Document:

Exhibit 10.1

 

SOFTBRANDS,
INC.

 

SERIES D
CONVERTIBLE PREFERRED STOCK

AND WARRANT PURCHASE AGREEMENT

 

Dated
as of

August 14, 2006

 

TABLE
OF CONTENTS

	
  

  	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
  1.1

  	
  Definitions; Interpretation.

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II ISSUANCE AND SALE OF PREFERRED STOCK
  AND WARRANTS

  	
  11

  
	
   

  	
   

  
	
  2.1

  	
  Number of Series D Shares, Warrants and Initial
  Purchase Price

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE III CLOSING; CLOSING DELIVERIES

  	
  12

  
	
   

  	
   

  
	
  3.1

  	
  Initial Closing

  	
  12

  
	
  3.2

  	
  Purchase Option

  	
  12

  
	
  3.3

  	
  Subsequent Closing and Subsequent Purchase Price

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
  COMPANY

  	
  14

  
	
   

  	
   

  
	
  4.1

  	
  Existence; Qualification; Subsidiaries

  	
  14

  
	
  4.2

  	
  Authorization and Enforceability; Issuance of
  Shares.

  	
  14

  
	
  4.3

  	
  Capitalization

  	
  15

  
	
  4.4

  	
  Private Sale; Voting Agreements

  	
  16

  
	
  4.5

  	
  SEC Reports; Financial Statements.

  	
  16

  
	
  4.6

  	
  Absence of Certain Changes

  	
  17

  
	
  4.7

  	
  Litigation

  	
  19

  
	
  4.8

  	
  Licenses, Compliance with Law, Other Agreements, Etc

  	
  19

  
	
  4.9

  	
  Consents

  	
  19

  
	
  4.10

  	
  Disclosure

  	
  20

  
	
  4.11

  	
  Tangible Assets

  	
  20

  
	
  4.12

  	
  Owned Real Property

  	
  20

  
	
  4.13

  	
  Real Property Leases

  	
  20

  
	
  4.14

  	
  Certificates, Authorities and Permits

  	
  20

  
	
  4.15

  	
  Agreements

  	
  20

  
	
  4.16

  	
  Intellectual Property

  	
  22

  
	
  4.17

  	
  Employees

  	
  23

  
	
  4.18

  	
  ERISA; Employee Benefits

  	
  24

  
	
  4.19

  	
  Environment, Health and Safety

  	
  24

  
	
  4.20

  	
  Transactions With Affiliates

  	
  24

  
	
  4.21

  	
  Taxes

  	
  24

  
	
  4.22

  	
  Other Investors

  	
  25

  
	
  4.23

  	
  Seniority

  	
  25

  
	
  4.24

  	
  Investment Company

  	
  25

  
	
  4.25

  	
  Certain Fees

  	
  25

  
	
  4.26

  	
  Sarbanes-Oxley Act

  	
  25

  
	
  4.27

  	
  Listing and Maintenance Requirements Compliance

  	
  25

  
	
  4.28

  	
  No General Solicitation

  	
  26

  

 

 i
 

 

	
  4.29

  	
  No Integrated Offering

  	
  26

  
	
  4.30

  	
  Private Placement

  	
  26

  
	
  4.31

  	
  Questionable Payments

  	
  26

  
	
  4.32

  	
  Internal Controls

  	
  26

  
	
  4.33

  	
  Use of Proceeds

  	
  27

  
	
  4.34

  	
  Customers and Suppliers.

  	
  27

  
	
  4.35

  	
  Non-Material Subsidiaries

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
  PURCHASERS

  	
  27

  
	
   

  	
   

  
	
  5.1

  	
  Authorization and Enforceability

  	
  27

  
	
  5.2

  	
  Government Approvals

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI COMPLIANCE WITH SECURITIES LAWS

  	
  28

  
	
   

  	
   

  
	
  6.1

  	
  Investment Intent of the Purchasers

  	
  28

  
	
  6.2

  	
  Status of Series D Shares and Warrants

  	
  28

  
	
  6.3

  	
  Sophistication and Financial Condition of Purchasers

  	
  28

  
	
  6.4

  	
  Transfer of Series D Shares, Warrants and Conversion
  Shares.

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII CONDITIONS PRECEDENT

  	
  30

  
	
   

  	
   

  
	
  7.1

  	
  Conditions to Obligations of ABRY at the Initial
  Closing

  	
  30

  
	
  7.2

  	
  Conditions to Obligations of the Company

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII COVENANTS OF THE COMPANY

  	
  32

  
	
   

  	
   

  
	
  8.1

  	
  Restricted Actions

  	
  32

  
	
  8.2

  	
  Required Actions

  	
  34

  
	
  8.3

  	
  Information Rights

  	
  36

  
	
  8.4

  	
  Access Rights

  	
  37

  
	
  8.5

  	
  Right of First Refusal.

  	
  37

  
	
  8.6

  	
  Board Representation.

  	
  39

  
	
  8.7

  	
  Appointment Right.

  	
  39

  
	
  8.8

  	
  Default Interest

  	
  41

  
	
  8.9

  	
  Rights Plan

  	
  42

  
	
  8.10

  	
  Confidentiality

  	
  42

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX INDEMNIFICATION

  	
  42

  
	
   

  	
   

  
	
  9.1

  	
  Survival and Indemnification

  	
  42

  
	
   

  	
   

  	
   

  
	
  ARTICLE X GENERAL PROVISIONS

  	
  43

  
	
   

  	
   

  
	
  10.1

  	
  Public Announcements

  	
  43

  
	
  10.2

  	
  Successors and Assigns

  	
  43

  
	
  10.3

  	
  Entire Agreement

  	
  43

  
	
  10.4

  	
  Notices

  	
  43

  
	
  10.5

  	
  Purchasers’ Fees and Expenses

  	
  44

  
	
  10.6

  	
  Amendment and Waiver

  	
  45

  

 

 ii
 

 

	
  10.7

  	
  Counterparts

  	
  45

  
	
  10.8

  	
  Headings; Construction

  	
  45

  
	
  10.9

  	
  Specific Performance

  	
  45

  
	
  10.10

  	
  Remedies Cumulative

  	
  45

  
	
  10.11

  	
  GOVERNING LAW

  	
  45

  
	
  10.12

  	
  JURISDICTION, WAIVER OF JURY TRIAL, ETC.

  	
  45

  
	
  10.13

  	
  No Third Party Beneficiaries

  	
  46

  
	
  10.14

  	
  Severability

  	
  46

  
	
  10.15

  	
  Time of the Essence; Computation of Time

  	
  46

  
	
  10.16

  	
  Consideration for Preferred Stock and Warrants

  	
  46

  

 

 iii

 

SERIES
D CONVERTIBLE PREFERRED STOCK

AND WARRANT PURCHASE AGREEMENT

THIS SERIES D CONVERTIBLE
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement”)
is dated as of August 14, 2006 between SoftBrands, Inc., a Delaware corporation
(the “Company”), ABRY Mezzanine Partners,
L.P., a Delaware limited partnership (“ABRY”)
and, to the extent it exercises the Purchase Option (as defined herein),
Capital Resource Partners IV, L.P., a Delaware limited partnership (“CRP”). 
Each of ABRY and, to the extent it exercises the Purchase Option, CRP,
is referred to herein as a “Purchaser”
and collectively, as the “Purchasers”.

The Purchasers purchased
Series C Shares from the Company pursuant to that certain Series C Convertible
Preferred Stock and Warrant Purchase Agreement, dated as of August 17, 2005 (as
amended, modified or restated from time to time, the “Series C Purchase Agreement”).

The Purchasers desire to
purchase from the Company, and the Company desires to sell and issue to the
Purchasers, up to 6,000 shares of the Company’s Series D Convertible Preferred
Stock, par value $0.01 per share, and warrants to purchase shares of the
Company’s common stock, par value $0.01 per share (including any associated
Rights as defined in and issued pursuant to the Rights Agreement (as defined
herein), the “Common Stock”).

In consideration of the
mutual promises, representations, warranties, covenants and conditions set
forth in this Agreement, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1          Definitions;
Interpretation.

(a)           For
purposes of this Agreement, the following terms have the indicated meanings:

“ABRY” has the meaning set forth in the
preamble hereof.

“ABRY Exercise Notice” has the meaning set
forth in Section 3.2 hereof.

“Accrued Amount” means, for any Series D
Share at any time, the Liquidation Value, plus all Unpaid Dividends thereon.

“Affiliate”
of a Person means any other Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control with
such Person, where “control” means the possession of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, contract or otherwise.

“Affiliate Transaction” has the meaning set
forth in Section 8.1(f) hereof.

 1
 

 

“Agreement” has the meaning set forth in the
preamble hereof.

“AMEX” means the American Stock Exchange
LLC.

“Appointment Right” has the meaning set
forth in Section 8.7(a)
hereof.

“Appointment Notice” has the meaning set
forth in Section   8.7(a) hereof.

“Board of
Directors” means the
board of directors of the Company.

“Capital Lease” means
any lease of property (real, personal or mixed) which, in accordance with GAAP,
should be capitalized on the lessee’s balance sheet or for which the amount of
the asset and liability thereunder as if so capitalized should be disclosed in
a note to such balance sheet.

“Claim” means any action, claim, lawsuit,
demand, suit, charge, complaint, hearing, investigation, notice of a violation
or noncompliance, litigation, proceeding, arbitration, official action, appeals
or other dispute, whether civil, criminal, administrative or otherwise.

“Closing
Fee” has the meaning set forth in Section 10.5 hereof.

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

“Common Stock”
has the meaning set forth in the recitals hereof.

“Common Stock Equivalents” means any capital
or securities (other than options) directly or indirectly convertible into or
exchangeable for Common Stock.

“Company”
has the meaning set forth in the preamble hereof.

“Company Counsel” has the meaning set forth
in Section  8.7(a) hereof.

“Company Group” means, collectively, the
Company and the Company Subsidiaries.

“Company Intellectual Property” has the
meaning set forth in Section 4.16 hereof.

“Company Products” has the meaning set forth
in Section 4.16 hereof.

“Company Reports” has the meaning set forth
in Section 4.5(a) hereof.

“Company Sale” means a transaction (whether in one or a series of related
transactions) pursuant to which a Person or Persons (a) acquire (whether by
merger, amalgamation, consolidation, recapitalization, reorganization,
redemption, transfer or issuance of Equity Securities or otherwise) Equity
Securities of the Company (or any surviving or resulting corporation) possessing
the voting power to elect a majority of the Board of Directors (or such
surviving or resulting corporation), (b) acquire assets constituting all
or substantially all of the assets of the Company Group or (c) merge or
consolidate (or agree to merge or consolidate) with

 2
 

 

or into any member of the Company Group (other than in
a merger involving only the Company and one of its Wholly-Owned Subsidiaries
or, to the extent the Company is the surviving company and the rights of the
holders of the Securities under this Agreement and the Related Documents are
not adversely affected thereby, or in connection with an acquisition of another
company or business which has been approved by the Board of Directors).

“Company Subsidiaries” means all direct and
indirect Subsidiaries of the Company.

“Compliance Remedy Event” means:

(a)           the breach by the
Company Group or failure to perform or observe in any material respect any
covenant or agreement set forth in Section 5C of the Series D Preferred Stock
Certificate of Designation;

(b)           the breach by the
Company Group or failure to perform or observe in any material respect any
covenant or agreement set forth in Section
8.1, 8.2(a), 8.2(f), 8.2(i),
8.2(j), 8.4, 8.5 or 8.6 of this Agreement;

(c)           a Material Adverse
Effect that occurs within 18 months of this Agreement and the cause of such
Material Adverse Effect breaches any representation or warranty made by the
Company or any Subsidiary thereof in Section
4.3, 4.5, 4.9, 4.10,
4.16, 4.20, 4.23, 4.25 or 4.27
of this Agreement as of the date made; or

(d)           a “Compliance Remedy
Event” as defined in the Series C Purchase Agreement.

“Conversion
Shares” has the meaning set forth in Section 4.2(b) hereof.

“CRP” has the meaning set forth in the
preamble hereof.

“CRP
Exercise Notice” has the meaning set forth in Section 3.2 hereof.

“CRP Fee” has the meaning set forth in Section 10.5.

“Current Balance Sheet” has the meaning set
forth in Section 4.6(b) hereof.

“Disclosure
Schedules” has the meaning set forth in Article IV hereof.

“Environmental
and Safety Requirements” means all federal, state, local and foreign
statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations and
all common law concerning public health and safety, worker health and safety,
and pollution or protection of the environment, including all those relating to
the presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or by-products, asbestos, polychlorinated
biphenyls, noise or radiation.

 3
 

 

“Equity Security” means (a) any capital
stock or other equity security, or ownership interests (including limited
liability company, partnership and joint venture interests), (b) any
security directly or indirectly convertible into or exchangeable for any
capital shares or other equity security or security containing any profit
participation features, (c) any warrants, options or other rights,
directly or indirectly, to subscribe for or to purchase any capital shares,
other equity security or security containing any profit participation features
or directly or indirectly to subscribe for or to purchase any security directly
or indirectly convertible into or exchangeable for any capital shares or other
equity security or security containing profit participation features or
(d) any share appreciation rights, phantom share rights or other similar
rights.

“ERISA”
has the meaning set forth in Section 4.18
hereof.

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

“Exempt Issuance” has the meaning set forth
in Section 8.5(a) hereof.

“EULAs” has the meaning set forth in Section 4.15(a)(x) hereof.

“Evaluation Date” has the meaning set forth
in Section 4.32 hereof.

“Financial
Officer” means the
chief financial officer, principal accounting officer, treasurer or controller
of the Company.

“Financial Statements” has the meaning set
forth in Section 4.5(b) hereof.

“Fully-Diluted Common Stock” has the meaning
set forth in Section 8.5 hereof.

“GAAP”
means United States generally accepted accounting principles as in effect from
time to time, consistently applied; provided, that for the purpose of
performing the calculation in Section 8.1(c)
hereof, references to GAAP shall be to such principles as in effect on the
Initial Closing Date.  All accounting
terms used herein without definition shall be used as defined under GAAP.

“Governmental
Agency” means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body.

“Guarantee” means any guarantee of the
payment or performance of any indebtedness or other obligation and any other
arrangement whereby credit is extended to one or more obligor on the basis of any
promise of such Person, whether that promise is expressed in terms of any
obligation owned by such obligor, or to purchase goods and services from such
obligor pursuant to a take-or-pay contract, or to maintain the capital, working
capital, solvency of general financial condition of such obligor, whether or
not any such arrangement is listed in the balance sheet of such Person or
referred to in a footnote thereto, but shall not include endorsements of items
for collection in the Ordinary Course of Business.

 4
 

 

“Indebtedness”
of any Person means, without duplication, (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid (including margin debt), (d)
all obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding current accounts payable incurred in the Ordinary Course of
Business), (f) all Indebtedness of others secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property owned or acquired by such Person, whether or
not the Indebtedness secured thereby has been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all capital lease obligations of such
Person, (i) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty, (j) all
obligations, contingent or otherwise, of such Person in respect of bankers’
acceptances, (k) the principal balance outstanding under any synthetic lease,
tax retention operating lease, off-balance sheet loan or similar off-balance
sheet financing product of the Company or any of its Subsidiaries where such
transaction is considered borrowed money indebtedness for tax purposes but is
classified as an operating lease under GAAP and (l) all obligations of such
Person to pay a specified purchase price for goods or services whether or not
delivered or accepted (e.g., take-or-pay obligations) or similar obligations.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general partner) to
the extent such Person is liable therefor as a result of such Person’s
ownership interest in or other relationship with such entity, except to the
extent the terms of such Indebtedness provide that such Person is not liable
therefor.

“Indemnified
Liabilities” has the
meaning set forth in Section 9.1
hereof.

“Indemnitees” has the meaning set forth in Section 9.1 hereof.

“Intellectual Property” means and includes
(a) all past, present, and future rights of the following types, which may
exist or be created under the laws of any jurisdiction in the world:
(i) rights associated with works of authorship, including exclusive
exploitation rights, copyrights, moral rights, and mask works;
(ii) trademark and trade name rights, domain name rights, similar rights,
and related goodwill; (iii) trade secret rights and rights in confidential
information; (iv) patent and industrial property rights; (v) privacy
and publicity rights; and (vi) all other intellectual property rights and
proprietary rights of every kind and nature including database rights;
(b) all patents, registrations, renewals, extensions, combinations,
divisions, reissues of, applications for, and other filings related to, any of
the foregoing; (c) all claims and rights in and to any of the foregoing;
and (d) all copies and tangible embodiments of any of the foregoing (in
whatever form or medium) including information.

“Initial Closing”
has the meaning set forth in Section 3.1
hereof.

“Initial Closing Date”
has the meaning set forth in Section 3.1
hereof.

“Initial Purchase Price” has the meaning set
forth in Section 2.1 hereof.

“Investment Bank” has the meaning set forth
in Section 8.7(a) hereof.

 5
 

 

“Investor Director” means the Series C
Director (as defined in the Series C Purchase Agreement); provided, that
if at any time the Series C Director is not a member of the Board of Directors,
the term “Investor Director” shall mean the member of the Board of Directors
elected by the holders of a majority of the shares of Underlying Common Stock
as contemplated by Section 5B of the Series D Preferred Stock Certificate of Designation.

“IRS”
means the Internal Revenue Service.

“Knowledge”
when used with respect to the Company means the actual knowledge of George H.
Ellis, Randal Tofteland and Gregg A. Waldon, in each case, after reasonable
investigation.

“Liability” means any liability, loss,
expense or obligation of whatever kind or nature (whether known or unknown,
whether assert or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability or obligation for Taxes.

“Lien” means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.

“Liquidation
Value” means, with respect to any Series D Share, $1,000.

“Market Price” of any security means the average of the
closing prices of such security’s sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked prices
quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case (i) averaged over a period of 30 days
consisting of the day as of which “Market Price” is being determined and the 29
consecutive Business Days prior to such day, and (ii) averaged on a
volume-weighted basis based on the trading volume for each such Business
Day.  If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, or if at any time this Agreement requires the
determination of the Market Price of any asset which does not constitute a
security, the “Market Price” shall be the fair value of such security or asset
determined jointly by the Company and the holders of a majority of the
Underlying Common Stock.  If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the holders of a majority of the
Underlying Common Stock.  The
determination of such appraiser shall be final and binding upon the parties,
and the Company shall pay the fees and expenses of such appraiser.

“Material
Acquisition” means an acquisition of assets or equity of another
Person or group of related Persons or of any facility, division or product line
and/or business

 6
 

 

operated by any Person involving consideration paid by
members of the Company Group, or Indebtedness assumed by members of the Company
Group, in the aggregate exceeding $5,000,000.

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

“Material
Contracts” has the meaning
set forth in Section 4.15.

“Material Subsidiaries” means SoftBrands
Manufacturing, Inc., a Minnesota corporation, Fourth Shift Asia Computer Corp.
(China) Ltd., a company organized under the laws of China, SoftBrands Europe
Limited, a company organized under the laws of the United Kingdom and
SoftBrands Research PVT. Ltd., a company organized under the laws of India.

“Most Recent
Balance Sheet Date” has the
meaning set forth in Section 4.6
hereof.

“NASDAQ” means the NASDAQ National Market,
Inc.

“Non-Material Subsidiaries” means all of the
Subsidiaries of the Company other than the Material Subsidiaries.

“Ordinary
Course of Business” means the ordinary course of business consistent
with past practice.

“Payment Remedy Event” means (i) the failure
of the Company to pay in full any dividends, Series D Liquidation Preference or
Series D Redemption Price (or any amount otherwise owing hereunder) to the
holders of the Series D Preferred Stock as and when and in the form required to
be paid hereunder or under the Series D Preferred Stock Certificate of
Designation, or (ii) a “Payment Remedy Event” as defined in the Series C
Purchase Agreement.

“Permitted Acquisition” means any
acquisition of assets or equity of another Person or group of related Persons or of any facility, division or
product line and/or business operated by any Person that is not a Material
Acquisition or that is approved by the Board of Directors, including the
written consent of the Investor Director.

“Permitted
Affiliate Transaction” means any Affiliate Transaction (a) entered
into by the Company Group with its employees in the Ordinary Course of Business
as part of a customary employment relationship, (b) entered into pursuant to
the Stock Option Plan or (c) entered into with any Purchaser in connection with
the transaction contemplated by this Agreement.

“Permitted
Lien” means:

(a)           Liens existing on the Initial Closing
Date and securing indebtedness of the Company and its Subsidiaries to the
extent such indebtedness is disclosed on the Most

 7
 

 

Recent Balance Sheet Date
or incurred since such date in the Ordinary Course of Business;

(b)           Liens imposed by Governmental
Agencies for Taxes, assessments or other charges not yet subject to penalty or
which are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP;

(c)           statutory liens of carriers,
warehousemen, mechanics, material men, landlords, repairmen or other like Liens
arising by operation of law in the Ordinary Course of Business; provided, that (A) the underlying obligations are not overdue for a
period of more than 60 days, or (B) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP;

(d)           easements, rights-of-way, zoning,
similar restrictions and other similar encumbrances or minor imperfections of
title which, in the aggregate, do not in any case materially detract from the
value of the property subject thereto (as such property is used by the Company
Group) or interfere with the ordinary conduct of the business of the Company
and any of its Subsidiaries taken as a whole; and

(e) pledges or deposits
made in the Ordinary Course of Business in connection with workers’
compensation, unemployment insurance and other types of social security
legislation.

“Person”
or “person” means any corporation,
individual, limited liability company, joint stock company, joint venture,
partnership, unincorporated association, governmental regulatory entity,
country, state or political subdivision thereof, trust, municipality or other
entity.

“Plan”
has the meaning set forth in Section 4.18
hereof.

“Purchase Option” has the meaning set forth
in Section 3.2 hereof.

“Purchaser Expenses” has the meaning set
forth in Section 10.5 hereof.

“Purchasers” has the meaning set forth in the preamble hereof.

“Ratio” has the meaning set forth in Section 8.1(c) hereof.

“Redemption Notice” has the meaning set
forth in the Series D Preferred Stock Certificate of Designation.

“Redemption Period” has the meaning set
forth in Section 8.7(d).

“Rejected Sale” has the meaning set forth in
Section 8.7(c) hereof.

 8
 

 

“Related
Documents” means all documents, certificates and instruments to be
executed or adopted by the Company in connection herewith, including the Series
D Preferred Stock Certificate of Designation, the certificates evidencing the
Series D Shares, the Warrants and the Second Amended and Restated Investor
Rights Agreement.

“Remedy Event” means a Compliance Remedy
Event or a Payment Remedy Event.

“Requisite Purchasers” means the Purchasers
holding a majority of the number of shares of Underlying Common Stock.

“Rights Agreement” means the Rights
Agreement by and between the Company and Wells Fargo Bank Minnesota, National
Association, dated November 26, 2002.

“Rights Plan” means that certain Rights Plan in effect pursuant to the
Rights Agreement.

“SEC”
means the Securities and Exchange Commission.

“Second
Amended and Restated Investor Rights Agreement” means the
Second Amended and Restated Investor Rights Agreement between the Company and
the Purchasers, substantially in the form of Exhibit C hereto.

“Securities” has the meaning set forth in Section 6.1 hereof.

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

“Senior Facility” has the meaning set forth
in Section 8.1(c) hereof.

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

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

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

“Series C Purchase Agreement” has the
meaning set forth in the recitals.

“Series D Liquidation Preference” has the
meaning set forth in the Series D Preferred Stock Certificate of Designation.

“Series D
Preferred Stock Certificate of Designation” means the Certificate of
Designation designating the rights and preferences of the Series D Shares
adopted by the Board of Directors, filed with the Secretary of State of the
State of Delaware, as substantially in the form set forth in Exhibit A attached hereto.

 9

 

“Series D Redemption Price” has the meaning
set forth in the Series D Preferred Stock Certificate of Designation.

“Series D Shares” means the Series D Convertible Preferred Stock, $0.01 par
value per share, of the Company having the rights, designations and preferences
as set forth in the Series D Preferred Stock Certificate of Designation.

“Shrinkwrap Agreements” has the meaning set
forth in Section 4.15(a)(x)
hereof.

“Stock Option Plan” means the capital stock plan for the
benefit of the Company’s officers, employees or directors which is in effect on
the date hereof and has been approved by the Board of Directors.

“Subsequent Closing” has the meaning set
forth in Section 3.3 hereof.

“Subsequent Closing Date” has the meaning
set forth in Section 3.3 hereof.

“Subsequent D Shares” has the meaning set
forth in Section 2.1 hereof.

“Subsequent Purchase Price” has the meaning
set forth in Section 3.3 hereof.

“Subsequent Purchaser” has the meaning set
forth in Section 3.2 hereof.

“Subsequent Warrants” has the meaning set
forth in Section 2.1 hereof.

“Subsidiary” means any corporation, limited
liability company, partnership, association or other business entity of which
(a) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the Company or (b) if a partnership,
limited liability company, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by the Company.  For purposes hereof, the Company shall be deemed
to have a majority ownership interest in a partnership, limited liability
company, association or other business entity if the Company, directly or
indirectly, is allocated a majority of partnership, limited liability company,
association or other business entity gains or losses, or is or controls the
managing director or general partner of such partnership, limited liability
company, association or other business entity.

“Survival Period” has the meaning set forth
in Section 9.1.

“Tax” means any federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code §59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.

 10
 

 

 

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

“Underlying Common Stock” means (a) the Common
Stock issued or issuable upon conversion of the Series D Shares, (b) the Common
Stock issued or issuable upon exercise of the Warrants and (c) any Common Stock
issued or issuable with respect to the securities referred to in clauses (a)
and (b) above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.  For purposes of this
Agreement, any Person who holds any Series D Shares or Warrants shall be deemed
to be the holder of the Underlying Common Stock issuable upon the conversion of
such Series D Shares and upon the exercise of such Warrants, regardless of any
restriction or limitation on the exercise of such Series D Shares or Warrants
and such Underlying Common Stock shall be deemed to be in existence and such
Person shall be entitled to exercise the rights of a holder of such Underlying
Common Stock hereunder.

“Unpaid Dividends” means, with respect to
any Series D Share, as of any date of determination, the accumulated dividends
and accrued and unpaid but not yet accumulated dividends that have accumulated
or accrued on such Series D Share in accordance with Section 2 of the Series D
Preferred Stock Certificate of Designation from the date of issuance of such
Series D Share through and including such date of determination.

“Warrants” has the meaning set forth in Section
3.1 hereof.

“Warrant Shares” has the meaning set forth in Section 4.2(a) hereof.

“Wholly-Owned Subsidiary” means, with
respect to any Person, a Subsidiary of which all of the outstanding capital or
other ownership interests are owned by such Person or another Wholly-Owned
Subsidiary of such Person.

(b)           The
words “herein”, “hereof” and “hereunder”
refer to this Agreement as a whole and not to any particular article, section
or other subdivision of this Agreement. 
The use of the word “including” or any variation or derivative thereof
in this Agreement or in any Related Document is by way of example rather than
by limitation.

ARTICLE
II

ISSUANCE AND SALE OF PREFERRED STOCK AND WARRANTS

2.1          Number
of Series D Shares, Warrants and Initial Purchase Price.  On the terms and subject to the conditions of
this Agreement (a) at the Initial Closing, the Company shall issue and sell to
ABRY, and ABRY shall purchase from the Company, 5,000 Series D Shares and
Warrants to purchase 333,333 shares of Common Stock on the terms and subject to
the conditions set forth herein, for an aggregate purchase price of $5,000,000
(the “Initial Purchase Price”) and
(b) at the Subsequent Closing, the Company shall issue and sell to the
Subsequent Purchasers, and the Subsequent Purchasers shall purchase from the
Company, up to an aggregate of 1,000 Series D Shares (the “Subsequent D Shares”) and Warrants to
purchase 66,667 shares of Common Stock (the “Subsequent
Warrants”) on the terms and subject to the

 11
 

 

 

conditions set forth therein, for the Subsequent Purchase Price
applicable to each such Subsequent Purchaser as set forth in Section 3.3 hereof.

ARTICLE
III

CLOSING; CLOSING DELIVERIES

3.1          Initial
Closing.

(a)           Initial Closing.  The
initial closing of the transactions contemplated hereby (the “Initial Closing”) shall take place at 10:00 a.m. on August 14, 2006, at the offices of Kirkland & Ellis LLP, New
York, New York or at such other time, place and/or date as shall be agreed upon
by the parties hereto.  The date upon
which the Initial Closing occurs is referred to herein as the “Initial Closing Date.”

(b)           Payment for and Delivery of Series D Shares and Warrants.  At the Initial Closing, the
Company shall issue and deliver to ABRY (i) a stock certificate duly
executed and registered in ABRY’s name evidencing ownership of the Series D
Shares, and (ii) the warrants described in Section 2.1
above, duly executed in favor of ABRY and substantially in the form attached as
Exhibit B hereto (together with any
common stock purchase warrant issued in substitution or exchange thereof, the “Warrants”), in each case against payment by ABRY of the
Initial Purchase Price by wire transfer of immediately-available funds to the
account designated by the Company.

3.2          Purchase
Option.  The
Company hereby grants to CRP an option (the “Purchase
Option”) to purchase all or a portion of the Subsequent D Shares
together with Subsequent Warrants to purchase 66 2/3 shares of Common Stock
(rounded to the nearest whole shares) for each Subsequent D Share purchased, at
a price of $1,000 per Subsequent D Share. 
The Purchase Option shall be exercisable at any time that is on or prior
to September 4, 2006 as follows:

(a)           If
CRP determines that it would like to exercise the Purchase Option, then CRP
shall send a written notice to the Company and ABRY indicating its interest in
exercising the Purchase Option (“CRP Exercise
Notice”) at any time prior to September 4, 2006.  The CRP Exercise Notice shall indicate the
number of Subsequent D Shares and the corresponding number of Warrants to be
purchased by CRP.

(i)            If CRP exercises
the Purchase Option on or prior to September 4, 2006 and delivers a CRP
Exercise Notice that indicates that it has elected to purchase 100% of the
Subsequent D Shares and the corresponding number of Warrants, then CRP shall be
obligated to purchase all of the Subsequent D Shares and the corresponding
number of Warrants as set forth in the CRP Exercise Notice in exchange for the
Subsequent Purchase Price at the Subsequent Closing in accordance with Section 3.3 below.  If
CRP purchases the Subsequent D Shares and the corresponding number of Warrants
pursuant this Section 3.2(a)(i), CRP shall be
deemed to be the “Subsequent Purchaser”
for purposes of Section 3.3 below and a “Purchaser” for all purposes of this Agreement as if it had
executed the same.

 12
 

 

 

(ii)           If CRP exercises
the Purchase Option on or prior to September 4, 2006 and delivers a CRP Exercise
Notice that indicates that it has elected to purchase less than 100% of the
Subsequent D Shares and the corresponding number of Warrants, then (A) CRP
shall be obligated to purchase the number of Subsequent D Shares and the
corresponding number of Warrants as set forth in the CRP Exercise Notice in
exchange for the Subsequent Purchase Price at the Subsequent Closing in
accordance with Section 3.3
below and (B) ABRY may elect to purchase all or a portion of the balance of the
Subsequent D Shares and the corresponding number of Warrants by delivering
written notice (“ABRY Exercise Notice”) of such
election to the Company as soon as practical after ABRY’s receipt of the CRP
Exercise Notice.  If ABRY elects to
purchase any such the Subsequent D Shares and the corresponding number of
Warrants, ABRY shall deliver an ABRY Exercise Notice, indicating the number of
Subsequent D Shares and the corresponding number of Warrants to be purchased by
ABRY.  Upon delivery of the ABRY Exercise
Notice, ABRY shall be obligated to purchase the number of the Subsequent D
Shares and the corresponding number of Warrants as set forth in the ABRY
Exercise Notice in exchange for the Subsequent Purchase Price at the Subsequent
Closing in accordance with Section 3.3
below.  If CRP and/or ABRY purchase any
Subsequent D Shares and the corresponding number of Warrants pursuant this Section 3.2(a)(ii), each of CRP and/or ABRY shall be deemed
to be a “Subsequent Purchaser” for purposes of Section 3.3 below.

(b)           If
CRP does not exercise the Purchase Option on or prior to September 4, 2006 by
failing to deliver a CRP Exercise Notice or by delivering a notice indicating
that CRP is not exercising the Purchase Option, then (i) the Purchase Option
shall terminate and (ii) ABRY may elect to purchase all or a portion of the
Subsequent D Shares and the corresponding number of Warrants by delivering an
ABRY Exercise Notice to the Company as soon as practical after CRP indicates
that it is not exercising the Purchase Option. 
Upon ABRY’s delivery of the ABRY Exercise Notice, ABRY shall be
obligated to purchase the number of the Subsequent D Shares and the
corresponding number of Warrants as set forth in the ABRY Exercise Notice in
exchange for the Subsequent Purchase Price at the Subsequent Closing in
accordance with Section 3.3
below.  If ABRY purchases any Subsequent
D Shares and the corresponding number of Warrants pursuant this Section 3.2(b), ABRY shall be deemed to be the “Subsequent Purchaser” for purposes of Section 3.3
below.

3.3          Subsequent
Closing and Subsequent Purchase Price.

(a)           Subsequent Closing.  The
subsequent closing of the transactions contemplated hereby (the “Subsequent Closing”) shall take place at 10:00 a.m. on
September 8, 2006, at the offices of Kirkland & Ellis LLP, New York, New
York or at such other time, place and/or date as shall be agreed upon by the
Company and the Subsequent Purchaser. 
The date upon which the Subsequent Closing occurs is referred to herein
as the “Subsequent Closing Date.”

(b)           Payment for and Delivery of Series D Shares and Warrants.  At the Subsequent Closing, the
Company shall issue and deliver to each Subsequent Purchaser (i) a stock
certificate duly executed and registered in the name of such Subsequent
Purchaser evidencing ownership of the Series D Shares, and (ii) the Warrants
described in Section 2.1

 13
 

 

 

above, duly executed in favor of such Subsequent Purchaser, in each
case, against payment by each Subsequent Purchaser of an amount equal to (A)
the number of Subsequent D Shares set forth in the CRP Exercise Notice or the
ABRY Exercise Notice, as applicable to such Subsequent Purchaser, multiplied
by (B) $1,000 (the “Subsequent Purchase
Price”) payable by wire transfer of immediately-available funds to
the account designated by the Company, and together, in the case of CRP, with
appropriate counterpart signature pages to this Agreement and acknowledgements
that its purchase is subject to the obligations hereunder.

ARTICLE
IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to each
Purchaser that, except as set forth on the disclosure schedules attached hereto
(the “Disclosure Schedules”),
which exceptions shall be deemed to be part of the representations and
warranties made hereunder, the following representations are true and complete
as of the date hereof and as of the Initial Closing.  The Disclosure Schedules shall be arranged in
sections corresponding to the numbered and lettered sections and subsections
contained in this Article IV, and the disclosures in any section or subsection
of the Disclosure Schedules shall qualify other sections and subsection in this
Article IV to the extent the applicability of such disclosure to the
representation and warranty in this Article IV corresponding to such other section
is reasonably apparent from such disclosure; provided that nothing set
forth on any schedule shall be deemed adequate to disclose an exception to a
representation and warranty in this Article IV unless the applicable Disclosure
Schedule identifies the exception with reasonably particularity and describes
the relevant facts in reasonable detail.

4.1          Existence;
Qualification; Subsidiaries.  Each of the Company and each Material
Subsidiary was duly organized, is validly existing and in good standing under
the laws of the jurisdiction in which it was incorporated or formed and has
full power and authority to conduct its business and own and operate its
properties as now conducted, owned and operated.  The copies of the Certificate of
Incorporation and by-laws of the Company and all amendments thereto and
certificates of designation filed in connection therewith are attached hereto
as Exhibit D and are true, correct
and complete copies of such documents. 
Each of the Company and each Material Subsidiary is licensed or
qualified as a foreign corporation and is in good standing in all jurisdictions
where such Person is required to be so licensed or qualified, except where the
failure to be so licensed, qualified or in good standing would not have a
Material Adverse Effect.  Schedule 4.1 lists all Subsidiaries of the
Company and their respective jurisdictions of incorporation or formation.  Except as set forth on Schedule 4.1, the Company has no
Subsidiaries and owns no capital stock or other securities of, and has not made
any other investment in, any other entity. 
All of the issued shares of capital stock of each Subsidiary have been
duly and validly authorized and issued, are fully paid and non-assessable and
are owned directly or indirectly by the Company, free and clear of all Liens,
except Permitted Liens.

4.2          Authorization
and Enforceability; Issuance of Shares.

(a)           The
Company has full power and authority and has taken all required corporate and
other action necessary to authorize it to execute and deliver this Agreement
and

 14
 

 

 

the Related Documents and to perform the terms hereof and thereof and to issue and deliver the Series D Shares, the Conversion
Shares, the Warrants and the shares of Common Stock issuable upon exercise of
the Warrants (the “Warrant Shares”),
and none of such actions will (i) violate or conflict with any provision
of the Certificate of Incorporation of the Company, the by-laws of the Company
or of any applicable law, regulation, order, judgment or decree or rule of the
stock exchange where the Common Stock is listed, (ii) result in the breach
of or constitute a default (or an event which, with notice or lapse of time or
both would constitute a default) under any agreement, instrument or
understanding to which any member of the Company Group is a party or by which
it is bound or by which it will become bound as a result of the transaction
contemplated by this Agreement or (iii) result in or constitute a “change of
control” under any agreement, instrument or understanding to which any member
of the Company Group is a party or by which it is bound or by which it will
become bound as a result of the transaction contemplated by this Agreement or
any Related Document.  This Agreement and
each of the Related Documents constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with their terms,
except to the extent limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application related to
the enforcement of creditor’s rights generally and except as rights to
indemnity thereunder may be limited by applicable federal securities laws.

(b)           The
Series D Shares have been duly authorized and, when issued and delivered in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any Liens (other than, with respect to any
Purchaser, any restrictions on transfer under state and/or federal securities
laws or Liens created by such Purchaser or under this Agreement or any Related
Document).  The Warrants have been duly
authorized and, when issued and delivered in accordance with this Agreement,
will be validly issued and will be free of any Liens (other than, with respect
to any Purchaser, any restrictions on transfer under state and/or federal
securities laws or Liens created by such Purchaser or under this Agreement or
any Related Document).  When issued, the
shares of Common Stock issuable upon conversion of the Series D Shares in
accordance with the terms of the Series D Preferred Stock Certificate of
Designation (the “Conversion Shares”)
and the Warrant Shares when issued upon due exercise of the Warrant will be
duly authorized, validly issued, fully paid and nonassessable, and will be free
of any Liens (other than, with respect to any Purchaser, any restrictions on
transfer under state and/or federal securities laws or Liens created by such
Purchaser or under this Agreement or any Related Document).  The Conversion Shares and the Warrant Shares
have been duly reserved for issuance upon the conversion of the Series D Shares
or exercise of the Warrants, as the case may be.  Neither the issuance and delivery of the
Series D Shares or Warrants nor the issuance and delivery of any Conversion
Shares or Warrant Shares is subject to any preemptive right of any stockholder
of the Company or to any right of first refusal or other similar right in favor
of any Person.

4.3          Capitalization.

(a)           Schedule 4.3 sets forth as of the date hereof, and upon the
acceptance for filing of the Series D Preferred Stock Certificate of
Designation, (i) the authorized capital stock of the Company; (ii) the number
of shares of capital stock issued and outstanding; (iii) the number of shares
of capital stock issuable pursuant to options or other rights outstanding under
the Stock Option Plan and (iv) the number of shares of capital stock issuable
and reserved for

 15
 

 

 

issuance pursuant to
Equity Securities (other than the Series D Shares, the Warrants and options or
other rights outstanding under the Stock Option Plan) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the
Company.  All of the issued and
outstanding shares of the Company’s and each Subsidiary’s Equity Securities
have been duly authorized and validly issued and are fully paid, nonassessable
and free of pre-emptive rights and were issued in full compliance with
applicable state and federal securities law and any rights of third
parties.  Except as described on Schedule 4.3, no Person is entitled to
pre-emptive or similar statutory or contractual rights with respect to any
Equity Securities of the Company or any Company Subsidiary.  Except as described on Schedule 4.3, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its
Subsidiaries is or may be obligated to issue any Equity Securities of any kind
and except as contemplated by this Agreement, neither the Company nor any of
its Subsidiaries is currently in negotiations for the issuance of any Equity
Securities of any kind.  Except as
described on Schedule 4.3 and
except for the Amended and Restated Investor Rights Agreement, there are no
voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company or any Company
Subsidiary and any of the securityholders of the Company or any Company
Subsidiary relating to the securities of the Company or any Company Subsidiary
held by them.  Except as described on Schedule 4.3, no Person has the right to
require the Company or any Company Subsidiary to register any securities of the
Company under the Securities Act, whether on a demand basis or in connection
with the registration of securities of the Company or any Company Subsidiary
for its own account or for the account of any other Person.

(b)           The
issuance and sale of the Series D Shares and the Warrants hereunder will not
obligate the Company to issue any Equity Securities to any other Person (other
than the Purchasers) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.

(c)           Except
for the Rights Plan, the Company does not have outstanding stockholder purchase
rights or a “poison pill” or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.  The
issuance and sale of the Securities hereunder will not trigger any of the
provisions of the Rights Plan.

4.4          Private
Sale; Voting Agreements.  Assuming the accuracy of each Purchaser’s
representations contained herein, neither the offer, sale and issuance of the
Series D Shares and Warrants hereunder nor the issuance and delivery of any
Conversion Shares or Warrant Shares (assuming that the Conversion Shares and
Warrant Shares are issued to such Purchaser) requires registration under the
Securities Act or any state securities laws.

4.5          SEC
Reports; Financial Statements.

(a)           The
Company has filed all forms, reports and documents required to be filed by it
with the SEC since March 15, 2005 (assuming, for the purposes of this Section 4.5, the Company has been subject to the filing
requirements of the Exchange Act since March 15, 2005), and has made available
to the Purchasers in the form filed with the SEC (i) its Form 10-K filed
December 20, 2005 and (ii) all other forms, reports and other registration
statements filed

 16
 

 

 

by the Company with the
SEC after March 15, 2005 and before the Initial Closing Date, including the
Form 10-Q for the quarter ended March 31, 2006 (the forms, reports and other
documents referred to in clauses (i) and (ii) above, together with any
amendments or supplements thereto being referred to herein, collectively, as
the “Company Reports”).  Regardless of whether the Company Reports
were required to be filed under the Securities Act or Exchange Act, the Company
Reports (i) were prepared, in all material respects, in accordance with
the applicable requirements of the Securities Act and the Exchange Act, as the
case may be, and (ii) did not as subsequently amended contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.  No Subsidiary is required to file reports
with the SEC under Section 13 or 15(d) of the Exchange Act.

(b)           Each
of the financial statements (including any notes thereto) contained in the
Company Reports and the unaudited consolidated balance sheet of the Company as
of June 30, 2006 and the related statements of changes in stockholders’
equity and comprehensive loss for the nine-month period then ended
(collectively, the “Financial Statements”),
complies as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and was prepared in all material respects in accordance with GAAP
applied on a consistent basis throughout the periods indicated (except as may
be indicated in the notes thereto) and each fairly presented in all material
respects (subject to, in the case of the unaudited statements, to normal,
recurring audit adjustments, none of which are material individually or in the
aggregate) the consolidated financial position, results of operations,
stockholders’ equity and cash flows of the Company Group as at the respective
dates thereof and for the respective periods indicated therein.  As of the dates of the Financial Statements,
the Company had no Indebtedness or other Liability, which was not reflected or
reserved against in the balance sheets thereto which are part of the Financial
Statements, except for (i) Liabilities incurred in the Ordinary Course of
Business subsequent to March 31, 2006 and (ii) Liabilities incurred under
contracts entered into in the Ordinary Course of Business and not required
under GAAP to be reflected in the Financial Statements.

4.6          Absence
of Certain Changes. 
Except as set forth on Schedule 4.6,
since March 31, 2006 (the “Most
Recent Balance Sheet Date”), no member of the Company Group has:

(a)           incurred
any Liabilities other than current Liabilities incurred, or Liabilities under
contracts entered into, in the Ordinary Course of Business and for individual
amounts not greater than $350,000;

(b)           paid,
discharged or satisfied any Claim, Lien or Liability, other than any Claim,
Lien or Liability (A) reflected or reserved against on the balance sheet
contained in the Financial Statements as of the Most Recent Balance Sheet Date
(the “Current Balance Sheet”)
and paid, discharged or satisfied in the Ordinary Course of Business or (B)
incurred since the Most Recent Balance Sheet Date and paid, discharged or
satisfied, in each case in the Ordinary Course of Business;

(c)           except
as contemplated by this Agreement or any Related Document, made any change or
amendments to its Certificate of Incorporation or by-laws or material change

 17
 

 

 

to any material contract or arrangement by which it is bound or which
any of its assets or properties are subject;

(d)           exclusively
licensed any material Company Intellectual Property to any Person;

(e)           permitted
any of its material assets, tangible or intangible, to become subject to any
Lien (other than any Permitted Lien);

(f)            written
off as uncollectible any accounts receivable other than (i) in the Ordinary
Course of Business or (ii) for amounts not greater than $350,000;

(g)           terminated
or amended or suffered the termination or amendment of, other than in the
Ordinary Course of Business, or failed to perform in all material respects all
of its obligations or suffered or permitted any material default to exist
under, any Material Contract, license or permit;

(h)           suffered
any damage, destruction or loss (whether or not covered by insurance) to any
assets or properties of the Company Group which in the aggregate exceeds
$350,000;

(i)            made
any loan (other than intercompany advances) to any other Person (other than
advances to employees in the Ordinary Course of Business) which exceed $100,000
individually or $200,000 in the aggregate;

(j)            canceled,
waived or released any debt, claim or right in an amount or having a value
exceeding $350,000;

(k)           other
than a Permitted Affiliate Transaction, paid any amount to or entered into any
agreement, arrangement or transaction with any Affiliate (including its
officers, directors and employees) outside the Ordinary Course of Business;

(l)            declared,
set aside, or paid any dividend or distribution with respect to any Equity
Security or redeemed, purchased or otherwise acquired any Equity Security;

(m)          other
than in the Ordinary Course of Business, granted any increase in the
compensation of any officer or employee or made any other change in employment
terms of any officer or employee;

(n)           made
any change in any method of accounting or any material change in any accounting
practice;

(o)           failed
to maintain, or permitted the loss, lapse or abandonment of, any material
Company Intellectual Property;

(p)           to
the Knowledge of the Company, suffered or caused any other occurrence, event or
transaction known to the Company which, individually or together with

 18
 

 

 

each other occurrence, event or transaction, has had or could
reasonably be expected to have a Material Adverse Effect; or

(q)           agreed,
in writing or otherwise, to any of the foregoing.

4.7          Litigation.  Except as set forth on Schedule 4.7, there are no Claims pending
or, to the Knowledge of the Company, threatened against or affecting the
Company or any other member of the Company Group at law or in equity, or before
or by any Governmental Agency (including any Claim with respect to the
transactions contemplated by this Agreement and the Related Documents), which
if determined adversely to the Company would have a Material Adverse Effect,
and, to the Knowledge of the Company, there is no basis for any such Claim (in
each case, other than any Claim or Claims not pending and, to the Knowledge of
the Company, not threatened against or affecting the Company or any of its
Subsidiaries as of the Initial Closing Date). 
Neither the Company nor any member of the Company Group is subject to
any judgment, order or decree of any court or other Governmental Agency (other
than any such item that is not in effect as of the Initial Closing Date and
that could not reasonably be expected to have a Material Adverse Effect).  Neither the Company nor any other member of
the Company Group has received any opinion or memorandum from legal counsel to
the effect that it is exposed, from a legal standpoint, to any Liability that
would have a Material Adverse Effect.

4.8          Licenses,
Compliance with Law, Other Agreements, Etc.  The Company has, directly or through members
of the Company Group, all material franchises, permits, licenses and other
rights necessary to conduct its business and is not in violation in any
material respect of any order or decree of any court, or of any law, order or
regulation of any Governmental Agency, or of the provisions of any Material
Contract or agreement to which it is a party or by which it is bound, and
neither this Agreement nor the Related Documents nor the transactions
contemplated hereby or thereby will result in any such violation, except where
the failure to have any such franchise, permit or license or any such violation
would not in the aggregate be expected to have a Material Adverse Effect.  Each of the Company and each other member of
the Company Group are in compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and
charges thereunder, including the Foreign Corrupt Federal Practices Act, 15
U.S.C. 78dd-1 et/ seq.) of federal, state, local and foreign governmental (and
all agencies thereof), except to the extent the failure to comply would not
have a Material Adverse Effect, and no Claim or notice has been filed or
commenced against any of them alleging any failure to so comply.

4.9          Consents.  The execution, delivery and performance by
the Company of this Agreement and the Related Documents and the offer, issuance
and sale of the Series D Shares and the Warrants require no consent of, action
by or in respect of, or filing with, any Person, Governmental Agency having
jurisdiction over the Company or any of its Affiliates that has not been obtained,
except filings with the Securities and Exchange Commission required after the
execution and delivery of this Agreement. 
Subject to the accuracy of the representations and warranties of the
Purchasers set forth in Article V hereof, the Company has taken all action
necessary to exempt (i) the issuance and sale of the Series D Shares and the
Warrants, (ii) the issuance of the Conversion Shares and Warrant Shares upon
due conversion and exercise of the Series D Shares and Warrants, respectively
and (iii) the other transactions contemplated by the Related Documents from the
provisions of the Rights Plan and any other “poison pill”

 19
 

 

 

arrangement, and any anti-takeover, business combination or control
share law or statute binding on the Company Group or to which the Company Group
or any of its assets and properties may be subject.

4.10        Disclosure.  This Agreement, together with all exhibits
and schedules hereto, and the agreements, certificates and other documents
(including the Company Reports) furnished or made available to the Purchasers
by the Company and each other member of the Company Group in connection with
the transactions contemplated under this Agreement and the Related Documents,
do not contain any untrue statement of a material fact or, as supplemented by
the Company Reports, omit to state a material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which they were made, not misleading.

4.11        Tangible
Assets.  The
Company, directly or through a member of the Company Group, owns or leases all
tangible assets used in or reasonably necessary for the operation of the
business of the Company Group, taken as a whole.

4.12        Owned
Real Property. 
No member of the Company Group owns any real property.

4.13        Real
Property Leases. 
There exists no event of default (nor, to the Company’s Knowledge, any
event which with notice or lapse of time would constitute an event of default)
with respect to the Company, any Material Subsidiary and, to the Company’s
Knowledge, with respect to any other party thereto under any agreement pursuant
to which the Company or any Material Subsidiary is the lessee or lessor of any
real property, and all such agreements are in full force and effect and
enforceable against the lessor or lessee in accordance with their terms except
for such defaults and defects in enforceability as would not in the aggregate
be expected to have a Material Adverse Effect.

4.14        Certificates,
Authorities and Permits.  The Company Group possesses adequate
certificates, authorities or permits issued by appropriate Governmental
Agencies necessary to conduct the business now operated by them, except where
the failure to possess the same would not have a Material Adverse Effect, and
neither the Company nor any Material Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
Material Subsidiary, could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.

4.15        Agreements

(a)           Except
as expressly contemplated by this Agreement, as disclosed in the Company
Reports, or as set forth on Schedule
4.15 as of the Initial Closing Date, no member of the Company Group
is a party to or bound by any written or oral:

(i)            contract for the
employment or retainer of any officer, individual employee or other Person on a
full-time, part-time, consulting or other basis providing annual compensation
in excess of $150,000 or which cannot be terminated without cause

 20
 

 

 

and without
post-termination liability by providing only reasonable notice at common law;

(ii)           contract under
which any member of the Company Group has advanced or loaned any other Person
amounts in the aggregate exceeding $200,000;

(iii)          agreement or
indenture relating to borrowed money or other Indebtedness (excluding
Guarantees) or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company Group;

(iv)          Guarantee of any
obligation in excess of $150,000;

(v)           agreement under
which it has granted any Person any registration rights (including demand or
piggyback registration rights);

(vi)          agreement with a
term of more than twelve months which contains executory obligations in excess
of $150,000 and which is not terminable by the member of the Company Group
party thereto upon 60 days or less notice without penalty;

(vii)         any agreement or
arrangement pursuant to which another Person is engaged as a finder, broker,
agent or in any other capacity in respect of the sale of Equity Securities or
debt securities of the Company or a Company Sale;

(viii)        contract or
agreement prohibiting it from freely engaging in any business or competing
anywhere in the world;

(ix)           any other agreement
which is material to its operations and business prospects, involves a
consideration in excess of $300,000 annually or the termination of which could
result in a Material Adverse Effect; or

(x)            contract, license
or permission (i) pursuant to which any Intellectual Property is licensed,
transferred or otherwise made available, including on a contingent basis, to
any third party (other than non-exclusive, internal use, object code software
licenses granted by the Company to an end user customer of the Company in the
Ordinary Course of Business pursuant to the Company’s standard form of end user
license agreement set forth in Schedule 4.15(a)(x)
(“EULAs”)), or (ii) pursuant to
which any third party has licensed, transferred or otherwise made available any
Intellectual Property, including on a contingent basis, to any member of the
Company Group (except for non-exclusive, internal use written software licenses
solely under which non-customized software is licensed to the Company solely in
executable or object code form, where such software is not incorporated into,
or used directly in the development, manufacturing, or distribution of, any of
the products or services of any Company Group member, and is generally
available on standard terms for less than $15,000 (“Shrinkwrap
Agreements”)).

(b)           All
of the contracts, agreements and instruments required to be set forth on Schedule 4.15 (the “Material Contracts”)
and all EULAs and Shrinkwrap Agreements are valid, binding and enforceable in accordance
with their respective terms.  Each member
of the

 21
 

 

 

Company Group has performed all material obligations required to be
performed by it under the contracts to which it is a party and is not in
material default under or in material breach of nor has Knowledge of any claim
of material default or material breach under any such contract; no event has
occurred which with the passage of time or the giving of notice or both would
result in a default, breach or event of noncompliance by any member of the Company
Group under any material contract to which it is a party.  The Company has no Knowledge of any breach or
anticipated breach by the other party to any material contract to which it is a
party.

(c)           The
Purchasers’ special counsel has been given access to a true and correct copy of
each Material Contract, or such Material Contract is available in the Company
Reports, together with all amendments, waivers or other changes thereto.

4.16        Intellectual
Property.  Each
member of the Company Group owns and possesses, directly or through another
member of the Company Group, free and clear of all Liens (other than
nonexclusive licenses granted by a Company Group member to its customers, or
distribution rights granted by a Company Group member to persons in the distribution
chain, in each case, in the Ordinary Course of Business), all right, title and
interest in and to, or has the right to use pursuant to a valid and enforceable
written agreement set forth in Schedule 4.15(a)(x),
all Intellectual Property necessary to the conduct of its business as now
conducted and as presently proposed to be conducted (including all right, title
and interest in and to the Intellectual Property required to be disclosed in Schedule 4.16, the “Company Intellectual Property”).  To the Knowledge of the Company, no member of
the Company Group has infringed, misappropriated or conflicted with, and to the
Knowledge of the Company, the conduct of each Company Group member’s business
as now conducted and as presently proposed to be conducted will not violate any
license (or other agreement concerning Intellectual Property), or infringe,
misappropriate or conflict with, any Intellectual Property of any other person
or entity.  No Company Group member has
received any communications (including demands or offers to license) alleging
that a Company Group member has infringed, misappropriated or conflicted with
or, by conducting its business, would infringe, misappropriate or conflict with
any Intellectual Property of any other person or entity.  To the Knowledge of the Company, there are no
facts which indicate a likelihood of any of the foregoing two (2) sentences.
There are no claims against any Company Group Member that were either made
within the past four (4) years or are presently pending contesting the
validity, use, ownership or enforceability of any of the Company Intellectual
Property (including any interference, reissue, reexamination, invalidation,
cancellation or opposition proceeding), and, to the Knowledge of the Company,
there is no basis for any such claim.  To
the Knowledge of the Company, no third party has infringed, misappropriated or
otherwise conflicted with any of the Company Intellectual Property.  Except as set forth in Schedule 4.16, no loss or expiration (other
than, in the case of patents and copyrights, natural expiration at the end of
their respective statutory terms) of any Company Intellectual Property is
pending, threatened or reasonably foreseeable. 
All registered or issued Company Intellectual Property (or applications
therefor) is in compliance with applicable formal legal requirements
(including, as applicable, timely payment of filing, examination and
maintenance fees, and timely filings of proofs of working or use, affidavits of
use and incontestability and renewal applications), and is valid and
enforceable.  Except as otherwise
provided in this Agreement, the transactions contemplated by this Agreement
shall not impair the right, title or interest of any Company Group member in
and to the Company Intellectual Property and all of the Company Intellectual
Property shall be owned or available for

 22
 

 

 

use by the Company Group members immediately after the Initial Closing
on terms and conditions identical to those under which the Company Group member
owned or used the Company Intellectual Property immediately prior to the
Initial Closing.  No Company Group Member
jointly owns any material Intellectual Property with any third party.  Except as set forth on Schedule 4.16, no
source code for any product or service developed, marketed or sold by any
Company Group member (a “Company Product”)
has been made available or licensed to any Person, and no member of the Company
Group is under any obligation (including contingent) to do so.  No Company Group member is subject to any
settlement or coexistence agreement that restricts its use of any Intellectual
Property owned by or exclusively licensed to such member.  No funding, facilities, or personnel of any
Governmental Agency were used, directly or indirectly, to develop any Company
Intellectual Property, and no Company Intellectual Property is subject to any “march
in” or similar rights.  Each member of
the Company Group has complied with, and the performance of this Agreement will
comply with, all applicable privacy policies, laws and regulations.  Each Company Group member has and enforces a
policy requiring all employees and independent contractors likely to
participate in the development or creation of Intellectual Property to execute appropriate
assignment agreements, pursuant to which each such employee or independent
contractor has assigned to the Company all of its rights, including all
Intellectual Property, in and to all ideas, inventions, processes, works of
authorship and other work products that relate to the business of a Company
Group member and that, in the case of employees, were conceived, created,
authored or developed during the term of such employee’s employment by the
Company.  Each Company Group member has
and enforces a policy requiring all employees 
and independent contractors with access to any confidential information
of a Company Group member (or of a third party to which a Company Group member
owes a duty of confidentiality) to execute appropriate non-disclosure
agreements.  No current or former employee
or contractor (including RekSoft) of any Company Group member has any ownership
or other rights in or to any Company Intellectual Property.  Schedule 4.16
lists all patents, patent applications, registered trademarks, trademark
applications, registered service marks, service mark applications, material
unregistered trademarks or service marks, trade names, registered copyrights,
material unregistered copyrights, and domain names owned by or exclusively
licensed to the Company.  No Company
Product is subject to any open source, public source, freeware, shareware,
copyleft, community source or similar obligation or condition that could
require the disclosure of any source code to any person or entity or otherwise
limit the right of any Company Group member to use or distribute any Company
Product.  Each Company Group member has
taken all commercially reasonable action to establish, maintain, protect,
preserve and enforce its rights in the Company Intellectual Property.

4.17        Employees.  Since the Most Recent Balance Sheet Date, no
key employees and no group of employees has terminated, or to the Knowledge of
the Company, plans to terminate, employment with the Company Group.  The Company Group is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strike,
material grievance, material claim of unfair labor practice or other collective
bargaining dispute.  To the Knowledge of
the Company, there is no organizational effort being made or threatened by or
on behalf of any labor union with respect to the Company Group’s
employees.  To the Knowledge of the
Company, the Company Group has not committed any unfair labor practice or
materially violated any federal, state or local law or regulation regulating
employers or the terms and conditions of its employees’ employment, including
laws regulating employee wages and hours, employment discrimination, employee
civil rights, equal employment opportunity and employment of foreign

 23
 

 

 

nationals, except for such violations as would not in the aggregate be
expected to have a Material Adverse Effect.

4.18        ERISA;
Employee Benefits. 
Section 4.18 of the Disclosure Schedules sets forth a complete
and correct list of each employee benefit plan (as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”)) and each other benefit
plan, program or arrangement maintained, established, sponsored, contributed or
required to be contributed to by any member of the Company Group, or with
respect to which the Company Group has any material liability (each a “Plan” and collectively, the “Plans”). 
The Company Group does not maintain, contribute to, or have any
liability under (or with respect to) any “defined benefit plan” (as defined in
Section 3(35) of ERISA), or any “multiemployer plan” (as defined in Section
3(37) of ERISA), and does not otherwise have any current or potential liability
under Title IV of ERISA.  No Plan has any
unfunded or underfunded liabilities. 
Each Plan that is intended to be qualified under Section 401(a) of the
Code is so qualified.  Each of the Plans
has been maintained, funded and administered in material compliance with its
terms and with the applicable provisions of ERISA, the Code, and any other
applicable laws.  The Company Group has
no current or potential liability under ERISA or the Code by reason of being
considered a single employer under Section 414 of the Code with any Person
other than a member of the Company Group.

4.19        Environment,
Health and Safety. 
Except as set forth on Schedule 4.19:

(a)           Each
member of the Company Group has complied and is in compliance in all material
respects with all Environmental and Safety Requirements that are applicable to
the Company Group’s business, except where the failure to comply could not
reasonably be expected to have a Material Adverse Effect;

(b)           No
member of the Company Group has received any written notice, report or other
information regarding any Liabilities or potential Liabilities, including any
investigatory, remedial or corrective obligations, relating to such member of
the Company Group or such member’s facilities and arising under Environmental
and Safety Requirements; and

(c)           No
member of the Company Group has, either expressly or by operation of law,
assumed or undertaken any Liability, including any obligation for corrective or
remedial action, of any other Person relating to Environmental and Safety
Requirements.

4.20        Transactions
With Affiliates. 
Except for Permitted Affiliate Transactions and except as described in
the Company Reports, neither the Company nor any of the other members of the
Company Group is party to any agreement, arrangement or transaction with any
Affiliate which is material to the Company’s and the Company Group’s business,
taken as a whole.

4.21        Taxes.  Except as set forth on Schedule 4.21, each of member of the
Company Group has filed all Tax Returns which it is required to file under
applicable laws.  All such Tax Returns
are complete and correct and have been prepared in compliance with all applicable
laws in all material respects.  Each
member of the Company Group has paid all Taxes due and owing by it (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authority all Taxes which they were or are
required to

 24
 

 

 

withhold from amounts paid or owing to any employee, stockholder,
creditor or other third party.  No member
of the Company Group has waived any statute of limitations with respect to any
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency.  There are no Liens for Taxes
(other than Permitted Liens) upon any of the assets of any member of the
Company Group.  Since January 1, 2002, no
written Claim has ever been made by a Governmental Agency in a jurisdiction
where no member of the Company Group files Tax Returns that any member of the
Company Group is or may be subject to Taxation by that jurisdiction.

4.22        Other
Investors.  Set
forth on Schedule 4.22 is a
list of all stockholders of the Company who as of the date hereof and to the
Company’s Knowledge, based upon SEC filings of stockholders, after giving
effect to the terms hereof, own more than 5% of the fully diluted common equity
of the Company and sets forth such percentage ownership.

4.23        Seniority.  No class of equity securities of the Company
is senior or, other than the Series B Shares and the Series C Shares, pari passu to, the Series D Shares in
right of payment, whether upon liquidation, dissolution or otherwise.

4.24        Investment
Company.  The
Company is not, and is not controlled by or under common control with an
affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

4.25        Certain
Fees.  Other
than (i) the Closing Fee to be paid to ABRY in accordance with Section 10.5, (ii) the CRP Fee to be paid
to CRP in accordance with Section 10.5
and (iii) the consent fee in an amount not to exceed $75,000 payable to CRP as
the holder of Series B Shares, no fees or commissions will be payable by the
Company to any broker, financial advisor, finder, investment banker, or bank
with respect to the transactions contemplated by this Agreement.  No Purchaser shall have any Liability
resulting from commitments by the Company Group or its directors, officers or
employees with respect to any fees or with respect to any claims made by or on
behalf of any Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.  The Company Group shall indemnify and hold
harmless each Purchaser, its employees, officers, directors, agents and
partners, and their respective affiliates (as such term is defined under Rule
405 promulgated under the Securities Act), from and against all claims, losses,
damages, costs (including the costs of preparation and attorney’s fees) and
expenses suffered in respect to any fees due any other Person with which the
Company or its directors, officers or employees has contracted in connection
with the transactions contemplated hereby.

4.26        Sarbanes-Oxley
Act.  The
Company is in compliance in all material respects with all provisions of the
Sarbanes-Oxley Act of 2002 that are applicable to it as of the date hereof.

4.27        Listing
and Maintenance Requirements Compliance.  The Common Stock was admitted for trading
privileges on AMEX on December 28, 2005 and has been traded on AMEX at all time
since such date.  The authorization and
issuance of the Series D Shares, the Warrants, the Conversion Shares and the
Warrant Shares will not violate any listing or maintenance requirement of AMEX.

 25

 

4.28        No
General Solicitation. 
Neither the Company nor any Person acting on its behalf has conducted
any general solicitation or general advertising (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities.

4.29        No
Integrated Offering. 
Neither the Company nor any of its Affiliates, nor any Person acting on
its or their behalf, has, directly or indirectly, made any offers or sales of
any Company security or solicited any offers to buy any security under circumstances
that would cause the offer and/or sale of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, or that
would otherwise adversely affect reliance by the Company on Section 4(2) for
the exemption from registration for the transactions contemplated hereby or
would require registration of the Securities under the Securities Act.

4.30        Private
Placement. 
Subject to the accuracy of the representations and warranties of the
Purchasers in Article V, the offer and sale of the Series D Shares and the
Warrants to the Purchasers as contemplated hereby is exempt from the
registration requirements of the Securities Act and is being made pursuant to
the exemption afforded by Section 4(2) of the Securities Act and/or Rule 506 of
Regulation D promulgated thereunder.

4.31        Questionable
Payments.  To the Knowledge of the Company,
no member of the Company Group nor any of their directors or officers or any
other Persons acting on behalf of the Company Group, has on behalf of any
member of the Company Group or in connection with their respective businesses:
(i) used any corporate funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, (ii) made any direct
or indirect unlawful payments to any governmental officials or employees from
corporate funds, (iii) established or maintained any unlawful or unrecorded
fund of corporate monies or other assets, (iv) made any false or fictitious
entries on the books and records of the Company Group or (v) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.

4.32        Internal
Controls.  The
Company Group maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management’s general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management’s general or specific authorization and (d) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company Group
has established disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls
and procedures to ensure that material information relating to the Company
Group is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of a date within 90 days prior to the filing date of the most
recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers

 26
 

 

 

about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. 
Since the Evaluation Date, there have been no significant changes in the
Company Group’s internal controls (as such term is defined in Item 307(b) of
Regulation S-K) or, to the Knowledge of the Company, in other factors that
could significantly affect the Company Group’s internal controls.  The Company Group maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with GAAP and the applicable requirements of the Exchange Act.

4.33        Use
of Proceeds. 
The Company will use the proceeds from the sale of the Series D Shares
and the Warrants hereunder solely (i) to pay the Closing Fee, the CRP Fee and
other fees and expenses associated with the transactions contemplated by this
Agreement and the Related Documents, (ii) for Permitted Acquisitions and (iii)
for working capital and general corporate purposes.

4.34        Customers
and Suppliers.

(a)           Schedule 4.34 lists the ten largest customers of the Company
Group (on a consolidated basis) for each of the two most recent fiscal years
and sets forth opposite the name of each such customer the percentage of
consolidated net sales attributable to such customer.

(b)           Since
the Most Recent Balance Sheet Date, no material supplier of the Company Group
has indicated that it shall stop, or materially decrease the rate of, supplying
materials, products or services to the Company Group, and no customer listed on
Schedule 4.34 has
indicated in writing that it shall stop, or materially decrease the rate of,
buying materials, products or services from the Company Group.

4.35        Non-Material
Subsidiaries. 
To the actual knowledge of the Company (without investigation), the
representations and warranties of any Material Subsidiary made in this Article
IV are true and complete as applied to each Non-Material Subsidiary.

ARTICLE
V

REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

Each Purchaser, severally and not jointly, hereby
represents and warrants to the Company as follows:

5.1          Authorization
and Enforceability. 
Such Purchaser has full power and authority and has taken all action
necessary to permit it to execute and deliver this Agreement and the other
documents and instruments to be executed by it pursuant hereto and to carry out
the terms hereof and thereof.  This
Agreement and such other documents and instruments each constitutes a legal,
valid and binding obligation of such Purchaser, enforceable against such Purchaser
in accordance with its terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application related to the enforcement of creditor’s rights generally and
except as rights to indemnity thereunder may by limited by applicable federal
securities laws.

 27
 

 

 

5.2          Government
Approvals.  Such
Purchaser is not required to obtain any order, consent, approval or
authorization of, or to make any declaration or filing with, any Governmental
Agency in connection with the execution and delivery of this Agreement and the
other documents and instruments to be executed by it pursuant hereto or the
consummation of the transactions contemplated hereby and thereby, except for
such order, consent, approval, authorization, declaration or filing as which
has been or will be obtained or made.

ARTICLE
VI

COMPLIANCE WITH SECURITIES LAWS

6.1          Investment
Intent of the Purchasers.  Each Purchaser, severally and not jointly,
represents and warrants to the Company that it understands that the Series D
Shares, the Warrants, the Conversion Shares and the Warrant Shares
(collectively, the “Securities”)
are “restricted securities” and have not been registered under the Securities
Act and such Purchaser is acquiring the Series D Shares and Warrants in the
ordinary course of business for its own account, with no present intention of
selling or otherwise distributing the same to the public.

6.2          Status
of Series D Shares and Warrants.  Each Purchaser has been informed by the Company
that the Series D Shares and Warrants have not been registered under the
Securities Act or under any state securities laws and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering.  Each
Purchaser represents and warrants, severally and not jointly, that it will not,
directly or indirectly, offer, sell or otherwise dispose of (or solicit any
offers to buy, purchase or otherwise acquire) any of the Securities except in
compliance with the Securities Act, applicable state securities laws and the
rules and regulations promulgated thereunder.

6.3          Sophistication
and Financial Condition of Purchasers.  Each Purchaser represents and warrants,
severally and not jointly, to the Company that it is an “accredited investor”
as defined in Regulation D under the Securities Act.  Each Purchaser represents and warrants,
severally and not jointly, to the Company that it considers itself to be an
experienced and sophisticated investor and to have such knowledge and
experience in financial and business matters as are necessary to evaluate the
merits and risks of an investment in the Series D Shares and the Warrants.  Each Purchaser has received information
concerning the Company, including the Company Reports and the risks relating to
the Company described in the Company’s Form 10-K filed December 20, 2005 and
the Company’s quarterly report on Form 10-Q for the quarter ended March 31,
2006.  The representations set forth in
the preceding sentence shall not affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the
parties hereto, nor shall it affect the Company’s indemnification obligations
arising under Article IX hereof.

6.4          Transfer
of Series D Shares, Warrants and Conversion Shares.

(a)           Each
Purchaser has been informed by the Company and hereby agrees that the
Securities may be transferred only (i) pursuant to public offerings registered
under the Securities Act, (ii) pursuant to Rule 144 promulgated under the
Securities Act (or any similar

 28
 

 

 

rule then in force), (iii) to an Affiliate of the transferor, or
(iv) subject to the conditions set forth in Section 6.4(b), pursuant to any other legally-available
means of transfer.

(b)           In
connection with any transfer of any Securities (other than a transfer described
in Section 6.4(a)(i) or (iii)),
the holder of such shares shall deliver written notice to the Company
describing in reasonable detail the proposed transfer, together with an opinion
of counsel (Kirkland & Ellis LLP or such other counsel which, to the
Company’s reasonable satisfaction, is knowledgeable in securities law matters)
to the effect that such transfer may be effected without registration of such
shares under the Securities Act.  The
holder of the Securities being transferred shall not consummate the transfer
until (i) the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the provisions of this Section 6.4 or
(ii) such holder shall have delivered to the Company an opinion of such counsel
that no subsequent transfer of such Securities shall require registration under
the Securities Act.  Promptly upon
receipt of any opinion described in clause (ii) of the preceding sentence, the
Company shall prepare and deliver in connection with the consummation of the
proposed transfer, new certificates for the Securities being transferred that
do not bear the legend set forth in Section 6.4(c).

(c)           Except
as provided in Section 6.4(b),
until transferred pursuant to clauses (a)(i) or (a)(ii) above, each certificate
evidencing the ownership of Series D Shares, Warrants, Conversion Shares or
Warrant Shares shall be imprinted with a legend substantially in the following
form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON AUGUST 14, 2006
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
ANY APPLICABLE STATE SECURITIES LAW. 
THESE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAW.  THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET
FORTH IN THE SERIES D CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT DATED AS OF AUGUST 14, 2006
BETWEEN THE ISSUER (THE “COMPANY”) AND THE OTHER PARTIES THERETO. THE COMPANY
RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER.  A COPY OF SUCH CONDITIONS SHALL BE FURNISHED
WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE COMPANY.

 29
 

 

 

ARTICLE VII

CONDITIONS PRECEDENT

7.1          Conditions
to Obligations of ABRY at the Initial Closing.  The obligation of the Purchasers to purchase
the Series D Shares and the Warrants to be purchased by such Purchaser at the
Initial Closing and/or the Subsequent Closing in accordance with Section 3.1 or Section 3.3, as the case may be, shall be subject to the
satisfaction or waiver by such Purchaser of the following conditions precedent
on or prior to the date such closing is scheduled to take place in accordance
with Section 3.1 or Section 3.3, as applicable:

(a)           the
Series D Preferred Stock Certificate of Designation shall have been filed with
the Secretary of State of the State of Delaware and shall be in full force and
effect and shall not have been modified in any manner;

(b)           as
of such date there shall be an absence of (i) any general suspension of trading
in, or limitation on prices for securities on any national securities or
bulletin board exchange or over-the-counter market, (ii) the declaration of any banking moratorium or any
suspension of payments in respect of banks or any material limitation (whether
or not mandatory) on the extension of credit by lending institutions in the
United States, or (iii) the commencement or escalation of a war or material
armed hostilities or other international or national calamity involving the
United States and having an adverse effect on the functioning of the financial
markets in the United States;

(c)           as
of the Initial Closing Date, the representations and warranties made by the Company
in Article IV hereof shall be true and correct in all respects to the extent
they are qualified by materiality or Material Adverse Effect, and to the extent
not so qualified shall be true and correct in all material respects;

(d)           at
the Initial Closing, the Company shall have paid the Closing Fee and the
Purchaser Expenses to ABRY, in each case as contemplated under Section 10.5 of this Agreement, and, to the extent that CRP
has exercised the Purchase Option with respect to all, but not less than all,
of the Subsequent D Shares and Subsequent D Warrants, at the Subsequent
Closing, the Company shall have paid the CRP Fee;

(e)           the
authorization and issuance of the Series D Shares, the Warrants, the Conversion
Shares and the Warrant Shares will not violate any listing or maintenance
requirements of AMEX;

(f)            the
Company shall have received all consents and approvals, including Board of
Director, stockholder, Governmental Agency and third party consents or
approvals, that are required to be obtained in connection with the transactions
contemplated under this Agreement and the Related Documents, including the
issuance of the Securities in accordance with the terms of this Agreement and
the Related Documents;

(g)           [Intentionally
omitted];

(h)           with
respect to the Subsequent Closing Date, since the Initial Closing Date, no
Material Adverse Effect shall have occurred;

 30
 

 

 

(i)            [Intentionally
omitted];

(j)            [Intentionally
omitted];

(k)           no
stop order or suspension of trading shall have been imposed by the SEC or any
other governmental regulatory body with respect to public trading in the Common
Stock on AMEX;

(l)            the
following documents and items shall have been delivered to the Purchasers at or
prior to the Initial Closing or the Subsequent Closing, as the case may be:

(i)            fully executed and
delivered Warrants providing for the purchase upon exercise thereof of the
Warrant Shares satisfactory in form and substance to ABRY, which Warrants shall
be in full force and effect on the Initial Closing Date without further amendment
or modification thereto;

(ii)           the written opinion
of Dorsey & Whitney LLP, counsel to the Company, dated as of the date of
such closing and satisfactory in form and substance to such Purchaser;

(iii)          at the Initial
Closing, a counterpart of the First Amendment to Amended and Restated Investor
Rights Agreement duly executed and delivered by the Company and each Person
required to amend the First Amendment to Amended and Restated Investor Rights
Agreement, and, at each Closing, the Amended and Restated Investor Rights
Agreement, as amended by the First Amendment thereto, shall be in full force
and effect;

(iv)          certificates
evidencing ownership of the Series D Shares, duly executed and delivered by the
Company;

(v)           a certificate of a
duly authorized officer of the Company dated as of the Initial Closing Date or
the Subsequent Closing Date, as the case may be, certifying that (A) the
closing conditions described in Sections 7.1(a),
(b), (c), (e), (f), (h) and (k) have been satisfied and (B) the resolutions of
the Board of Directors attached thereto (which resolutions shall have, among
other things and (x) authorized all of the transactions contemplated by this
Agreement and the Related Documents, approved the Related Documents (including
the filing of the Series D Preferred Stock Certificate of Designation and the
issuance of the Securities);

(vi)          at the Initial
Closing, fully executed consent of the holders of the Series C Shares and
Series B Shares to the consummation of the transactions contemplated by this
Agreement and the Related Documents and the waiver of any pre-emptive or
anti-dilution rights such Persons may have in respect of the transactions
contemplated by this Agreement and the Related Documents;

(vii)         at the Initial
Closing, a fully executed amendment to the Rights Plan satisfactory in form and
substance to ABRY, which amendment shall be in full force and effect on the
Initial Closing Date without further amendment or modification thereto;

 31
 

 

 

(viii)        [Intentionally
omitted]; and

(ix)           with respect to the
Initial Closing, such other documents relating to the transactions contemplated
hereby as ABRY  may reasonably request.

7.2          Conditions
to Obligations of the Company.  The obligation of the Company to sell and
issue the Series D Shares and the Warrants to ABRY at the Initial Closing in
accordance with Section 3.1 shall
be subject to the delivery of the Initial Purchase Price by ABRY accordance
with Section 3.1.  The obligation of the Company to sell and
issue the Series D Shares and the Warrants to the Subsequent Purchaser at the
Subsequent Closing in accordance with Section
3.3 shall be subject to the delivery of the Subsequent Purchase
Price by such Purchaser accordance with Section
3.3.

ARTICLE
VIII

COVENANTS OF THE COMPANY

8.1          Restricted
Actions.  Prior
to the conversion of, or redemption of, the Series D Shares (other than with
respect to Section 8.1(e)
which shall survive the conversion of the Series D Shares and shall terminate
on the date that no Securities are outstanding), without the prior written
consent of the holders of a majority of the Series D Shares (other than with
respect to Section 8.1(e)
which shall require the prior written consent of the holders of a majority of
the Underlying Common Stock), the Company shall not, nor shall the Company
suffer or permit any member of the Company Group to, directly or indirectly:

(a)           use
the proceeds from the sale of the Series D Shares and the Warrants hereunder
other than (i) to pay the Closing Fee, the CRP Fee and other fees and expenses
associated with the transactions contemplated by this Agreement and the Related
Documents, (ii) for Permitted Acquisitions and (iii) for working capital and
general corporate purposes;

(b)           prior
to the third anniversary of the Initial Closing Date, consummate a Company Sale
unless the amount of cash consideration and the Market Price (as of the date of
receipt) of any other consideration received by the holders of the Underlying
Common Stock, in the aggregate, in such Company Sale, plus the aggregate value
of any cash hereafter distributed or issued as a dividend or distribution with
respect to any of the Securities is equal to 175% of the aggregate amount of
capital invested in the Securities;

(c)           incur,
create, assume or in any way become liable for any Indebtedness for Borrowed
Money, Capital Leases or Guarantees unless at the time of and after giving pro
forma effect to such incurrence and the application of proceeds therefrom, the
ratio of the Company’s Indebtedness for Borrowed Money to EBITDA would be less
than or equal to 2.0 to 1.0.  Solely for
purposes of this Section 8.1(c),
(x) Indebtedness for Borrowed Money shall mean all obligations of the Company
Group for borrowed money which should be classified upon the obligor’s balance
sheet as liabilities, the present value of any Capital Leases and the amount of
all Guarantees (whether or not required to be reflected on such obligor’s
balance sheet as liabilities), in each case as determined in accordance with
GAAP, and (y) EBITDA shall mean the net income of the Company Group (including
in the “Company Group” for all purposes of this Section
8.1(c)(y), MAI Systems Corporation and its direct and indirect
subsidiaries, for the

 32
 

 

 

entire period being measured, regardless of whether such period
includes time periods preceding the acquisition of MAI Systems Corporation by
the Company), (A) adjusted for the elimination of the following items if, and
only if, such items shall never require the expenditure of cash by any member
of the Company Group: (1) non-cash interest; (2) non-cash employee compensation
expense and (3) nonrecurring non-cash charges, (B) minus any
extraordinary gains and other non-recurring gains and (C) plus to the
extent deducted from net income (1) income tax expense; (2) depreciation and
amortization expense and (3) the aggregate cash interest expense of the Company
Group paid, payable or accrued for such period, all of which calculations shall
be determined in accordance with GAAP based on the consolidated financial
statements of the Company Group for the 12 month period ending on the last day
of the fiscal quarter for which the most recent financial statements have been
delivered to the Purchasers pursuant to Section 8.3; provided, that notwithstanding the
foregoing provisions of this Section 8.1(c), (x) the Company may incur
Indebtedness under Capital Leases in an amount not to exceed $1,000,000 in the
aggregate outstanding at any time, and (y) the Company may incur Indebtedness
under that certain Credit Agreement, dated as of the date of this Agreement, by
and between the Company, certain Subsidiaries of the Company, the lenders named
therein, and Wells Fargo Foothill, Inc., as Arranger and Administrative Agent in effect on the date hereof (the “Senior
Facility”) even though the Ratio will exceed 2.0 to 1.0, if such
Indebtedness is incurred to finance Permitted Acquisitions or for working
capital and general corporate purposes on or after the date of this Amendment
and either

(i)             following such
incurrence, the aggregate amount of Indebtedness outstanding under the Senior
Facility does not exceed $23,000,000; or

(ii)           such Indebtedness
under the Senior Facility (A) is incurred at any time during the period
beginning on March 31, 2007 and ending on December 31, 2007,  (b) does not exceed $30,000,000 and (c) is
incurred when the Company’s EBITDA for the twelve month period ended on the
most recently ended fiscal quarter equals or exceeds the Minimum EBITDA Targets
set forth opposite the date below that corresponds to the most recently ended
fiscal quarter prior to the date of the borrowing:

	
  Date

  	
   

  	
  Minimum EBITDA Target

  	
   

  
	
  March 31, 2007

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 30, 2007

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  September 30, 2007

  	
   

  	
  $

  	
  10,701,744

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31,
  2007

  	
   

  	
  $

  	
  11,862,744

  	
   

  

(d)           from and after the third anniversary
of the Initial Closing Date, consummate a Company Sale unless the amount of
cash consideration and the Market Price (as of the date of receipt) of any
other consideration received by the holders of the Series D Preferred Stock, in
the aggregate, in such Company Sale is at least equal to the Series D
Redemption Price for all such shares of Series D Preferred Stock;

 33
 

 

 

(e)           enter
into any agreement, instrument, arrangement or understanding (or amend or
modify the terms of any existing agreement, instrument, arrangement or
understanding), which by its terms would restrict the Company’s ability to
comply with the terms of this Agreement or any of the Related Documents in any
material respect;

(f)            enter
into or suffer to exist any contract, agreement, arrangement or transaction
with any Affiliate (an “Affiliate
Transaction”), other than a Permitted Affiliate Transaction, without
the prior consent of the members of the Board of Directors with no interest in
such Affiliate Transaction;

(g)           sell,
transfer or otherwise dispose of the capital stock of any Subsidiary;

(h)           in
the case of any Company Subsidiary, authorize, issue or enter into an agreement
providing for the issuance (contingent or otherwise) of any Equity Securities,
unless after giving effect to such issuance, such Subsidiary is Wholly-Owned
Subsidiary of the Company;

(i)            materially
alter its principal line of business as conducted on the Initial Closing Date
or engage in any business unless such business is reasonably related to such
principal line of business of the Company Group as conducted on the Initial
Closing Date;

(j)            complete
a Material Acquisition that is not approved by the Board of Directors,
including the consent of the Investor Director; or

(k)           with
respect to the Company or any Material Subsidiary, make an assignment for the
benefit of creditors or admit in writing its inability to pay its debts
generally as they become due, or petition or apply to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator of the Company or
any Material Subsidiary or of any substantial part of the assets of the Company
or any Material Subsidiary, or commence any proceeding (other than a proceeding
for the voluntary liquidation and dissolution of a Subsidiary) relating to the
Company or any Material Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction; or approve, consent to or acquiescence in any such
petition or application filed, or any such proceeding commenced, by any third
party against the Company or any Subsidiary.

8.2          Required
Actions.  Prior
to the conversion or redemption of all the Series D Shares, each of the Company
and each other member of the Company Group shall:

(a)           use
its reasonable efforts to maintain at all times, or to reapply for, a valid
listing for the Common Stock on a national securities exchange or NASDAQ and as
promptly as possible following the listing of the Common Stock on a national
securities exchange or NASDAQ, secure the listing of all of the Conversion
Shares and Warrant Shares upon such national securities exchange or NASDAQ and
maintain such listing of all Conversion Shares and Warrant Shares from time to
time issuable under the terms hereof and the Series D Preferred Stock
Certificate of Designation and pursuant to the Warrant, and maintain the Common
Stock’s authorization for trading on a national securities exchange or
quotation on NASDAQ;

 34
 

 

 

(b)           maintain
and keep its properties in good repair, working order and condition, and from
time to time make all necessary or desirable repairs, renewals and
replacements, so that its businesses may be properly and advantageously
conducted in all material respects at all times;

(c)           maintain
or cause to be maintained with financially sound and reputable insurers (i)
public liability and property damage insurance with respect to their respective
businesses and properties against loss or damage of the kinds and in amounts
customarily carried or maintained by companies of established reputation
engaged in similar businesses, and (ii) with respect to the Company only,
directors’ and officers’ liability insurance providing at least the same
coverage and amounts and containing terms and conditions which are not less
advantageous in any material respect, in each case than the directors’ and
officers’ liability insurance maintained by the Company as of the Initial
Closing Date;

(d)           pay
and discharge when due all Tax Liabilities, assessments and governmental
charges or levies imposed upon its properties or upon the income or profits
therefrom (in each case before the same become delinquent and before penalties
accrue thereon), unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP, are
being maintained by the Company;

(e)           at
all times cause to be done all things necessary to maintain, preserve and renew
its corporate existence and all material licenses, authorizations and permits
necessary to the conduct of its businesses;

(f)            maintain,
protect and enforce, and not permit the loss, lapse or abandonment of, any
Company Intellectual Property (other than in the Ordinary Course of Business
with respect to Intellectual Property not material to the business of any Company
Group member); provided, however, that the foregoing is not intended to
restrict the Company from entering into a pledge of the Company Intellectual
Property or selling for value a portion of the Company Intellectual Property,
if such activities would otherwise be permitted hereunder);

(g)           comply
with all applicable laws, rules and regulations of all Government Agencies, the
violation of which could reasonably be expected to have a Material Adverse
Effect;

(h)           maintain
proper books of record and account which present fairly in all material
respects the Company’s financial condition on a consolidated basis and results
of operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with GAAP;

(i)            reserve
and keep available out of the Company’s authorized but unissued shares of
Common Stock, solely for the purposes of issuance upon conversion of the Series
D Shares and exercise of the Warrants, such number of shares of Common Stock as
are issuable upon the conversion of all outstanding shares of the Series D
Shares or exercise of the Warrants.  All
shares of Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Taxes and Liens,
other than Liens created by the holder. 
The Company shall use commercially reasonable efforts to assure that all
such

 35
 

 

 

shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except for
official notice of issuance which shall be immediately delivered by the Company
upon each such issuance and excluding the filing of any registration statement
with the SEC unless the Company is contractually or otherwise required to file
any such registration statement); and

(j)            use
its best efforts to at all times file all reports (including annual reports,
quarterly reports and the information, documentation and other reports)
required to be filed by the Company under the Exchange Act and Sections 13 and
15 of the rules and regulations adopted by the SEC thereunder, and the Company
shall use its reasonable best efforts to file each of such reports on a timely
basis, and take such further action as any holder or holders of Securities may
reasonably request, all to the extent required to enable such holders to sell
Securities pursuant to Rule 144 adopted by the SEC under the Securities Act (as
such rule may be amended from time to time) or any similar rule or regulation
hereafter adopted by the SEC and to enable the Company to register securities
with the SEC on Form S-3 or any similar short-form registration statement (or,
if the Company is no longer subject to the requirements of the Exchange Act,
provide reports in substantially the same form and at the same times as would
be required if it were subject to the Exchange Act).

8.3          Information
Rights.  So long
as the Purchasers or one or more of their Affiliates hold at least 50% of the
number of shares of Common Stock issued or issuable upon conversion of the
Series D Shares purchased at the closing, the Company shall furnish to each
holder of Underlying Common Stock:

(a)           within
90 days after the end of each fiscal year, its Form 10-K (or, if the Company is
no longer subject to the requirements of the Exchange Act, provide reports in
substantially the same form and at the same times as would be required if it
were subject to the Exchange Act) containing its audited consolidated balance
sheet and related statements of income, stockholders’ equity and cash flows as
of the end of and for such year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on by PricewaterhouseCoopers
LLP or other independent public accountants of recognized national standing
(without a “going concern” or similar qualification relating to the
questionable value of assets because of concerns regarding survivability and
without any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of the
Company Group on a consolidated basis in accordance with GAAP, all certified by
one of its Financial Officers as presenting fairly in all material respects the
results of operations of the Company on a consolidating basis in accordance
with GAAP, subject to normal year-end audit adjustments and the absence of
footnotes;

(b)           within
45 days after the end of each of the first three fiscal quarters of each fiscal
year, its Form 10-Q (or, if the Company is no longer subject to the
requirements of the Exchange Act, provide reports in substantially the same
form and at the same times as would be required if it were subject to the
Exchange Act) containing its consolidated balance sheet and related statements
of income and cash flows as of the end of and for such fiscal quarter and the
then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures

 36
 

 

 

for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects the
results of operations of the Company on a consolidating basis in accordance
with GAAP, subject to normal year-end audit adjustments and the absence of
footnotes;

(c)           within
30 days after the end of each month, a consolidated balance sheet and related
statements of income and cash flows as of the end of and for such month and the
then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material
respects the results of operations of the Company on a consolidating basis in
accordance with GAAP, subject to normal year-end audit adjustments and the
absence of footnotes;

(d)           concurrently
with any delivery of financial statements under clauses (a) or (b) above, a
certificate of a Financial Officer of the Company (i) certifying as to whether
a Remedy Event has occurred or any other material breach of a representation,
warranty or covenant contained in this Agreement has occurred and, if a Remedy
Event or any such breach has occurred, specifying the details thereof and any
action taken or proposed to be taken with respect thereto and (ii) stating
whether any change in GAAP or in the application thereof has occurred since the
Most Recent Balance Sheet Date and, if any such change has occurred, specifying
the effect of such change on the financial statements accompanying such
certificate;

(e)           by
no later than September 30 of each fiscal year, a budget and business plan for
the immediately succeeding fiscal year in the form approved by the Board of
Directors;

(f)            promptly
after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials filed by any member of the
Company Group with the SEC, or any Governmental Agency succeeding to any or all
of the functions of the SEC, or with any national securities exchange
(including AMEX), or distributed by the Company to its stockholders generally,
as the case may be;

(g)           promptly
following any request therefor, such other information regarding the
operations, business affairs and financial condition of any member of the
Company Group, or compliance with the terms of this Agreement or any Related
Document, as any Purchaser may reasonably request; and

(h)           by
no later than October 31, 2006, a copy of a cost savings plan that has been
presented to the Company’s Board of Directors and that presents in substantial
detail the Company’s strategy for improving its profit margins.

8.4          Access
Rights.  So long
as the Purchasers or one or more of their Affiliates hold at least 50% of the
number of shares of Common Stock issued or issuable upon conversion of the
Series D Shares purchased at the Initial Closing, the Company shall permit each
Purchaser, its agents and representatives to have reasonable access to the
management personnel, premises, books and records of the Company Group upon
reasonable notice during regular business hours.

8.5          Right
of First Refusal. Except for the issuance of:

 37

 

(i)            Series A Shares and
rights to acquire common stock issued pursuant to the Rights Plan;

(ii)           options to
purchase, and shares of Common Stock, issued pursuant to any employee benefit
plan under a reservation existing as of the date of this Agreement or hereafter
approved by the Board of Directors, including the Investor Director;

(iii)          Equity Securities
issued upon exercise of the Warrant or conversion of the Series B Shares,
Series C Shares or Series D Shares;

(iv)          Equity Securities
issued pursuant to the exercise or conversion of any other option, warrant,
convertible security or right to acquire Equity Securities outstanding as of
the date of this Agreement;

(v)           Equity Securities
issued and sold in an offering registered under the Securities Act;

(vi)          Common Stock issued
or issuable by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock, or a recapitalization;

(vii)         Common Stock or
options or warrants to acquire Common Stock, issued or issuable to banks,
equipment lessors or other financial institutions, or to real property lessors,
pursuant to a debt financing, equipment leasing or real property leasing
transactions approved by the Board of Directors in an aggregate amount not to
exceed 1% of the Company’s Fully-Diluted Common Stock as of August 17, 2005;

(viii)        Common Stock or
options or warrants to acquire Common Stock, issued in licensing or
collaborative arrangements, or in strategic partnerships, to the other party to
such arrangement or partnership in connection with the licensing of technology
approved by the Board of Directors of the Company  in an aggregate amount not to exceed 1% of
the Company’s Fully-Diluted Common Stock as of August 17, 2005;

(ix)           Common Stock or
options or warrants to acquire Common Stock issued in connection with any
acquisition or merger to the seller in such acquisition or merger that is
approved by the Board of Directors (including the Investor Director), provided
that such securities are not issued to a stockholder of the Company or any
Affiliate thereof (subclauses (i)-(viii) above, an “Exempt Issuance”),

if the Company, at any
time after the Closing authorizes the issuance or sale of, or proposes to issue
or sell, any Equity Securities, the Company shall first offer to sell to each
Purchaser holding Series D Shares (solely in such Purchaser’s capacity as a
holder of Series D Shares) a portion of such Equity Securities equal to the
quotient determined by dividing (1) the number of shares of Common Stock
(counting for such purpose only Common Stock issuable upon conversion of the
Series D Shares and exercise of the Warrants and excluding any shares of Common
Stock issuable to such Purchaser on account of its holding any other Equity
Securities) held by such Purchaser by (2) the total number of shares of
Common Stock then outstanding immediately prior to such issuance (assuming all
Warrants have been exercised for Common Stock and all options and

 38
 

 

 

Common Stock Equivalents have been exercised or
exchanged for or converted into Common Stock in accordance with their terms) (“Fully-Diluted Common Stock”).  Each Purchaser shall be entitled to purchase
all or any portion of such Equity Securities at the most favorable price and on
the most favorable terms as such Equity Securities are to be offered to any
other Person.

8.6          Board
Representation.

(a)           So
long as the Purchasers or one or more of their Affiliates hold at least 20% of
the number of shares of Common Stock issued or issuable upon conversion of the
Series D Shares, the Company shall take all necessary or desirable actions
within its control (including calling special board and stockholder meetings
and nominating any individual appointed by the holders of a majority of the
number of shares of Common Stock issued or issuable upon conversion of the
Series D Shares to the Board of Directors and recommending the election of such
individual to the Board of Directors), to cause the Investor Director to be
elected to serve as a member of the Board of Directors.  The Company shall at all times maintain a
Compensation Committee and an Audit Committee of its Board of Directors.

(b)           At
such time as the appointment rights in Section 8.6(a) would apply and the Investor Director is not
a member of the Board of Directors as provided in this Agreement, the Company
shall permit the Requisite Purchasers to appoint one observer attend each
meeting of the Board of Directors and any committee thereof.  The Company will send to any such observer
notice of the time and place of any such meeting in the same manner and at the
same time as notice is sent to the directors or committee members, as the case
may be; provided, however, that each such observer shall always
receive at least three (3) days’ prior notice of any meeting.  The Company shall also provide to such observer
copies of all notices, reports, minutes, consents and other documents at the
time and in the manner as they are provided to the Board of Directors or
committees.  The Company shall reimburse
each such observer for all reasonable costs incurred by the observer.

(c)           Notwithstanding
the foregoing, a majority of the Board of Directors shall have the right to
exclude the Investor Director, or the observer permitted to be in attendance at
each meeting of the Board of Directors pursuant to Section 8.6(b) hereof, from portions of meetings of the
Board of Directors (or meetings of committees thereof) or omit to provide the
observer with certain information if such majority of the Board of Directors
believes in good faith, based on the advice of the Company’s outside counsel,
that such exclusion or omission is necessary to avoid a conflict of interest or
to prevent a breach of attorney-client privilege; provided, that the
Investor Director and the observer shall not be so excluded or withheld
information unless all other persons whose presence at a meeting or receipt of
such materials would result in a conflict of interest or a breach of
attorney-client privilege are also excluded or withheld information.

8.7          Appointment
Right.

(a)           From
and after the earlier of (x) August 17, 2012 and (y) the occurrence of a Remedy
Event, so long as any Series D Shares remain outstanding and so long as any
accrued and unpaid dividends remain outstanding in respect thereof, with
respect to Section 8.7(a)(y)

 39
 

 

 

such Remedy Event has not been cured by the Company within (i) 30 days
of the occurrence of a Compliance Remedy Event and (ii) 10 days following the
occurrence of a Payment Remedy Event or a Redemption Notice has not been
delivered by the Company in accordance with the terms of the Series D Preferred
Stock Certificate of Designation, the Requisite Purchasers shall have the right
to cause the Company to retain an investment banker to identify and advise the
Company regarding opportunities for a Company Sale and participate on the
Company’s behalf in negotiations for, and to assist the Company in conducting,
such Company Sale (the “Appointment
Right”), the consummation of which shall be subject to the Requisite
Purchasers’ consent.  To exercise their
Appointment Right, the Requisite Purchasers shall give prompt written notice to
the Company (the “Appointment Notice”)
of their intention to cause, to the extent consistent with Section 8.7(c),
a Company Sale, which Appointment Notice shall identify three investment banks
chosen by the Requisite Purchasers to conduct such Company Sale.  Within thirty (30) days of the Company’s
receipt of the Appointment Notice, the Company shall retain one of the
investment banks (the “Investment Bank”)
identified by the Requisite Purchasers in the Appointment Notice to investigate
the advisability of, solicit interest in and, to the extent consistent with Section 8.7(c), negotiate for an orderly Company Sale
with the objective of achieving the highest practicable value for the Company’s
stockholders within a reasonable period of time.  The Company shall cause its Board of
Directors and officers to (i) cooperate with the Investment Bank in
accordance with the procedures established by the Investment Bank and the Board
of Directors of the Company, to solicit interest in an orderly Company Sale,
(ii) use their reasonable efforts, consistent with their fiduciary
obligations, to reach an agreement on the optimum structure and the terms and
conditions for a Company Sale (including whether such Company Sale will be
consummated by merger, sale of assets or sale of capital stock) and (iii)
retain independent legal counsel, which shall be chosen by the Board of
Directors but shall be acceptable to the Requisite Purchasers (“Company Counsel”), to advise the Company on such Company
Sale.  The Company shall pay all fees and
expenses incurred in connection with the Company Sale, including all fees and
expenses of the Investment Bank, the Company Counsel and one law firm retained
by the Requisite Purchasers in connection with the investigation,
documentation, negotiation and consummation of the Company Sale.   Notwithstanding the foregoing, the Company
shall not be required to reimburse the Purchasers for any legal fees or
expenses incurred in connection with any judicial proceeding primarily arising
as a result of the consummation of the Company Sale contemplated by this Section 8.7 in which the Purchasers and the Company are
adversaries.

(b)           In
furtherance of the foregoing and to the extent consistent with Section 8.7(c), the Company shall (i) take all
necessary or desirable actions reasonably requested by the Requisite Purchasers
or the Investment Bank in connection with the consummation of the Company Sale
and (ii) make any representations, warranties, indemnities and agreements
reasonably requested by the Requisite Purchasers and take such other actions as
the Requisite Purchasers may reasonably request in connection with such Company
Sale.

(c)           The
Purchasers acknowledge the fiduciary obligations of the Board of Directors in
considering, negotiating, approving and recommending to stockholders, any
transaction that would result in a Company Sale and acknowledge that such
fiduciary obligations require that the Board of Directors act on an informed
basis to secure the best value reasonably available to the Company’s
stockholders under the circumstances. 
The Purchasers acknowledge that, although the Company shall be obligated
to cause its Board of Directors to retain an

 40
 

 

 

Investment Bank pursuant to this Section 8.7 and use its best efforts to assist the
Investment Bank in (i) investigating the advisability of a Company Sale and
(ii) soliciting interest in and negotiating the terms of a Company Sale, the
Board of Directors shall be under no obligation or compulsion to approve or
recommend any Company Sale and may reject any or all offers with respect to any
such potential Company Sale, if, in the exercise of its fiduciary obligations,
the Board of Directors reasonably determines that the same is not in the best
interest of, or fair to, the stockholders of the Company (a “Rejected Sale”).  In
the event of a Rejected Sale, the Board of Directors shall give the Purchasers
prompt (and in any event within 5 days) written notice thereof, which notice
shall further specify in reasonable detail each reason or reasons that formed
the basis for the Board of Director’s determination that such Rejected Sale was
not in the best interest of, or fair to, the stockholders of the Company.

(d)           Immediately
upon the occurrence of any additional Remedy Event (or the continuation of any
then-existing Remedy Event), and provided that the Requisite Purchasers have
not delivered an Appointment Notice within 12 months prior to the delivery of
the Appointment Notice for such new or then-existing Remedy Event, the
Requisite Purchasers shall have the right to deliver an Appointment Notice to
the Company.  In the event that the
Requisite Purchasers deliver an Appointment Notice that does not result in a
Company Sale, and the Remedy Event that gave rise to such Appointment Event has
not been cured within twelve months from the date of the original Appointment
Notice, the Requisite Purchasers may deliver additional Appointment Notice(s)
any time following twelve months after delivery of any prior Appointment Notice.  At any time within ninety (90) days following
delivery of an Appointment Notice (the “Redemption Period”), the Company may elect by delivery of a
Redemption Notice (as defined in the Series D Preferred Stock Certificate of
Designation) to the Purchasers, to redeem (subject to each Purchaser’s right to
convert to Common Stock pursuant to Section 6 of the Series D Preferred Stock
Certificate of Designation) all, but not less than all, of the shares of Series
D Preferred Stock then outstanding in accordance with the terms of Section 4A
of the Series D Preferred Stock Certificate of Designation and following the
redemption of all such shares of Series D Preferred Stock in accordance with
the Series D Preferred Stock Certificate of Designation the Company shall no
longer be required to comply with the provisions of this Section 8.7.

(e)           Nothing
in this Section 8.7, or
in the definition of Remedy Event, shall limit or imply limitation of any other
remedy, at law or in equity, available to the Purchasers under this Agreement
or the Related Documents or otherwise, for breach of any provision of this
Agreement, the Series D Preferred Stock Certificate of Designation, or any
Related Document.

8.8          Default
Dividends.  (a)
If the Senior Facility is outstanding, from and after the date on which the
Company fails to pay in full any dividends, Series D Liquidation Preference or
Series D Redemption Price to the holders of the Series D Preferred Stock as and
when due and in the form required to be paid hereunder or under the Series D
Preferred Stock Certificate of Designation through the end of the fiscal
quarter in which such dividend, Series D Liquidation Preference or Series D
Redemption Price payment is made and (b) if the Senior Facility is no longer
outstanding, from and after the beginning of the fiscal quarter in which a
Remedy Event occurs until the end of the fiscal quarter in which the Remedy
Event is cured, in each case the dividend rate on the Series D Preferred Stock
shall be increased in accordance with the Series D Preferred Stock Certificate
of Designation.

 41
 

 

 

8.9          Rights
Plan.  The
Company shall cause the Rights Agent (as defined in the Rights Plan) to deliver
Rights Certificates (as defined in the Rights Plan) to the holders of
Underlying Common Stock if Rights Certificates are or have been delivered to
other holders of Common Stock.  The
Company shall not amend the Rights Plan in any manner which could cause any
Purchaser to become an “Acquiring Person” thereunder as a result of the
consummation of the transactions contemplated by this Agreement and the
exercise of such Purchaser of its rights hereunder, without the prior written
consent of the holders of a majority of the Underlying Common Stock.

8.10        Confidentiality.  Each Purchaser agrees that such Purchaser
will keep confidential and will not disclose, divulge or use for any purpose,
other than to monitor its investment in the Company, any confidential
information obtained from any member of the Company Group pursuant to the terms
of this Agreement, unless such confidential information (i) is known or
becomes known to the public in general (other than as a result of a breach of
this Section 8.10 by the
Purchaser), (ii) is or has been independently developed or conceived by the
Purchaser without use of the Company’s confidential information or (iii) is or
has been made known or disclosed to the Purchaser by a third party without a
breach of any obligation of confidentiality such third party may have to the
Company; provided, however, that a Purchaser may disclose
confidential information to its limited partners and advisory board, and
attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with monitoring its investment
in the Company, or as may otherwise be required by law.

ARTICLE
IX

INDEMNIFICATION

9.1          Survival
and Indemnification. 
The representations and warranties of the Purchasers and the Company
contained herein shall survive for a period of eighteen months following
Initial Closing (the “Survival Period”).  In consideration of the Purchasers’ execution
and delivery of this Agreement and acquiring the Series D Shares and Warrants
hereunder and in addition to all of the Company’s other obligations under this
Agreement, the Company shall, and shall cause the Company Group to, defend,
protect, indemnify and hold harmless the Purchasers and all of their
Affiliates, officers, managers, advisors, directors, employees and agents
(including those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”)
from and against any and all Claims, losses, costs, penalties, fees,
Liabilities, damages and expenses (including costs of suit and all reasonable
attorneys’ fees and expenses) in connection therewith (irrespective of whether
any such Indemnitee is a party to the action for which indemnification
hereunder is sought) or other liabilities, losses, or diminution in value (the “Indemnified Liabilities”), incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to
(i) the breach of any representation or warranty contained in this
Agreement or in any Related Document, (ii) the breach of any promise, agreement
or covenant contained in this Agreement or in any Related Document, or
(iii) the execution, delivery, performance or enforcement of this
Agreement and any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees.  The
Company shall, and shall cause the Company Group to, reimburse the Indemnitees
for the Indemnified Liabilities as such Indemnified Liabilities are
incurred.  To the extent that the
foregoing

 42
 

 

 

undertaking by the Company may be unenforceable for any reason, the
Company shall, and shall cause the Company Group to, make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.  The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnitee or any officer, director or controlling
Person of such Indemnitee and will survive the transfer of Securities.

ARTICLE
X

GENERAL PROVISIONS

10.1        Public
Announcements. 
Neither the Purchasers nor the Company shall make, or permit any agent
or Affiliate to make, any public statements, including any press releases, with
respect to this Agreement and the transactions contemplated hereby without the
prior written consent of the other, except as may be required by law or the
rules of any exchange on which the Company’s securities may be listed or any
inter-dealer quotation system in which the Company’s securities may be
authorized to be quoted.  The Company and
the Requisite Purchasers shall jointly agree on the content and substance of
all public announcements concerning the transactions contemplated hereby; provided,
that the Purchasers acknowledge that the Company intends to issue a press
release announcing the transactions contemplated by this Agreement as soon as
possible after the Initial Closing, and that the Company shall file a Form 8-K
describing the transaction, and filing this Agreement and the Related Documents
as exhibits, within four business days of the Initial Closing Date.

10.2        Successors
and Assigns. 
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, including each subsequent holder
of Securities.  This Agreement shall not
be assignable by the Company without the prior written consent of the other
parties hereto.

10.3        Entire
Agreement.  This
Agreement, the Related Documents and each other writing referred to herein or
delivered pursuant hereto constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior arrangements
or understandings.

10.4        Notices.  All notices, requests, consents and other
communications provided for herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by first-class,
registered or certified mail, postage prepaid, or (iv) sent by reputable
overnight courier service, fees prepaid, to the recipient at the address or
telecopy number set forth below, or such other address or telecopy number as
may hereafter be designated in writing by such recipient.  Notices shall be deemed given upon personal
delivery, seven days following deposit in the mail as set forth above, upon
acknowledgment by the receiving telecopier or one day following deposit with an
overnight courier service.

 43
 

 

 

To the Company, to:

SoftBrands,
Inc.

Two
Meridian Crossings

Suite
800

Minneapolis,
MN 55423

Attention:
Gregg A. Waldon

Facsimile:  (612) 851-1901

With a copy, which shall not constitute notice to the Company, to:

Dorsey
& Whitney LLP

50
South Sixth Street

Suite
1500

Minneapolis,
MN 55402

Attention:  Tom Martin, Esq.

Facsimile No.:  (612) 340-7800

To the Purchasers, to:

The addresses set forth on Schedule I
hereto

or, in each case, to such other address or to the attention of such
other person as the recipient party shall have specified by prior written
notice to the sending party.

10.5        Purchasers’
Fees and Expenses. 
On the Initial Closing Date, in consideration for the services ABRY
performed in structuring and arranging the transactions contemplated by this
Agreement and the Related Documents, the Company will pay to ABRY Mezzanine
Partners L.P. (or its Affiliate) a transaction fee equal to $250,000 in
connection with the purchase and sale of the Preferred Stock and Warrants
hereunder (the “Closing Fee”), by
wire transfer of immediately available funds to an account indicated to the
Company by ABRY.  In addition, the
Company shall reimburse ABRY for (i) the reasonable fees and expenses of
Kirkland & Ellis LLP incurred by Purchasers in connection with the documentation,
negotiation and consummation of the transactions contemplated by this Agreement
and the Related Documents and (ii) all other reasonable fees and out-of-pocket
expenses incurred by ABRY in connection with the transactions contemplated
hereunder (collectively, “Purchaser Expenses”).  After the Initial Closing Date, the Company
agrees to reimburse the Purchasers for all fees and expenses (including legal
fees of Kirkland & Ellis LLP) incurred in connection with any future
amendment to, waiver of or the enforcement by the Purchasers of any of their
rights arising under this Agreement or any of the Related Documents, or in
connection with the review of the Company’s proxy statement for any meeting of
the Company’s stockholders.  If CRP
exercises the Purchase Option with respect to all, but not less than all, of
the Subsequent D Shares and Subsequent D Warrants, at the Subsequent Closing,
the Company hereby agrees to (i) pay CRP a transaction fee equal to $20,000
(the “CRP Fee”) by wire transfer
of immediately available funds to an account indicated to the Company by CRP
and (ii) to reimburse CRP for the reasonable fees and expenses of Choate, Hall
& Stewart incurred in connection therewith.

 44
 

 

 

10.6        Amendment
and Waiver.  No
amendment or waiver of any provision of this Agreement shall be effective,
unless the same shall be in writing and signed by the Company and the holders
of a majority of the Underlying Common Stock outstanding at the time such
amendment or waiver is proposed; provided, that the amendment or waiver
of any provision of this Agreement that disproportionately affects the rights
of any Purchaser in an adverse manner relative to any other Purchaser shall
require the consent of such adversely affected Purchaser.  No such waiver shall operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.  No failure by any party to take any action
against any breach of this Agreement or default by any other party shall
constitute a waiver of such party’s right to enforce any provision hereof or to
take any such action.

10.7        Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one agreement. 
Any party hereto may execute this Agreement by facsimile signature and
the other parties hereto will be entitled to rely upon such facsimile signature
as conclusive evidence that this Agreement has been duly executed by such
party.

10.8        Headings;
Construction. 
The headings of the various sections of this Agreement have been
inserted for reference only and shall not be deemed to be a part of this
Agreement or any Related Document.

10.9        Specific
Performance. 
The Company, on the one hand, and the Purchasers, on the other hand,
acknowledge that money damages would not be a sufficient remedy for any breach
of this Agreement.  It is accordingly
agreed that the parties shall be entitled to specific performance and
injunctive relief as remedies for any such breach, these remedies being in addition
to any of the remedies to which they may be entitled at law or equity.

10.10      Remedies
Cumulative. 
Except as otherwise provided herein, the remedies provided herein shall
be cumulative and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any other remedies against any other party
hereto.

10.11      GOVERNING
LAW.  THIS
AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED
UNDER, THE LAW OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS OR INSTRUMENTS
ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.

10.12      JURISDICTION,
WAIVER OF JURY TRIAL, ETC.

(a)           EACH
PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT THE ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SERIES D SHARES,
WARRANTS, CONVERSION SHARES OR WARRANT SHARES OR ANY AGREEMENTS OR TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK
AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH
COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF

 45
 

 

 

IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT
FORUM.  EACH PARTY HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 10.4, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER
SUCH MAILING.

(b)           EACH
PARTY HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR
CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE SERIES
D SHARES, WARRANTS, CONVERSION SHARES OR WARRANT SHARES OR ANY OF THE RELATED
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS. THE COMPANY (I) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE PURCHASERS HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT THE PURCHASERS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT THE PURCHASERS HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS
TO WHICH THEY ARE PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
CONTAINED HEREIN.

10.13      No
Third Party Beneficiaries.  Except as specifically set forth or referred
to herein, nothing herein is intended or shall be construed to confer upon any
person or entity other than the parties hereto and their successors or assigns,
any rights or remedies under or by reason of this Agreement.

10.14      Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction 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.

10.15      Time
of the Essence; Computation of Time.  Time is of the essence for each and every
provision of this Agreement.  Whenever
the last day for the exercise of any privilege or the discharge or any duty
hereunder shall fall upon a business day, the party having such privilege or
duty may exercise such privilege or discharge such duty on the next succeeding
business day.

10.16      Consideration
for Preferred Stock and Warrants.  Each of the Purchasers and the Company
acknowledge and agree that (i) (A) the fair market value of the Warrants
purchased at the Initial Closing shall equal $166,000, and (B) the fair market
value of any shares of Preferred Stock issued at Initial Closing hereunder is
the aggregate Liquidation Value for the shares of Preferred Stock issued at the
Initial Closing minus the aggregate value of the Warrants issued at the Initial
Closing and (ii) (A) the fair market value of the Warrants purchased at the
Subsequent Closing shall equal $34,000, and (iii) the fair market value of any
shares of Preferred Stock issued at the Subsequent Closing hereunder is the
aggregate Liquidation Value for the shares of Preferred Stock issued at the
Subsequent Closing minus the aggregate value of the Warrants issued at the
Subsequent Closing.  Each Purchaser and
the Company shall file their

 46
 

 

 

respective federal, state and local Tax
returns in a manner which is consistent with such valuation and allocation and
shall not take any contrary position with any Taxing authority.

 

 47

 

 

IN
WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Series D Convertible Preferred Stock and Warrant Purchase
Agreement as of the date first above written.

	
  

  	
  SOFTBRANDS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ GREGG A. WALDON

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Gregg A.
  Waldon

  
	
   

  	
   

  	
   

  	
  Title: CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ABRY MEZZANINE PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  ABRY MEZZANINE INVESTORS, L.P.,

  
	
   

  	
   

  	
   

  	
  Its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  ABRY MEZZANINE HOLDINGS LLC,

  
	
   

  	
   

  	
   

  	
  Its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ JOHN HUNT

  	
   

  
	
   

  	
   

  	
   

  	
  Name: John Hunt

  
	
   

  	
   

  	
   

  	
  Title: Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  solely for the purpose of Section 3.2 hereof,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CAPITAL RESOURCE PARTNERS IV, L.P.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  CRP PARTNERS IV, L.L.C.,

  
	
   

  	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ ALEXANDER MCGRATH

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Alexander
  McGrath

  
	
   

  	
   

  	
   

  	
  Title: Managing
  MemberExhibit
10.2

FIRST AMENDMENT TO AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT

This
FIRST AMENDMENT TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Amendment”)
dated as of August 14, 2006, by and among SoftBrands, Inc., a Delaware
corporation (the “Company”), Capital Resource Partners IV, L.P., a
Delaware limited partnership (“CRP”) and ABRY Mezzanine Partners IV,
L.P., a Delaware limited partnership (“ABRY” and together with CRP, the “Investors”).

WHEREAS,
pursuant to that certain Series C Convertible Preferred Stock and Warrant
Purchase Agreement, dated as of August 17, 2005, by and among the Company and
the Investors (the “Series C Purchase Agreement”), the Investors are the
holders of (i) all of the outstanding shares of Series C Convertible Preferred
Stock, par value $0.01 per share (the “Series C Preferred Stock”), of
the Company and (ii) warrants to purchase an aggregate of 1,200,000 shares of
common stock of the Company (the “Series C Warrants”);

WHEREAS,
in connection with the execution of the Series C Purchase Agreement, the
Company and the Investors entered into that certain Amended and Restated
Investors’ Rights Agreement, dated as of August 17, 2005 (the “Agreement”)
whereby the Company granted the Investors certain rights with respect to
certain Equity Securities (as defined in the Series C Purchase Agreement) of
the Company held by the Investors;

WHEREAS,
in accordance with Section 4.2 of the Agreement, the Company and the Investors
desire to amend the Agreement to facilitate the issuance and sale of the
Company’s Series D Convertible Preferred Stock, par value $0.01 per share and
warrants to purchase shares of Common Stock to the Investors pursuant to the
Series D Convertible Preferred Stock and Warrant Purchase Agreement, dated as of
the date hereof (the “Series D Purchase Agreement”);

WHEREAS,
the Company and the Investors are effecting an exchange of the Series C
Preferred Stock pursuant to that certain Exchange Agreement, dated as of the
date hereof (the “Exchange Agreement”), whereby the Investors will
contribute, transfer, assign and deliver to the Company, and the Company
will  accept and receive from the
Investors, all right, title and interest in and to the Series C Preferred Stock
in exchange for the issuance by the Company to each Investor of the same number
of shares of Series C-1 Convertible Preferred Stock, par value $0.01 per share
(the “Series C-1 Preferred Stock”); and

WHEREAS,
the execution and delivery of this Amendment are conditions precedent to the
transactions contemplated by the Series D Purchase Agreement.

NOW,
THEREFORE, in consideration of the premises, as an inducement to the Investors
to consummate the transactions contemplated by the Series D Purchase Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company hereby covenants and agrees with the
Investors as follows:

Section 1.1             Amendment
to Agreement.  Subject to the terms
and conditions of this Amendment,

 

(a)           Section
1.1 of the Agreement is hereby amended by deleting the defined terms “ABRY
Registrable Securities,” “CRP Registrable Securities,” and “CRP Warrants” and
replacing each such defined term as follows:

“ABRY Registrable Securities” means any shares
of Common Stock issued or issuable to ABRY, including shares of Common Stock
(i) issuable upon exercise of the Series C Warrants or upon conversion of the
Series C Shares issued pursuant to the Purchase Agreement or the Series C-1
Shares issued pursuant to the Exchange Agreement and (ii) issuable upon
exercise of the Series D Warrants or upon conversion of the Series D Shares
issued pursuant to the Series D Purchase Agreement.

“CRP Registrable Securities” means the shares
of Common Stock issuable (i) to CRP pursuant to the CRP Warrants, (ii) upon
conversion of the Series B Shares issued to CRP pursuant to the CRP Purchase
Agreement, (iii) upon conversion of the Series C Shares issued to CRP pursuant
to the Purchase Agreement or upon conversion of the Series C-1 Shares issued to
CRP pursuant to the Exchange Agreement and (iv) upon conversion of the Series D
Shares issued to CRP pursuant to the Series D Purchase Agreement, if any.

“CRP Warrants” means those certain warrants to
purchase shares of Common Stock issued to CRP pursuant to the CRP Purchase
Agreement, the Purchase Agreement and the Series D Purchase Agreement, if any.

(b)           Section
1.1 of the Agreement is hereby further amended by adding the following defined
terms:

“Series C-1 Shares” the Company’s Series C-1
Convertible Preferred Stock, par value $0.01 per share.

“Series D Purchase Agreement” means that
certain Series D Convertible Preferred Stock and Warrant Purchase Agreement,
dated as of August [10], 2006, by
and among the Company, ABRY and CRP.

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

“Series D Warrants” means the warrants to
purchase shares of the Company’s Common Stock issued pursuant to the Series D
Purchase Agreement.

Section 1.2             No Other Amendments.  Except for the amendment expressly set forth
and referred to in Section 1.1 hereof, the Agreement shall remain unchanged and
in full force and effect.

Section 1.3             Binding
Nature and Benefit.  This Amendment
shall be binding upon and inure to the benefit of each party hereto and their
respective successors and assigns.

 2
 

 

Section 1.4             Signatures.  Delivery of an executed signature page of
this Amendment (which may be by electronic facsimile transmission) shall be
effective as delivery of a manually executed counterpart hereof.

Section 1.5             GOVERNING
LAW.  THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE.

[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]

 3

 

IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first set forth above.

	
   

  	
  SOFTBRANDS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GREGG A. WALDON

  
	
   

  	
   

  	
  Name: Gregg A.
  Waldon

  
	
   

  	
   

  	
  Title: CFO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CAPITAL RESOURCE PARTNERS IV,

  L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  CRP Partners IV, L.L.C.

  
	
   

  	
   

  	
  Its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ALEXANDER MCGRATH

  
	
   

  	
   

  	
  Name: Alexander
  McGrath

  
	
   

  	
   

  	
  Title: Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ABRY MEZZANINE PARTNERS IV, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  ABRY MEZZANINE INVESTORS,

  L.P., Its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  ABRY MEZZANINE HOLDINGS

  LLC, Its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN HUNT

  
	
   

  	
   

  	
  Name: John Hunt

  
	
   

  	
   

  	
  Title: Partner

  
				

 

[Signature Page to
Investor Rights Agreement]

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