the date of the
opinion and of the registration statement or most recent post-effective
amendment thereto, as the case may be, the absence, to the knowledge of such
counsel, from such registration statement and the prospectus included therein,
as then amended or supplemented, and from the documents incorporated by
reference therein of an untrue statement of a material fact or the omission to
state therein a material fact necessary to make the statements therein not
misleading (in case of such documents, in the light of the circumstances
existing at the time that such documents were filed with the Commission under
the Exchange Act)); (C) obtain a “cold” comfort letter or letters from the
independent certified public accountants of the Company addressed to the
Holders and the placement or sales agent, 
if any, therefor and the underwriters, if any, thereof, dated (I) the
effective date of such registration statement and (II) the effective date
of any prospectus supplement to the prospectus included in such registration
statement or post-effective amendment to such registration statement which
includes unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such prospectus
(and, if such registration statement contemplates an underwritten offering
pursuant to any prospectus supplement to the prospectus included in such
registration statement or post-effective amendment to such registration
statement which includes unaudited or audited financial statements as of a date
or for a period subsequent to that of the latest such statements included in
such prospectus, dated the date of the closing under the underwriting agreement
relating thereto), such letter or letters to be in customary form and covering
such matters of the type customarily covered by letters of such type; (D) deliver
such documents and certificates, including officers’ certificates, as may be
customary and reasonably requested by Holders of at least a majority of the
Registrable Securities being sold and the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof to evidence the
accuracy of the representations and warranties made pursuant to clause (A) above
and the compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement or other agreement entered into by the
Company; and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in
Articles 5 and 7 hereof;

 

(xiv)        notify in writing each Holder of
Registrable Securities of any proposal by the Company to amend or waive any
provision of this Agreement and of any amendment or waiver effected pursuant
thereto, each of which notices shall contain the text of the amendment or
waiver proposed or effected, as the case may be;

 

(xv)         engage to act on behalf of the Company
with respect to the Registrable Securities to be so registered a registrar and
transfer agent having such duties and responsibilities (including, without
limitation, registration of transfers and maintenance of stock registers) as
are customarily discharged by such an agent, and to enter into such agreements
and to offer such indemnities as are customary in respect thereof;

 

(xvi)        cause all such Registrable Securities to
be listed on each securities exchange or other securities trading markets, if
any, on which similar securities issued by the 

 

15

 

Company are then listed (or if not then listed, on
such exchanges or other securities trading markets requested by the holders of
a majority of the Registrable Securities to be so registered); and

 

(xvii)       otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its Holders, as soon as practicable, but in any event not later
than 18 months after the effective date of such registration statement, an
earnings statement covering a period of at least twelve months which shall
satisfy the provisions of Section 6(a) of the Securities Act
(including, at the option of the Company, pursuant to Rule 158
thereunder).

 

(b)           In the event that the Company would
be required, pursuant to Section 6(a)(v)(E) above, to notify the
Holders of Registrable Securities included in a registration statement
hereunder, the sales or placement agent, if any, and the managing underwriters,
if any, of the securities being sold, the Company shall promptly prepare and
furnish to each such Holder, to each such agent, if any, and to each
underwriter, if any, a reasonable number of copies of a prospectus supplement
or amendment so that, as thereafter delivered to the purchasers of Registrable
Securities, such prospectus shall not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.  Each Holder
agrees that upon receipt of any notice from the Company pursuant to Section 6(a)(v)(E) hereof,
such Holder shall forthwith discontinue the distribution of Registrable
Securities until such Holder shall have received copies of such amended or
supplemented registration statement or prospectus, and if so directed by the
Company, such Holder shall deliver to the Company (at the Company’s expense)
all copies, other than permanent file copies, then in such Holder’s possession
of the prospectus covering such Registrable Securities at the time of receipt
of such notice.

 

(c)           The Company may require each Holder
of Registrable Securities as to which any registration is being effected to
furnish to the Company such information regarding such Holder and such Holder’s
method of distribution of such Registrable Securities as the Company may from
time to time reasonably request in writing but only to the extent that such
information is required in order to comply with the Securities Act.  Each such Holder agrees to notify the Company
as promptly as practicable of any inaccuracy or change in information
previously furnished by such Holder to the Company or of the occurrence of any
event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such Holder or the distribution of such Registrable Securities or
omits to state any material fact regarding such Holder or the distribution of
such Registrable Securities required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing, and promptly to furnish to the Company any additional information
required to correct and update any previously furnished information or required
so that such prospectus shall not contain, with respect to such Holder or the
distribution of such Registrable Securities, an untrue statement or a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.

 

16

 

ARTICLE 7

INDEMNIFICATION

 

7.1           The Company will indemnify each
Holder, each of its officers and directors and partners, and such Holder’s
legal counsel and independent accountants, if any, and each person controlling
any such persons within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of
the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein, a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
or any state securities laws applicable to the Company and relating to action
or inaction by the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers and directors and partners and such Holder’s legal counsel and
independent accountants, and each person controlling any such persons, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action; provided, however, that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by such Holder or underwriter
and expressly intended for use in such registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereof.

 

7.2           Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company’s securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities
Act, and each other such Holder, each of its officers, directors, partners,
legal counsel and independent accountants, if any, and each person controlling
such other Holder within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other document,
or any amendment or supplement thereto, incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company,
such Holders, such directors, officers, partners, legal counsel, independent
accountants, underwriters or control persons for any legal or any other

 

17

 

expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular, other
document or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Holder and expressly
intended for use in such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereof; provided, however,
that the obligations of each Holder hereunder shall be limited to an amount
equal to the proceeds to such Holder of Registrable Securities sold as
contemplated herein.

 

7.3           Each party entitled to
indemnification under this Section 7 (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying
Party”) promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld).  The Indemnified Party may participate in such
defense at such party’s expense; provided, however, that the Indemnifying
Party shall bear the expense of such defense of the Indemnified Party if
representation of both parties by the same counsel would be inappropriate due
to actual or potential conflicts of interest. 
The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, unless (and then, only to the extent that) such failure is
prejudicial to the ability of the Indemnifying Party to defend the action.  No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation.

 

7.4           If the indemnification provided for
in Section 7.1 or 7.2 is unavailable or insufficient to hold harmless an
Indemnified Party, then each Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of the expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect thereof)
referred to in Section 7.1 or 7.2, in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and such sellers of
Registrable Securities on the other hand in connection with statements or
omissions which resulted in such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) or expenses, as well as any other relevant
equitable considerations.  The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or such sellers of Registrable Securities and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission.  The
Company and the Holders agree that it would not be just and equitable if
contributions pursuant to this Section 7.4 were to be determined by pro
rata allocation (even if all Sellers of Registrable Securities were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the first
sentence of this Section 7.4.  The
amount paid by an Indemnified Party as a result of the expenses, 

 

18

 

claims, losses, damages or liabilities (or actions or
proceedings in respect thereof) referred to in the first sentence of this Section 7.4
shall be deemed to include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any claim,
action or proceeding which is the subject of this Section 7.4. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.  The obligations of sellers of Registrable
Securities to contribute pursuant to this Section 7.4 shall be several in
proportion to the respective amount of Registrable Securities sold by them
pursuant to a registration statement.

 

ARTICLE 8

RULE 144 REPORTING

 

With a view to making
available the benefits of certain rules and regulations of the Commission
which may at any time permit the sale of securities of the Company to the
public without registration, after such time as a public market exists for the
Common Stock of the Company, the Company agrees to:

 

8.1           Make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public; and

 

8.2           Use its best efforts to then file
with the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements); and

 

8.3           So long as a Holder owns any
Registrable Securities, furnish to the Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements
of said Rule 144 (at any time after ninety (90) days following the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.

 

19

 

ARTICLE 9

TRANSFER OF REGISTRATION
RIGHTS

 

The rights to cause the
Company to register Registrable Securities granted Holders under
Articles 2, 3 and 4 hereof may be assigned in connection with any
permitted transfer or assignment of the Holder’s Registrable Securities.  All transferees and assignees (“Permitted
Transferees”) of the rights to cause the Company to register Registrable
Securities granted Holders under Articles 2, 3 and 4 hereof, as a condition to
the transfer of such rights, shall agree in writing to be bound by the
agreements set forth herein.

 

ARTICLE 10

LIMITATIONS ON
REGISTRATION RIGHTS

GRANTED TO OTHER
SECURITIES

 

The parties hereto agree
that additional holders may, with the consent of the Company and the Holders of
at least two-thirds (2/3) of the Registrable Securities
then outstanding, be added as parties to this Agreement with respect to any or
all securities of the Company held by them; provided, however,
that from and after the date of this Agreement, the Company shall not without the
prior written consent of the Holders of at least two-thirds (2/3)
of the Registrable Securities then outstanding, enter into any agreement with
any holder or prospective holder of any securities of the Company providing for
the grant to such holder of registration rights superior to, or pari  passu
with, those granted herein.  Any
additional parties shall execute a counterpart of this Agreement, and upon
execution by such additional parties and by the Company, shall be considered
Holders for purposes of this Agreement, and shall be added to the Schedule of
Registration Rights Holders.

 

ARTICLE 11

MISCELLANEOUS

 

11.1         GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.

 

11.2         Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

 

11.3         Entire Agreement.  This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof, and the parties hereto intend, agree and understand that
this Agreement amends and supersedes and replaces in its entirety any and all
prior agreements pertaining to the subject matter hereof (including the Prior
Registration Rights Agreement).

 

20

 

11.4         Notices. All notices, requests,
consents, and other communications hereunder shall be in writing and shall be
deemed effectively given and received upon delivery in person, or upon receipt
after delivery by national overnight courier service or by telecopier
transmission with acknowledgment of transmission receipt, or three business
days after deposit via certified or registered mail, return receipt requested,
in each case addressed as follows:

 

if to the Company:

 

Metastorm Inc.

500 East Pratt Street, Suite 1250

Baltimore, Maryland 21202

Attention:  Robert J. Farrell

Telecopier: (443)
874-1337

 

with a copy to:

 

Venable LLP

Two Hopkins Plaza, Suite 1800

Baltimore, MD  21201

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

Telecopier:  (410) 244-7742

 

if to any Holder:

 

The address reflected on
the records of the Company or, in any such case, at such other address or
address as shall have been furnished in writing by such party to the others.

 

11.5         Severability.  In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.

 

11.6         Titles and Subtitles.  The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

 

11.7         Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
constitute one instrument.

 

11.8         Waivers and Amendments.  With the written consent of the Company and
the Holders holding at least two-thirds (2/3)
of the Registrable Securities held by all the Holders, the obligations and rights
of the Company and the Holders under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely) or amended; provided,
however, that no such waiver or amendment shall reduce the aforesaid
number of shares the Holders of which are required to consent to any waiver or
amendment, without the consent of all the Holders; provided  further,
that (i) Purchasers (as defined in the Stock Purchase Agreement)
purchasing shares of Series CC Preferred Stock under the Stock

 

21

 

Purchase Agreement
after the Initial Closing (as defined in the Stock Purchase Agreement) (and as
a condition thereto) shall become parties to this Agreement as “Series CC
Investors” hereunder by such Purchaser’s (as defined in the Stock Purchase
Agreement) execution of a written joinder agreement (a “Joinder Agreement”)
to this Agreement acknowledging such Purchaser’s (as defined in the Stock
Purchase Agreement) agreement to be bound as a party to this Agreement, without
any amendment of this Agreement pursuant to this paragraph or any consent,
approval or other action of any party hereto, and (ii) Persons acquiring
shares of Series AA Preferred Stock pursuant to the Proforma Acquisition
(as defined in the Stock Purchase Agreement) (and as a condition thereto) shall
become a party to this Agreement as “Series AA Investors” hereunder by
such Person’s execution of a Joinder Agreement, without any amendment of this
Agreement pursuant to this paragraph or any consent, approval or other action
of any party hereto.  Upon the
effectuation of each waiver or amendment, the Company shall promptly give written
notice thereof to any Holders who have not previously consented thereto in
writing.  Notwithstanding the foregoing,
any party hereto may waive any of its rights hereunder by a statement in
writing signed by such party.  Such
waiver shall only be effective with respect to the rights specifically set
forth in such writing and shall not waive, amend or prejudice any other rights
the party may have hereunder.

 

11.9         Termination.          The right of any Holder under this
Agreement to request registration or inclusion in any registration shall not be
exercisable by a Holder at such time when (i) after the closing of the
Initial Public Offering of the Common Stock of the Company, all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold without limitation pursuant to Rule 144(k) under
the Securities Act and (ii) the Company’s Common Stock is traded on a
national exchange or the Nasdaq Global Market. 
The termination provision set forth in this Section 11.9 shall only
apply to Holders who hold less than 5% of the capital stock (on a fully-diluted
basis) of the Company at such time.

 

11.10       Lock-Up Agreement.           Each Holder agrees, in connection
with the Company’s Initial Public Offering of the Company’s securities, upon
request of the underwriters managing any underwritten offering of the Company’s
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of such
underwriters, for such period of time (not to exceed 180 days) from the
effective date of such registration as may be requested by the underwriters;
provided, however, that the officers and directors of the Company who own stock
of the Company, together with all holders of one percent (1%) or more of the
Company’s outstanding stock, also agree to such restrictions.  Notwithstanding the foregoing, Holders shall
only be bound to the provisions of this Section 11.10 if the underwriters agree
that any early release from any lock-up agreement for any person in connection
with a public offering shall be pro rata among such person and the Holders.

 

[signatures on next page]

 

22

 

IN WITNESS WHEREOF,
the parties hereto have duly executed this Agreement, or have caused this
Agreement to be duly executed on their behalf, as of the day and year first
above written

 

	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Robert J. Farrell

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  ABS
  CAPITAL PARTNERS V, L.P.

  
	
   

  	
  By: ABS Partners V, L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V,
  L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:  Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  ABS CAPITAL PARTNERS
  V-A, L.P.

  
	
   

  	
  By:

  	
  ABS
  Partners V, L.P.,

  
	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V,
  L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:  Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  ABS CAPITAL PARTNERS V OFFSHORE, L.P.

  
	
   

  	
  By: ABS Partners V,
  L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V, L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
						

 

Metastorm Inc.

Signature Page to Fourth Amended
and Restated Registration Rights Agreement

 

 

	
   

  	
  ICG HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAYFLOWER LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  INDUSTRY VENTURES FUND IV, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  GOLDMAN
  SACHS PRIVATE EQUITY

  
	
   

  	
  OPPORTUNITIES,
  L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  IRONSIDE
  VENTURES, L.P.

  
	
   

  	
  By: Ironside
  Management LLC,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  AXIOM
  VENTURE PARTNERS II, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
						

 

24

 

	
   

  	
  HOLDERS
  OF AT LEAST TWO-THIRDS OF

  
	
   

  	
  REGISTRABLE
  SECURITIES HELD PURSUANT

  
	
   

  	
  TO THE
  PRIOR REGISTRATION RIGHTS

  
	
   

  	
  AGREEMENT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ICG HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAYFLOWER LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDUSTRY VENTURES FUND IV, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GOLDMAN
  SACHS PRIVATE EQUITY

  
	
   

  	
  OPPORTUNITIES,
  L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
						

 

Metastorm Inc.

Signature Page to Fourth Amended
and Restated Registration Rights Agreement

 

 

	
   

  	
  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

  
				

 

26

 

Exhibit A

Schedule of Registration Rights Holders

 

Series AA Investors

 

Sandler Internet Partners, L.P.

Sandler Capital Partners IV, L.P.

Sandler Capital Partners IV FTE, L.P.

Sandler Co-Investment Partners, L.P.

Axiom Venture Partners II, LP

J. Allen Dougherty, Trustee FBO Peter Wetherill

Pennstone, LLC

Riggs Capital Partners, LLC

Morgan Stanley Dean Witter Inc. C/F J. Allen Dougherty, IRA Rollover

Gail Dougherty

Mark T. Cannon

Nancy Walker

Paul E. Ambrose and Paula J. Ambrose

Michael Savage

David R. Schaeffer

Stephen Todd Walker

Mark O’Neill

Wall Street Technology Partners LP

Ironside Ventures, L.P.

Ironside Venture Partners II, LLC

Industry Ventures Fund IV, L.P.

Goldman Sachs Private Equity Opportunities, L.P.

Mayflower L.P. (formerly 3i Group, PLC)

M&M Capital Partners

Eric Luftig

Walter A. Maul, Jr.

Melissa B. Eisenstat

Riggs
Capital Partners II, LLC

ICG Holdings, Inc.

 

Original Stockholders

 

Mayflower L.P. (formerly 3i Group, PLC)

V-Sys, Ltd

Avi Hoffer

Stephen Miles Brown

Michael Philip Vieyra

Bharat Patel

Stuart Frost

Mark O’Hare

 

 

Bruce Grisewood

Michael Jackson

Brian McPhee

Jonathan Summers

 

Series CC
Investors

 

ABS Capital Partners V, L.P.

ABS Capital Partners, V-A, L.P.

ABS Capital Partners V Offshore, L.P.

ICG Holdings, Inc.

Mayflower LP

Industry Ventures Fund IV, L.P.

Goldman Sacks Private Equity Opportunities, L.P.

Ironside Ventures, L.P.

Axiom Venture Partners II, LP

 

28

 

Exhibit I

 

Form of Fifth Amended and Restated Stockholders Agreement

 

 

FIFTH
AMENDED AND RESTATED

STOCKHOLDERS
AGREEMENT

 

THIS
FIFTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this “Agreement”),
dated as of July 31, 2007, is entered into by and among (i) Metastorm
Inc., a Maryland corporation (the “Company”), (ii) the purchasers
(the “Series CC Investors”) of the Company’s Series CC
Convertible Preferred Stock, par value $0.01 per share (the “Series CC
Preferred Stock”), listed on Schedule A hereto, (iii) the other
Persons listed on Schedule A hereto, and (iv) the other Persons
that from time to time execute joinders to this Agreement.

 

WHEREAS, pursuant to the Series CC
Convertible Preferred Stock Purchase Agreement dated as of July 31, 2007 (the “Stock Purchase
Agreement”), the Company has agreed to issue and sell to the Series CC
Investors, and the Series CC Investors have severally agreed to purchase
from the Company, certain shares of the Company’s Series CC Preferred
Stock, subject to the terms and conditions set forth in the Stock Purchase
Agreement; and

 

WHEREAS, the obligation
of the Series CC Investors to purchase the Series CC Preferred Stock
is conditioned upon the execution and delivery by each of the parties hereto of
this Agreement; and

 

WHEREAS, the Converted BB
Investors (as defined below) have, concurrently with the execution and delivery
of this Agreement, (x) converted all of the issued and outstanding shares
of the Company’s Series BB
Convertible Preferred Stock, par value $0.01 per share (the “Series BB
Preferred Stock”), into shares of the Company’s Series AA Convertible Preferred Stock, par value
$0.01 per share (the “Series AA Preferred Stock”), at a
conversion ratio of 1.8339403 shares of Series AA Preferred Stock for each
share of Series BB Preferred Stock; and (y) exchanged all of the
outstanding warrants to purchase Series BB Preferred Stock (the “Series BB
Warrants”) for Series AA Preferred Stock, at an exchange ratio of one
share of Series AA Preferred Stock for each warrant to purchase a share of
Series BB Preferred Stock; and

 

WHEREAS, the Company, the
Original Stockholders, the Converted BB Investors and the then-Series AA
Investors (as defined below) previously entered into that certain Fourth
Amended and Restated Stockholders Agreement, dated as of October 4, 2005
(the “Prior Stockholders Agreement”), which Prior Stockholders Agreement
is being amended, restated and superseded in its entirety by this Agreement;

 

WHEREAS, pursuant to Section 5.6
of the Prior Stockholders Agreement, the holders of two-thirds (2/3)
of the Company’s Capital Stock on a Fully-Diluted Basis have approved such
amendment and restatement of the Prior Stockholders Agreement, such approval
evidenced by their signatures hereon; and

 

WHEREAS, the parties hereto
desire to set forth their mutual agreement regarding various matters relating
to the Company, including certain restrictions with respect to the ownership of
shares of the Company’s capital stock, corporate governance and certain other
matters;

 

 

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:

 

ARTICLE 1

 

DEFINITIONS

 

SECTION 1.1                 Certain
Definitions.  As used in this
Agreement, the following terms shall have the following respective meanings:

 

“3i” has the
meaning set forth in Section 3.1(e) of this Agreement.

 

“3i Director” has
the meaning set forth in Section 3.1(e) of this Agreement.

 

“ABS” has the
meaning set forth in Section 3.1(c) of this Agreement.

 

“ABS Director” has
the meaning set forth in Section 3.1(c) of this Agreement.

 

“Acquisition”
means a consolidation or merger of the Company with or into any other
corporation or other entity or person, or an acquisition of assets or other
corporate reorganization, in which stockholders of the Company immediately
prior to such consolidation, merger, acquisition of assets or reorganization
own less than fifty percent (50%) of the voting power or equity of the
surviving entity immediately after such consolidation, merger, acquisition of
assets or reorganization, or any transaction or series of related transactions
in which in excess of fifty percent (50%) of the Company’s voting power or
equity is transferred.

 

“Affiliate” means, with respect to any Person,
any Person that, directly or indirectly, controls, is controlled by or is under
common control with such first-named Person. 
For the purposes of this definition, “control” (including with
correlative meanings, the terms “controlled by” and “under common control
with”) shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or
otherwise.  In addition, in the case of
each Stockholder, an “Affiliate” of such Stockholder shall include the partners
thereof.  For greater certainty, (i) in the
case of Mayflower L.P. (“3i”), “Affiliate” shall include any Affiliate of 3i
Group plc or any entity or vehicle including a partnership in which 3i Group
plc and/or its Affiliates has a majority economic interest and which is managed
by 3i Group plc or any of its Affiliates, (ii) in the case of Ironside
Ventures, L.P. and Ironside Venture Partners II, LLC, each of Ironside
Ventures, L.P. and Ironside Venture Partners II, LLC shall be deemed to be an
Affiliate of the other, and (iii) without limiting the definition of Affiliate
with respect to ICG (as defined below), in the case of ICG, each of Internet
Capital Group, Inc. and ICG shall be deemed to be an Affiliate of each other.

 

“Asset Transfer”
means a sale, lease or other disposition of all or substantially all of the
assets of the Company, in one or more related transactions.

 

2

 

“Board” has the
meaning set forth in Section 2.4(b) of this Agreement.

 

“Business Day”
means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day
on which banking institutions in the City of New York, New York are authorized
or obligated by law or executive order to close.

 

“Bylaws” means the
Company’s Bylaws, as the same may hereafter be amended in accordance with
applicable law and the terms thereof and hereof.

 

“Capital Stock”
means the capital stock of the Company, including, without limitation, the
Common Stock and the Preferred Stock.

 

“Charter” means
the charter of the Company, as “charter” is defined in Section 1-101(e) of
the Maryland General Corporation Law, as amended.

 

“Commission” means
the U.S. Securities and Exchange Commission.

 

“Common Stock”
means the common stock, par value $0.01 per share, of the Corporation.

 

“Converted
BB Investors” means the Holders of Series AA Preferred Stock who were
Holders of Series BB Preferred Stock and warrants to purchase shares of Series BB
Preferred Stock prior to the conversion thereof to Series AA Preferred
Stock on the date of this Agreement.

 

“Co-Sale Shares”
means the shares of Common Stock proposed to be Transferred to a Third Party
subject to Section 2.3(a) of this Agreement.

 

“Co-Seller” has
the meaning set forth in Section 2.3(c) of this Agreement.

 

“Drag-Along Shares”
has the meaning set forth in Section 2.3(h) of this Agreement.

 

“Drag-Along
Stockholders” has the meaning set forth in Section 2.3(h) of this
Agreement.

 

“Election Notice”
has the meaning set forth in Section 2.3(c) of this Agreement.

 

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

 

“Fully-Diluted Basis”
gives effect, without duplication, to (i) all shares of Common Stock
outstanding at the time of determination plus (ii) all shares of Common
Stock issuable upon conversion of the Preferred Stock or any other convertible
securities of the Company or upon the exercise of any option, warrant or
similar right (whether or not presently exercisable) to acquire shares of
Common Stock, as if such Preferred Stock or other convertible securities had
been so converted or such option, warrant or similar right had been so
exercised.

 

3

 

“Hoffer” has the
meaning set forth in Section 2.3(a) of this Agreement.

 

“Holder” means a
holder of any Capital Stock.

 

“ICG” has the
meaning set forth in Section 3.1(d) of this Agreement.

 

“ICG Director” has
the meaning set forth in Section 3.1(d) of this Agreement.

 

“Independent Director”
means an individual that is (i) not an officer or employee of, or paid
consultant to, the Company or any stockholder of the Company beneficially
owning five percent (5%) or more of any class or series of the Capital Stock,
or (ii) any family member of any individual described in clause (i).

 

“Initiating Holder”
has the meaning set forth in Section 2.3(h) of this Agreement.

 

“New Securities”
has the meaning set forth in Section 2.4(b) of this Agreement.

 

“Notice of Transfer”
has the meaning set forth in Section 2.3(b) of this Agreement.

 

“Original
Stockholders” means the Holders of Series AA Preferred Stock, as
listed on Schedule A attached hereto, who were among the Holders of the
Company’s previously outstanding Common Stock prior to the conversion thereof
to Series AA Preferred Stock on September 1, 2004.

 

 “Original Stockholder Shares” means,
collectively, the shares of Series AA Preferred Stock held by the Original
Stockholders, if any, including shares of Common Stock issuable upon conversion
of any option, warrant or other convertible security granted or issued by the
Company, whether outstanding as of the date of this Agreement or granted or
issued thereafter.

 

“Permitted
Transferee” means:

 

(a)           with respect to any Preferred Holder,
(i) any Affiliate of such Preferred Holder, (ii) the Company or (iii) any
other Person who purchases or otherwise acquires all or a portion of such
Preferred Holder’s shares of Preferred Stock; and

 

(b)           with respect to any Original
Stockholder, (i) any Affiliate of such Original Stockholder, (ii) the
Company, (iii) any Original Stockholder or (iv) any member of the
immediate family of an Original Stockholder, that is an individual, or any
trust exclusively for the benefit of such individual.

 

“Person”
means any individual, corporation, partnership, limited liability company,
limited liability partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

 

4

 

“Preferred Holders” means the Holders consisting solely of the Series AA
Investors and the Series CC Investors and their Permitted Transferees.

 

“Preferred Stock” means the Series AA Preferred Stock and
the Series CC Preferred Stock treated together as one class.

 

“Prior Stockholders Agreement” has the meaning set forth in the
recitals of this Agreement.

 

“Purchase
Offeror” has the meaning set forth in Section 2.3(b) of this
Agreement.

 

“Qualified Public
Offering” means the closing of a firm commitment underwritten public
offering, pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of Common Stock to the public that raises
gross proceeds for the Corporation of at least $75,000,000  and
at an initial price per share to the public of at least equal to two and
one-half (21⁄2) times the then-applicable Series CC Conversion Price (as
defined in Article Ninth of the Charter).

 

“Qualified Sale
Transaction” means an Acquisition or an Asset Transfer.

 

“Recapitalization
Events” shall mean stock splits, stock dividends, combinations,
recapitalizations, reorganizations, reclassifications, mergers, consolidations
and other similar events with respect to the Company’s Capital Stock.

 

“Redemption Shares”
has the meaning set forth in Section 3.1(i) of this Agreement.

 

“Representing Party”
has the meaning set forth in Article 4 of this Agreement.

 

“Requisite
Number of Stockholders” means (i) Preferred Holders holding at least
sixty percent (60%) of the then issued and outstanding shares of Preferred
Stock held by all Preferred Holders calculated on an as-converted basis, and (ii) Series CC
Investors holding more than twenty-five percent (25%) of the then issued and
outstanding shares of Series CC Preferred Stock held by all Series CC
Investors; provided that the term “Requisite Number of Stockholders”
shall not include clause (ii) above following the second anniversary of
the date hereof or in the event the amount of proceeds paid in respect of a
share of Series CC Preferred Stock to a Series CC Investor in a
Qualified Sale Transaction to which this definition applies is equal to or
greater than two (2) times the Series CC Stated Value (as such term
is defined in the Charter).

 

“Sale Agreement”
has the meaning set forth in Section 2.3(d) of this Agreement.

 

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

 

“Seller” has the
meaning set forth in Section 2.3(b) of this Agreement.

 

5

 

“Selling
Stockholder” has the meaning set forth in Section 2.2(a) of this
Agreement.

 

“Series AA Investors” means, collectively, the Holders of Series AA
Preferred Stock other than Original Stockholders (including, for the avoidance
of doubt, the Converted BB Investors) and the Permitted Transferees of such
Holders of Series AA Preferred Stock.

 

“Series AA Redemption Notes” has the meaning set forth in Section 3(i).

 

“Series CC Investors” has the meaning set forth in the
preamble of this Agreement.

 

“Series CC Redemption Notes” has the meaning set forth in Section 3(i).

 

“Series AA Preferred Stock” has the meaning set forth in
the preamble of this Agreement.

 

“Series AA
Redemption Shares” has the meaning set forth in Section 3.1(i) of
this Agreement.

 

“Series BB Preferred Stock” has the meaning set forth in
the preamble of this Agreement.

 

“Series BB Warrants” has the meaning set forth in the
recitals of this Agreement.

 

“Series CC Preferred Stock” has the meaning set forth in
the preamble of this Agreement.

 

“Series CC
Redemption Shares” has the meaning set forth in Section 3.1(i) of
this Agreement.

 

“Stock Purchase Agreement” has the meaning set forth in the
preamble of this Agreement.

 

The
terms “Stockholders,” collectively, and a “Stockholder,”
individually, means the Series AA Investors and the Series CC
Investors party to this Agreement.

 

“Subsidiary”
means, with respect to the Company, (i) any corporation more than 50% of
whose stock of any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation (irrespective of
whether or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of any contingency)
is at the time owned by the Company and/or one or more Subsidiaries of the
Company and (ii) any partnership, limited liability company, association,
joint venture or other entity (a) in which the Company and/or one or more
Subsidiaries of the Company has more than a 50% equity interest at the time or (b) as
to which the Company and/or one or more of its Subsidiaries has the power to
direct or cause the direction of the management and policies of such entity by
contract or otherwise.

 

“Tag-Along Shares”
has the meaning set forth in Section 2.3(c) of this Agreement.

 

6

 

“Third Party” has
the meaning set forth in Section 2.2(a) of this Agreement.

 

“Third Party Offer”
has the meaning set forth in Section 2.2(a) of this Agreement.

 

“Transfer”
(including with correlative meanings the terms “Transferred”, “Transferee” and “Transferor”)
means any transfer, sale, assignment, pledge (other than a bona fide pledge to
a lender), encumbrance or other disposition of Capital Stock, or any portion of
the ownership interest therein, irrespective of whether any of the foregoing
are effected voluntarily or involuntarily, by operation of law or otherwise, or
whether inter  vivos or upon death.  For the avoidance of doubt, a “Transfer”
does not include a consolidation or merger of the Company with or into any
other corporation or other entity or person, or other corporate reorganization.

 

“Wall Street” has
the meaning set forth in Section 3.1(f) of this Agreement.

 

“Wall Street Director”
has the meaning set forth in Section 3.1(f) of this Agreement.

 

ARTICLE 2

 

TRANSFERS OF STOCK

 

SECTION 2.1                 General Restrictions

 

(a)           No Stockholder shall Transfer or
otherwise dispose of any Capital Stock at any time, unless such Transfer
complies with Section 2.1(b) of this Agreement and complies with any
other provision of Article 2 of this Agreement that is expressly
applicable to such Stockholder.

 

(b)           Each
Stockholder may Transfer all, or any part of, or interest in, the Capital Stock
held by it at any time to a Permitted Transferee of such Stockholder; provided,
that such Transfer otherwise is made in accordance with the registration
requirements of the Securities Act or pursuant to any exemption from
registration under the Securities Act and any applicable state securities
laws.  No Transfer to a Permitted
Transferee shall be made pursuant to the immediately preceding sentence unless
the Permitted Transferee (except in any instance in which such Permitted Transferee
is the Company) shall have executed and delivered to the Company, as a
condition to its acquisition of such Capital Stock, an instrument in form and
substance reasonably satisfactory to the Company confirming that such Permitted
Transferee takes such Capital Stock, or interest therein, subject to, and
agrees to be bound by, all the terms, conditions and obligations of this
Agreement.  Notwithstanding the foregoing
provisions of this Section 2.1(b), the restrictions imposed by this Section 2.1(b) upon
the transferability of any Capital Stock shall terminate when such Capital
Stock has been registered under the Securities Act.  In connection with the termination of
restrictions on transferability of Capital Stock provided for hereunder, the
holder of a certificate representing such Capital Stock as to which such
restrictions shall have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for such
Capital Stock not bearing the restrictive legend set forth in Section 2.5.

 

7

 

(c)           The
rights granted to each Stockholder under this Article 2 shall inure to the
benefit of any of its respective Permitted Transferees as though such Permitted
Transferee were the same type of stockholder as the Transferor; provided,
however, that such Permitted Transferee shall be required to comply with
all applicable provisions of this Article 2 to the same extent as the
Transferor Stockholder.

 

SECTION 2.2                 Right
of First Refusal.

 

(a)           If
an Original Stockholder or a Permitted Transferee of an Original Stockholder
desires to Transfer its holdings of Capital Stock other than to a Permitted
Transferee, such Original Stockholder (the “Selling Stockholder”) shall
be required to obtain a bona fide, non-collusive, binding written offer (a “Third
Party Offer”), subject only to customary closing conditions with respect to
the proposed transfer from the proposed transferee (a “Third Party”)
which the Selling Stockholder desires to accept.  The Third Party Offer shall contain a
description of all of the consideration, material terms and conditions for the
proposed Transfer. The Selling Stockholder shall send a copy of the Third Party
Offer which shall include the identity of the Third Party to the other
Stockholders, together with a written offer to sell the offered shares of
Capital Stock to the other Stockholders, on pro rata basis at the price and on
the terms and conditions specified in the Third Party Offer.  For purposes of this Section 2.2, a
Stockholder’s pro  rata share shall be a fraction equal to the
number of shares of any Common Stock and/or any Preferred Stock (on an “as
converted” basis) then held by such Stockholder on a Fully-Diluted Basis
divided by the total number of shares of Common Stock and/or Preferred Stock
(on an “as converted” basis) held by all Stockholders on a Fully-Diluted Basis.

 

(b)           Upon
receipt of the Third Party Offer and the offer of the Selling Stockholder to
sell the offered shares of Capital Stock pursuant to the terms of Section 2.2(a) hereof,
each of the other Stockholders shall have fifteen (15) calendar days from the
receipt of the written offer from the Selling Stockholder to notify the Selling
Stockholder in writing of such other Stockholder’s election to purchase all but
not less than all of such Stockholder’s pro rata share of the offered shares of
Capital Stock.  If, upon the expiration
of such fifteen (15) day period, some but not all of the other Stockholders
have elected to purchase their pro rata shares of the offered shares of Capital
Stock, such electing Stockholders shall have an additional fifteen (15)
calendar days to elect to acquire, based on their relative percentage interests
or on such other basis as the remaining Stockholders may agree in writing, any
remaining offered shares of Capital Stock.

 

(c)           In
the event the other Stockholders make such election provided under Section 2.2(b) hereof,
the closing of the sale of the offered shares of Capital Stock to the other
Stockholders shall be held at the offices of the Company on the tenth (10th)
Business Day after the end of the fifteen (15) day period (or thirty (30) day
period, as the case may be) described under Section 2.2(b) or such
other time as the parties may agree in writing. 
Contemporaneously with such closing, the Selling Stockholder shall
transfer the offered shares of Capital Stock against receipt from the other
Stockholders of the purchase price and on the terms and conditions specified in
the Third Party Offer.

 

(d)           Notwithstanding the provisions of Section 2.2(c) hereof,
if (a) the other Stockholders have not elected to purchase all of the
offered shares of Capital Stock within the 

 

8

 

applicable election
period or (b) the closing of the sale of all of the offered shares of
Capital Stock to the other Stockholders has not been completed by the scheduled
closing date, as extended pursuant to the provisions of Section 2.2(c) hereof,
the Selling Stockholder shall have the right for a period of ninety (90) calendar
days after (i) the expiration of the election period in Section 2.2(b) hereof
or (ii) the last date for closing of such sale under Section 2.2(c) hereof,
as applicable, to sell all but not less than all of the offered shares of
Capital Stock but only to the Third Party for a price and on terms not more
favorable to the Third Party than those of the Third Party Offer.

 

SECTION 2.3                 Tag-Along Rights and
Drag-Along Rights.

 

(a)           No Stockholder or a Permitted
Transferee of such Stockholder shall Transfer any Capital Stock (or any
interest therein) in one transaction or a series of related transactions to a
Third Party unless (i) such Transfer is made in accordance with Section 2.3(b) through
2.3(h) of this Agreement, or (ii) such Transfer is made to a
Permitted Transferee of such Stockholder in accordance with Section 2.1(b);
provided, however, that for purposes of this Section 2.3
(other than Section 2.3(h)), the term “Stockholder” shall not apply to
Original Stockholders other than Avi Hoffer (“Hoffer”).  Such shares of Capital Stock being
Transferred pursuant to this Section 2.3(a) are hereinafter referred
to as “Co-Sale Shares.”

 

(b)           Any Stockholder or a Permitted
Transferee of such Stockholder (the “Seller”) making a Transfer of
Co-Sale Shares to a Third Party shall deliver a written notice (the “Notice
of Transfer”) to the Company.  The
Notice of Transfer will contain a copy of the definitive documentation pursuant
to which the Co-Sale Shares will be Transferred and will state (i) the
Seller’s bona fide intention to Transfer, (ii) the name and address of the
prospective transferee (the “Purchase Offeror”), (iii) the number
of Co-Sale Shares to be Transferred, (iv) the expected closing date of the
transaction, (v) the class or series of the Co-Sale Shares, and (vi) confirmation
that the Purchase Offeror has been informed of the provisions of this Section 2.3.  The Company shall promptly, and in any event
within five (5) Business Days after receipt of such Notice of Transfer,
deliver a copy of such Notice of Transfer to the other Stockholders.

 

(c)           Any Stockholder may elect to
participate in the Transfer contemplated by Section 2.3(b) above by
delivering a written notice (an “Election Notice”) to the Seller and the
Company within ten (10) Business Days after receipt of such Notice of
Transfer, and each such Stockholder (each a “Co-Seller”) may elect to
Transfer in such contemplated Transfer up to that number of shares of Capital
Stock of the same class or series as the Co-Sale Shares (referred to herein as “Tag-Along
Shares”) that is equal to the product of (a) the number of Co-Sale
Shares proposed to be sold by the Seller multiplied by (b) a fraction, the
numerator of which is the total number of shares of Capital Stock of the same
class or series as the Co-Sale Shares owned by such Co-Seller and the
denominator of which is the total number of shares of Capital Stock of the same
class or series as the Co-Sale Shares issued and/or issuable to the Seller and
to all Co-Sellers.  If any Stockholder
fails to deliver an Election Notice by the close of business on the tenth (10th)
Business Day after receipt of a Notice of Transfer, such Stockholder shall be
deemed to have elected not to participate in the Transfer covered by such
Notice of Transfer.

 

9

 

(d)           Each Co-Seller participating in a
Transfer shall deliver to the Purchase Offeror at a closing to be held at the
offices of the Company (or such other place as the parties agree), one or more
certificates, properly endorsed for Transfer, which represent the number of
Tag-Along Shares which the Co-Seller elects to Transfer, and may Transfer,
pursuant to this Section 2.3.  Such
certificates shall be transferred by the Seller to the Purchase Offeror
simultaneously with the consummation of the Transfer of the Co-Sale Shares
pursuant to the terms and conditions specified in the Notice of Transfer
against receipt by the Co-Sellers of the proceeds of the Transfer of their
respective Tag-Along Shares.  If there is
to be an agreement of sale or similar instrument with respect to the proposed
Transfer (a “Sale Agreement”), the Seller will furnish a copy of the
Sale Agreement in its then current form to the Company with the Notice of
Transfer, and the Company shall furnish a copy thereof to the other
Stockholders.  As promptly as practicable
after receipt of an Election Notice, if the Sale Agreement has not previously
been executed, the Seller shall furnish the Co-Sellers with successive drafts
of the Sale Agreement, if any, as available. 
As a condition to making an Election Notice and being eligible to
participate in a Transfer, each Co-Seller shall represent and warrant to the
Purchase Offeror with respect to the Tag-Along Shares being disposed of by such
Co-Seller that the transferee of the Tag-Along Shares (or interests therein) is
receiving such Tag-Along Shares (or interests therein), free and clear of all
pledges, security interests or other liens created by such Co-Seller.  Each Co-Seller shall accept a proportionate
delegation of any duties of the Seller under any Sale Agreement (including any
indemnification obligation); provided, however, that (a) no
Co-Seller need accept joint liability with respect to representations,
warranties or covenants (including without limitation indemnification
obligations) of the Seller or any other Co-Sellers, it being agreed that such
Sale Agreement shall provide that the liability of such Co-Seller in connection
with the sale shall be several only and shall not in any event exceed such
Co-Seller’s pro rata share of any liability and (b) each Co-Seller shall
be required only to make representations or warranties to, or enter into
indemnification or contribution arrangements with, the Purchase Offeror
relating to the Sale Agreement which are reasonable in the context of the
proposed sale including, without limitation, a representation and warranty with
respect to the shares or other equity interests being disposed of by such
Co-Seller that the transferee of the shares or other equity interests evidenced
thereby is receiving such shares or other equity interests, free and clear of
all pledges, security interests or other liens. 
The Seller shall use its commercially reasonable efforts to limit the
liability of each Co-Seller participating in the sale to the proceeds received
by such Co-Seller.  To the extent that
any prospective transferee or transferees prohibit assignment and delegation of
such Sale Agreement or otherwise refuse to purchase any Tag-Along Shares from a
Co-Seller, the Seller shall not sell to such prospective transferee or
transferees any interest in the Company unless and until, simultaneously with
such sale, the Seller shall purchase from such Co-Seller the Tag-Along Shares
such Co-Seller would otherwise have been able to sell hereunder for the same
consideration and on the same terms and conditions as the proposed transfer
described in the Notice of Transfer.

 

(e)           The exercise or non-exercise of the
rights of the Stockholders hereunder to participate in one or more Transfers of
Co-Sale Shares made by a Seller shall not adversely affect their rights to
participate in subsequent Transfers of Co-Sale Shares by Stockholders
(including the Seller) which meet the conditions specified in this Section 2.3.

 

(f)            To the extent the Purchase Offeror is
unwilling to purchase all of the Tag-Along Shares of the Co-Sellers, then the
number of Co-Sale Shares to be sold by the Seller

 

10

 

shall
be reduced to equal the difference between (i) the total number of shares
of Capital Stock to be purchased by the Purchase Offeror and (ii) the
total number of Tag-Along Shares being sold by the Co-Sellers.

 

(g)           Any Transfer made pursuant to Section 2.3
shall be consummated on the terms set forth in the Notice of Transfer.  The Company shall use reasonable efforts to
aid such closing, including, but not limited to, exchanging the Co-Seller’s
certificates for new certificates in requested denominations.

 

(h)           In
the event the Requisite Number of Stockholders (the “Initiating Holders”)
approve a Qualified Sale Transaction and desire to cause the other Stockholders
(together, the “Drag-Along Stockholders”) to sell all of such Drag-Along
Stockholders’ Capital Stock to the acquirer in the Qualified Sale Transaction,
the Initiating Holders will give at least five (5) Business Days prior
notice in writing (the “Drag-Along Notice”) to the Drag-Along
Stockholders of their intention to do so, specifying the number of shares of
Capital Stock the Initiating Holders propose to sell, the name of the Person or
Persons to whom they are proposing to sell their shares of Capital Stock, and
the price and other material terms under which their shares of Capital Stock
are to be sold.  Upon receipt of the
Drag-Along Notice for a sale of stock, each Drag-Along Stockholder agrees, and
shall be obligated, to sell all of its Capital Stock (the “Drag-Along Shares”)
on the terms and conditions set forth in the Drag-Along Notice, subject to the
conditions set forth below.  In addition,
upon receipt of the Drag-Along Notice for a Qualified Sale Transaction, each
Drag-Along Stockholder agrees to consent to, vote for, and raise no objections
against, and waive dissenters and appraisal rights (if any), with respect to
the Qualified Sale Transaction, in addition to selling, exchanging, redeeming,
canceling or otherwise disposing of all Drag-Along Shares and options, warrants
and other rights to acquire Capital Stock on the terms and conditions set forth
in the Drag-Along Notice, subject to the conditions set forth below.  Each Drag-Along Stockholder and the Company
will take all necessary and desirable actions in connection with complying with
the terms of the Drag-Along Notice.

 

In connection with the sale of Capital Stock
pursuant to a Drag-Along Notice, the Drag-Along Stockholders shall represent
and warrant to the Person or Persons to whom they are selling the Drag-Along
Shares that the acquirer of the Drag-Along Shares (or interests therein) is
receiving such Drag-Along Shares (or interests therein), free and clear of all
pledges, security interests or other liens created by such Drag-Along
Stockholder.  Each Drag-Along Stockholder
shall accept a proportionate delegation of any duties of all Initiating Holders
and Drag-Along Stockholders (together, the “Selling Holders”) under any sale of
Drag-Along Shares (including any indemnification obligation in a sale
agreement); provided, however, that (a) no Drag-Along
Stockholder need accept joint liability with respect to representations,
warranties or covenants (including without limitation indemnification
obligations) of any other Selling Holder, it being agreed that a sale agreement
shall provide that the liability of such Drag-Along Stockholder in connection
with the sale shall be several only and shall not in any event exceed such
Drag-Along Stockholder’s pro rata share of any liability and (b) each
Drag-Along Stockholder shall be required only to make representations or
warranties to, or enter into indemnification or contribution arrangements with,
the Person or Persons to whom they are selling the Drag-Along Shares which are
reasonable in the context of the proposed sale including, without limitation, a
representation and warranty with respect to the shares or other equity
interests being disposed of by such Drag-Along Stockholder that the acquirer of
the shares or other equity interests

 

11

 

evidenced
thereby is receiving such shares or other equity interests, free and clear of
all pledges, security interests or other liens. 
The obligations of the Drag-Along Stockholders pursuant to this Section 2.3(h) are
subject to the following additional conditions: (i) all Selling
Holders shall participate in the Qualified Sale Transaction on a pro rata
basis; (ii) upon consummation of the Qualified Sale Transaction, each
Selling Holder shall receive the same proportion of the aggregate consideration
from such Qualified Sale Transaction that such Selling Holder would have
received if such consideration had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the Charter
(giving effect to applicable orders of priority and the exercise price of all
outstanding warrants and options then exercisable to purchase securities of the
Company); (iii) if any Initiating Holder is given an option as to the form
and amount of consideration to be received with respect to a class or series of
securities it holds, all Selling Holders will be given the same option; and (iv) no Selling Holder shall be
obligated to make any out-of-pocket expenditure prior to the consummation of
the Qualified Sale Transaction and no Selling Holder shall be obligated to pay
more than its pro rata share (based upon the amount of consideration received)
of reasonable expenses incurred in connection with a consummated Qualified Sale
Transaction to the extent such costs are incurred for the benefit of all
Selling Holders and are not otherwise paid by the Company or the purchaser
(costs incurred by or on behalf of a Selling Holder for its sole benefit will
not be considered costs of the transaction hereunder).

 

SECTION 2.4                 Preemptive Rights.

 

(a)           The Company hereby grants to each
Stockholder so long as such stockholder owns, on a Fully-Diluted Basis, at
least 3% of the Common Stock, a preemptive right to purchase such Stockholder’s
pro  rata share of all or any part of any New Securities (as
defined below) which the Company may, from time to time, propose to sell and
issue.  Such Stockholder’s pro  rata
share, for purposes of this preemptive right, is a fraction equal to the number
of shares of any Common Stock and/or any Preferred Stock (on an “as converted”
basis) then held by such Stockholder on a Fully-Diluted Basis divided by the
total number of shares of Common Stock and/or Preferred Stock (on an “as
converted” basis) of the Company on a Fully-Diluted Basis then outstanding.

 

(b)           Except as set forth in the next
succeeding sentence, “New Securities” shall mean any shares of Capital
Stock, including Common Stock, whether now authorized or not, and rights,
options or warrants to purchase said shares of Common Stock, and securities of
any type whatsoever that are, or may become, convertible into said shares of
Common Stock.  Notwithstanding the
foregoing, “New Securities” does not include (i) securities offered to the
public generally pursuant to a registration statement filed with the Commission
and declared effective under the Securities Act, (ii) securities issued in
the acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization or transaction approved
by the Board of Directors of the Company (the “Board”) and governed by Rule 145
under the Securities Act, (iii) shares of Common Stock issued on
conversion of outstanding Preferred Stock, (iv) securities issued pursuant
to the exercise or conversion of any convertible securities, options, warrants,
or similar rights provided that the preemptive rights established by this Section 2.4
shall apply with respect to the initial sale or grant by the Company of such
convertible securities, options, warrants or similar rights, (v) securities
issued to a financial institution in connection with a debt financing
transaction with such financial institution 

 

12

 

and
approved by the Board, (vi) stock issued in connection with any stock
split, stock dividend, recapitalization or reclassification by the Company or (vii) shares
of Common Stock or Preferred Stock issued or issuable to employees, directors
or consultants of the Company pursuant to any compensation plan or arrangement
approved by the Board (“Employee Equity Awards”), (provided that (i) the
Board shall also approve the grant of shares of Common Stock or Preferred Stock
or other securities exercisable for such shares of Common Stock or Preferred
Stock in connection therewith and (ii) the total number of shares of
Common Stock or Preferred Stock represented by outstanding Employee Equity
Awards (including outstanding restricted Series AA Preferred Stock units)
does not exceed 14,214,012 shares (subject to appropriate readjustment for any
Recapitalization Event)).

 

(c)           In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Stockholder having
preemptive rights hereunder written notice of its intention, describing the
type of New Securities, and the price and terms upon which the Company proposes
to issue the same.  Each Stockholder
shall have fifteen (15) days from the date of receipt of any such notice to
agree to purchase up to such Stockholder’s respective pro  rata
share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.

 

(d)           If a Stockholder fails to exercise such
preemptive right within said 15-day period, the Company shall have ninety (90)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within sixty (60)
days from the date of said agreement) to sell the New Securities not elected to
be purchased by Stockholders at the price and upon the terms no more favorable
to the purchasers of such securities than specified in the Company’s notice.  In the event the Company has not sold the New
Securities or entered into an agreement to sell the New Securities within said
90-day period (or sold and issued New Securities in accordance with the
foregoing within sixty (60) days from the date of said agreement), the Company
shall not thereafter issue or sell any of such New Securities, without first
offering such securities in the manner provided above.

 

(e)           Notwithstanding the foregoing, in no
event shall the Company be required to sell any New Securities to a Stockholder
that is not an “accredited investor” as such term is defined under the
Securities Act at the time of such proposed sale.

 

(f)            The preemptive right granted under this Section 2.4
shall expire upon the closing of, and shall not apply to, a Qualified Public
Offering.

 

SECTION 2.5                 Restrictive Legend.  Unless and
until otherwise permitted by Section 2.1, each certificate for Capital
Stock issued to each Stockholder after the date hereof , or to any subsequent
Permitted Transferee of such certificate, shall be stamped or otherwise
imprinted with the following restrictive legend:

 

“The securities
represented by this certificate have been acquired for investment and have not
been registered pursuant to the Securities Act of 1933, as amended (the “Securities
Act”), or any applicable state statutes. Such securities may not be 

 

13

 

sold, transferred or
otherwise disposed of unless (a) (i) a registration statement under
the Securities Act or applicable state securities laws shall have become
effective with regard thereto, or (ii) an exemption from registration
exists under the Securities Act (or the regulations promulgated thereunder) and
applicable state securities laws and such exemption is applicable thereto, and (b) such
transfer otherwise complies with that certain Fifth Amended and Restated
Stockholders Agreement, dated as of July 31, 2007, by and among Metastorm
Inc. and certain of its Stockholders, as amended from time to time.”

 

ARTICLE 3

 

BOARD OF DIRECTORS

 

SECTION 3.1                 Composition of Board of Directors.

 

(a)           The Board shall
consist of up to seven (7) members, except when the size of the Board may
need to be increased pursuant to Section 3.1(i) herein, at which time
the Board shall consist of up to fifteen (15) members.  Stockholders shall have the right to nominate
directors as set forth below.  All
Stockholders shall comply with the provisions of this Article 3 to ensure
that nominees are elected to (or removed from) the Board.

 

(b)           The Chief Executive
Officer of the Company, as appointed by the Board, shall be nominated by the
Board as a director.

 

(c)           ABS Capital Partners
V, L.P. (“ABS”) or its assignee, shall have the right to nominate one (1) individual
to be a director (the “ABS Director”).

 

(d)           ICG Holdings, Inc.,
a Delaware corporation (“ICG”) or its assignee, shall have the right to
nominate two (2) individuals to be directors, one of whom shall be an
Independent Director (each, an “ICG Director”).

 

(e)           3i shall have the
right to nominate one (1) individual to be a director (the “3i Director”).

 

(f)            Wall Street Technology
Partners LP, a Delaware limited partnership (“Wall Street”), shall have
the right to nominate one (1) individual to be a director (the “Wall
Street Director”).

 

(g)           Wall Street, 3i and
ABS, acting jointly, shall have the right to nominate one (1) Independent
Director.

 

(h)           If at any time ABS ceases to own at least fifty percent (50%) of the
Preferred Stock that it owns as of the date hereof (after giving effect to the
transactions contemplated by this Agreement), ABS’s right to appoint an
individual to be a director pursuant to Section 3.1(c), and ABS’s right to
participate in the nomination of an Independent Director pursuant to Section 3.1(g) 
shall each immediately become null and void. 
If at any time Wall Street ceases to own at least fifty percent (50%) of
the Preferred Stock that it owns as of the date hereof (after giving effect to
the transactions contemplated by this Agreement), Wall Street’s 

 

14

 

right
to appoint an individual to be a director pursuant to Section 3.1(f) and
Wall Street’s right to participate in the nomination of an Independent Director
pursuant to Section 3.1(g), shall each immediately become null and
void.  If at any time 3i ceases to own at
least fifty percent (50%) of the Preferred Stock that it owns as of the date
hereof (after giving effect to the transactions contemplated by this
Agreement), 3i’s right to appoint an individual to be a director pursuant to Section 3.1(e),
and 3i’s right to participate in the nomination of an Independent Director
pursuant to Section 3.1(g), shall each immediately become null and
void.  If at any time ICG ceases to own
at least fifty percent (50%) of the Preferred Stock that it owns as of the date
hereof (after giving effect to the transactions contemplated by this
Agreement), ICG’s right to appoint two individuals to be directors pursuant to Section 3.1(d) shall
immediately become null and void.

 

(i)            Notwithstanding anything to the contrary
contained in this Section 3.1, upon the redemption of any Series AA
Preferred Stock (“Series AA Redemption Shares”) or Series CC
Preferred Stock (“Series CC Redemption Shares” and, together with Series AA
Redemption Shares, “Redemption Shares”), if the Company shall issue to
the former holders thereof Redemption Notes (as defined in, and in accordance
with the Charter), then the following provisions shall apply in the
alternative:

 

(1)           If (i) the Series CC Redemption Shares represent at least
fifty percent (50%) of the shares of Series CC Preferred Stock issued and
outstanding immediately prior to such redemption and (ii) the Company pays
less than seventy-five percent (75%) of the full redemption price for such Series CC
Redemption Shares in cash (or less than one hundred percent (100%) of the full
redemption price for such Series CC Redemption Shares in cash and no
Redemption Notes are then outstanding with respect to any Series AA
Redemption Shares), then the holders of a majority of the principal amount of
the Redemption Notes issued by the Company in respect of Series CC
Redemption Shares shall have the right to designate a majority of the directors
of the Board for so long as such condition continues.

 

(2)           If (i) (A) the
Company pays seventy-five percent (75%) or more, but less than one hundred
percent (100%), of the full redemption price for such Series CC Redemption Shares in cash, or (B) the
Series CC Redemption Shares represent less than fifty percent (50%) of the
shares of Series CC Preferred Stock issued and outstanding immediately
prior to such redemption and (ii) any Redemption Notes are then
outstanding with respect to any Series AA Redemption Shares and Series CC
Redemption Shares, then the holders of the outstanding Redemption Notes issued
by the Company in respect of Series CC
Redemption Shares and the Series AA Redemption Shares shall have
the right to designate a majority of the directors of the Company for so long
as such condition continues.  The right
to appoint such designees shall be allocated between the holders of outstanding
Redemption Notes in respect of Series CC Redemption Shares (“Series CC
Redemption Notes”), on the one hand, and the holders of outstanding
Redemption Notes in respect of Series AA Redemption Shares (“Series AA
Redemption Notes”), on the other hand, based on the relative outstanding
principal amount of the Series CC Redemption Notes and the Series AA
Redemption Notes.  Each such designee
allocated to each such group of Redemption Note holders shall be designated by
the holders of a majority of the
principal amount of the Series CC Redemption Notes or the Series AA
Redemption Notes, as applicable.

 

15

 

(3)           If no Series CC
Redemption Notes are then outstanding and if any Series AA Redemption
Notes are then outstanding, the holders of a majority of the principal amount
of such Redemption Notes shall have the right to designate a majority of the
Directors of the Company for so long as any such Redemption Note remains
outstanding.

 

(j)            All Stockholders and the Company agree to
take any actions necessary or desirable (including increasing the size of the
Board but not including the removal of any directors designated by any such
Stockholder) to enforce the foregoing rights of holders of Redemption Notes to
designate a majority of the directors of the Board.

 

SECTION 3.2                 Removal. 
Each director designated as aforesaid by any Stockholder or group of
Stockholders and duly elected to the Board shall be subject to removal only at
the request of the Stockholder or group of Stockholders which nominated or
elected such director.

 

SECTION 3.3                 Election of Directors.  Each
Stockholder shall vote all of its shares of Common Stock or Preferred Stock, as
applicable, for the election (or removal) of the nominees designated as
provided in Sections 3.1 hereof and, in the event of a vacancy in the
Board created by the death, resignation or removal of a director, shall vote
its shares of Common Stock or Preferred Stock, as applicable, for the election
of a nominee to be designated by the entity or group which designated the
director whose position has become vacant (unless such vacancy has resulted
from the termination of the power of such group to nominate such director).  The Company shall take such lawful action as
shall be reasonably required in order to facilitate the nomination, removal and
election of directors as aforesaid.

 

SECTION 3.4                 Committees

 

(a)           The Stockholders shall cause the Board to
establish a Compensation Committee and an Audit Committee.  Each committee will consist of at least three
(3) directors.  The Board shall have
the right to appoint all committee members, subject to the following:

 

(i)            subject to clause (iv) below, each
committee shall include, at least, the ABS Director and one (1) ICG
Director (which director shall be selected in ICG’s sole discretion);

 

(ii)           the Compensation Committee (x) must
consist of at least one Independent Director and (y) may not include the
Chief Executive Officer of the Company;

 

(iii)          the
Audit Committee (x) must consist of at least the two Independent
Directors, and (y) may not include the Chief Executive Officer of the
Company; and

 

(iv)          if the right of any of ABS or ICG to
appoint directors becomes null and void pursuant to Section 3.1(h) hereof,
such investor’s right to have its director be included on committees of the
Board shall simultaneously become null and void .

 

(b)           Along with the customary duties and
powers afforded a compensation committee, the Compensation Committee shall have
the sole authority to (i) approve all grants or awards under the Company’s
equity compensation plan(s), (ii) determine the terms of

 

16

 

compensation
and other terms of employment of the executive officers of the Company, and (iii) approve
the adoption or amendment of any equity compensation plan.

 

(c)           Along with the
customary duties and powers afforded an audit committee, the Audit Committee
shall have the sole authority to approve the engagement or change of the
Company’s auditors or the selection of any appraiser for any of the assets or
securities of the Company, provided that the Company will, at all times,
utilize the auditing services of a nationally-recognized firm of independent public
accountants.  As of the date of this
Agreement, the engagement of Grant Thornton LLP as the Company’s auditors for
the 2007 fiscal year is deemed to be approved.

 

SECTION 3.5                 Board Approval. 
Approval of actions taken by the Board shall require the affirmative
vote of at least a majority of the members of the Board.

 

SECTION 3.6                 Amendment; Regulatory Compliance Cooperation.  The
Company and the undersigned Preferred Holders and Original Stockholders, on
behalf of the Preferred Holders and Original Stockholders, respectively, hereby
acknowledge that Wall Street is a federally licensed Small Business Investment
Company licensed by the United States Business Administration under the Small
Business Investment Company Act of 1958, as amended, and hereby agree that in
the event that Wall Street has a Regulatory Problem (as hereinafter defined),
Wall Street shall have the right to transfer its securities of the Company
without regard to any restriction on transfer other than the securities laws
restrictions set forth in Section 2.5 hereof (provided that the transferee
agrees to become a party to this Agreement). 
The parties hereto further acknowledge that the Company has agreed to
take all such actions as are reasonably requested by Wall Street in order to (a) effectuate
and facilitate any transfer by Wall Street of any securities of the Company
then held by Wall Street to any person designated by Wall Street, (b) permit
Wall Street (or any of its affiliates (as that term is defined in 13 CFR
§121.103)) to exchange all or any portion of any voting security of the Company
then held by Wall Street on a share-for-share basis for shares of a nonvoting
security of the Company, which nonvoting security shall be identical in all
respects to the voting security exchanged for it, except that it shall be
nonvoting and shall be convertible into a voting security on such terms as are
reasonably requested by Wall Street in light of regulatory considerations then
prevailing, and (c) amend this Agreement, the Charter and Bylaws, and
related agreements and instruments to effectuate and reflect the foregoing, and
the parties hereto hereby agree to vote their securities of the Company in
favor of such amendments and actions. 
For purposes of this Agreement, a “Regulatory Problem” means any
set of facts or circumstances wherein it has been asserted by any governmental
regulatory agency (or Wall Street reasonably believes that there is a
substantial risk of such assertion) that Wall Street is not entitled to hold,
or exercise any significant right with respect to, the Series AA Preferred
Stock held by it.

 

ARTICLE 4

 

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS

AND THE COMPANY

 

Each of the Company and
each Stockholder (each, a “Representing Party”) hereby severally, but
not jointly, represents and warrants to each other Representing Party as
follows:

 

17

 

SECTION 4.1                 Organization, Qualification and Power. 
Each Representing Party (other than any Representing Party which is an
individual) is a corporation, limited liability company or limited partnership,
as the case may be, duly organized, validly existing and in good standing under
the laws of the state or foreign jurisdiction of its organization, and it has
the requisite corporate, limited liability company or partnership power and
authority, as the case may be, to own and hold its properties, and to carry on
its business in all material respects as conducted or presently proposed to be
conducted.  Each Representing Party
(other than any Representing Party which is an individual) has requisite
corporate, limited liability company or partnership power and authority to
execute, deliver and perform this Agreement.

 

SECTION 4.2                 Authorization of Agreement; No Conflict. 
The execution, delivery and performance by each Representing Party of
this Agreement have been duly authorized by all requisite corporate, limited
liability company, partnership and individual action, as the case may be, of
the Representing Party, if any, and will not violate any provision of law, any
order of any court or other agency of government, any of such Representing
Party’s organizational documents, if any, or any provision of any indenture,
agreement or other instrument to which such Representing Party or any of such
Representing Party’s properties or assets is bound, or conflict, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument.

 

SECTION 4.3                 Validity.  This
Agreement has been duly executed and delivered by each Representing Party and
constitutes a legal, valid and binding obligation of such Representing Party,
enforceable against such Representing Party 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 to the extent the availability of equitable remedies
may be limited to general principles of equity.

 

ARTICLE 5

 

MISCELLANEOUS

 

SECTION 5.1                 Increase in Authorized Capital Stock. 
Each Stockholder agrees to vote all of its Capital Stock from time to
time and at all times, in whatever manner shall be necessary to authorize an
increase in the authorized capital stock of the Company so that there will be
sufficient shares of Common Stock available for conversion of all of the
then-outstanding shares of Series AA Preferred Stock and Series CC
Preferred Stock at any time that an adjustment to the Series AA Conversion
Price or Series CC Conversion Price (as each such term is defined in the
Charter) is made pursuant to the Charter.

 

SECTION 5.2                 Access to Company Records. 
So long as any Stockholder and its Affiliates collectively continue to
hold, on a Fully-Diluted Basis, at least 3% of the Common Stock, and in the
case of Hoffer, so long as he holds at least two-thirds of Capital Stock held
by him on the date hereof, such Stockholder shall be entitled to review the
financial and corporate books and records of the Company and to meet with the
executive officers and independent accountants of the Company for purposes
reasonably related to such Stockholder’s ownership of Common Stock or Preferred
Stock, which review and/or meetings shall take place at reasonable

 

18

 

times during the normal business hours of the
Company and in such a manner as to not unduly interfere with the conduct of the
Company’s business.

 

SECTION 5.3                 Financial Statements.  The Company shall, and shall cause each of its
subsidiaries to, maintain true and complete books and records of account in
accordance with generally accepted accounting principles consistently
applied.  The Company will furnish or
cause to be furnished to each Stockholder, for so long as such Stockholder and
its Affiliates collectively owns, on a Fully-Diluted Basis, at least 3% of the
Common Stock and in the case of Hoffer, so long as he holds at least two thirds
of Capital Stock held by him on the date hereof and subject to any reasonable
confidentiality undertakings by Hoffer that the Company may request:

 

(a)           Within ninety (90) days after the end of
each fiscal year of the Company, audited consolidated financial statements,
including an audited balance sheet showing the financial condition of the Company
and its subsidiaries as of the close of such fiscal year, together with
statements of income and cash flow, setting forth in comparative form with
respect to such financial statements figures for the previous fiscal year and
to the current year’s annual budget, all in reasonable detail;

 

(b)           Within forty-five (45) days after the end
of each fiscal quarter of the Company (other than the last quarter of each
fiscal year), an unaudited balance sheet of the Company and its subsidiaries as
of the end of such quarter, together with statements of income and cash flow,
setting forth in comparative form with respect to the corresponding period for
the previous fiscal year and the current quarter’s budget, all in reasonable
detail certified by the Chief Financial Officer of the Company;

 

(c)           Within forty-five (45) days prior to the
first day of each fiscal year of the Company, an annual operating plan and
budget, each prepared in reasonable detail, as each has been approved by the
Board of Directors of the Company; and

 

(d)           Such other information regarding the
business, affairs and condition of the Company or any of its subsidiaries as
such Stockholder may from time to time reasonably request and that is
reasonably available to the Company.

 

The obligations of the
Company to furnish, or cause to be furnished, the information and documents
described in the preceding clauses (a)-(e) to Stockholders and their
Affiliates shall terminate upon the closing of a Qualified Public Offering.

 

SECTION 5.4                 Press Releases and Filings. 
For so long as a Stockholder and its Affiliates collectively continue to
own, on a Fully-Diluted Basis, at least 3% of the Common Stock, the Company
covenants and agrees to provide each such Stockholder, promptly after release
or filing, with copies of any press releases or other public announcements
concerning the Company and copies of any filing by the Company with the
Commission.

 

SECTION 5.5                 Directors and Officer’s Insurance. 
The Company will maintain with sound and reputable insurers directors’
and officers’ liability insurance in an amount of at least $3,000,000 per
occurrence and in the aggregate, which has been taken out prior to the closing
under the Stock Purchase Agreement, and the Company will pay all premiums due 

 

19

 

thereon and will not make any material alteration to
the terms of, or the coverage provided by, such insurance policy without the
consent of the Holders of at least 66 2/3% of the Capital Stock on a Fully-Diluted Basis.

 

SECTION 5.6.                Data Protection.  The
Company shall deliver to each of its officers and directors on the date hereof,
and to each officer and director appointed or elected after the date hereof, a
notice, in the form attached hereto as Exhibit A, regarding Article Nineteenth
of the Charter, as amended and in effect on the date hereof, or in the case of
any such officer or director appointed or elected after the date hereof, at the
time of such appointment or election.

 

SECTION 5.7                         Amendment.  Any provision of this Agreement may be
amended, waived or modified if, but only if, such amendment, waiver or
modification is in writing and is signed by Stockholders holding at least
two-thirds (2/3) of the Capital Stock held by all Stockholders; provided,
however, that (i) in no event shall any right pursuant to Section 3.1(a) or
Section 3.1(c)-(j) be affected, adversely or otherwise, by any
amendment, waiver or modification without the prior written consent of the
Stockholder entitled to exercise such right and (ii) in no event shall
this Agreement be amended or terminated and the observance of any term
hereunder waived with respect to any Stockholder, in an manner that is adverse
to such Stockholder, without the written consent of such Stockholder, unless
such amendment, termination or waiver applies to all Stockholders of the same
class or series of Capital Stock held by such Stockholder in the same fashion
(determined without regard to whether the uniform application of such
amendment, termination or waiver does, could or may result in non-uniform
effects on such Stockholders) (this clause (ii) being in addition to any
approval rights of Stockholders set forth in clause (i) of this proviso); provided
further, that (i) Purchasers (as defined in the Stock Purchase
Agreement) purchasing shares of Series CC Preferred Stock under the Stock
Purchase Agreement after the Initial Closing (as defined in the Stock Purchase
Agreement) (and as a condition thereto) shall become parties to this Agreement
as “Series CC Investors” hereunder by such Purchaser’s (as defined in the
Stock Purchase Agreement) execution of a written joinder agreement (a “Joinder
Agreement”) to this Agreement acknowledging such Purchaser’s (as defined in
the Stock Purchase Agreement) agreement to be bound as a party to this
Agreement, without any amendment of this Agreement pursuant to this paragraph
or any consent, approval or other action of any party hereto, and (ii) Persons
acquiring shares of Series AA Preferred Stock pursuant to the Proforma
Acquisition (as defined in the Stock Purchase Agreement) (and as a condition
thereto) shall become a party to this Agreement as “Series AA Investors”
hereunder by such Person’s execution of a Joinder Agreement, without any
amendment of this Agreement pursuant to this paragraph or any consent, approval
or other action of any party hereto. 
Whenever any provision of this Agreement requires action or approval by
the holders of a specified number of any class or series of Capital Stock (or
any combination of classes or series), such action or approval may be evidenced
by a written consent executed by the requisite holders such class or series (or
combination of classes or series) of Capital Stock without any requirement of a
meeting or prior notice to the other holders of such class or series (or
combination of classes or series).

 

SECTION 5.8                 Binding Effect; Benefits. 
This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.  Except as expressly provided herein, nothing
in this Agreement is intended to confer on any Persons, other than the parties 

 

20

 

hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.  Nothing in this Agreement
shall be construed to give the Stockholders or any other Person any claim
against the Company or its assets thereof, other than as a stockholder of the
Company.

 

SECTION 5.9                 Recapitalization and Exchanges Affecting the Common
Stock.  All the provisions of this Agreement shall
apply, to the full extent set forth herein with respect to the Original
Stockholder Shares, the Common Stock, the Preferred Stock and any and all other
securities of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution of the Original Stockholder
Shares, the Common Stock, the Preferred Stock or such other securities or by
reason of any stock dividend, split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise.

 

SECTION 5.10               Notices.  All notices,
requests, consents, and other communications hereunder shall be in writing and
shall be deemed effectively given and received when delivered in person or by
national overnight courier service or by certified or registered mail, return
receipt requested, or by telecopier, addressed as follows:

 

(a)           if to the Company, at

 

Metastorm
Inc.

500
East Pratt Street, Suite 1250

Baltimore,
Maryland 21202

Attention:  Robert J. Farrell

Telecopier: (443)
874-1337

 

with a
copy to:

 

Venable
LLP

Two
Hopkins Plaza, Suite 1800

Baltimore,
MD  21201

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

Telecopier:  (410) 244-7742

 

 

(b)           if
to any Stockholder:

 

The address reflected on
the records of the Company or, in any such case, at such other address or
addresses as shall have been furnished in writing by such party to the others.

 

SECTION 5.11               Severability.  The invalidity, illegality or
unenforceability of one or more of the provisions of this Agreement in any
jurisdiction shall not affect the validity, legality or enforceability of the
remainders of this Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement, including any such provision, in any other
jurisdiction, it being intended that all rights and obligations of the parties
hereunder shall be enforceable to the fullest extent permitted by law.

 

21

 

SECTION 5.12               Headings.  The headings of the sections of this
Agreement are inserted for convenience only and shall not constitute a part of
this Agreement.

 

SECTION 5.13               Counterparts.  This Agreement may be in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.

 

SECTION 5.14               APPLICABLE
LAW.  THE LAWS OF THE STATE OF NEW
YORK SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF
THIS AGREEMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF
CONFLICTS OF LAW.

 

SECTION 5.15               Further
Assurances.  Each party hereto shall
do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments, and documents as any other party hereto reasonably may request in
order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.

 

SECTION 5.16               Specific
Performance.  Each of the parties
hereto acknowledges and agrees that in the event of any breach of this
Agreement, the non-breaching party would be irreparably harmed and could not be
made whole by monetary damages.  It is
accordingly agreed that the parties hereto will waive the defense in any action
for specific performance that a remedy at law would be adequate and that the
parties hereto, in addition to any other remedy to which they may be entitled
at law or in equity, shall be entitled to compel specific performance of this
Agreement in any arbitration of this Agreement or in any action instituted in
any court of the United States or any state thereof having subject matter
jurisdiction of such action.

 

SECTION 5.17               Rights
Cumulative; Waiver.  The rights and
remedies of the Stockholders and the Company under this Agreement shall be
cumulative and not exclusive of any rights or remedies which any party hereto
would otherwise have hereunder or at law or in equity or by statute, and no
failure or delay by any such party in exercising any right or remedy shall
impair any such right or remedy or operate as a waiver of such right or remedy,
nor shall any single or partial exercise of any power or right preclude such
party’s other or further exercise or the exercise of any other power or
right.  The waiver by any party hereto of
a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any preceding or succeeding breach and no failure by any party
hereto to exercise any right or privilege hereunder shall be deemed a waiver of
such party’s rights or privileges hereunder or shall be deemed a waiver of such
party’s rights to exercise the same at any subsequent time or times hereunder.

 

SECTION 5.18               Construction.  The use of the singular or plural or
masculine, feminine or neuter gender shall not be given an exclusionary meaning
and, where applicable, shall be intended to include the appropriate number or
gender, as the case may be.

 

SECTION 5.19               Group
Actions.  For purposes of this
Agreement, any action to be taken by a group of Stockholders shall be
determined by the vote of the holders of a majority of such group, unless a
greater percentage shall have been expressly set forth in this Agreement with
respect to such action.

 

22

 

SECTION 5.20               Entire Agreement.  This Agreement embodies the entire agreement
of the parties hereto with respect to the subject matter hereof.  The parties hereto intend, agree and
understand that this Agreement amends and supersedes and replaces in its
entirety any and all prior agreements pertaining to the subject matter hereof
(including the Prior Stockholders Agreement).

 

SECTION 5.21               Termination.  This Agreement shall terminate upon the closing
of a Qualified Public Offering.

 

SECTION 5.22               Right to Conduct
Business.  The Company hereby acknowledges that ICG and
ABS and their respective Affiliates invest in numerous companies, some of which
may be competitive with the Company’s business. 
ICG, ABS and their respective Affiliates shall not be liable for any
claim arising out of, related to or based upon (i) the investment by ICG,
ABS or any of their respective Affiliates in any entity competitive to the
Company, or (ii) actions taken by any partner, officer or other
representative of ICG, ABS or any of their respective Affiliates to assist any
such competitive company, whether or not such action was taken as a board
member of such competitive company or otherwise, and whether or not such action
has a detrimental effect on the Company.

 

[signatures
on next page]

 

23

 

IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement, or have caused this Agreement
to be duly executed on their behalf, as of the day and year first above
written.

 

	
   

  	
  METASTORM INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Robert J. Farrell

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ABS CAPITAL PARTNERS V, L.P.

  
	
   

  	
  By: ABS Partners V, L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V,
  L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  ABS
  CAPITAL PARTNERS V-A, L.P.

  
	
   

  	
  By:
  ABS Partners V, L.P.,

  
	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
  By:
  ABS Partners V, L.L.C.,

  
	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:
  Laura L. Witt

  
	
   

  	
  Title:
  Managing Member

  
				

 

Metastorm Inc.

Signature Page to Fifth Amended
and Restated Stockholders Agreement

 

 

	
   

  	
  ABS CAPITAL PARTNERS V
  OFFSHORE, L.P.

  
	
   

  	
  By: ABS Partners
  V, L.P.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By: ABS Partners V, L.L.C.,

  
	
   

  	
  Its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Laura L. Witt

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ICG HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAYFLOWER LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  INDUSTRY VENTURES FUND IV, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  GOLDMAN
  SACHS PRIVATE EQUITY

  
	
   

  	
  OPPORTUNITIES,
  L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
							

 

 

	
   

  	
  IRONSIDE
  VENTURES, L.P.

  
	
   

  	
  By: Ironside
  Management LLC,

  
	
   

  	
  Its General
  Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  AXIOM
  VENTURE PARTNERS II, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
				

 

 

	
   

  	
  HOLDERS OF AT LEAST TWO-THIRDS
  OF THE

  
	
   

  	
  COMPANY’S CAPITAL STOCK ON A
  FULLY-

  
	
   

  	
  DILUTED BASIS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ICG HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAYFLOWER LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDUSTRY VENTURES FUND IV, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GOLDMAN
  SACHS PRIVATE EQUITY

  
	
   

  	
  OPPORTUNITIES,
  L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
						

 

 

	
   

  	
  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

  
				

 

 

Schedule A

Original Stockholders, Series AA Investors

and Series CC Investors

 

Series AA Investors

 

Sandler Internet Partners, L.P.

Sandler Capital Partners IV, L.P.

Sandler Capital Partners IV FTE, L.P.

Sandler Co-Investment Partners, L.P.

Axiom Venture Partners II, LP

J. Allen Dougherty, Trustee FBO Peter Wetherill

Pennstone, LLC

Riggs Capital Partners, LLC

Morgan Stanley Dean Witter Inc. C/F J. Allen Dougherty, IRA Rollover

Gail Dougherty

Mark T. Cannon

Nancy Walker

Paul E. Ambrose and Paula J. Ambrose

Michael Savage

David R. Schaeffer

Stephen Todd Walker

Mark O’Neill

Wall Street Technology Partners LP

Ironside Ventures, L.P.

Ironside Venture Partners II, LLC

Industry Ventures Fund IV, L.P.

Goldman Sachs Private Equity Opportunities, L.P.

Mayflower L.P. (formerly 3i Group, PLC)

M&M Capital Partners

Eric Luftig

Walter A. Maul, Jr.

Melissa B. Eisenstat

Riggs
Capital Partners II, LLC

ICG Holdings, Inc.

 

Original Stockholders

 

Mayflower L.P. (formerly 3i Group, PLC)

V-Sys, Ltd

Avi Hoffer

Stephen Miles Brown

Michael Philip Vieyra

Bharat Patel

Stuart Frost

Mark O’Hare

Bruce Grisewood

 

 

Michael Jackson

Brian McPhee

Jonathan Summers

 

Series CC
Investors

 

ABS Capital Partners V, L.P.

ABS Capital Partners, V-A, L.P.

ABS Capital Partners V Offshore, L.P.

ICG Holdings, Inc.

Mayflower LP

Industry Ventures Fund IV, L.P.

Goldman Sacks Private Equity Opportunities, L.P.

Ironside Ventures, L.P.

Axiom Venture Partners II, LP

 

 

Exhibit A

 

NOTICE REGARDING EUROPEAN DIRECTIVE

ON DATA PROTECTION

 

This
Notice of Article Nineteenth of the Sixth Articles of Amendment and
Restatement of Metastorm Inc. (the “Company”)
is being delivered to you pursuant to Section 5.6 of that certain Fifth
Amended and Restated Stockholders Agreement, dated July 31, 2007 (the “Stockholders
Agreement”) by and among the Company and the Stockholders (as defined in
the Stockholders Agreement).

 

3i Group, plc, a holding company of one of the Company’s Preferred
Stock holders (collectively, the “3i Entities”), is incorporated in
Europe and is subject to a European Directive on data protection (as enshrined
by UK Act of Parliament in The Data Protection Act of 1998) (the “Directive”).  The primary effect of the Directive is to
prohibit the processing of personal data without notification and consent.  Because it is possible that the 3i Entities
may be deemed to have processed personal data within the meaning of the
Directive in connection with their investments in portfolio companies, the 3i
Entities require each of their portfolio companies to insert certain standard
language regarding the Directive into such portfolio company’s certificate of
incorporation.  The language regarding
the Directive contained in the Company’s Sixth Articles of Amendment and
Restatement is set forth below:

 

For
the purposes of all applicable legislation and regulation, each of the
stockholders, officers and directors of the Corporation authorize Mayflower
L.P., 3i Group plc and affiliates of 3i Group plc (both within and outside the
United States) to process (but only amongst such entities and their advisors
and only within the meaning of European Directive 95/46/EC) any data or
information concerning them which is obtained in the course of its and their
due diligence and other investment business. The data and information which may
be processed for such purposes shall include any information which may have a
bearing on the prudence or commercial merits of investing or disposing of any stock
(or other investment or security) in the Corporation. Nothing in this authority
shall entitle Mayflower, 3i Group plc or any affiliate of 3i Group plc to make
any unauthorized disclosure of such data or information to third parties.

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